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Columbia Property Trust IncUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 _________________________________________________________FORM 10-K _________________________________________________________(Mark One)xAnnual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2018oroTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For 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) __________________________________________________________Maryland58-2328421(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number) 5565 Glenridge Connector Ste. 450, Atlanta, Georgia30342(Address of principal executive offices)(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 className of exchange on which registeredCOMMON STOCKNEW YORK STOCK EXCHANGESecurities 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 x No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No xIndicate 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 12months (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 x No oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes x No oIndicate 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’sknowledge, 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. xIndicate 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 x Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company oIf 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No xAs of June 29, 2018, the aggregate market value of the common stock of Piedmont Office Realty Trust, Inc., held by non-affiliates was $2,531,552,680 based on the closing priceas reported on the New York Stock Exchange. As of February 19, 2019, 125,595,994 shares of common stock were outstanding.Documents Incorporated by Reference:Registrant incorporates by reference portions of the Piedmont Office Realty Trust, Inc. Definitive Proxy Statement for the 2019 Annual Meeting of Stockholders (Items 10, 11, 12,13, and 14 of Part III) to be filed no later than April 30, 2019. Table of ContentsIndex to Financial Statements FORM 10-K PIEDMONT OFFICE REALTY TRUST, INC. TABLE OF CONTENTS PART I. Page No. Item 1.Business 3 Item 1A.Risk Factors 5 Item 1B.Unresolved Staff Comments 22 Item 2.Properties 22 Item 3.Legal Proceedings 24 Item 4.Mine Safety Disclosures 24 PART II. Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 25 Item 6.Selected Financial Data 27 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 43 Item 8.Financial Statements and Supplementary Data 44 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 Item 9A.Controls and Procedures 45 Item 9B.Other Information 47 PART III. Item 10.Directors, Executive Officers and Corporate Governance 48 Item 11.Executive Compensation 48 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 48 Item 13.Certain Relationships and Related Transactions, and Director Independence 48 Item 14.Principal Accounting Fees and Services 48 PART IV. Item 15.Exhibits, Financial Statement Schedules 49 Signatures 50 Table of ContentsIndex to Financial StatementsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSCertain 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 oralstatements made to the press, potential investors, or others. Statements regarding future events and developments and Piedmont’s future performance, as wellas management’s expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements. Forward-looking statementsinclude statements preceded by, followed by, or that include the words “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” orother similar words. Examples of such statements in this report include descriptions of our real estate, financings, and operating objectives; discussionsregarding future dividends and share repurchases; and discussions regarding the potential impact of economic conditions on our real estate and leaseportfolio.These statements are based on beliefs and assumptions of Piedmont’s management, which in turn are based on information available at the time thestatements are made. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding the demand for officespace in the markets in which Piedmont operates, competitive conditions, and general economic conditions. These assumptions could prove inaccurate. Theforward-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 changes, and/or technology changes (including accounting standards) that impact the real estate marketgenerally, 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 primarilyoperate 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;•Adverse market and economic conditions, including any resulting impairment charges on both our long-lived assets or goodwill resulting therefrom;•The success of our real estate strategies and investment objectives, including our ability to identify and consummate suitable acquisitions anddivestitures;•The illiquidity of real estate investments, including regulatory restrictions to which REITs are subject and the resulting impediment on our ability toquickly respond to adverse changes in the performance of our properties;•The risks and uncertainties associated with our acquisition and disposition of properties, many of which risks and uncertainties may not be known atthe time of acquisition or disposition;•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 ourtenants;•Costs of complying with governmental laws and regulations;•Additional risks and costs associated with directly managing properties occupied by government tenants, including an increased risk of default bygovernment tenants during periods in which state or federal governments are shut down or on furlough;•Significant price and volume fluctuations in the public markets, including on the exchange which we listed our common stock;•Changes in the method pursuant to which the LIBOR rates are determined and the potential phasing out of LIBOR after 2021:•The effect of future offerings of debt or equity securities or changes in market interest rates on the value of our common stock;•Uncertainties associated with environmental and other regulatory matters;•Potential changes in political environment and reduction in federal and/or state funding of our governmental tenants;•Changes in the financial condition of our tenants directly or indirectly resulting from geopolitical developments that could negatively affectinternational trade, including the United Kingdom's referendum to withdraw from the European Union, the termination or threatened termination ofexisting international trade agreements, or the implementation of tariffs or retaliatory tariffs on imported or exported goods;•The effect of any litigation to which we are, or may become, subject;1 Table of ContentsIndex to Financial Statements•Changes in tax laws impacting real estate investment trusts ("REITs") and real estate in general, as well as our ability to continue to qualify as aREIT 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 noobligation to update publicly any of them in light of new information or future events.2 Table of ContentsIndex to Financial StatementsPART IITEM 1. BUSINESSGeneralPiedmont 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 areal estate investment trust (“REIT”) for federal income tax purposes and engages in the acquisition, development, management, and ownership ofcommercial real estate properties located primarily in the Eastern-half of the United States, including properties that are under construction, are newlyconstructed, or have operating histories. Piedmont was incorporated in 1997 and commenced operations in 1998. Piedmont conducts business primarilythrough Piedmont Operating Partnership, L.P. (“Piedmont OP”), a Delaware limited partnership, as well as performing the management of our buildingsthrough two wholly-owned subsidiaries, Piedmont Government Services, LLC and Piedmont Office Management, LLC. Piedmont owns 99.9% of, and is thesole 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 solelimited partner of Piedmont OP. Piedmont OP owns properties directly, through wholly-owned subsidiaries, and through various joint ventures which wecontrol. References to Piedmont herein shall include Piedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.Operating Objectives and StrategyAs of December 31, 2018, we owned and operated 54 in-service office properties comprised of approximately 16.2 million square feet of primarily Class Aoffice space which was 93.3% leased. Collectively, 92% of our Annualized Lease Revenue (see definition below) is generated from select sub-marketslocated 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 19,000 square feet with anaverage lease term remaining of approximately seven years. Our diversified tenant base is primarily comprised of investment grade or nationally recognizedcorporations or governmental agencies, with the majority of our Annualized Lease Revenue derived from such tenants. No tenant accounts for more than5.1% of our Annualized Lease Revenue.Headquartered in Atlanta, Georgia, with regional and/or local management offices in each of our eight major markets, Piedmont values operationalexcellence and is a leading participant among REITs based on the number of buildings owned and managed with Building Owners and ManagersAssociation ("BOMA") 360 designations. BOMA 360 is a program that evaluates six major areas of building operations and management and benchmarks abuilding's performance against industry standards. The achievement of such a designation recognizes excellence in building operations and management. Wealso have focused on environmental sustainability initiatives at our properties, and approximately 80% of our office portfolio (based on square footage) hasachieved and maintains "Energy Star" efficiency (a designation for the top 25% of commercial buildings in energy consumption efficiency). In addition tooperational excellence, we focus on fostering long-term relationships with our high-credit quality, diverse tenant base as evidenced by our approximately69% 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, by achieving sustainable growthin Funds From Operations, and by growing net asset value by realizing long-term capital appreciation. We manage risk by owning almost exclusively ClassA, geographically diverse office properties which are among the most desirable in their respective office sub-markets. In addition to the creditworthiness ofour tenants, we strive to ensure our tenants represent a broad spectrum of industry types with lease expirations 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 buyingplatform of property management support services to ensure optimal pricing for landlord and tenant services, as well as to implement best practices andachieve sustainability standards. The strategies we intend to execute to achieve these objectives include:Capitalizing on Acquisition/Investment OpportunitiesOur overall acquisition/investment strategy focuses on properties within eight major office markets located primarily in the Eastern-half of the United Statesthat were identified based on their positive economic and demographic growth trends so as to position our investments for long-term appreciation. Inaddition, we concentrate our portfolio in select sub-markets where efficiencies can be gained and our market expertize can be maximized. We believe thesesub-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 anddevelopment activities are targeted towards attractively priced, high quality, Class A office properties that complement our existing portfolio.3 Table of ContentsIndex to Financial StatementsProactive Asset Management, Leasing Capabilities and Property ManagementOur 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; maintaininglocal management offices in markets in which we have a significant presence; demonstrating our commitment to our tenants by maintaining the high qualityof our properties; and driving a significant volume of leasing transactions in a manner that provides optimal returns by using creative approaches, includingearly extensions, lease wrap-arounds and restructurings. We manage portfolio risk by structuring lease expirations to avoid, among other things, havingmultiple leases expire in the same market in a relatively short period of time; applying our leasing and operational expertise in meeting the specializedrequirements of federal, state and local government agencies to attract and retain these types of tenants; evaluating potential tenants based on third party andinternal assessments of creditworthiness; and using our purchasing power and market knowledge to reduce our operating costs and those of our tenants.Recycling Capital EfficientlyWe use our proven, disciplined capital recycling capabilities to maximize total return to our stockholders by selectively disposing of non-core assets andassets in which we believe full valuations have been achieved, and redeploying the proceeds of those dispositions into new investment opportunities withhigher overall return prospects.Financing StrategyWe employ a conservative leverage strategy by typically maintaining a debt-to-gross assets ratio of between 30% - 40%. To effectively manage our long-termleverage strategy, we continue to analyze various sources of debt capital to prudently ladder debt maturities and to determine which sources will be the mostbeneficial to our investment strategy at any particular point in time.Use of Joint Ventures to Improve Returns and Mitigate RiskWe may selectively enter into strategic joint ventures with third parties to acquire, develop, improve or dispose of properties, thereby potentially reducingthe amount of capital required by us to make investments, diversifying our sources of capital, enabling us to creatively acquire and control targetedproperties, and allowing us to reduce our investment concentration in certain properties and/or markets without disrupting our operating performance or localoperating capabilities.Redevelopment and Repositioning of PropertiesAs circumstances warrant, we may redevelop or reposition properties within our portfolio, including the creation of additional amenities for our tenants toincrease both occupancy and rental rates and thereby improve returns on our invested capital.Information Regarding Disclosures PresentedAnnualized Lease Revenue ("ALR"), a non-GAAP measure, is calculated by multiplying (i) rental payments (defined as base rent plus operating expensereimbursements, 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 contractualrents 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 bymultiplying (i) the monthly base rental payment (excluding abatements) plus any operating expense reimbursements for the initial month of the lease term,by (ii) 12. Unless stated otherwise, this measure excludes revenues associated with development/re-development properties, if any.EmployeesAs of December 31, 2018, we had 134 employees, with 49 of our employees working in our corporate office located in Atlanta, Georgia. Our remainingemployees 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. We outsource various functions where cost efficiencies can be achieved, such as certain areas ofinformation technology, construction, building engineering, and leasing.4 Table of ContentsIndex to Financial StatementsCompetitionWe compete for tenants for our high-quality assets in major U.S. markets by fostering strong tenant relationships and by providing quality customer serviceincluding; leasing, asset management, property management, and construction management services. As the competition for high-credit-quality tenants isintense, we may be required to provide rent abatements, incur charges for tenant improvements and other concessions, or we may not be able to lease vacantspace timely, all of which may impact our results of operations. We also compete with other buyers who are interested in properties we elect to acquire, whichmay affect the amount that we are required to pay for such properties or may ultimately result in our decision not to acquire such properties. Further, wecompete with sellers of similar properties when we sell properties, which may determine the amount of proceeds we receive from the disposal, or which mayresult in our inability to dispose of such properties due to the lack of an acceptable return.Financial Information About Industry SegmentsOur current business primarily consists of owning, managing, operating, leasing, acquiring, developing, investing in, and disposing of office real estateassets. We internally evaluate all of our real estate assets as one operating segment, and, accordingly, we do not report segment information.Concentration of Credit RiskWe 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 futurerental amounts would have a negative impact on our results of operations. As of December 31, 2018, no individual tenant represented more than 5.1% of ourALR.Other MattersWe have contracts with various governmental agencies, exclusively in the form of operating leases in buildings we own. See Item 1A. Risk Factors for furtherdiscussion 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 associatedwith environmental concerns.Website AddressAccess 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 filingswith the Securities and Exchange Commission (the "SEC"), including any amendments to such filings, may be obtained free of charge from the followingwebsite, http://www.piedmontreit.com, or directly from the SEC’s website at http://www.sec.gov. These filings are available promptly after we file them with,or furnish them to, the SEC. ITEM 1A. RISK FACTORSRisks Related to Our Business and OperationsEconomic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use ofcommercial 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 theproperties, 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 aresignificant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes, and maintenance costs) that generally donot decline when circumstances reduce the income from the property. The following factors, among others, may adversely affect the operating performanceand 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 weown 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 thedemand for office workers or parking spaces generally;•increased demand for "co-working" or sharing of office space with other companies;5 Table of ContentsIndex to Financial Statements•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 otherwisereduce 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 ofsuch 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 underinsured 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 oran increased occurrence of defaults under existing leases, which would adversely affect our financial condition and results of operations. Any of the abovefactors 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, orwe may expend significant capital in our efforts to re-let space.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 ourexisting tenants and to attract new tenants. The competition for credit worthy tenants is intense, and we may have difficulty competing, especially withcompetitors who have purchased properties at discounted prices allowing them to offer space at reduced rental rates, or those that have the ability to offersuperior 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 intensecompetition 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 losepotential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants upon expiration of theirexisting 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 unableto 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 financialcondition, cash flows, cash available for distribution, value of our common stock, and ability to satisfy our debt service obligations could be adverselyaffected.Our rental revenues will be significantly influenced by the 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 concentrationexposes 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 92% of our ALR from our portfolio of properties as of December 31, 2018. As aresult, we are particularly susceptible to adverse market conditions in these particular cities, including any reduction in demand for office properties, industryslowdowns, governmental cut backs, relocation of businesses and changing demographics. Adverse economic or real estate developments in these markets, orin 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 businessclimates, 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, couldadversely affect the income produced by our properties.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 anytime. Many of our tenants may be adversely impacted by the specific consequences of, and the general market uncertainty associated with, geopoliticaldevelopments that could negatively affect international trade, including the United6 Table of ContentsIndex to Financial StatementsKingdom’s referendum to withdraw from the European Union or by the recent rejection by the United Kingdom’s House of Commons of the negotiatedagreement that was to govern the United Kingdom’s withdrawal, the termination or threatened termination of existing international trade agreements, or theimplementation of tariffs or retaliatory tariffs on imported or exported goods. If any of our tenants experience or anticipate an adverse change in theirrespective businesses for any reason, they may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rentalpayments when due, or declare bankruptcy. Any of these actions could result in the termination of the tenants’ leases, or expiration of existing leases withoutrenewal, and the loss of rental income attributable to the terminated or expired leases. In the event of a tenant default or bankruptcy, we may experiencedelays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-letting our property. If significant leases areterminated or defaulted upon, we may be unable to lease the property for the rent previously received or to sell the property without incurring a loss. Inaddition, significant expenditures related to mortgage payments, real estate taxes, insurance, and maintenance costs are generally fixed or may not decreaseimmediately 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 operatingperformance. As of December 31, 2018, our largest lead tenants, based on ALR, were: the State of New York (5.1% of ALR), US Bancorp (4.7% of ALR),Independence Blue Cross (3.7% of ALR), GE (3.4% of ALR), and U.S. Government (2.3% of ALR). The revenues generated by the properties that any of ourlead tenants occupy are substantially dependent upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency, or ageneral 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 substantialadverse effect on our operating performance.Some of our leases provide tenants with the right to terminate their leases early.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 undercertain circumstances, such as providing notice by a certain date and, in many cases, paying a termination fee. In certain cases, such early terminations can beeffectuated by our tenants with little or no termination fee being paid to us. To the extent that our tenants exercise early termination rights, our cash flow andearnings 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 leasingthe 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 six properties in which some of the tenants in each property are federal government agencies. Lease agreements with these federalgovernment agencies contain certain provisions required by federal law, which require, among other things, that the contractor (which is the lessor or theowner of the property) agree to comply with certain rules and regulations, including but not limited to, rules and regulations related to anti-kickbackprocedures, 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 directlymanage properties with federal government agency tenants and, therefore, we are subject to additional risks associated with compliance with all such federalrules and regulations. In addition, we face additional risks and costs associated with directly managing properties occupied by government tenants, includingan increased risk of default by such tenants during periods in which state or federal governments are shut down or on furlough. There are certain additionalrequirements relating to the potential application of the Employment Standards Administration’s Office of Federal Contract Compliance Programs and therelated requirement to prepare written affirmative action plans applicable to government contractors and subcontractors. Some of the factors used todetermine whether such requirements apply to a company that is affiliated with the actual government contractor (the legal entity that is the lessor under alease with a federal government agency) include whether such company and the government contractor are under common ownership, have commonmanagement, and are under common control. One of our wholly-owned subsidiaries is considered a government contractor, increasing the risk thatrequirements of these equal opportunity provisions, including the requirement to prepare affirmative action plans, may be determined to be applicable to theentire operations of our company.Adverse market and economic conditions may negatively affect us and could cause us to recognize impairment charges on tangible real estate and relatedlease 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 assetsin which we have an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potentialimpairment are present which indicate that the carrying value of real estate and related lease intangible assets may not be recoverable, we assess therecoverability of these assets by determining whether the carrying value will be recovered through the undiscounted future operating cash flows expectedfrom 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, weadjust the real estate and related lease intangible assets to their estimated fair value and recognize an impairment loss.7 Table of ContentsIndex to Financial StatementsProjections of expected future cash flows require management to make assumptions to estimate future market rental income amounts subsequent to theexpiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years theproperty is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, couldresult 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 estateand related lease intangible assets and our net income. In addition, adverse economic conditions could also cause us to recognize additional asset impairmentcharges 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 mayexceed the estimated fair value of such assets. Such interim events could be adverse changes in legal matters or in the business climate, adverse action orassessment by a regulator, the loss of key personnel, or persistent declines in our stock price below our carrying value. Volatility in the overall market couldcause 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 goodwillpotentially could be impaired. Impairment charges recognized in order to reduce our goodwill could materially and adversely affect our financial conditionand results of operations.Our earnings growth will partially depend upon future acquisitions of properties, and we may not be successful in identifying and consummating suitableacquisitions that meet our investment criteria.Our business strategy involves the acquisition of primarily high-quality office properties in selected markets. These activities require us to identify suitableacquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful inidentifying suitable properties or other assets that meet our acquisition criteria or in consummating acquisitions on satisfactory terms, if at all. Failure toidentify or consummate acquisitions could slow our growth. Likewise, we may incur costs pursuing acquisitions that we are ultimately unsuccessful incompleting.Further, we face significant competition for attractive investment opportunities from a large number of other real estate investors, including investors withsignificant capital resources such as domestic and foreign corporations and financial institutions, publicly traded and privately held REITs, privateinstitutional investment funds, investment banking firms, life insurance companies and pension funds. As a result of competition, we may be unable toacquire 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 loweroccupancy, any of which could adversely affect our financial condition, results of operations, cash flows and the ability to pay dividends on, and the marketprice 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, ourability to sell promptly one or more properties in our portfolio in response to changing economic, financial, and investment conditions is limited. The realestate market is affected by many forces, such as general economic conditions, availability of financing, interest rates, and other factors, including supply anddemand, 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 anyprice 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 willingpurchaser 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 make such improvements. Our inability to dispose of assetsat opportune times or on favorable terms could adversely affect our cash flows and results of operations, thereby limiting our ability to make distributions tostockholders.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 toconsummate acquisitions on satisfactory terms. In deciding whether to acquire a particular property, we make certain assumptions regarding the expectedfuture performance of that property. However, newly acquired properties may fail to perform as expected. Costs necessary to bring acquired properties up tostandards established for their intended market position may exceed our expectations, which may result in the properties’ failure to achieve projected returns.8 Table of ContentsIndex to Financial StatementsIn 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 cashflows 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 existingoperations;•management attention may be diverted to the integration of acquired properties, which in some cases may turn out to be less compatible with ouroperating 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 newsatellite 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 thedemand 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 ofenvironmental contamination, unknown/undisclosed latent structural issues or maintenance problems, claims by tenants, vendors or other personsagainst the former owners of the properties, and claims for indemnification by general partners, directors, officers, and others indemnified by theformer 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 marketknowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permittingprocedures. As a result, the operating performance of properties acquired in new markets may be less than we anticipate, and we may have difficultyintegrating such properties into our existing portfolio. In addition, the time and resources that may be required to obtain market knowledge and/or integratesuch properties into our existing portfolio could divert our management’s attention from our existing business or other attractive opportunities.We may seek to dispose of properties that no longer meet our strategic plans.We may seek to dispose of properties that no longer meet our strategic plans with the intent to use the proceeds generated from such potential disposition toacquire additional properties better aligned with our investment criteria and growth strategy or to fund other operational needs. We may not be able todispose of these properties for the proceeds we expect, or at all, and we may incur costs and divert management attention from our ongoing operations as partof efforts to dispose of these properties, regardless whether such efforts are ultimately successful. In addition, if we are able to dispose of those properties, wemay not be able to re-deploy the proceeds in a timely or more efficient manner, if at all. As such, we may not be able to adequately time any decrease inrevenues from the sale of properties with a corresponding increase in revenues associated with the acquisition of new properties. The failure to dispose ofproperties, or to timely and more efficiently apply the proceeds from any disposition of properties to attractive acquisition opportunities, could have anadverse effect on our results of operations and our ability to make distributions to our stockholders.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, aregenerally secured by pledges of the equity interests of the entities owning the underlying real estate. As a result, these investments involve greater risk of lossthan investments in senior mortgage loans that are secured by real property since they are subordinate to the mortgage loan secured by the building and maybe subordinate to the interests of other mezzanine lenders. Therefore, if the property owner defaults on its debt service obligations payable to us or on debtsenior 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 ourmezzanine 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 andcosts associated with the process of foreclosing on the collateral securing or supporting such investments.9 Table of ContentsIndex to Financial StatementsOur 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 delayed by conditions beyond the builder’s control. Delays in completingconstruction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress paymentsor other advances to builders before they complete construction. Further, we may incur unanticipated additional costs related to disputes with existingtenants during redevelopment projects. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will besubject to normal lease-up risks relating to newly constructed projects. Projects with long lead times may increase leasing risk due to changes in marketconditions.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 indevelopment activities, we are subject to risks associated with those activities that could adversely affect our financial condition, results of operations, cashflows 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 governmentalpermits 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 lessprofitable 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 nationalstrikes 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 wefinanced 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’stime 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, andWashington, D.C., any of which could be, and some of which have been, the target of terrorist attacks. Future terrorist attacks and other acts of terrorism or warwould severely impact the demand for, and value of, our properties. Terrorist attacks in and around any of the major metropolitan areas in which we ownproperties also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and could thereafter materiallyimpact 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 atlease 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 adisruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which couldnegatively impact our financial results.A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, functionality, or availability of our information resourcesand systems. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems todisrupt building or corporate operations, corrupt data, or steal confidential information. While we have not experienced any material cyber incidents in thepast, the risk of a security breach or disruption,10 Table of ContentsIndex to Financial Statementsparticularly through cyber attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as thenumber, 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 incidentinclude physical harm to occupants of our buildings, physical damage to our buildings, actual cash loss, operational interruption, damage to our relationshipwith our tenants, potential errors from misstated financial reports, violations of loan covenants, missed reporting deadlines, and private data exposure, amongothers. Any or all of the preceding risks could have a material adverse effect on our results of operations, financial condition and cash flows.Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are aparticular concern for companies with employees. We are continuously working to install new, and to upgrade our existing, network, building operating, andinformation technology systems and to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected,to the greatest extent possible, against cyber risks and security breaches. However, such upgrades, new technology and training may not be sufficient toprotect us from all risks.We are continuously developing and enhancing our controls, processes, and practices designed to protect our systems, computers, software, data, andnetworks from attack, damage, or unauthorized access. This continued development and enhancement will require us to expend additional resources,including to investigate and remediate any information security vulnerabilities that may be detected. Although we make efforts to maintain the security andintegrity of these types of information technology networks, building systems, and related systems, and we have implemented various measures to managethe 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 breachesor disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerablebecause the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some casesare designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequatesecurity barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.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 leasewith us. We are not aware of any of our tenants experiencing a cyber incident, and if any such cyber incident has occurred among our tenants, it has not givenrise to a default under such tenant’s 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 noassurance as to future costs and the scope of coverage that may be available under insurance policies.We carry comprehensive general liability, fire, rental loss, environmental, cyber-security, and umbrella liability coverage on all of our properties andearthquake, wind, and flood coverage on properties in areas where such coverage is warranted. We believe the policy specifications and insured limits ofthese policies are adequate and appropriate given the relative risk of loss, the cost of the coverage, and industry practice. However, we may be subject tocertain 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 isnot available at commercially reasonable rates. If we experience a loss that is uninsured or that exceeds policy limits, we could lose a significant portion ofthe capital we have invested in the damaged property, as well as the anticipated future revenue from the property. Inflation, changes in building codes andordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a propertyafter it has been damaged or destroyed. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for theindebtedness, even if these properties were irreparably damaged. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costsin 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 casualtyclaims. 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 doesnot regulate the pricing of such insurance. In some cases, mortgage lenders may insist that commercial property owners purchase coverage against terrorism asa condition of providing mortgage loans. Such insurance policies may not be available at a reasonable cost, which could inhibit our ability to finance orrefinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, tocover potential losses. We may not have adequate coverage for such losses.11 Table of ContentsIndex to Financial StatementsShould 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. Insuch an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance coverage atunfavorable 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’ financialcondition.From time to time we enter into strategic joint ventures with institutional investors to acquire, develop, improve, or dispose of properties, thereby reducingthe amount of capital required by us to make investments and diversifying our capital sources for growth. Such joint venture investments involve risks nototherwise 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 oron advantageous terms;•we may not be in a position to exercise sole decision-making authority regarding the property or joint venture, which could create the potential riskof 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 interestsor goals;•such co-venturer may be in a position to take action contrary to our instructions, requests, policies or objectives, including our current policy withrespect 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-venturerswould 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 ventureagreements and, in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchasesuch 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 anddirectors from focusing their time and efforts on our business and could result in subjecting the properties owned by the applicable joint venture toadditional 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 abilityto 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 environmentalprotection and human health and safety. Tenants’ ability to operate and to generate income to pay their lease obligations may be affected by permitting andcompliance 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 werelegal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder our ability to sell, rent, or pledgesuch 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 ormay impose additional liabilities on us, including environmental liabilities. In addition, there are various local, state, and federal fire, health, life-safety, andsimilar 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. Anymaterial expenditures, liabilities, fines, or damages we must pay will reduce our cash flows and ability to make distributions and may reduce the value of ourstockholders’ investment.12 Table of ContentsIndex to Financial StatementsAs the present or former owner or operator of real property, we could become subject to liability for environmental contamination, regardless of whether wecaused 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 forthe cost to remove or remediate hazardous or toxic substances, wastes, or petroleum products on, under, from, or in such property. These costs could besubstantial and liability under these laws may attach whether or not the owner or operator knew of, or was responsible for, the presence of suchcontamination. As a result our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties such as thepresence of underground storage tanks or activities of unrelated third parties may affect our properties. Even if more than one party may have beenresponsible for the contamination, each liable party may be held entirely responsible for all of the clean-up costs incurred. In addition, third parties may suethe owner or operator of a property for damages based on personal injury, natural resources, or property damage and/or for other costs, including investigationand clean-up costs, resulting from the environmental contamination. The presence of contamination on one of our properties, or the failure to properlyremediate a contaminated property, could give rise to a lien in favor of the government for costs it may incur to address the contamination, or otherwiseadversely affect our ability to sell or lease the property or borrow using the property as collateral. In addition, if contamination is discovered on ourproperties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictionsmay 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 petroleumproducts or other hazardous or toxic substances. In addition, certain of our properties are on, adjacent to, or near sites upon which others, including formerowners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products orother hazardous or toxic substances.The cost of defending against claims of liability, of remediating any contaminated property, or of paying personal injury claims could reduce the amountsavailable 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 asbestosproperly 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 andpenalties on building owners or operators who fail to comply with these requirements. In addition, environmental laws and the common law may allow thirdparties 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 liabilityfor personal injury and costs of remediating adverse conditions, which could have an adverse effect on our cash flows and ability to make distributions to ourstockholders.As the owner of real property, we could become subject to liability for a tenant’s failure to comply with environmental requirements regarding the handlingand 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 propertiesin 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 tenantsfail to comply with these various requirements, we might incur governmental fines or private damage awards. Moreover, we do not know whether or theextent to which existing requirements or their enforcement will change or whether future requirements will require us to make significant unanticipatedexpenditures, either of which could materially and adversely impact our financial condition, results of operations, cash flows, cash available for distributionto stockholders, the market price of our common stock, and our ability to satisfy our debt service obligations. If our tenants become subject to liability fornoncompliance, it could affect their ability to make rental payments to us.13 Table of ContentsIndex to Financial StatementsWe 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 thecompetitive nature of the employment market. The loss of services of one or more key members of our management team could adversely affect our results ofoperations and slow our future growth. While we have planned for the succession of each of the key members of our management team, our succession plansmay 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 additionalexpenses which, if uninsured, could adversely impact our earnings and cash flows, thereby impacting our ability to service our debt and make quarterlydistributions to our stockholders. There can be no assurance that our insurance policies will fully cover any payments or legal costs associated with anypotential legal action. Further, the ultimate resolution of such action could impact the availability or cost of some of our insurance coverage, which couldadversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attractofficers and directors.If our disclosure controls or internal controls over financial reporting are not effective, investors could lose confidence in our reported financialinformation.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 ourinternal control over financial reporting, there can be no guarantee that these processes will be effective in accomplishing all control objectives all of thetime. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result inmisstatements of our results of operations, restatements of our financial statements, a decline in the trading price of our common stock, or otherwise materiallyadversely 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 disabledpersons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required tomake unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then our cash flows and theamounts available for distributions to our stockholders may be adversely affected. Although we believe that our properties are currently in materialcompliance with these regulatory requirements, we have not conducted an audit or investigation of all of our properties to determine our compliance, and wecannot predict the ultimate cost of compliance with the Americans with Disabilities Act or other legislation. If one or more of our properties is not incompliance with the Americans with Disabilities Act or other legislation, then we would be required to incur additional costs to achieve compliance. If weincur substantial costs to comply with the Americans with Disabilities Act or other legislation, our financial condition, results of operations, the market priceof 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 StructureOur organizational documents contain provisions that may have an anti-takeover effect, which may discourage third parties from conducting a tender offeror 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 anextraordinary 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 commonstock or otherwise be in the best interest of our stockholders. These provisions include, among other things, restrictions on the ownership and transfer of ourstock, advance notice requirements for stockholder nominations for directors and other business proposals, and our board of directors’ power to classify orreclassify unissued shares of common or preferred stock and issue additional shares of common or preferred stock.14 Table of ContentsIndex to Financial StatementsIn 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 apremium 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 forfederal income tax purposes. Unless exempted by our board of directors, no person may actually or constructively own more than 9.8% (by value or numberof 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 incontrol, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premiumprice 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 significantflexibility. 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 forany 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 haveauthority 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 orreclassified shares, without obtaining stockholder approval;•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;•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 ourstockholders 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 athird 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 toincrease 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 andconditions 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 amerger, 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 bestinterest 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 preventingtransactions 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 controlunder 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 orassociate 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 votingpower of our then outstanding stock) or an15 Table of ContentsIndex to Financial Statementsaffiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter imposesupermajority 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 controlledby the stockholder, except solely by virtue of a revocable proxy, entitle the stockholder to exercise one of three increasing ranges of voting power inelecting 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 becast 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 ofdirectors has adopted a resolution exempting any business combination with any person from the business combination statute. As a result, these provisionscurrently will not apply to a business combination or control share acquisition involving our company. However, our board of directors may opt into thebusiness 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 ourstockholders. In addition, the employment agreements with certain of our 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 tenderoffers 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 ourstockholders’ 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 shereasonably 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. Ourcharter eliminates our directors’ and officers’ liability to us and our stockholders for money damages except for liability resulting from actual receipt of animproper benefit or profit in money, property, or services or active and deliberate dishonesty established by a final judgment and which is material to thecause 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 orliability 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 oromission 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 anddeliberate dishonesty, the director or officer actually received an improper personal benefit in money, property, or services, or, in the case of any criminalproceeding, 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 morelimited rights against our directors and officers than might otherwise exist under common law, which could reduce our and our stockholders’ recovery fromthese 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 byour employees and agents) in some cases.Risks Related to Our Common StockAny 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 generatedby operations, after deducting these expenses, may not be sufficient to cover desired levels of distributions to our stockholders. Any change in ourdistribution policy could have a material adverse effect on the market price of our common stock.16 Table of ContentsIndex to Financial StatementsThere 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 adecrease in the value of their shares, including decreases unrelated to our operating performance or prospects. If the market price of our common stockdeclines significantly, stockholders may be unable to resell their shares at or above their purchase price. We cannot assure stockholders that the market priceof 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 influctuations 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 anyresearch 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.Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existingstockholders 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 orsubordinated notes and classes of preferred or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders withrespect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilutethe holdings of our existing stockholders or reduce the market price of our common stock or both. Because our decision to issue securities in any futureoffering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our futureofferings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their proportionateownership.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 securitiespaying 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 notfrom the underlying appraised value of the properties themselves. As a result, interest rate fluctuations and capital market conditions can affect the marketvalue of our common stock. For instance, if interest rates rise, it is possible that the market price of our common stock will decrease, because potentialinvestors 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 commonstock 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 donot 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 ourcompetitors, 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.17 Table of ContentsIndex to Financial StatementsFederal Income Tax RisksOur 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 IRSas 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 tofail 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 reliefprovisions. Our qualification and the qualification of our subsidiary REIT as a REIT will depend on satisfaction, on an annual or quarterly basis, of numerousrequirements set forth in highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations. Adetermination as to whether such requirements are satisfied involves various factual matters and circumstances not entirely within our control. The fact thatwe hold substantially all of our assets through our operating partnership and its subsidiaries further complicates the application of the REIT requirements forus. 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 wouldnot 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 itstaxable income at corporate rates. Moreover, unless the non-qualifying REIT were to obtain relief under certain statutory provisions, the non-qualifying REITalso would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment wouldreduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability to us for the years involved. As aresult 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 topay the applicable tax.Changes in tax laws may eliminate the benefits of REIT status, prevent us from maintaining our qualification as a REIT, or otherwise adversely affect ourstockholders.New legislation, regulations, administrative interpretations or court decisions could change the tax laws or interpretations of the tax laws regardingqualification 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 was effective for us for tax year 2018, made many significant changes to the U.S. federal income tax laws. Anumber of the changes that affected noncorporate taxpayers will expire at the end of 2025 unless Congress acts to extend them. These changes impacted us,our stockholders, and our tenants in various ways and the IRS continues to issue clarifying guidance with respect to certain of the provisions of H.R. 1, any ofwhich may be adverse or potentially adverse compared to prior law. 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 thetaxation 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 thatrequires 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 samelevel of distributions to our stockholders, and changes to the taxation of our stockholders could have an adverse effect on an investment in our commonstock.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 distributionto our stockholders. For example, we will be subject to federal income tax on any undistributed taxable income. Further, if we fail to distribute during eachcalendar 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 undistributedtaxable 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 actuallydistributed 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 wehold 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 aproperty, other than foreclosure property, that we are determined to have held for sale to customers in the ordinary course of business, any gain realized wouldbe subject to a 100% “prohibited transaction” tax. The determination as to whether or not a particular sale is a prohibited transaction depends on the factsand circumstances related to that sale. We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certainsafe-harbor provisions. The need to avoid prohibited transactions could cause us to forgo or defer sales of properties that might otherwise be in our bestinterest to sell. In addition, we own interests in certain taxable REIT subsidiaries that are subject to federal income taxation and we and our subsidiaries maybe subject to state and local taxes on our income or property.18 Table of ContentsIndex to Financial StatementsDifferences 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 taxobligations; however, differences between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on ashort-term or long-term basis to meet the distribution requirements of the Code. Certain types of assets generate substantial disparity between taxable incomeand 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 toservice borrowings. As a result, the requirement to distribute a substantial portion of our taxable income could cause us to: (1) sell assets in adverse marketconditions, (2) borrow on unfavorable terms, or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures, orrepayment 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 havefunds readily available for distribution. Compliance with REIT qualification requirements may, therefore, hinder our ability to operate solely on the basis ofmaximizing 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 applicableto 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 ofcertain “qualified REIT dividends” that is available to noncorporate taxpayers through 2025, which has the effect of reducing the maximum effective incometax rate on qualified REIT dividends to 29.6%. The more favorable rates applicable to regular corporate dividends could cause investors who are individualsto perceive investments in REITs to be relatively less attractive than investments in non-REIT corporations that make distributions, particularly after thescheduled 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 woulddiminish 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 beingtreated 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 ofbusiness. 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 abilityto make cash distributions to our stockholders would be adversely affected. Moreover, our operating partnership may purchase properties and lease themback 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 becharacterized 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 noassurance that the IRS will not attempt to challenge such characterization. In the event that any such sale-leaseback transaction is challenged andrecharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such propertywould be disallowed. If a sale-leaseback transaction were so recharacterized, the amount of our adjusted REIT taxable income could be recalculated, whichmight 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 testsand, 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 besubject to additional federal and state income and excise taxes. Any federal or state taxes we pay will reduce our cash available for distribution to ourstockholders.We face possible adverse changes in state and local tax laws regarding the treatment of REITs and their stockholders, which may result in an increase inour 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 andsize 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 adverselyaffect our financial condition and results of operations and the amount of cash available for payment of dividends.19 Table of ContentsIndex to Financial StatementsRisks Associated with Debt FinancingWe have incurred and are likely to continue to incur mortgage and other indebtedness, which may increase our business risks.As of December 31, 2018, we had total outstanding indebtedness of approximately $1.7 billion and a total debt to gross assets ratio of 36.2%. Although theinstruments governing our unsecured and secured indebtedness limit our ability to incur additional indebtedness, these restrictions are subject to a number ofqualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. We may incuradditional indebtedness to acquire properties or other real estate-related investments, to fund property improvements, and other capital expenditures or forother corporate purposes, such as to repurchase shares of our common stock through repurchase programs that our board of directors have authorized or tofund future distributions to our stockholders.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 ouroperations, 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 thecash 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 indebtednesssecured by a property may result in lenders initiating foreclosure actions. Although we believe no such instances exist as of December 31, 2018, in thosecases, 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 theproperty 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 themortgage 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 oragreements, thereby resulting in the acceleration and required repayment of that other indebtedness. In addition, while we do not currently anticipate doingso, 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. Ifwe 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 werenot paid by such entity. If any mortgages or other indebtedness contain cross-collateralization or cross-default provisions, a default on a single loan couldaffect 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 anamount 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 financingwill depend on, among other things our financial condition, results of operations and market conditions at the time; and restrictions in the agreementsgoverning 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 fromoperations, and additional borrowings or refinancings or proceeds of assets sales or other sources of cash are not available to us, we may not have sufficientcash 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 additionalequity financing, delaying capital expenditures or strategic acquisitions and alliances. Any of these events or circumstances could have a material adverseeffect 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 netincome, 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 runthe 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 higherwhen 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 couldbe reduced. This, in turn, could reduce cash20 Table of ContentsIndex to Financial Statementsavailable 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 ouroperations, 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 operatingpolicies and our ability to incur additional debt. Loan documents evidencing our existing indebtedness contain, and loan documents entered into in thefuture 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 incursecured and unsecured debt, make dividend payments, sell all or substantially all of our assets, and engage in mergers and consolidations and certainacquisitions. Covenants under our existing indebtedness do, and under any future indebtedness likely will, restrict our ability to pursue certain businessinitiatives or certain acquisition transactions. In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause anevent 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 2018 Line of Credit and $100 million of our $250 Million Unsecured 2018 Term Loan areour 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 swapagreements. In addition, the outstanding draws under the $500 Million Unsecured 2018 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 aredrawn 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 arerequired 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, whichmight 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 marketparticipants, 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 amerger necessary for one or more of our counterparties, or potential future counterparties, it is possible that the terms of our interest rate derivative contractswill not be honored in their current form with a replacement counterparty. The potential termination or renegotiation of the terms of the interest ratederivative contracts as a result of changing counterparties through insolvency or merger could result in an adverse impact on our results of operations andcash flows.Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may adversely affect our results ofoperations.LIBOR and certain other “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for reform. These reformsmay cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. In particular, on July 27, 2017, theUnited Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks tosubmit LIBOR rates after 2021. It is unclear whether, at that time, LIBOR will cease to exist or if new methods of calculating LIBOR will be established.As of December 31, 2018, approximately $755 million of our outstanding indebtedness had interest rate payments determined directly or indirectly based onLIBOR. As of December 31, 2018, we also had $450 million notional value of floating-to-fixed interest rate swaps that we use to hedge our interest rateexposure on most of this indebtedness. Any uncertainty regarding the continued use and reliability of LIBOR as a benchmark interest rate could adverselyaffect the performance of LIBOR relative to its historic values. If the methods of calculating LIBOR change from current methods for any reason, or if LIBORceases to perform as it has historically, our interest expense associated with the unhedged portion of our outstanding indebtedness or any future indebtednesswe incur may increase. Further, if LIBOR ceases to exist, we may be forced to substitute an alternative reference rate, such as a different benchmark interestrate or base rate borrowings, in lieu of LIBOR under our current and future indebtedness21 Table of ContentsIndex to Financial Statementsand interest rate swaps. At this point, it is not clear what, if any, alternative reference rate may be adopted to replace LIBOR, however, any such alternativereference rate may be calculated differently than LIBOR and may increase the interest expense associated with our existing or future indebtedness.Finally, the replacement or disappearance of LIBOR may adversely affect the value of and costs associated with our LIBOR-based obligations and theavailability, pricing and terms of LIBOR-based interest rate swaps we use to hedge our interest rate risk. Alternative reference rates or modifications to LIBORmay not align for our assets, liabilities, and hedging instruments, which could reduce the effectiveness of certain of our interest rate hedges, and could causeincreased volatility in our earnings. We may also incur expenses to amend and adjust our indebtedness and swaps to eliminate any differences between anyalternative reference rates used by our interest rate hedges and our outstanding indebtedness.Any of these occurrences could materially and adversely affect our borrowing costs, business and results of operations.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 thecredit 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 anysuch 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 havea material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on our financial condition, results ofoperations, cash flows and our ability to satisfy our debt service obligations.ITEM 1B. UNRESOLVED STAFF COMMENTSThere were no unresolved SEC staff comments as of December 31, 2018.ITEM 2. PROPERTIESOverviewAs of December 31, 2018, we owned interests in 54 in-service office properties, and 92% of our ALR was generated from select sub-markets located withineight major office markets located in the Eastern-half of the United States: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, andWashington, D.C. As of December 31, 2018 and 2017, our in-service portfolio was 93.3% and 89.7% leased, respectively, with an average lease termremaining as of each period end of approximately seven years and an average lease size of approximately 19,000 square feet. No tenant accounts for morethan 5.1% of our ALR, and our five largest tenants are State of New York, U.S. Bancorp, Independence Blue Cross, GE, and the United States Government.ALR (see Item 1. Business - "Information Regarding Disclosures Presented" above) related to our in-service portfolio was $520.0 million, or $34.37 per leasedsquare foot, as of December 31, 2018 as compared with $561.3 million, or $32.84 per leased square foot, as of December 31, 2017. These rental rates arepresented before consideration of the fact that several of our largest tenants self-perform various aspects of their building management; therefore, we do notcount those expenses in our gross rent calculations. If the costs of these functions are added to these leases, our average gross rent for our in-service portfolioas of December 31, 2018, increases to $35.83 per leased square foot.22 Table of ContentsIndex to Financial StatementsProperty StatisticsThe following table shows the geographic diversification of our in-service portfolio as of December 31, 2018:Location AnnualizedLease Revenue(in thousands) Rentable SquareFeet(in thousands) Percentage ofAnnualizedLease Revenue (%) Percent Leased (%)Washington, D.C. $75,939 1,950 14.6 77.6New York 70,144 1,772 13.5 97.5Minneapolis 63,620 2,104 12.2 95.5Atlanta 61,673 2,249 11.9 95.6Boston 58,083 1,882 11.2 96.7Dallas 53,805 2,114 10.3 88.2Orlando 53,128 1,755 10.2 95.6Chicago 42,202 967 8.1 98.1Other (1) 41,428 1,415 8.0 100 $520,022 16,208 100.0 93.3(1) Includes 1901 Market Street in Philadelphia, Pennsylvania; 1430 Enclave Parkway and Enclave Place in Houston, Texas.The following table shows lease expirations of our in-service office portfolio as of December 31, 2018 during each of the next thirteen years and thereafter,assuming no exercise of renewal options or termination rights:Year of Lease Expiration AnnualizedLease Revenue(in thousands) Percentage ofAnnualizedLease Revenue (%)Available space $— —2019 67,179 12.92020 40,555 7.82021 19,500 3.82022 39,133 7.52023 44,272 8.52024 62,568 12.02025 23,001 4.42026 28,506 5.52027 46,176 8.92028 47,119 9.12029 22,354 4.32030 14,653 2.82031 14,236 2.7Thereafter 50,770 9.8 $520,022 100.0Certain Restrictions Related to our PropertiesAs of December 31, 2018, the 5 Wall Street building in Burlington, Massachusetts and the 1901 Market Street building in Philadelphia, Pennsylvania, wereheld as collateral for debt, and no properties were subject to ground leases. Refer to Schedule III listed in the index of Item 15(a) of this report, for furtherdetails regarding the two properties held as collateral for debt facilities as of December 31, 2018.23 Table of ContentsIndex to Financial StatementsITEM 3. LEGAL PROCEEDINGSPiedmont is not subject to any material pending legal proceedings. However, we are subject to routine litigation arising in the ordinary course of owning andoperating real estate assets. Our management expects that these ordinary routine legal proceedings will be covered by insurance and does not expect theselegal proceedings to have a material adverse effect on our financial condition, results of operations, or liquidity. Additionally, management is not aware ofany legal proceedings contemplated by governmental authorities.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.24 Table of ContentsIndex to Financial StatementsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket Information and HoldersOur common stock is listed on the New York Stock Exchange under the symbol “PDM.” As of February 19, 2019, there were 9,877 common stockholders ofrecord of our common stock.Performance GraphThe following graph compares the cumulative total return of Piedmont’s common stock with the FTSE NAREIT Equity Office Index, the FTSE NAREITEquity REITs Index, and the S&P 500 Index for the period beginning on December 31, 2013 through December 31, 2018. The graph assumes a $100investment 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 As of the year ended December 31, 201320142015201620172018Piedmont Office Realty Trust, Inc.$100.00$119.14$125.07$144.60$144.74$131.57FTSE NAREIT Equity Office$100.00$125.86$126.22$142.84$150.33$128.54FTSE NAREIT Equity REITs$100.00$130.14$134.30$145.74$153.36$146.27S&P 500$100.00$113.69$115.26$129.05$157.22$150.3325 Table of ContentsIndex to Financial StatementsThe 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 furnishPiedmont’s stockholders with such information and, therefore, is not deemed to be filed, or incorporated by reference in any filing, by Piedmont under theSecurities Act of 1933 or the Securities Exchange Act of 1934.Purchases of Equity Securities By the Issuer and Affiliated PurchasersDuring the quarter ended December 31, 2018, we repurchased and retired shares of our common stock as part of our stock repurchase plan as follows:PeriodTotal Number ofShares Purchased(in 000’s) Average Price Paidper Share Total Number ofShares Purchasedas Part ofPublicly AnnouncedProgram(in 000’s) (1) Maximum ApproximateDollar Value of SharesAvailable That MayYet Be PurchasedUnder the Program(in 000’s) October 1, 2018 to October 31, 2018— $— — $123,464 November 1, 2018 to November 30, 201856 $17.86 56 $122,461 December 1, 2018 to December 31, 20182,097 $17.11 2,097 $86,572(1) Total2,153 $17.13 2,153 (1) Amounts available for purchase relate only to our Board-authorized stock repurchase plan under our current authorization to repurchase shares of our common stockthrough February 21, 2020.26 Table of ContentsIndex to Financial StatementsITEM 6. SELECTED FINANCIAL DATAThe following sets forth a summary of our selected financial data as of and for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 (in thousandsexcept for per-share data). Our selected financial data is prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), except asnoted below. 2018 2017 2016 2015 2014Statement of Income Data: Total revenues$525,967 $574,173 $555,715 $584,769 $566,252Property operating costs$209,338 $222,441 $220,796 $244,090 $241,128Depreciation and amortization$171,251$194,655$202,852$195,389$195,175Impairment loss on real estate assets$— $46,461 $33,901 $43,301 $—General and administrative expenses$29,713 $29,319 $27,382 $28,278 $22,128Interest and other expense$(61,065) $(63,622) $(64,477) $(72,158) $(67,742)Gain on sale of real estate assets not classified as discontinued operations$75,691 $115,874 $93,410 $129,683 $870Income from continuing operations$130,291 $133,549 $99,717 $131,236 $40,949Per-Share Data: Per weighted-average common share data: Income from continuing operations per share—basic and diluted$1.00 $0.92 $0.69 $0.87 $0.26Cash dividends declared per common share$0.84 $1.34 $0.84 $0.84 $0.81Weighted-average shares outstanding—basic (in thousands)130,161 145,044 145,230 150,538 154,452Weighted-average shares outstanding—diluted (in thousands)130,636 145,380 145,635 150,880 154,585Balance Sheet Data (at period end): Total assets$3,592,429 $3,999,967 $4,368,168 $4,361,511 $4,756,496Total stockholders’ equity$1,712,140 $1,986,489 $2,097,703 $2,123,420 $2,280,677Outstanding debt$1,685,472 $1,726,927 $2,020,475 $2,029,510 $2,269,922NAREIT Funds from Operations Data (1): GAAP net income applicable to common stock$130,296 $133,564 $99,732 $131,304 $42,150Depreciation and amortization170,348 193,904 202,268 194,943 195,345Impairment loss— 46,461 33,901 43,301 —Gain on sale- wholly-owned properties and unconsolidated partnerships(75,691) (119,557) (93,410) (129,682) (963)NAREIT Funds From Operations applicable to common stock (1)$224,953 $254,372 $242,491 $239,866 $236,532Acquisition costs— 6 976 919 560Loss on extinguishment of debt1,680 — — 38 —Net loss/(recoveries) of casualty loss and litigation settlements— — (34) 278 (6,992)Core Funds From Operations applicable to common stock (1)$226,633 $254,378 $243,433 $241,101 $230,100Amortization of debt issuance costs, fair market adjustments on notes payable, anddiscount on Senior Notes2,083 2,496 2,610 2,547 2,632Depreciation of non real estate assets813 809 841 755 508Straight-line effects of lease revenue and net effect of amortization of below-marketin-place lease intangibles(21,595)(28,067)(26,609)(20,305) (33,848)Stock-based and other non-cash compensation7,528 6,139 5,620 7,090 3,975Acquisition costs— (6) (976) (919) (560)Non-incremental capital expenditures(44,004) (35,437) (35,568) (44,136) (84,630)Adjusted Funds From Operations applicable to common stock (1)$171,458 $200,312 $189,351 $186,133 $118,177(1) Net income calculated in accordance with GAAP is the starting point for calculating Funds from Operations, Core Funds From Operations, and Adjusted Funds FromOperations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations, Core Funds fromOperations, and Adjusted Funds From Operations" below for a description and reconciliation of the calculations as presented.27 Table of ContentsIndex to Financial StatementsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with Item 6, Selected Financial Data, above and our audited consolidated financialstatements and notes thereto as of December 31, 2018 and 2017, and for the years ended December 31, 2018, 2017, and 2016, included elsewhere in thisAnnual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I of this report and “Risk Factors” set forthin Item 1A. of this report.Liquidity and Capital ResourcesOver the last several years, we have actively managed the composition of our portfolio to further concentrate our holdings in selected sub-markets within oureight core markets. During 2018, we substantively completed this strategy by disposing of 15 properties, 14 in a portfolio sale in January and one inNovember. We used the net sales proceeds from these dispositions to repay debt, to repurchase shares of our common stock pursuant to our stock repurchaseplan, and to selectively acquire three assets in our core markets.We intend to use cash flows generated from the operation of our properties, proceeds from additional selective property dispositions, and proceeds from our$500 Million Unsecured 2018 Line of Credit as our primary sources of immediate liquidity. As of the filing date, we have $258.0 million of unused capacityunder our line of credit. When necessary, we may seek secured or unsecured borrowings from third party lenders or issue securities as additional sources ofcapital. The availability and attractiveness of terms for these additional sources of capital will be highly dependent on market conditions at the time.Our most consistent use of capital has historically been, and we believe will continue to be, to fund capital expenditures for our existing portfolio ofproperties. During the years ended December 31, 2018 and 2017, we incurred the following types of capital expenditures (in thousands): December 31, 2018 December 31, 2017Capital expenditures for new development$78 $6,490Capital expenditures for redevelopment/ renovations9,892 2,113Capital expenditures previously credited as part of property acquisition— 10,340Other capital expenditures, including building and tenant improvements62,135 60,888Total capital expenditures (1)$72,105 $79,831(1) Of the total amounts paid, approximately $2.0 million and $0.3 million related to soft costs such as capitalized interest, payroll, and other general and administrativeexpenses for the year ended December 31, 2018 and 2017, respectively."Capital expenditures for new development" relate to new office development projects. During the two years ended December 31, 2018, such expendituresprimarily related to the construction of 500 TownPark, our now complete, approximately 134,000 square foot, 100% leased, four-story office buildinglocated adjacent to our existing 400 TownPark building in Lake Mary, Florida."Capital expenditures for redevelopment/renovations" during the year ended December 31, 2018 primarily related to a redevelopment project to upgradecommon areas, as well as amenities and parking, at our Two Pierce Place building in Itasca, Illinois. Expenditures during the year ended December 31, 2017related to a now-complete redevelopment project that converted our 3100 Clarendon Boulevard building in Arlington, Virginia from governmental use intoClass A private sector office space, as well as work begun on the Two Pierce Place project mentioned previously."Other capital expenditures" include all other capital expenditures during the period and are typically comprised of tenant and building improvementsnecessary to lease, maintain, or provide enhancements to our existing portfolio of office properties.We classify our tenant and building improvements into two categories: (i) improvements which maintain the building's existing asset value and its revenuegenerating capacity (“non-incremental capital expenditures”) and (ii) improvements which incrementally enhance the building's asset value by expanding itsrevenue generating capacity (“incremental capital expenditures”). As of December 31, 2018, commitments for funding non-incremental capital expendituresfor tenant improvements over the next five years related to our existing lease portfolio totaled approximately $45.6 million. The timing of the funding ofthese commitments is largely dependent upon tenant requests for reimbursement; however, we anticipate that a significant portion of these improvementallowances may be requested over the next three years based on when the underlying leases commence. In some instances, these obligations may expire withthe respective lease, without further recourse to us. Commitments for incremental capital expenditures for tenant improvements associated with executedleases totaled approximately $32.6 million as of December 31, 2018.28 Table of ContentsIndex to Financial StatementsGiven that our operating model frequently results in leases for large blocks of space to credit-worthy tenants, our leasing success can result in significantcapital outlays. For example, for leases executed during the year ended December 31, 2018 and 2017, we committed to spend approximately $5.64 and $4.65per square foot per year of lease term, respectively, for tenant improvement allowances and lease commissions (net of expiring lease commitments). Theincrease is primarily due to two significant leases signed during 2018 in our Houston and Washington, D.C. portfolios. In addition to the amounts that wehave already committed to as a part of executed leases, we also anticipate continuing to incur similar market-based tenant improvement allowances andleasing commissions in conjunction with procuring future leases for our existing portfolio of properties. Both the timing and magnitude of expendituresrelated to future leasing activity are highly dependent on the competitive market conditions at the time of lease negotiations of the particular office marketwithin which a given lease is signed. In particular, we are currently in the advanced stages of negotiating the renewal of the lease of our largest tenant, NewYork State, which expires during 2019 and anticipate expending significant capital for market-based tenant improvement allowances and leasingcommissions over the next 3-4 years associated with the renewal.There are other uses of capital that may arise as part of our typical operations. Subject to the identification and availability of attractive investmentopportunities and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets compatible with our investment strategy could alsobe a significant use of capital. Further, we may continue to use capital resources to repurchase additional shares of our common stock under our stockrepurchase program. As of December 31, 2018, we had approximately $86.6 million of board-authorized capacity remaining for future stock repurchases.Finally, although we currently have no scheduled debt maturities until the third quarter of 2021, on a longer term basis we expect to use capital to repay debtobligations 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 fordebt 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 dividend payout ratios for comparable companies; (vi) our abilityto continue to access additional sources of capital, including potential sales of our properties; and (vii) the amount required to be distributed to maintain ourstatus as a REIT. With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timingdifferences in cash receipts and cash disbursements.29 Table of ContentsIndex to Financial StatementsResults of Operations (2018 vs. 2017)OverviewNet income per diluted share applicable to common stockholders increased from $0.92 for the year ended December 31, 2017 to $1.00 for the year endedDecember 31, 2018. The year ended December 31, 2018 included approximately $0.58 per diluted share, of gains on sales, whereas the prior year includedapproximately $0.48 per diluted share, of gains on sales net of an impairment loss. The current year results also reflect the positive impact of higher overalloccupancy in the portfolio throughout the year ended December 31, 2018 as compared with the previous year as well as a 14.7 million share decrease in ourweighted average shares outstanding as a result of stock repurchases made pursuant to our stock repurchase program during the twelve months endedDecember 31, 2018.Comparison of the accompanying consolidated statements of income for the year ended December 31, 2018 vs. the year ended December 31, 2017The following table sets forth selected data from our consolidated statements of income for the years ended December 31, 2018 and 2017, respectively, aswell as each balance as a percentage of total revenues for the years presented (dollars in millions): December 31, 2018 % of Revenues December 31, 2017 % of Revenues VarianceRevenue: Rental income$411.7 $455.1 $(43.4)Tenant reimbursements92.7 98.2 (5.5)Property management fee revenue1.5 1.7 (0.2)Other property related income20.1 19.2 0.9Total revenues526.0 100% 574.2 100% (48.2)Expense: Property operating costs209.3 40% 222.4 39% (13.1)Depreciation108.0 20% 119.3 21% (11.3)Amortization63.3 12% 75.4 13% (12.1)Impairment losses on real estate assets— —% 46.5 8% (46.5)General and administrative29.7 6% 29.3 5% 0.4 115.7 22% 81.3 14% 34.4Other income (expense): Interest expense(61.0) 12% (68.1) 12% 7.1Other income1.6 —% 0.6 —% 1.0Equity in income of unconsolidated joint ventures— —% 3.8 1% (3.8)Loss on extinguishment of debt(1.7) —% — —% (1.7)Gain on sale of real estate assets75.7 15% 115.9 20% (40.2)Net income$130.3 25% $133.5 23% $(3.2)RevenueRental income decreased approximately $43.4 million for the year ended December 31, 2018 as compared to the same period in the prior year. Substantiallyall of the decrease is attributable to net property disposition activity subsequent to January 1, 2017. In addition, rental income includes the amortization ofapproximately $3.0 million and $3.4 million of termination income for the years ended December 31, 2018 and 2017, respectively.Tenant reimbursements decreased approximately $5.5 million for the year ended December 31, 2018 as compared to the same period in the prior year. Netdisposition activity subsequent to January 1, 2017 contributed approximately $10.2 million to the decrease; however, this variance was partially offset dueto the expiration of abatements and an increase in recoverable operating expenses at certain of our existing properties due to an increase in overalloccupancy.30 Table of ContentsIndex to Financial StatementsExpenseProperty operating costs decreased approximately $13.1 million for the year ended December 31, 2018 as compared to the same period in the prior year.Approximately $21.4 million of the decrease was due to net disposition activity subsequent to January 1, 2017; however, this variance was partially offset byhigher recoverable utility, administrative, property tax, and repairs and maintenance costs at certain of our existing properties due to increased overalloccupancy.Depreciation expense decreased approximately $11.3 million for the year ended December 31, 2018 compared to the same period in the prior year.Approximately $15.0 million of the decrease was attributable to net disposition activity subsequent to January 1, 2017; however, this decrease was partiallyoffset by depreciation on additional building and tenant improvements placed in service subsequent to January 1, 2017.Amortization expense decreased approximately $12.1 million for the year ended December 31, 2018 compared to the same period in the prior year. Thedecrease is primarily attributable to net disposition activity and to certain lease intangible assets at our existing properties becoming fully amortizedsubsequent to January 1, 2017.During the year ended December 31, 2017, we recognized a non-recurring impairment charge totaling approximately $46.5 million related to certainproperties included in a sale of 14 non-core assets, which were sold in January 2018 (see Note 7 and Note 12 to the accompanying consolidated financialstatements for more details).Other Income (Expense)Interest expense decreased approximately $7.1 million for the year ended December 31, 2018 as compared to the same period in the prior year. The decreaseis primarily attributable to lower average debt outstanding in the current year, specifically due to the repayments of two of our unsecured term loans totaling$470 million in January 2018 and the repayment of $140 million of secured debt on our 1201 and 1225 Eye Street buildings in Washington, D.C. in August2017. These repayments were offset partially by a new $250 million, seven-year term loan obtained in March 2018.Other income increased approximately $1.0 million for the year ended December 31, 2018 as compared to the same period in the prior year due to the sale ofsolar renewable energy certificates to a third-party, as well as interest and fee income for the administration of certain debt instruments.Equity in income of unconsolidated joint ventures decreased approximately $3.8 million for the year ended December 31, 2018 as compared to the sameperiod in the prior year. The decrease is due to the sale of our last unconsolidated joint venture property in 2017.The loss on extinguishment of debt is associated with the early repayment of our $170 Million Unsecured 2015 Term Loan and our $300 Million Unsecured2013 Term Loan. The loss includes the write-off of unamortized debt issuance costs, discounts, and costs related to the termination of interest rate swapagreements associated with the debt.Gain on sale of real estate assets during the year ended December 31, 2018 represents the gain recognized on the sale of the 800 North Brand Boulevardbuilding in Glendale, California in November 2018, as well as certain assets included in a sale of 14 non-core assets that closed in January 2018. During theyear ended December 31, 2017, gain on sale of real estate assets was comprised of the sale of the Sarasota Commerce Center II building in Sarasota, Floridaand the Two Independence Square building in Washington, D.C.31 Table of ContentsIndex to Financial StatementsResults of Operations (2017 vs. 2016)OverviewNet income per diluted share applicable to common stockholders increased from $0.69 for the year ended December 31, 2016 to $0.92 for the year endedDecember 31, 2017 due to increased gains on sales of real estate assets, net of impairment losses, in 2017 as compared to 2016 as well as increased rentalincome during the year ended December 31, 2017 as compared to 2016 as a result of increased occupancy due to new leases commencing during 2016 and2017 across our portfolio.Comparison of the accompanying consolidated statements of income for the year ended December 31, 2017 vs. the year ended December 31, 2016The following table sets forth selected data from our consolidated statements of income for the years ended December 31, 2017 and 2016, respectively, aswell 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 VarianceRevenue: Rental income$455.1 $439.9 $15.2Tenant reimbursements98.2 94.9 3.3Property management fee revenue1.7 1.9 (0.2)Other property related revenue19.2 19.0 0.2Total revenues574.2 100% 555.7 100% 18.5Expense: Property operating costs222.4 39% 220.8 40% 1.6Depreciation119.3 21% 127.7 23% (8.4)Amortization75.4 13% 75.1 13% 0.3Impairment loss on real estate assets46.5 8% 33.9 6% 12.6General and administrative expense29.3 5% 27.4 5% 1.9 81.3 14% 70.8 13% 10.5Other income (expense): Interest expense(68.1) 12% (64.9) 12% (3.2)Other income0.6 —% — —% 0.6Equity in income of unconsolidated joint ventures3.8 1% 0.4 —% 3.4Gain on sale of real estate assets, net115.9 20% 93.4 17% 22.5Net income$133.5 23% $99.7 18% $33.8RevenueRental income increased approximately $15.2 million for the year ended December 31, 2017 as compared to the same period in the prior year. The increase isprimarily attributable to new leases commencing during 2016 and 2017 across our portfolio, partially offset by net property sales activity since January 1,2016. In addition, rental income includes the amortization of approximately $3.4 million and $2.6 million of termination income for the years endedDecember 31, 2017 and 2016, respectively.Tenant reimbursements increased approximately $3.3 million for the year ended December 31, 2017 as compared to the same period in the prior year. Thevariance 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 periodreimbursements as a result of a favorable court ruling related to a tenant dispute.32 Table of ContentsIndex to Financial StatementsExpenseProperty operating costs increased approximately $1.6 million for the year ended December 31, 2017 as compared to the same period in the prior year,primarily due to increased average occupancy and the resulting increase in operating expenses, namely utilities and property tax expense of approximately$2.5 million. This increase was partially offset by a decrease in operating expenses of $0.9 million across our portfolio of properties as compared to the priorperiod.Depreciation expense decreased approximately $8.4 million for the year ended December 31, 2017 compared to the same period in the prior year dueprimarily to the sale of the 606,000 square foot, Two Independence Square building in July 2017.During the year ended December 31, 2017, we recognized a non-recurring impairment charge related to certain properties included in a sale of 14 non-coreproperties totaling approximately $46.5 million, which closed in January 2018. During the year ended December 31, 2016, we recognized non-recurringimpairment charges related to our 150 West Jefferson building located in Detroit, Michigan, and our 9200, 9211, and 9221 Corporate Boulevard buildingslocated in Rockville, Maryland totaling approximately $33.9 million (see Note 7 for details).General and administrative expenses increased approximately $1.9 million for the year ended December 31, 2017 compared to the same period in the prioryear 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 becapitalized as part of the development. This increase is offset by lower net interest resulting from repayments of debt during 2017, specifically the $140million of secured debt on our 1201 and 1225 Eye Street buildings.Equity in income of unconsolidated joint ventures increased approximately $3.4 million for the year ended December 31, 2017 as compared to the sameperiod 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 ventureproperty.Gain on sale of real estate assets during the year ended December 31, 2017 represents the gain recognized on the sale of the Sarasota Commerce Center IIbuilding and the Two Independence Square building. During the year ended December 31, 2016, gain on sale of real estate assets is comprised of thefollowing 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, andBraker Pointe III in Austin, Texas.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 financialmeasures and should not be viewed as an alternative measurement of our operating performance to net income. Management believes that accounting for realestate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values havehistorically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estatecompanies 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 informedand 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 definesFFO as follows: Net income (computed in accordance with GAAP), excluding gains or losses from sales of property and impairment charges (including ourproportionate share of any impairment charges and/or gains or losses from sales of property related to investments in unconsolidated joint ventures), plusdepreciation and amortization on real estate assets (including our proportionate share of depreciation and amortization related to investments inunconsolidated joint ventures). Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definitiondifferently than we do; therefore, our computation of FFO may not be comparable to such other REITs.33 Table of ContentsIndex to Financial StatementsWe 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 or infrequent items. Core FFO is a non-GAAP financial measure and should not be viewed asan alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core FFO is helpful toinvestors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but whichdo not directly relate to our core recurring business operations. As a result, we believe that Core FFO can help facilitate comparisons of operating performancebetween 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 backnon-cash items including: non-real estate depreciation, straight-line rent adjustments and fair value lease adjustments, non-cash components of interestexpense and compensation expense, and by making similar adjustments for unconsolidated joint ventures. AFFO is a non-GAAP financial measure andshould not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe thatAFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments. OtherREITs may not define AFFO in the same manner as us; therefore, our computation of AFFO may not be comparable to that of other REITs.Reconciliations of net income to FFO, Core FFO, and AFFO are presented below (in thousands except per share amounts): 2018 PerShare (1) 2017 PerShare(1) 2016 PerShare(1)GAAP net income applicable to common stock$130,296 $1.00 $133,564 $0.92 $99,732 $0.69Depreciation of real assets (2)107,113 0.82 118,577 0.82 127,129 0.87Amortization of lease-related costs (2)63,235 0.48 75,327 0.52 75,139 0.52Impairment loss on real estate assets— — 46,461 0.32 33,901 0.23Gain on sale- wholly-owned properties(75,691) (0.58) (115,874) (0.80) (93,410) (0.64)Gain on sale- unconsolidated partnerships— — (3,683) (0.03) — —NAREIT Funds From Operations applicable to commonstock$224,953 $1.72 $254,372 $1.75 $242,491 $1.67Adjustments: Acquisition costs— — 6 — 976 —Loss on extinguishment of debt1,680 0.01 — — — —Net recoveries from casualty events— — — — (34) —Core Funds From Operations applicable to commonstock$226,633 $1.73 $254,378 $1.75 $243,433 $1.67Adjustments: Amortization of debt issuance costs, fair marketadjustments on notes payable, and discount onUnsecured Senior Notes2,083 2,496 2,610 Depreciation of non real estate assets813 809 841 Straight-line effects of lease revenue (2)(13,980) (21,492) (21,544) Stock-based and other non-cash compensation7,528 6,139 5,620 Net effect of amortization of below-market in-placelease intangibles(7,615) (6,575) (5,065) Acquisition costs— (6) (976) Non-incremental capital expenditures (3)(44,004) (35,437) (35,568) Adjusted Funds From Operations applicable to commonstock$171,458 $200,312 $189,351 Weighted-average shares outstanding – diluted130,636 145,380 145,635 (1) Based on weighted-average shares outstanding—diluted.34 Table of ContentsIndex to Financial Statements(2) Includes adjustments for wholly-owned properties, as well as such adjustments for our proportionate ownership in unconsolidated joint ventures.(3) Piedmont defines non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and buildingcapital that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred leaseincentives 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 acquiredproperties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building, and renovations that either enhance therental 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.Property and Same Store Net Operating IncomeProperty Net Operating Income ("Property NOI") is a non-GAAP measure which we use to assess our operating results. We calculate Property NOI beginningwith Net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and removing any impairment losses, gains orlosses from sales of any property and other significant infrequent items that create volatility within our earnings and make it difficult to determine theearnings generated by our core ongoing business. Furthermore, we adjust for general and administrative expense, income associated with propertymanagement performed by us for other organizations, and other income or expense items such as interest income from loan investments or costs from thepursuit 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 analternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Property NOI, on either a cashor accrual basis, is helpful to investors as a supplemental comparative performance measure of income generated by our properties alone without ouradministrative overhead. Other REITs may not define Property NOI in the same manner as we do; therefore, our computation of Property NOI may not becomparable 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 entirespan of the current and prior year reporting periods. Same Store NOI also excludes amounts applicable to unconsolidated joint venture assets. Same Store NOIis 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 ouroperating performance. We believe that Same Store NOI, on either a cash or accrual basis is helpful to investors as a supplemental comparative performancemeasure 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 samemanner as we do; therefore, our computation of Same Store NOI may not be comparable to that of other REITs.35 Table of ContentsIndex to Financial StatementsThe following table sets forth a reconciliation from net income calculated in accordance with GAAP to Property NOI, on both a cash and accrual basis, andSame Store NOI, on both a cash and accrual basis, for the years ended December 31, 2018 and December 31, 2017, respectively (in thousands): Cash Basis Accrual Basis December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Net income applicable to Piedmont (GAAP basis)$130,296 $133,564 $130,296 $133,564 Net income applicable to noncontrolling interest(5) (15) (5) (15)Interest expense61,023 68,124 61,023 68,124Loss on extinguishment of debt1,680 — 1,680 —Depreciation (1)107,927 119,386 107,927 119,386Amortization (1)63,235 75,327 63,235 75,327Acquisition costs— 6 — 6Impairment loss on real estate assets (1)— 46,461 — 46,461Gain on sale of real estate assets, net (1)(75,691) (119,557) (75,691) (119,557)General & administrative expenses(1)29,713 29,374 29,713 29,374Management fee revenue(712) (922) (712) (922)Other income(1)(418) (303) (418) (303)Straight-line rent effects of lease revenue(1)(13,980) (21,492) Amortization of lease-related intangibles(1)(7,615) (6,575) Property NOI$295,453 $323,378 $317,048 $351,445 Net operating income from: Acquisitions(2)(4,718) (23) (5,993) (27)Dispositions(3)(13,841) (58,177) (11,396) (54,650)Other investments(4)(3,730) (8,718) (4,021) (9,418) Same Store NOI$273,164 $256,460 $295,638 $287,350 Change period over period in Same Store NOI6.5% N/A 2.9% N/A(1) Includes amounts attributable to consolidated properties and our proportionate share of amounts attributable to unconsolidated joint ventures.(2) Acquisitions consist of Norman Pointe I in Bloomington, Minnesota, purchased on December 28, 2017; 501 West Church Street in Orlando, Florida, purchased onFebruary 23, 2018; 9320 Excelsior Boulevard in Hopkins, Minnesota, purchased on October 25, 2018; and 25 Burlington Mall Road in Burlington, Massachusetts,purchased on December 12, 2018.(3) Dispositions consist of Sarasota Commerce Center II in Sarasota, Florida, sold on June 16, 2017; Two Independence Square in Washington, D.C., sold on July 5, 2017;a 14-property portfolio sold on January 4, 2018 (comprised of 2300 Cabot Drive in Lisle, Illinois; Windy Point I and II in Schaumburg, Illinois; Suwanee Gateway Oneand land in Suwanee, Georgia; 1200 Crown Colony Drive in Quincy, Massachusetts; Piedmont Pointe I and II in Bethesda, Maryland; 1075 West Entrance Drive andAuburn Hills Corporate Center in Auburn Hills, Michigan; 5601 Hiatus Road in Tamarac, Florida; 2001 NW 64th Street in Ft. Lauderdale, Florida; Desert Canyon 300in Phoenix, Arizona; 5301 Maryland Way in Brentwood, Tennessee; and 2120 West End Avenue in Nashville, Tennessee); and 800 North Brand Boulevard in Glendale,California, sold on November 29, 2018.(4) Other investments consist of our investments in unconsolidated joint ventures, active redevelopment and development projects, land, and recently completedredevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. Theoperating results from 500 TownPark in Lake Mary, Florida, and Two Pierce Place in Itasca, Illinois, are included in this line item.36 Table of ContentsIndex to Financial StatementsOverviewOur portfolio is a diverse geographical portfolio primarily located in select sub-markets within eight major office markets located in the Eastern-half of theUnited States. We typically lease space to large, credit-worthy corporate or governmental tenants on a long-term basis. As of December 31, 2018, our averagelease was approximately 19,000 square feet with approximately seven years of lease term remaining. Consequently, leased percentage, as well as rent roll upsand roll downs, which we experience as a result of re-leasing, can fluctuate widely between buildings and between tenants, depending on when a particularlease is scheduled to commence or expire.Leased PercentageAs of December 31, 2018, our in-service portfolio of 54 office properties was 93.3% leased, up from 89.7% leased as of December 31, 2017, and scheduledlease expirations for the portfolio as a whole for the year ended December 31, 2019 are 12.9% of our ALR. To the extent new leases for currently vacant spaceoutweigh or fall short of scheduled expirations, net of any renewals, such activity would increase or decrease our leased percentage, respectively. Our leasedpercentage may also fluctuate from the impact of occupancy levels associated with our net acquisition and disposition activity and existing properties placedin or taken out of service for redevelopment.Impact of Downtime, Abatement Periods, and Rental Rate ChangesCommencement of new leases typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed. The downtimebetween a lease expiration and the new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cashbasis). In addition, office leases, both new and lease renewals, often contain upfront rental and/or operating expense abatement periods which delay the cashflow 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 acash basis until such abatements expire. As of December 31, 2018, we had approximately 465,000 square feet of executed leases related to currently vacantspace that had not yet commenced and approximately 667,000 square feet of commenced leases that were in some form of rental and/or operating expenseabatement.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 couldoccur and negatively impact Property NOI and Same Store NOI comparisons. Given our geographically diverse portfolio and the magnitude of some of ourtenant's leased square footage, rent roll ups and roll downs can fluctuate widely on a building-by-building and year-over-year basis. For the portfolio ingeneral during the year ended December 31, 2018, we experienced a 2.4% and 9.1% roll up in our cash and accrual rents, respectively, from new leases andrenewals for space that was vacant one year or less. In particular, leases representing 12.9% of our ALR are scheduled to expire during 2019. Of the leasesscheduled to expire in 2019, approximately 40% of the corresponding ALR relates to the State of New York lease (totaling 481,000 square feet) at our 60Broad Street building, located in New York City, New York, which is scheduled to expire during first quarter of 2019. We are currently in advanced stages ofthe lease renewal process with this tenant and the anticipated outcome is a lease renewal with a slight roll down in starting cash rents and increased GAAP-based rents with a modest square footage contraction.Same Store NOI increased 6.5% and 2.9% on a cash and accrual basis, respectively, during the year ended December 31, 2018, as compared to the sameperiod in the prior year. In addition to general increases in occupancy levels and improved rental rates, Same Store NOI (cash basis) was favorably impactedby the expiration of several large lease abatements at certain properties and Same Store NOI (accrual basis) was favorably impacted by the commencement ofseveral large leases throughout the portfolio. Property NOI and Same Store NOI comparisons for any given period may still fluctuate as a result of the mix ofnet leasing activity in individual properties during the respective period.Election as a REITWe 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 aREIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted REIT taxableincome, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to our stockholders, as defined by theCode. 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 anytaxable 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 whichqualification is lost and/or penalties, unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our netincome 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 fortreatment as a REIT and intend to continue to operate in the foreseeable future in such37 Table of ContentsIndex to Financial Statementsa 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 ataxable REIT subsidiary. POH performs non-customary services for tenants of buildings that we own, including solar power generation and real estate andnon-real estate related-services. 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 20% of the value of our total assets.InflationWe 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 majorityof our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursementbillings for operating expense pass-through charges, real estate tax, and insurance on a per square-foot basis, or in some cases, annual reimbursement ofoperating expenses above certain per square-foot allowances. However, due to the long-term nature of the leases, the leases may not readjust theirreimbursement rates frequently enough to fully cover inflation.Off-Balance Sheet ArrangementsWe are not dependent on off-balance sheet financing arrangements for liquidity, and do not currently have any off-balance sheet arrangements. For furtherinformation regarding our commitments under operating lease obligations, see the notes of our accompanying consolidated financial statements, as well asthe table found in Contractual Obligations below.Application of Critical Accounting PoliciesOur accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requiresmanagement to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenueand 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. Thecritical accounting policies outlined below have been discussed with members of the Audit Committee of the Board of Directors.Valuation of Real Estate AssetsWe 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. When indicators of potential impairment are present, we assess whether the respective carrying values will be recovered from theundiscounted future operating cash flows expected from the use of the asset and its eventual disposition for assets held for use, or from the estimated fairvalue, 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 andrecognize an impairment loss.Projections of expected future cash flows require that we estimate future market rental income amounts subsequent to the expiration of current leaseagreements, 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 anincorrect assessment of the property’s estimated fair value and, therefore, could result in the misstatement of the carrying value of our real estate and relatedintangible assets and our reported net income attributable to Piedmont.Rental Revenue RecognitionRental income for office properties is our principal source of revenue. The timing of rental revenue recognition is largely dependent on our conclusion as towhether we, or our tenant, are the owner for accounting purposes of tenant improvements at the leased property. When we conclude that we are the owner oftenant improvements, we record the cost to construct the tenant improvements as an asset and commence rental revenue recognition when the tenant takespossession of or controls the finished space, which is typically when the improvements being recorded as our asset are substantially complete and ourlandlord obligation has been materially satisfied. When we conclude that our tenant is the owner of certain tenant improvements, we record our contribution38 Table of ContentsIndex to Financial Statementstowards those improvements as a lease incentive, which is amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease,and the recognition of rental revenue begins when the tenant takes possession of or controls the space.The determination of whether we, or our tenant, are the owner of tenant improvements for accounting purposes is subject to significant judgment. In makingthat determination, we consider numerous factors and perform an evaluation of each individual lease. No one factor is determinative in reaching a conclusion.The factors we evaluate include but are not limited to the following:•whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenantimprovements;•whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowancewas spent on prior to payment by the landlord for such tenant improvements;•whether the tenant improvements are unique to the tenant or reusable by other tenants;•whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or without compensating the landlordfor any lost utility or diminution in fair value; and•whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term.In addition, we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of such tenantimprovements using the factors discussed above. For these tenant-funded tenant improvements, we record the amount funded or reimbursed by tenants asdeferred revenue, which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leasedpremises.Consequently, our determination as to whether we, or our tenant, are the owner of tenant improvements for accounting purposes has a significant impact onboth the amount and timing of rental revenue that we record related to tenant-funded tenant improvements.Accounting Pronouncements Adopted during the Year Ended December 31, 2018Revenue RecognitionOn January 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") which changed thecriteria for the recognition of certain revenue streams to depict the transfer of promised goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services using a five-step determination process.Our revenues which are included in the scope of ASC 606 include our property management fee revenue, the majority of our parking revenue, as well ascertain license agreements which allow third-parties to place their antennas or fiber-optic cabling on or inside our buildings. Lease contracts are specificallyexcluded from ASC 606 and, we intend to utilize a leasing practical expedient (see further discussion below) to group certain non-lease components relatedto operating expense reimbursements with other leasing components, provided they meet certain criteria. Because the timing and pattern of transfer of ournon-lease related revenue already followed the prescribed method of ASC 606, we were able to effectively adopt ASC 606 on a full retrospective basis, withno impact to the historical timing of recognition of the related revenue; however, such non-lease revenues are now being presented as "Other property relatedincome" in our accompanying consolidated statements of income. Further, for comparative purposes, we reclassified approximately $19.2 million and $19.0million for the years ended December 31, 2017 and 2016, respectively, of parking, antennae license, and fiber income that was previously included in rentalincome into other property related income, as well as certain other miscellaneous revenue into tenant reimbursements and/or property management feerevenue. We did not elect to adopt any practical expedients provided by ASC 606.Gain/(loss) on Sale of Real Estate AssetsOn January 1, 2018, we adopted 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")concurrently with ASC 606 mentioned above. We elected to apply the amendments of ASU 2017-05 on a full retrospective basis; however, there were noadjustments to previously recorded gains/(losses) on sale of real estate as a result of the transition.Equity Investments Held in Non-qualified Deferred Compensation PlanOn January 1, 2018, we adopted Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10),39 Table of ContentsIndex to Financial StatementsRecognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), as well as Accounting Standards Update No. 2018-03Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10) ("ASU 2018-03"). These amendments require equityinvestments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognizedin net income. Investments in trading securities held in a "rabbi trust" by us are the only securities affected by ASU 2016-01 and ASU 2018-03. As such, wehave made a cumulative-effect adjustment to our consolidated balance sheet and consolidated statements of stockholders' equity of approximately $0.1million from other comprehensive income to cumulative distributions in excess of earnings, and have recorded changes in fair value in net income for theyear ended December 31, 2018 related to these investment securities.Interest Rate DerivativesOn January 1, 2018, we early adopted Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting forHedging Activities ("ASU 2017-12").We adopted ASU 2017-12 using the modified retrospective transition method; however, no adjustment was necessary toaccount for the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the dateof adoption because there was no cumulative ineffectiveness that had been recorded on our existing interest rate swaps as of December 31, 2017, and alltrades were highly effective. The amended presentation and disclosure guidance which is required to be presented prospectively is provided in Note 5 to ouraccompanying consolidated financial statements.Other Recent Accounting PronouncementsThe FASB has issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which fundamentally changes the definition of alease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liabilityto 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 forleases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis.40 Table of ContentsIndex to Financial StatementsAdditionally, the FASB has subsequently issued a number of clarifying and technical corrections to ASU 2016-02 through several Accounting StandardsUpdates ("ASU") as follows:ASUTitleSummaryAnticipated Impact on OurConsolidated FinancialStatements Based onManagement’s Assessment to DateASU 2018-01Leases (Topic 842) LandEasement Practical Expedientfor Transition to Topic 842Clarifies that a land easement is required to be evaluated todetermine whether it should be accounted for as a lease uponadoption of ASU 2016-02; also provides an optional practicaltransition expedient allowing entities not currently assessingland easements under existing leasing guidance prior toadoption of ASU 2016-02 to not apply the new guidance toland easements existing at the date of initial adoption of ASU2016-02.No material impact. ASU 2018-10Codification Improvements toTopic 842, LeasesClarifications and technical corrections to ASU 2016-02.No material impact. ASU 2018-11Leases (Topic 842) TargetedImprovementsAllows certain non-lease operating expense reimbursementswhich are included in the underlying stated lease rate to beaccounted for as part of the lease provided certain criteria aremet under an optional practical expedient.All of our operating expensereimbursements qualify to beaccounted for as a part of theunderlying lease. ASU 2018-20Leases (Topic 842)Narrow-Scope Improvementsfor LessorsAllows lessors to exclude sales taxes collected from lesseesfrom revenue; also stipulates certain requirements related tovariable consideration; and also requires the lessor to allocate,rather than recognize, certain variable payments to lease andnon-lease components when changes to the facts andcircumstances of the basis of the payments occurs.No material impact.In addition to the practical expedients mentioned above, as part of ASU 2018-01 and ASU 2018-11, we intend to adopt the other following practicalexpedients and transition amendments collectively allowed by the FASB relative to the new guidance for lease accounting:•a package of practical expedients, applied together, which do not require the reassessment of (1) any expired or existing contracts to determine ifthey contain a lease; (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases;•the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), which effectively allows for an initialadoption of ASC 842 (the new leasing guidance) on January 1, 2019.Other than recording an immaterial right-to-use asset and offsetting lease liability under lessee accounting on our balance sheet of approximately $0.3million, and no longer capitalizing internal direct payroll costs associated with negotiating and executing leases (only accounting for approximately $0.3million for the year ended December 31, 2018), the adoption of ASU 2016-02 on January 1, 2019 did not have any material impact on our consolidatedfinancial statements.The FASB has issued Accounting Standards Update No. 2018-07, Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based PaymentAccounting ("ASU 2018-07"). The provisions of ASU 2018-07 align accounting for stock based compensation for non-employees for goods and services withexisting accounting for similar compensation for employees. The amendments supersede previous guidance on accounting for share-based payments to non-employees codified in the FASB's Accounting Standards Codification ("ASC") 505-50. ASU 2018-07 is effective in the first quarter of 2019, with earlyadoption permitted at any time provided that the entity has already adopted the provisions of ASC 606. The adoption of ASU 2018-07 did not have anymaterial impact on our consolidated financial statements.41 Table of ContentsIndex to Financial StatementsThe FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses onFinancial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairingtrade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result inearlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securitiesto an allowance, rather than a direct reduction of the amortized cost of the securities. Additionally, the FASB issued Accounting Standards Update No. 2018-19 Codification Improvements to Topic 326, Financial Instruments - Credit Losses which is effective concurrently, with ASU 2016-13, and excludesreceivable arising from operating leases from the scope of ASU 2016-13. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permittedas of January 1, 2019. We are currently evaluating the potential impact of adoption; however, substantially all of our receivables are operating leasereceivables and as such, we do not anticipate any material impact to our consolidated financial statements as a result of adoption.Related-Party Transactions and AgreementsThere were no related-party transactions during the three years ended December 31, 2018, other than a consulting agreement with our former ChiefInvestment Officer ("CIO"), Raymond L. Owens. Mr. Owens retired effective June 30, 2017, but will remain a consultant for us until June 30, 2020 and willearn $18,500 per month. During the year ended December 31, 2018, we incurred approximately $277,578 related to this consulting agreement.Contractual ObligationsOur contractual obligations as of December 31, 2018 were as follows (in thousands): Payments Due by Period Contractual Obligations Total Less than1 year 1-3 years 3-5 years More than5 years Long-term debt (1) (2) $1,694,706 $932 $328,774(3) $715,000(4) $650,000(5) (1) Amounts include principal payments only and balances outstanding as of December 31, 2018, not including unamortized issuance discounts, debt issuance costs paid tolenders, or estimated fair value adjustments. We made interest payments, including payments under our interest rate swaps, of approximately $63.1 million during the yearended December 31, 2018, and expect to pay interest in future periods on outstanding debt obligations based on the rates and terms disclosed herein and in Note 4 of ouraccompanying consolidated financial statements.(2) Piedmont does not have any ground leases, nor does Piedmont have any material obligations as lessee under operating lease agreements as of December 31, 2018. See Note 8 to our accompanying consolidated financial statements for amounts committed to tenants for improvements, the timing of which may fluctuate.(3) Includes the Amended and Restated $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, we have entered into interest rate swapagreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 3.20% through January 15, 2020. As such, we estimate incurring,exclusive of changes to our credit rating, approximately $9.6 million per annum in total interest (comprised of combination of variable contractual rate and settlementsunder interest rate swap agreements) through January 2020.(4) Includes the balance outstanding as of December 31, 2018 of the $500 Million Unsecured 2018 Line of Credit. However, we may extend the term for up to one additionalyear (through two available six month extensions to a final extended maturity date of September 29, 2023) provided we are not then in default and upon payment ofextension fees.(5) Includes the $250 Million Unsecured 2018 Term Loan, which has a stated variable rate; however, we entered into $100 million in notional amount of seven-year interestrate swap agreements and $50 million in notional amount of two-year interest rate swap agreements, resulting in an effectively fixed interest rate on $150 million of theterm loan at 4.11% through March 29, 2020 and on $100 million of the term loan at 4.21% from March 30, 2020 through the loan's maturity date of March 31, 2025,assuming no change in our credit rating. As such, we estimate incurring, exclusive of changes to our credit rating, approximately $6.2 million per annum in total hedgedinterest (comprised of combination of variable contractual rate and settlements under interest rate swap agreements) through March 2020, and $4.2 million per annum intotal hedged interest from March 2020 through March 2025. For the portion of the $250 Million Unsecured 2018 Term Loan that continues to have a variable interestrate, we 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(1.60% as of December 31, 2018) over the selected interest rate based on our then current credit rating.42 Table of ContentsIndex to Financial StatementsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSOur future income, cash flows, and estimated fair values of our financial instruments depend in part upon prevailing market interest rates. Market risk is theexposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and equity prices. Our potential for exposure tomarket risk includes interest rate fluctuations in connection with borrowings under our $500 Million Unsecured 2018 Line of Credit, our Amended andRestated $300 Million Unsecured 2011 Term Loan, and the $250 Million Unsecured 2018 Term Loan. As a result, the primary market risk to which webelieve we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic andpolitical considerations, and other factors that are beyond our control contribute to interest rate risk, including changes in the method pursuant to which theLIBOR rates are determined and the potential phasing out of LIBOR after 2021 (see Item 1A. Risk Factors for further discussion of the risks associated withLIBOR). 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 2018 Line of Credit and $100 million of our $250 Million Unsecured 2018 Term Loan is currently based on fixed or effectively-fixed interest rates to hedge against volatility in the credit markets. We do not enter into derivative or interest rate transactions for speculative purposes, assuch all of our debt and derivative instruments were entered into for other than trading purposes.Our financial instruments consist of both fixed and variable-rate debt. As of December 31, 2018, our consolidated principal outstanding for aggregate debtmaturities consisted of the following (in thousands): 2019 2020 2021 2022 2023 Thereafter TotalMaturing debt: Variable raterepayments$— $— $— $205,000(3) $— $100,000(4) $305,000Variable rateaverage interestrate (1)—% —% —% 3.35% —% 4.12% 3.60%Fixed raterepayments$932 $1,072 $327,702(2) $160,000 $350,000 $550,000(4) $1,389,706Fixed rate averageinterest rate (1)5.55% 5.55% 3.40% 3.48% 3.40% 4.36% 3.79%(1) See Note 4 to our accompanying consolidated financial statements for further details on our debt structure.(2) Includes the Amended and Restated $300 Million Unsecured 2011 Term Loan which has a stated variable rate; however, we have entered into interest rate swapagreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 3.20% through January 15, 2020.(3) Includes the balance of our $500 Million Unsecured 2018 Line of Credit. However, we may extend the term for up to one additional year (through two available sixmonth extensions to a final extended maturity date of September 29, 2023) provided we are not then in default and upon payment of extension fees.(4) During the year ended December 31, 2018, Piedmont entered into a $250 million unsecured term loan facility (the “$250 Million Unsecured 2018 Term Loan”) with aconsortium of lenders. The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changesto Piedmont's credit rating, $150 million of the principal balance to 4.11% through March 2020 leaving the remaining $100 million principal at the variable rate. Fixed ratepayments also includes $400 million of Unsecured Senior Notes.43 Table of ContentsIndex to Financial StatementsAs of December 31, 2017, our consolidated principal outstanding for aggregate debt maturities consisted of the following (in thousands): 2018 2019 2020 2021 2022 Thereafter TotalMaturing debt: Variable raterepayments$170,000(2) $23,000(3) $— $— $— $— $193,000Variable rateaverage interestrate (1)2.54% 2.57% —% —% —% —% 2.54%Fixed raterepayments$882 $301,014(4) $301,072(5) $27,702 $160,000 $750,000 $1,540,670Fixed rate averageinterest rate (1)5.55% 2.79% 3.36% 5.55% 3.48% 3.96% 3.59%(1) See Note 4 to our accompanying consolidated financial statements for further details on our debt structure.(2) 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 thisfacility without penalty.(3) Includes the balance on our $500 Million Unsecured 2015 Line of Credit which was repaid on September 28, 2018, and the balance was transferred to the $500 MillionUnsecured 2018 Line of Credit. The $500 Million Unsecured 2018 Line of Credit has a maturity of September 30, 2022. However, we may extend the term for up to oneadditional year (through two available six month extensions to a final extended maturity date of September 29, 2023) provided we are not then in default and uponpayment of extension fees.(4) 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 thisfacility without penalty.(5) The amount includes the $300 Million Unsecured 2011 Term Loan which was Amended and Restated on September 28, 2018, amending, among other things, thematurity date from January 2020 to November 30, 2021. The Amended and Restated $300 Million Unsecured 2011 Term Loan has a stated variable rate; however, wehave entered into interest rate swap agreements which effectively fix, exclusive of changes to our credit rating, the rate on this facility to 3.20% through January 15, 2020.As of December 31, 2018 and December 31, 2017, the estimated fair value of our debt above was approximately $1.7 billion and $1.8 billion, respectively.Our interest rate swap agreements in place at December 31, 2018 and December 31, 2017 carried a notional amount totaling $450 million and $600 million,respectively, with a weighted-average fixed interest rate (not including the corporate credit spread) of 2.30% and 1.89%, respectively.As of December 31, 2018, our total outstanding debt subject to fixed, or effectively fixed, interest rates has an average effective interest rate of approximately3.79% per annum with expirations ranging from 2021 to 2025. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio but has no impact on interest incurred or cash flows.As of December 31, 2018, we had $205 million outstanding on our $500 Million Unsecured 2018 Line of Credit. Our $500 Million Unsecured 2018 Line ofCredit currently has a stated rate of LIBOR plus 0.90% per annum (based on our current corporate credit rating) or the prime rate, at our discretion, resultingin an total interest rate of 3.35%. The current stated interest rate spread on $100 million of the $250 Million Unsecured 2018 Term Loan that is noteffectively fixed through interest rate swaps is LIBOR plus 1.60% (based on our current corporate credit rating), which, as of December 31, 2018, results in atotal interest rate of 4.12%. To the extent that we borrow additional funds in the future under the $500 Million Unsecured 2018 Line of Credit or potentialfuture variable-rate lines of credit, we would have exposure to increases in interest rates, which would potentially increase our cost of debt. Additionally, a1.0% increase in variable interest rates on our existing outstanding borrowings as of December 31, 2018 would increase interest expense approximately $3.1million on a per annum basis.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and supplementary data filed as part of this report are set forth on page F-1 of this report.44 Table of ContentsIndex to Financial StatementsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREThere were no disagreements with our independent registered public accountants during the years ended December 31, 2018 or 2017.ITEM 9A. CONTROLS AND PROCEDURESManagement’s Conclusions Regarding the Effectiveness of Disclosure Controls and ProceduresWe carried out an evaluation, under the supervision and with the participation of management, including our Principal Executive Officer and PrincipalFinancial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the SecuritiesExchange Act of 1934 (the "Exchange Act") as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officerand Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual reportin 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 informationrequired to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and ourPrincipal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.Report of Management on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining effective 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 personsperforming similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies andprocedures 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 ofdirectors; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could havea 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 overridingof controls, material misstatements may not be prevented or detected on a timely basis. In addition, projections of any evaluation of effectiveness to futureperiods are subject to the risks that controls may become inadequate because of changes and conditions or that the degree of compliance with policies orprocedures may deteriorate. Accordingly, even internal controls determined to be effective can provide only reasonable assurance that the informationrequired 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, 2018. To make this assessment, we used thecriteria for effective internal control over financial reporting described in the 2013 Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management believes that, as of December 31, 2018, oursystem 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 financialreporting, which appears in this Annual Report.Changes in Internal Control Over Financial ReportingThere have been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2018 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting.45 Table of ContentsIndex to Financial StatementsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the stockholders and the Board of Directors of Piedmont Office Realty Trust, Inc.:Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of Piedmont Office Realty Trust, Inc. and subsidiaries (the “Company”) as of December 31,2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedfinancial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 20, 2019, expressed an unqualifiedopinion on those financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable 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 reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate./s/ Deloitte & Touche LLPAtlanta, GeorgiaFebruary 20, 201946 Table of ContentsIndex to Financial StatementsITEM 9B. OTHER INFORMATIONNone.47 Table of ContentsIndex to Financial StatementsPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEPursuant 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 incorporatedby 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, 2018 inconnection with our 2019 Annual Meeting of Stockholders.We have adopted a Code of Ethics, which is available on Piedmont’s website at http://www.piedmontreit.com under the “Investor Relations” section. Anyamendments to, or waivers of, the Code of Ethics will be disclosed on our website promptly following the date of such amendment or waiver.ITEM 11. EXECUTIVE COMPENSATIONThe 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 yearended December 31, 2018, and is incorporated herein by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe 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 yearended December 31, 2018, and is incorporated herein by reference.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe 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 yearended December 31, 2018, and is incorporated herein by reference.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe 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 yearended December 31, 2018, and is incorporated herein by reference.48 Table of ContentsIndex to Financial StatementsPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(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 containedherein is set forth on page F-1, which is hereby incorporated by reference.(a)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 ofconditions under which they are required or because the required information is given in the financial statements or notes thereto.(b)The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.(c)See (a) 2. above.49 Table of ContentsIndex to Financial StatementsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized this 20th day of February, 2019.Piedmont Office Realty Trust, Inc.(Registrant) By: /s/ DONALD A. MILLER, CFA Donald A. Miller, CFA Chief Executive Officer, Principal Executive Officer, and DirectorPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacity as and on the date indicated.Signature TitleDate /s/ FRANK C. MCDOWELL Chairman, and DirectorFebruary 20, 2019Frank C. McDowell /s/ WESLEY E. CANTRELL DirectorFebruary 20, 2019Wesley E. Cantrell /s/ BARBARA B. LANG DirectorFebruary 20, 2019Barbara B. Lang /s/ RAYMOND G. MILNES, JR. DirectorFebruary 20, 2019Raymond G. Milnes, Jr. /s/ JEFFREY L. SWOPE DirectorFebruary 20, 2019Jeffrey L. Swope /s/ DALE H. TAYSOM DirectorFebruary 20, 2019Dale H. Taysom /s/ KELLY H. BARRETT DirectorFebruary 20, 2019Kelly H. Barrett /s/ DONALD A. MILLER, CFA Chief Executive Officer and DirectorFebruary 20, 2019Donald A. Miller, CFA (Principal Executive Officer) /s/ ROBERT E. BOWERS Chief Financial Officer and Executive Vice-PresidentFebruary 20, 2019Robert E. Bowers (Principal Financial Officer) /s/ LAURA P. MOON Chief Accounting OfficerFebruary 20, 2019Laura P. Moon (Principal Accounting Officer) 50 Table of ContentsIndex to Financial StatementsEXHIBIT INDEXTO2018 FORM 10-KOFPIEDMONT OFFICE REALTY TRUST, INC.Exhibit Number Description of Document3.1 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 endedDecember 31, 2009, filed on March 16, 2010) 3.2 Articles of Amendment of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.2 to the Company's CurrentReport on Form 8-K filed on July 6, 2011) 3.3 Articles Supplementary of the Company effective June 30, 2011 (incorporated by reference to Exhibit 3.1 to the Company's CurrentReport on Form 8-K filed on July 6, 2011) 3.4 Articles Supplementary to the Third Articles of Amendment and Restatement of Piedmont Office Realty Trust, Inc., as supplementedand amended (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on November 14, 2016) 3.5 Articles of Amendment to the Third Articles of Amendment and Restatement of Piedmont Office Realty Trust, Inc., as supplementedand amended (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on May 23, 2018) 3.6 Amended and Restated Bylaws of Piedmont Office Realty Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Company'sCurrent Report on Form 8-K, filed on May 9, 2017) 4.1 Indenture, dated May 9, 2013, by and among Piedmont Operating Partnership, LP (the "Operating Partnership"), the Company andU.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) 4.2 Form of 3.40% Senior Notes due 2023 (included in Exhibit 4.1 hereto) 4.3 Indenture, dated March 6, 2014, by and among the Operating Partnership, Piedmont Office Realty Trust, Inc. and U.S. Bank NationalAssociation, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on March 6,2014) 4.4 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, filedon March 6, 2014) 4.5 Form of 4.450% Senior Notes due 2024 (included in Exhibit 4.2 hereto) 10.1 Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated January 1, 2000 (incorporated byreference 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) 10.2 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) 10.3 Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as Amended andRestated as of January 1, 2000, dated August 8, 2007 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report onForm 8-K, filed on August 10, 2007) 10.4 Amended and Restated Dividend Reinvestment Plan of the Company adopted February 24, 2011 (incorporated by reference toExhibit 99.1 to the Company’s Current Report on Form 8-K, filed on February 24, 2011) 10.5* Long-Term Incentive Program (as amended and restated effective April 27, 2016) (incorporated by reference to Exhibit 10.1 to theCompany's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, filed on August 3, 2016) 10.6* Long-Term Incentive Program Award Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report onForm 10-Q for the quarterly period ended September 30, 2011, filed on November 3, 2011) 51 Table of ContentsIndex to Financial Statements10.7* The Piedmont Office Realty Trust, Inc. Executive Nonqualified Deferred Compensation Plan dated December 5, 2013 (incorporatedby reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, filed onFebruary 18, 2014) 10.8* The Piedmont Office Realty Trust, Inc. Executive Nonqualified Deferred Compensation Plan Adoption Agreement dated December5, 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) 10.9* 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) 10.10* 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) 10.11* Employment Agreement dated February 2, 2007, by and between the Company and Donald A. Miller, CFA (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on February 5, 2007) 10.12* 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) 10.13* Employment Agreement dated April 16, 2007, by and between the Company and Robert E. Bowers (incorporated by reference toExhibit 99.9 to the Company’s Current Report on Form 8-K, filed on April 20, 2007) 10.14* Employment Agreement dated May 14, 2007, by and between the Company and Carroll A. “Bo” Reddic, IV (incorporated byreference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed on May 14, 2007) 10.15* Employment Agreement dated May 14, 2007, by and between the Company and Laura P. Moon (incorporated by reference toExhibit 99.3 to the Company’s Current Report on Form 8-K, filed on May 14, 2007) 10.16* Offer Letter Dated October 17, 2012 among the Company and Robert K. Wiberg (incorporated by reference to Exhibit 10.41 to theCompany's Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 27, 2013) 10.17* Consulting Agreement, dated as of November 28, 2016, by and between the Company and Raymond L. Owens (incorporated byreference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed on February21, 2017) 10.18* Confidential Retirement Agreement and General Release, dated as of November 28, 2016, by and between the Company andRaymond L. Owens (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year endedDecember 31, 2016, filed on February 21, 2017) 10.19 Amended and Restated Term Loan Agreement Dated as Of September 28, 2018 by and among Piedmont Operating Partnership, LP,as Borrower, Piedmont Office Realty Trust, Inc., as Parent, JPMorgan Chase Bank, N.A., and SunTrust Robinson Humphrey, Inc., asCo-Lead Arrangers and Book Managers, JPMorgan Chase Bank, N.A., as Administrative Agent, SunTrust Bank as SyndicationAgent, and the other financial institutions initially signatory thereto and their assignees (incorporated by reference to Exhibit 10.2 tothe Company's Current Report on Form 8-K filed on October 2, 2018) 10.20 Term Loan Agreement, dated as of December 18, 2013, among Piedmont Operating Partnership, LP, as Borrower, Piedmont OfficeRealty Trust, Inc., as Parent, U.S. Bank, N.A., and SunTrust Robinson Humphrey, Inc., as Joint Book Runners and Joint LeadArrangers, 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) 10.21 Term Loan Agreement, dated as of March 27, 2015, among Piedmont Operating Partnership, LP, as Borrower, Piedmont Office RealtyTrust, 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) 10.22 Loan Agreement dated as of June 23, 2015 between Piedmont 1901 Market LLC, as Borrower and The Prudential InsuranceCompany of America, as Lender (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed onJune 24, 2015) 52 Table of ContentsIndex to Financial Statements10.23 First Amendment to the Loan Agreement between Piedmont 1901 Market LLC, as Borrower and The Prudential Insurance Companyof America, as Lender (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the year endedDecember 31, 2017, filed on February 21, 2018) 10.24 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) 10.25* Piedmont Office Realty Trust, Inc. Amended and Restated 2007 Omnibus Incentive Plan (incorporated by reference to Appendix A tothe Company's Proxy Statement for its 2017 Annual Meeting of Stockholders filed with the Commission on March 22, 2017) 10.26* 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) 10.27* Form of Employee Deferred Stock Award Agreement for Amended and Restated 2007 Omnibus Incentive Plan of the Companyeffective May 2, 2017 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterlyperiod ended June 30, 2017, filed on August 2, 2017) 10.28 Term Loan Agreement, dated as of March 29, 2018, by and among Piedmont Operating Partnership, LP, as Borrower, Piedmont OfficeRealty Trust, Inc., as Parent, U.S. Bank National Association, PNC Capital Markets LLC, and SunTrust Robinson Humphrey, Inc., asJoint Lead Arrangers and Joint Book Runners, U.S. Bank National Association, as Administrative Agent, PNC Bank, NationalAssociation and SunTrust Bank as Syndication Agents, and the other banks signatory thereto as Lenders (incorporated by referenceto Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 3, 2018) 10.29 Amendment No. 1, dated as of September 28, 2018, to the Term Loan Agreement between Piedmont Operating Partnership, LP, asBorrower and U.S. Bank National Association as Administrative Agent dated as of March 29, 2018 (incorporated by reference toExhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, filed on October30, 2018) 10.30 Revolving Credit Agreement Dated as of September 28, 2018 by and among Piedmont Operating Partnership, LP, as Borrower,Piedmont Office Realty Trust, Inc., as Parent, JPMorgan Chase Bank, N.A., SunTrust Robinson Humphrey, Inc., U.S. Bank NationalAssociation and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Bookrunners, JPMorgan Chase Bank, N.A., asAdministrative Agent, SunTrust Bank, U.S. Bank National Association and PNC Bank, National Association, as Syndication Agents,Bank Of America, N.A., BMO Harris Bank, N.A., Branch Banking and Trust Company, Morgan Stanley Senior Funding, Inc., TDBank, N.A., The Bank Of Nova Scotia and Wells Fargo Bank, N.A. as Documentation Agents, and the other financial institutionsinitially signatory thereto and their assignees (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 2, 2018) 10.31* Employment Agreement dated January 1, 2019, by and between the Company and Christopher Kollme 21.1 List of Subsidiaries of the Company 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Ernst & Young LLP 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embeddedwithin the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase* Identifies each management contract or compensatory plan required to be filed.53 Table of ContentsIndex to Financial StatementsINDEX TO CONSOLIDATED FINANCIAL STATEMENTSFinancial StatementsPageReports of Independent Registered Public Accounting FirmsF- 2Consolidated Balance Sheets as of December 31, 2018 and 2017F- 4Consolidated Statements of Income for the Years Ended December 31, 2018, 2017, and 2016F- 5Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017, and 2016F- 6Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2018, 2017, and 2016F- 7Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016F- 8Notes to Consolidated Financial StatementsF- 9 Financial Statement Schedule Schedule III - Real Estate Assets and Accumulated DepreciationS- 1F- 1 Table of ContentsIndex to Financial StatementsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the stockholders and the Board of Directors of Piedmont Office Realty Trust, Inc.:Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheet of Piedmont Office Realty Trust, Inc. and subsidiaries (the "Company") as of December 31,2018, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for the year ended December 31, 2018, andthe related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements"). In our opinion, the financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cashflows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2019, expressed an unqualified opinion on theCompany's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin 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 reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures toassess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Suchprocedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audit provides a reasonable basis for our opinion./s/ Deloitte & Touche LLPAtlanta, Georgia February 20, 2019We have served as the Company's auditor since 2018.F- 2 Table of ContentsIndex to Financial StatementsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Piedmont Office Realty Trust, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Piedmont Office Realty Trust, Inc. as of December 31, 2017, and the related consolidatedstatements of income, comprehensive income, stockholders' equity, and cash flows for the years ended December 31, 2017 and 2016, and the related notesand financial statement schedule listed in the Index at Item 15(a) for the years ended December 31, 2017 and 2016 (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position ofPiedmont Office Realty Trust, Inc. at December 31, 2017, and the results of its operations and its cash flows for years ended December 31, 2017 and 2016, inconformity with U.S. generally accepted accounting principles.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin 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 reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto 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 includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPAtlanta, GeorgiaFebruary 21, 2018, except for the reclassifications discussed in Note 2 under Reclassifications and Accounting Pronouncements Adopted during the YearEnded December 31, 2018, specifically Revenue Recognition and Gain/(Loss) on Sale of Real Estate Assets and Assets Held for Sale at December 31, 2017presented in Note 12, as to which the date is February 20, 2019.F- 3 Table of ContentsIndex to Financial StatementsPIEDMONT OFFICE REALTY TRUST, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per-share amounts) December 31, 2018 December 31, 2017Assets: Real estate assets, at cost: Land$507,422 $490,625Buildings and improvements, less accumulated depreciation of $772,093 and $683,770 as ofDecember 31, 2018 and December 31, 2017, respectively2,305,096 2,243,519Intangible lease assets, less accumulated amortization of $87,391 and $99,145 as of December 31, 2018and December 31, 2017, respectively77,676 77,805Construction in progress15,848 11,344Real estate assets held for sale, net110,552 561,449Total real estate assets3,016,594 3,384,742Investment in and amounts due from unconsolidated joint venture— 10Cash and cash equivalents4,571 7,382Tenant receivables, net of allowance for doubtful accounts of $504 and $539 as of December 31, 2018 andDecember 31, 2017, respectively10,800 12,139Straight-line rent receivables162,589 144,469Restricted cash and escrows1,463 1,373Prepaid expenses and other assets25,356 20,778Goodwill98,918 98,918Interest rate swaps1,199 688Deferred lease costs, less accumulated amortization of $183,611 and $180,120 as of December 31, 2018 andDecember 31, 2017, respectively250,148 245,175Other assets held for sale, net20,791 84,293Total assets$3,592,429 $3,999,967Liabilities: Unsecured debt, net of discount and unamortized debt issuance costs of $9,879 and $7,689 as of December31, 2018 and December 31, 2017, respectively$1,495,121 $1,535,311Secured debt, net of premiums and unamortized debt issuance costs of $645 and $946 as of December 31,2018 and December 31, 2017, respectively190,351 191,616Accounts payable, accrued expenses, and accrued capital expenditures102,519 114,853Dividends payable26,972 101,800Deferred income28,779 29,582Intangible lease liabilities, less accumulated amortization of $59,144 and $55,847 as of December 31, 2018and December 31, 2017, respectively35,708 38,458Interest rate swaps839 1,478Other liabilities held for sale, net— 380Total liabilities1,880,289 2,013,478Commitments and Contingencies (Note 8)— —Stockholders’ Equity: Shares-in-trust, 150,000,000 shares authorized, none outstanding as of December 31, 2018 or December 31,2017— —Preferred stock, no par value, 100,000,000 shares authorized, none outstanding as of December 31, 2018 orDecember 31, 2017— —Common stock, $.01 par value; 750,000,000 shares authorized, 126,218,554 shares issued and outstanding asof December 31, 2018; and 142,358,940 shares issued and outstanding at December 31, 20171,262 1,424Additional paid-in capital3,683,186 3,677,360Cumulative distributions in excess of earnings(1,982,542) (1,702,281)Other comprehensive income8,462 8,164Piedmont stockholders’ equity1,710,368 1,984,667Noncontrolling interest1,772 1,822Total stockholders’ equity1,712,140 1,986,489Total liabilities and stockholders’ equity$3,592,429 $3,999,967See accompanying notes.F- 4 Table of ContentsIndex to Financial StatementsPIEDMONT OFFICE REALTY TRUST, INC.CONSOLIDATED STATEMENTS OF INCOME(in thousands, except share and per-share amounts) Years Ended December 31, 2018 2017 2016Revenues: Rental income$411,667 $455,125 $439,918Tenant reimbursements92,743 98,139 94,901Property management fee revenue1,450 1,735 1,914Other property related income20,107 19,174 18,982 525,967 574,173 555,715Expenses: Property operating costs209,338 222,441 220,796Depreciation107,956 119,288 127,733Amortization63,295 75,367 75,119Impairment loss on real estate assets— 46,461 33,901General and administrative29,713 29,319 27,382 410,302 492,876 484,931 115,665 81,297 70,784Other income (expense): Interest expense(61,023) (68,124) (64,860)Other income/(expense)1,638 657 (13)Net recoveries from casualty events— — 34Equity in income of unconsolidated joint ventures— 3,845 362Loss on extinguishment of debt(1,680) — —Gain on sale of real estate assets, net75,691 115,874 93,410 14,626 52,252 28,933Net income130,291 133,549 99,717Net loss applicable to noncontrolling interest5 15 15Net income applicable to Piedmont$130,296 $133,564 $99,732Per share information— basic and diluted: Net income applicable to common stockholders$1.00 $0.92 $0.69Weighted-average shares outstanding—basic130,161,202 145,043,503 145,230,382Weighted-average shares outstanding—diluted130,635,650 145,379,994 145,634,953See accompanying notes.F- 5 Table of ContentsIndex to Financial StatementsPIEDMONT OFFICE REALTY TRUST, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Years Ended December 31, 2018 2017 2016 Net income applicable to Piedmont $130,296 $133,564 $99,732Other comprehensive income: Effective portion of gain/(loss) on derivative instruments that aredesignated and qualify as cash flow hedges (See Note 5)692 2,479 (4,126) Plus: Reclassification of net (gain)/loss included in net income (See Note 5)(300) 3,502 4,548 Gain on investment in available for sale securities— 79 21 Other comprehensive income 392 6,060 443Comprehensive income applicable to Piedmont $130,688 $139,624 $100,175See accompanying notes.F- 6 Table of ContentsIndex to Financial StatementsPIEDMONT OFFICE REALTY TRUST, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except per-share amounts) Common Stock AdditionalPaid-InCapital CumulativeDistributions inExcess of Earnings OtherComprehensiveIncome/(Loss) NoncontrollingInterest TotalStockholders’EquityShares Amount Balance, December 31, 2015145,512 $1,455 $3,669,977 $(1,550,698) $1,661 $1,025 $2,123,420Share repurchases as part of announced plan(462) (5) — (7,938) — — (7,943)Offering costs— — (342) — — — (342)Noncontrolling interest in consolidated joint venture— — — — — 888 888Dividends to common stockholders ($0.84 per share), stockholdersof subsidiaries, and dividends reinvested— — (173) (121,959) — (16) (122,148)Shares issued and amortized under the 2007 Omnibus IncentivePlan, net of tax185 2 3,666 — — — 3,668Net loss applicable to noncontrolling interest— — — — — (15) (15)Net income applicable to Piedmont— — — 99,732 — — 99,732Other comprehensive income— — — — 443 — 443Balance, December 31, 2016145,235 1,452 3,673,128 (1,580,863) 2,104 1,882 2,097,703Share repurchases as part of an announced plan(3,133) (31) — (61,719) — — (61,750)Offering costs— — (182) — — — (182)Dividends to common stockholders ($1.34 per share), stockholdersof subsidiaries, and dividends reinvested— — (233) (193,263) — (45) (193,541)Shares issued and amortized under the 2007 Omnibus IncentivePlan, net of tax257 3 4,647 — — — 4,650Net loss applicable to noncontrolling interest— — — — — (15) (15)Net income applicable to Piedmont— — — 133,564 — — 133,564Other comprehensive income— — — — 6,060 — 6,060Balance, December 31, 2017142,359 1,424 3,677,360 (1,702,281) 8,164 1,822 1,986,489Cumulative effect of accounting change (adoption of ASU 2016-01)— — — 94 (94) — —Share repurchases as part of an announced plan(16,495) (165) — (301,513) — — (301,678)Offering costs— — (85) — — — (85)Dividends to common stockholders ($0.84 per share), stockholdersof subsidiaries, and dividends reinvested— — (82) (109,138) — (45) (109,265)Shares issued and amortized under the 2007 Omnibus IncentivePlan, net of tax355 3 5,993 — — — 5,996Net loss applicable to noncontrolling interest— — — — — (5) (5)Net income applicable to Piedmont— — — 130,296 — — 130,296Other comprehensive income— — — — 392 — 392Balance, December 31, 2018126,219 $1,262 $3,683,186 $(1,982,542) $8,462 $1,772 $1,712,140See accompanying notes.F- 7 Table of ContentsIndex to Financial StatementsPIEDMONT OFFICE REALTY TRUST, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years Ended December 31, 2018 2017 2016Cash Flows from Operating Activities: Net income$130,291 $133,549 $99,717Operating distributions received from unconsolidated joint ventures10 11 579Adjustments to reconcile net income to net cash provided by operating activities: Depreciation107,956 119,288 127,733Amortization of debt issuance costs net of favorable settlement of interest rate swaps(250) 1,588 1,702Other amortization58,330 73,944 74,373Impairment loss on real estate assets— 46,461 33,901Loss on extinguishment of debt1,665 — —Stock compensation expense9,737 9,196 7,928Equity in income of unconsolidated joint ventures— (3,845) (362)Gain on sale of real estate assets(75,691) (115,874) (93,410)Changes in assets and liabilities: Increase in tenant and straight-line rent receivables, net(16,094) (21,392) (26,747)Decrease/(increase) in prepaid expenses and other assets(3,095) 384 1,437Increase/(decrease) in accounts payable and accrued expenses(9,092) (1,521) 3,555Increase/(decrease) in deferred income(898) 1,016 1,441Net cash provided by operating activities202,869 242,805 231,847Cash Flows from Investing Activities: Acquisition of real estate assets and intangibles(151,914) (35,262) (349,668)Capitalized expenditures(72,105) (79,831) (110,228)Net sale proceeds from wholly-owned properties575,227 375,518 365,918Net sale proceeds received from unconsolidated joint ventures— 12,334 —Investments in unconsolidated joint ventures— (1,162) —Note receivable issuance(3,200) — —Note receivable repayment3,200 — —Deferred lease costs paid(27,430) (30,985) (25,896)Net cash provided by/(used in) investing activities323,778 240,612 (119,874)Cash Flows from Financing Activities: Debt issuance and other costs paid(1,040) (132) (264)Proceeds from debt977,062 180,000 695,000Repayments of debt(1,020,455) (476,401) (706,875)Costs of issuance of common stock(85) (182) (342)Value of shares withheld for payment of taxes related to employee stock compensation(2,219) (3,403) (2,344)Repurchases of common stock as part of announced plan(298,538) (60,474) (7,943)Dividends paid and discount on dividend reinvestments(184,093) (122,274) (91,616)Net cash used in financing activities(529,368) (482,866) (114,384)Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows(2,721) 551 (2,411)Cash, cash equivalents, and restricted cash and escrows, beginning of year8,755 8,204 10,615Cash, cash equivalents, and restricted cash and escrows, end of year$6,034 $8,755 $8,204See accompanying notes.F- 8 Table of ContentsIndex to Financial StatementsPIEDMONT OFFICE REALTY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2018, 2017, AND 20161. OrganizationPiedmont Office Realty Trust, Inc. (“Piedmont”) (NYSE: PDM) is a Maryland corporation that operates in a manner so as to qualify as a real estate investmenttrust (“REIT”) for federal income tax purposes and engages in the acquisition, development, management, and ownership of commercial real estate propertieslocated 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, PiedmontGovernment 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 byPiedmont through its wholly-owned subsidiary, Piedmont Office Holdings, Inc. ("POH"), the sole limited partner of Piedmont OP. Piedmont OP ownsproperties directly, through wholly-owned subsidiaries, and through various joint ventures which we control. References to Piedmont herein shall includePiedmont and all of its subsidiaries, including Piedmont OP and its subsidiaries and joint ventures.As of December 31, 2018, Piedmont owned 54 in-service office properties and one redevelopment asset, comprising approximately 487,000 square feet(unaudited). As of December 31 2018, Piedmont's 54 in-service office properties comprise approximately 16.2 million square feet (unaudited) of primarilyClass A commercial office space and were approximately 93.3% leased. As of December 31, 2018, 92% of Piedmont's Annualized Lease Revenue (unaudited)was generated from select sub-markets located within eight major office markets: Atlanta, Boston, Chicago, Dallas, Minneapolis, New York, Orlando, andWashington, D.C.Piedmont internally evaluates all of its real estate assets as one operating segment, and accordingly does not report segment information.2. Summary of Significant Accounting PoliciesBasis of Presentation and Principles of ConsolidationThe consolidated financial statements of Piedmont are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include theaccounts of Piedmont, Piedmont’s wholly-owned subsidiaries, any variable interest entity ("VIE") of which Piedmont or any of its wholly-owned subsidiariesis 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 whichPiedmont or any of its wholly-owned subsidiaries owns a controlling interest. In determining whether Piedmont or Piedmont OP has a controlling interest, thefollowing 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.In accordance with the guidance in Accounting Standards Codification ("ASC") 810, Consolidations, Piedmont is exempt from providing further disclosuresrelated to its VIEs. The other joint venture, Piedmont-CNL Towers Orlando, LLC, which owns CNL Center I and II, in Orlando, Florida is an investmentconsolidated 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.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 consequentlythe assets of the special purpose entities are not available to all creditors of Piedmont. The assets owned by these special purpose entities are being reportedon a consolidated basis with Piedmont’s assets for financial reporting purposes only.F- 9 Table of ContentsIndex to Financial StatementsUse of EstimatesThe preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptionsthat affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from those estimates.Real Estate AssetsPiedmont 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 adjustedfor any impairment loss, less accumulated depreciation. Held for sale assets are carried at lower of depreciated cost or estimated fair value, less estimated coststo 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 thatextend the useful life of the related asset, and transaction costs associated with the acquisition of an individual asset that does not qualify as a businesscombination. All repairs and maintenance are expensed as incurred. Additionally, Piedmont capitalizes interest while the development, or redevelopment, ofa real estate asset is in progress. Approximately $1.4 million, $0.2 million, and $4.6 million of interest was capitalized for the years ended December 31,2018, 2017, and 2016, respectively.Piedmont’s real estate assets are depreciated or amortized using the straight-line method over the following useful lives:Buildings40 yearsBuilding improvements5-25 yearsLand improvements20-25 yearsTenant allowancesLease termFurniture, fixtures, and equipment3-5 yearsIntangible lease assetsLease termPiedmont continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate and related intangibleassets of either operating properties or properties under construction in which Piedmont has an ownership interest, either directly or through investments injoint ventures, may not be recoverable. When indicators of potential impairment are present, management assesses whether the respective carrying values willbe 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 fromthe 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 theestimated fair value, less costs to sell, for assets held for sale do not exceed the respective asset carrying value, management adjusts such assets to therespective estimated fair values and recognizes an impairment loss. Estimated fair values are calculated based on the following information, depending uponavailability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present value of undiscountedcash flows, including estimated sales value (which is based on key assumptions such as estimated market rents, lease-up periods, estimated lease terms, andcapitalization and discount rates) less estimated selling costs.Fair Value of Assets and Liabilities of Acquired PropertiesUpon the acquisition of real properties, Piedmont records the fair value of properties (plus any related acquisition costs) allocated based on relative fair valueas tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-marketleases 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 itwere 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 theseassets. Management relies on a sales comparison approach using closed land sales and listings in determining the land value, and determines the as-if-vacantestimated fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing theseanalyses 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 theexpected 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.F- 10 Table of ContentsIndex to Financial StatementsThe 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 therisks 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 intoconsideration the probability of renewals for any below-market leases. The capitalized above-market and below-market lease values are recorded asintangible 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 ofopportunity costs associated with lost rentals that are avoided by acquiring an in-place lease. The amount capitalized as direct costs associated withobtaining a tenant include commissions, tenant improvements, and other direct costs and are estimated based on management’s consideration of currentmarket costs to execute a similar lease. These direct lease origination costs are included in deferred lease costs in the accompanying consolidated balancesheets and are amortized to expense over the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractualamounts 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 leaseassets 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, 2018 and2017, respectively, are as follows (in thousands): December 31,2018 December 31,2017Intangible Lease Assets: Above-Market In-Place Lease Assets$7,620 $11,935In-Place Lease Valuation$157,447 $165,015Intangible Lease Origination Costs (included as component of Deferred Lease Costs)$241,516 $250,539Intangible Lease Liabilities (Below-Market In-Place Leases)$94,852 $95,620For the years ended December 31, 2018, 2017, and 2016, respectively, Piedmont recognized amortization of intangible lease costs as follows (in thousands): 2018 2017 2016Amortization of Intangible Lease Origination Costs and In-Place Lease Valuation included inamortization expense$48,940 $58,467 $58,150Amortization of Above-Market and Below-Market In-Place Lease intangibles as a net increase torental revenues$7,615 $6,575 $5,066F- 11 Table of ContentsIndex to Financial StatementsNet intangible assets and liabilities as of December 31, 2018 will be amortized as follows (in thousands): Intangible Lease Assets Above-MarketIn-placeLease Assets In-Place LeaseValuation Intangible LeaseOrigination Costs (1) Below-MarketIn-place LeaseLiabilitiesFor the year ending December 31: 2019$938 $20,876 $29,503 $8,2732020197 14,540 22,570 6,6542021141 12,449 19,818 6,4432022121 10,948 17,550 5,878202397 7,370 11,774 4,367Thereafter64 9,935 18,952 4,093 $1,558 $76,118 $120,167 $35,708 Weighted-Average Amortization Period (in years)3 5 6 6(1) Included as a component of Deferred Lease Costs in the accompanying consolidated balance sheets.Investments in and Amounts Due from Unconsolidated Joint VenturesDuring the year ended December 31, 2017, Piedmont sold its investment in its last remaining unconsolidated joint venture. Prior to this disposition,Piedmont had accounted for its unconsolidated joint ventures using the equity method of accounting, whereby original investments were recorded at costand subsequently adjusted for contributions, distributions, net income/(loss), and "other than temporary" impairment losses, if any, attributable to such jointventures. All income and distributions were allocated to the joint venture partners in accordance with their respective ownership interests. Any distributionswere classified on the accompanying consolidated statements of cash flow using the nature of distribution approach. Any distributions of net cash fromoperations were classified as cash inflows from operating activities, as they were presumed to be returns on Piedmont’s investment in the joint venture. Anyproceeds 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 jointventure and classified as cash inflows from investing activities.Cash and Cash EquivalentsPiedmont considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalentsinclude cash and short-term investments. The majority of Piedmont’s cash and cash equivalents are held at major commercial banks and at times may exceedthe Federal Deposit Insurance Corporation limit of $250,000. Short-term investments consist of investments in money market accounts stated at cost, whichapproximates estimated fair value, and available-for-sale securities resulting from Piedmont's non-qualified deferred compensation program carried atestimated fair value.Tenant Receivables, net and Straight-line Rent ReceivablesTenant receivables are comprised of rental and reimbursement billings due from tenants, and straight-line rent receivables representing the cumulativeamount of future adjustments necessary to present rental income on a straight-line basis. Tenant receivables are recorded at the original amount earned, lessan allowance for any doubtful accounts, which approximates estimated fair value. Management assesses the collectability of tenant receivables on anongoing basis and provides for allowances as such balances, or portions thereof, become uncollectible. Piedmont records provisions for bad debts as propertyoperating costs in the accompanying consolidated statements of income, and recognized approximately $91,000, $350,000, and $216,000 of provisions forbad debts during the years ended December 31, 2018, 2017, and 2016, respectively.Restricted Cash and EscrowsRestricted 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.F- 12 Table of ContentsIndex to Financial StatementsRestricted cash and escrows are generally reclassified to other asset or liability accounts upon being used to purchase assets, satisfy obligations, or settletenant obligations.Prepaid Expenses and Other AssetsPrepaid expenses and other assets are primarily comprised of the following items:•prepaid property taxes, insurance and operating costs;•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 ofaccumulated 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 economicbenefit are expensed as they are identified.GoodwillGoodwill is the excess of cost of an acquired entity over the amounts specifically assigned to assets acquired and liabilities assumed in purchase accountingfor 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 orcircumstances change that would indicate the carrying amount may be impaired. Such interim circumstances may include, but are not limited to, significantadverse changes in legal factors or in the general business climate, adverse action or assessment by a regulator, unanticipated competition, the loss of keypersonnel, or persistent declines in an entity’s stock price below carrying value of the entity. Piedmont first assesses qualitative factors to determine whetherthe 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 thanits carrying amount. Piedmont internally evaluates its consolidated financial position and all of its operations as one reporting unit. If Piedmont concludes,after assessing the totality of events and circumstances during the qualitative analysis, that it is more likely than not that the goodwill balance 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 thetotal goodwill allocated to that reporting unit). There were no changes in the carrying amount of Piedmont's goodwill during the year ended December 31,2018.Interest Rate DerivativesPiedmont periodically enters into interest rate derivative agreements to hedge its exposure to changing interest rates. As of December 31, 2018 and 2017, allof Piedmont's interest rate derivatives were designated as effective cash flow hedges and carried on the balance sheet at estimated fair value. Piedmontreassesses 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 theforecasted 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 value of the interest rate derivative agreement isrecorded as interest rate derivative asset or as interest rate derivative liability in the accompanying consolidated balance sheets. Amounts received or paidunder 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 isamortized 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 consolidatedstatements of cash flows.Deferred Lease CostsDeferred lease costs are comprised of costs and incentives incurred to acquire operating leases. In addition to direct costs, deferred lease costs also includeintangible lease origination costs related to in-place leases acquired as part of a property acquisition and direct payroll costs incurred related to negotiatingand executing specific leases. For the years ended December 31, 2018, 2017, and 2016, Piedmont capitalized approximately $0.3 million, $0.3 million, and$0.4 million, respectively, of such internal leasing costs.F- 13 Table of ContentsIndex to Financial StatementsDeferred lease costs are amortized on a straight-line basis over the terms of the related underlying leases in the accompanying consolidated statements ofincome as follows:•Approximately $43.6 million, $50.8 million, and $50.1 million of deferred lease costs for the years ended December 31, 2018, 2017, and 2016,respectively, are included in amortization expense; and•Approximately $2.6 million, $4.8 million, and $3.9 million, of deferred lease costs related to lease incentives granted to tenants for the years endedDecember 31, 2018, 2017, and 2016, 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 therevised 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 thetenant space in the property, then any unamortized tenant-specific costs are recognized immediately upon termination.DebtWhen mortgage debt is assumed upon the acquisition of real property, Piedmont adjusts the loan to estimated fair value with a corresponding adjustment tobuilding and other intangible assets assumed as part of the purchase. The fair value adjustment is amortized to interest expense over the term of the loanusing the effective interest method. Amortization of such fair value adjustments was approximately $0.5 million for each of the years ended December 31,2018, 2017, and 2016, respectively.Additionally, Piedmont records debt issuance premiums/discounts as an increase/decrease to the principal amount of the loan in the accompanyingconsolidated balance sheets, and amortizes such premiums or discounts as a component of interest expense over the life of the underlying loan facility usingthe effective interest method. Piedmont recorded discount amortization of approximately $0.2 million for each of the years ended December 31, 2018, 2017,and 2016, respectively.Piedmont presents all debt issuance costs as a direct deduction from the principal amount of secured and unsecured debt in the accompanying consolidatedbalance sheets. Piedmont amortizes these costs to interest expense on a straight-line basis (which approximates the effective interest rate method) over theterms of the related financing arrangements. Piedmont recognized amortization of such costs for the years ended December 31, 2018, 2017, and 2016 ofapproximately $2.4 million, $2.8 million, and $2.9 million, respectively.Deferred incomeDeferred 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 expensereconciliation.Deferred income related to prepaid rents from tenants will be recognized as income in the period it is earned. Amounts related to operating expensereconciliations or property tax expense are relieved when the tenant's reconciliation is completed in accordance with the underlying lease, and payment isissued to the tenant.Shares-in-trustTo 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, whichwould 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 wouldresult in a violation of the ownership limits that are included in Piedmont’s charter to protect its REIT status.Preferred StockTo 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 orseries of preferred stock. Piedmont’s board of directors may determine the relative rights, preferences, and privileges of any class or series of preferred stockthat may be issued, and can be more beneficial than the rights, preferences, and privileges attributable to Piedmont’s common stock.F- 14 Table of ContentsIndex to Financial StatementsCommon StockUnder 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 commonstock is entitled to one vote and participates in distributions equally. During the year ended December 31, 2018, the board of directors of Piedmont re-authorized the stock repurchase program under which Piedmont may repurchase its own shares from time to time, in accordance with applicable securitieslaws, in the open market or in privately negotiated transactions. The timing of repurchases is dependent upon market conditions and other factors, andrepurchases may be commenced or suspended from time to time in Piedmont's discretion, without prior notice. As of December 31, 2018, Piedmont hadapproximately $86.6 million in remaining capacity under the program which may be used for share repurchases through February 2020.DividendsAs a REIT, Piedmont is required by the Internal Revenue Code of 1986, as amended (the “Code”), to make distributions to stockholders each taxable yearequal to at least 90% of its annual taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributableto stockholders (“REIT taxable income”). Piedmont sponsors a dividend reinvestment plan ("DRP") pursuant to which common stockholders may elect (iftheir brokerage agreements allow) to reinvest an amount equal to the dividends declared on their common shares into additional shares of Piedmont’scommon 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 sharesdirectly from Piedmont's authorized but unissued shares, in both cases at a 2% discount for the stockholder. Such election takes place at the settlement ofeach quarterly and/or special dividend in which there are participants in the DRP, and may change from quarter to quarter based on management's judgmentof the best use of proceeds for Piedmont.Noncontrolling InterestNoncontrolling interest is the equity interest of consolidated entities that is not owned by Piedmont. Noncontrolling interest is adjusted for thenoncontrolling partners' share of contributions, distributions, and earnings (losses) in accordance with the respective partnership agreement. Earningsallocated to such noncontrolling partners are recorded as income applicable to noncontrolling interest in the accompanying consolidated statements ofincome.Revenue RecognitionPiedmont's revenues consist of the following:Rental income - consists of revenue from leases with Piedmont's tenants. All leases of real estate assets held by Piedmont are classified as operating leases, andthe related base rental income is recognized on a straight-line basis over the terms of the respective leases. Rental income is recognized beginning on thelease commencement date, defined as when the tenant takes possession of or controls the finished space, which is typically when the improvements beingrecorded as our asset are substantially complete.In most lease arrangements, Piedmont finances improvements to leased space and is deemed the owner of the tenant improvements. These tenantimprovements are recorded as capital assets by Piedmont and depreciated, typically over the lease term. Payments made by the tenants for tenantimprovements owned by Piedmont are treated as deferred revenues, amortized into rental income over the lease term. In some instances, Piedmont may cedecontrol of the leased space to the tenant to be responsible for improvements for the space. In such arrangements, payments made by Piedmont to its tenant aretreated as lease incentives, amortized as a reduction to rental income over the lease term.Lease termination revenues are recognized ratably as rental revenue and the corresponding deferred lease costs are amortized to expense over the revisedremaining lease term after giving effect to the termination notice.Tenant reimbursements - consists of separately billed revenue derived from reimbursements for services prescribed by leases with Piedmont's tenants separatefrom, but in conjunction with, the revenue generated from leasing office space. Tenant reimbursements are recognized as revenue in the period that therelated operating cost is incurred. Rents and tenant reimbursements collected in advance are recorded as deferred income in the accompanying consolidatedbalance sheets.Property management fee revenue - consists of revenue earned by Piedmont related to operating and managing office properties owned by other third-parties.Such income is within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") (see AccountingPronouncements Adopted During the Year Ended December 31, 2018 below for further details). Because property management services represent aperformance obligation that are satisfied over the length of the contract, not at any specific point in time, and have the same measure of transfer (timeelapsed), property management fee revenue is recognized over time. Any variable consideration transferred as part of these management agreements isrecognizedF- 15 Table of ContentsIndex to Financial Statementsin the quarter that the underlying cash receipts are collected, consistent with the allocation objective of allocating the transaction price in an amount thatdepicts the amount of consideration to which Piedmont expects to be entitled in exchange for transferring the promised service to the customer.Other property related income - consists of all other property related income from Piedmont's customers (tenants) that is not derived from a contract meetingthe definition of a lease and is therefore also within the scope of ASC 606. Examples of such income include parking revenue and income from licenses withunrelated third-parties to place antennae and/or fiber optic cables in or on Piedmont's buildings. These services also represent a performance obligation that issatisfied over the length of the contract, not at any specific point in time, and has the same measure of transfer (time elapsed); therefore, revenue related tothese licenses is also recognized over time.Gains on the sale of real estate assets, like all non-lease related revenue, are subject to a five-step model requiring that Piedmont identify the contract with thecustomer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligationsin the contract, and recognize revenue upon satisfaction of the performance obligations. In circumstances where Piedmont contracts to sell a property withmaterial post-sale involvement, such involvement must be accounted for as a separate performance obligation in the contract and a portion of the sales priceallocated to each performance obligation. When the post-sale involvement performance obligation is satisfied, the portion of the sales price allocated to itwill be recognized as gain on sale of real estate assets. Property dispositions with no continuing involvement will continue to be recognized upon closing ofthe sale.Stock-based CompensationPiedmont has issued stock-based compensation in the form of restricted stock to its employees and directors. For employees, such compensation has beenissued pursuant to Piedmont's Long-term Incentive Compensation ("LTIC") program. The LTIC program is comprised of an annual restricted stock grantcomponent (the "Restricted Stock Award" program) and a multi-year performance share component (the "Performance Share" program). Awards grantedpursuant to the Restricted Stock Award and Performance Share programs, as well as director's awards, are classified as equity awards or liability awards basedon the underlying terms of the program agreement. Awards classified as equity awards are expensed straight-line over the vesting period, with issuancesrecorded as a reduction to additional paid in capital. Forfeitures are recorded when they occur. Awards classified as liability awards are remeasured at eachreporting period over the service period, with issuances recorded as a reduction to accrued expense. The compensation expense recognized related to both ofthese award types is recorded as property operating costs for those employees whose job is related to property operations and as general and administrativeexpense for all other employees and directors in the accompanying consolidated statements of income.Non-qualified Deferred Compensation PlanPiedmont has a non-qualified deferred compensation plan which allows certain employees to elect to defer their receipt of compensation, including both cashand stock-based compensation, until future taxable years. Amounts deferred are invested in trading securities held in a "rabbi trust" and are measured usingquoted market prices as of the reporting date, with changes in fair value recognized in net income. As of December 31, 2018, Piedmont held approximately$0.4 million of these trading securities. Such investments are included in cash equivalents due to their short-term, liquid nature, with the correspondingliability included in accounts payable, accrued expenses, and accrued capital expenditures in the accompanying consolidated balance sheets.Net Income Available to Common Stockholders Per ShareNet income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common sharesoutstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weightedaverage number of common shares outstanding during the period, including the dilutive effect of nonvested restricted stock. The dilutive effect of nonvestedrestricted stock is calculated using the treasury stock method to determine the number of additional common shares that would become outstanding if theremaining unvested restricted stock awards vested.F- 16 Table of ContentsIndex to Financial StatementsIncome TaxesPiedmont 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 qualifyas a REIT, Piedmont must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REITtaxable income. As a REIT, Piedmont is generally not subject to federal income taxes, subject to fulfilling, among other things, its taxable incomedistribution 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 consolidatedfinancial statements relates to POH. POH does not have significant tax provisions or deferred income tax items. These operations resulted in approximately$97,000, $(13,000), and $(415,000) in income tax recoveries/(expense) for the years ended December 31, 2018, 2017, and 2016, respectively, as a componentof other income/(expense) in the accompanying consolidated statements of income. Further, Piedmont is subject to certain state and local taxes related to theoperations of properties in certain locations, which have been provided for in general and administrative expenses in the accompanying consolidatedfinancial statements.ReclassificationsCertain prior period amounts presented in the accompanying consolidated statements of income have been reclassified to conform to the current periodfinancial statement presentation. These amounts included: (i) the reclassification of approximately $19.2 million and $19.0 million for the years endedDecember 31, 2017 and 2016, respectively, of parking, antennae license and fiber income that was previously included in rental income into other propertyrelated income, as well as certain other miscellaneous revenue into tenant reimbursements and/or property management fee revenue in conjunction with theadoption of ASC 606, as further described below; and (ii) the reclassification of $1.8 million and $1.9 million for the years ended December 31, 2017 and2016, respectively, of expense related to certain regional employees who are primarily engaged in the operation and management of properties that waspreviously included in general and administrative expense to property operating costs. Further, reclassifications also relate to properties classified as held forsale as of March 31, 2018, June 30, 2018, September 30, 2018, and December 31, 2018 have been reclassified as held for sale as of December 31, 2017 forcomparative purposes (see Note 12).Accounting Pronouncements Adopted during the Year Ended December 31, 2018Revenue RecognitionOn January 1, 2018, Piedmont adopted ASC 606 which changed the criteria for the recognition of certain revenue streams to depict the transfer of promisedgoods 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 servicesusing a five-step determination process.Piedmont's revenues which are included in the scope of ASC 606 include its property management fee revenue, the majority of its parking revenue, as well ascertain license agreements which allow third-parties to place their antennas or fiber-optic cabling on or inside Piedmont's buildings. Lease contracts arespecifically excluded from ASC 606 and, Piedmont intends to utilize a leasing practical expedient (see further discussion below) to group certain non-leasecomponents related to operating expense reimbursements with other leasing components, provided they meet certain criteria. Because the timing and patternof transfer of Piedmont's non-lease related revenue already followed the prescribed method of ASC 606, Piedmont was able to effectively adopt ASC 606 on afull retrospective basis, with no impact to the historical timing of recognition of the related revenue; however, such non-lease revenues are now beingpresented as "Other property related income" in the accompanying consolidated statements of income. Further, for comparative purposes, Piedmontreclassified approximately $19.2 million and $19.0 million for the years ended December 31, 2017 and 2016, respectively, of parking, antennae license, andfiber income that was previously included in rental income into other property related income, as well as certain other miscellaneous revenue into tenantreimbursements and/or property management fee revenue. Piedmont did not elect to adopt any practical expedients provided by ASC 606.Gain/(loss) on Sale of Real Estate AssetsOn January 1, 2018, Piedmont adopted Accounting Standards Update No. 2017-05, Other Income—Gains and Losses from the Derecognition ofNonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets("ASU 2017-05") concurrently with ASC 606 mentioned above. Piedmont elected to apply the amendments of ASU 2017-05 on a full retrospective basis;however, there were no adjustments to previously recorded gains/(losses) on sale of real estate as a result of the transition.Equity Investments Held in Non-qualified Deferred Compensation PlanOn January 1, 2018, Piedmont adopted Accounting Standards Update No. 2016-01, Financial Instruments - Overall (SubtopicF- 17 Table of ContentsIndex to Financial Statements825-10), Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), as well as Accounting Standards Update No. 2018-03 Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10) ("ASU 2018-03"). These amendments require equityinvestments, except those accounted for under the equity method of accounting, to be measured at estimated fair value with changes in fair value recognizedin net income. Investments in trading securities held in a "rabbi trust" by Piedmont are the only securities affected by ASU 2016-01 and ASU 2018-03. Assuch, Piedmont has made a cumulative-effect adjustment to its consolidated balance sheet and consolidated statements of stockholders' equity ofapproximately $0.1 million from other comprehensive income ("OCI") to cumulative distributions in excess of earnings, and has recorded changes in fairvalue in net income for the year ended December 31, 2018 related to these investment securities.Interest Rate DerivativesOn January 1, 2018, Piedmont early adopted Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accountingfor Hedging Activities ("ASU 2017-12"). Piedmont adopted ASU 2017-12 using the modified retrospective transition method; however, no adjustment wasnecessary to account for the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheetas of the date of adoption because there was no cumulative ineffectiveness that had been recorded on Piedmont's existing interest rate swaps as of December31, 2017, and all trades were highly effective. The amended presentation and disclosure guidance which is required to be presented prospectively is providedin Note 5.Other Recent Accounting PronouncementsThe FASB has issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which fundamentally changes the definition of alease, as well as the accounting for operating leases by requiring lessees to recognize assets and liabilities which arise from the lease, consisting of a liabilityto 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 forleases by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-line basis.F- 18 Table of ContentsIndex to Financial StatementsAdditionally, the FASB has subsequently issued a number of clarifying and technical corrections to ASU 2016-02 through several Accounting StandardsUpdates ("ASU") as follows:ASUTitleSummaryAnticipated Impact on Piedmont'sConsolidated FinancialStatements Based onManagement’s Assessment to DateASU 2018-01Leases (Topic 842) LandEasement Practical Expedientfor Transition to Topic 842Clarifies that a land easement is required to be evaluated todetermine whether it should be accounted for as a lease uponadoption of ASU 2016-02; also provides an optional practicaltransition expedient allowing entities not currently assessingland easements under existing leasing guidance prior toadoption of ASU 2016-02 to not apply the new guidance toland easements existing at the date of initial adoption of ASU2016-02.No material impact. ASU 2018-10Codification Improvements toTopic 842, LeasesClarifications and technical corrections to ASU 2016-02.No material impact. ASU 2018-11Leases (Topic 842) TargetedImprovementsAllows certain non-lease operating expense reimbursementswhich are included in the underlying stated lease rate to beaccounted for as part of the lease provided certain criteria aremet under an optional practical expedient.All of Piedmont’s operatingexpense reimbursementsqualify to be accounted for asa part of the underlying lease. ASU 2018-20Leases (Topic 842)Narrow-Scope Improvementsfor LessorsAllows lessors to exclude sales taxes collected from lesseesfrom revenue; also stipulates certain requirements related tovariable consideration; and also requires the lessor to allocate,rather than recognize, certain variable payments to lease andnon-lease components when changes to the facts andcircumstances of the basis of the payments occurs.No material impact.In addition to the practical expedients mentioned above, as part of ASU 2018-01 and ASU 2018-11, Piedmont intends to adopt the other following practicalexpedients and transition amendments collectively allowed by the FASB relative to the new guidance for lease accounting:•a package of practical expedients, applied together, which do not require the reassessment of (1) any expired or existing contracts to determine ifthey contain a lease; (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases;•the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), which effectively allows for an initialadoption of ASC 842 (the new leasing guidance) on January 1, 2019.Other than recording an immaterial right-to-use asset and offsetting lease liability under lessee accounting on its balance sheet of approximately $0.3 million,and no longer capitalizing internal direct payroll costs associated with negotiating and executing leases (only accounting for approximately $0.3 million forthe year ended December 31, 2018), the adoption of ASU 2016-02 on January 1, 2019 did not have any material impact on Piedmont's consolidated financialstatements.The FASB has issued Accounting Standards Update No. 2018-07, Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based PaymentAccounting ("ASU 2018-07"). The provisions of ASU 2018-07 align accounting for stock based compensation for non-employees for goods and services withexisting accounting for similar compensation for employees. The amendments supersede previous guidance on accounting for share-based payments to non-employees codified in the FASB's Accounting Standards Codification ("ASC") 505-50. ASU 2018-07 is effective in the first quarter of 2019, with earlyadoption permitted at any time provided that the entity has already adopted the provisions of ASC 606. The adoption of ASU 2018-07 did not have anymaterial impact on Piedmont's consolidated financial statements.F- 19 Table of ContentsIndex to Financial StatementsThe FASB has issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses onFinancial Instruments ("ASU 2016-13"). The provisions of ASU 2016-13 replace the "incurred loss" approach with an "expected loss" model for impairingtrade and other receivables, held-to-maturity debt securities, net investment in leases, and off-balance-sheet credit exposures, which will generally result inearlier recognition of allowances for credit losses. Additionally, the provisions change the classification of credit losses related to available-for-sale securitiesto an allowance, rather than a direct reduction of the amortized cost of the securities. Additionally, the FASB issued Accounting Standards Update No. 2018-19 Codification Improvements to Topic 326, Financial Instruments - Credit Losses which is effective concurrently, with ASU 2016-13, and excludesreceivable arising from operating leases from the scope of ASU 2016-13. ASU 2016-13 is effective in the first quarter of 2020, with early adoption permittedas of January 1, 2019. Piedmont is currently evaluating the potential impact of adoption; however, substantially all of Piedmont's receivables are operatinglease receivables and as such, Piedmont does not anticipate any material impact to its consolidated financial statements as a result of adoption.3. AcquisitionsDuring the year ended December 31, 2018, Piedmont acquired three separately identifiable assets using proceeds available as a result of dispositions, (see Note 12) proceeds from the $500 Million Unsecured 2018 Line of Credit, and cash on hand, as noted below:Property Metropolitan Statistical Area Date of Acquisition OwnershipPercentageAcquired RentableSquare Feet(Unaudited) PercentageLeased as ofAcquisition(Unaudited) Net ContractualPurchase Price (in millions)501 West Church Street Orlando, Florida February 23, 2018 100% 182,461 100% $28.09320 Excelsior Boulevard Minneapolis, Minnesota October 25, 2018 100% 267,724 100% $48.725 Burlington Mall Road Boston, Massachusetts December 12, 2018 100% 287,776 89% $74.04. DebtDuring the year ended December 31, 2018, Piedmont fully repaid the balances of the $300 Million Unsecured 2013 Term Loan and the $170 MillionUnsecured 2015 Term Loan.Additionally, during the year ended December 31, 2018, Piedmont replaced its $500 Million Unsecured 2015 Line of Credit with a new $500 MillionUnsecured Line of Credit (the "$500 Million Unsecured 2018 Line of Credit"). The term of the new $500 Million Unsecured 2018 Line of Credit is four yearswith a maturity date of September 30, 2022, and Piedmont may extend the term for up to one additional year (through two available six-month extensions)provided Piedmont is not then in default and all representations and warranties are true and correct in all material respects and upon payment of applicableextension fees. Under certain terms of the agreement, Piedmont may increase the new facility by up to an additional $500 million, to an aggregate size of $1.0billion, provided that no existing bank has any obligation to participate in such increase. Piedmont paid customary arrangement and upfront fees to thelenders in connection with the closing of the new facility.The $500 Million Unsecured 2018 Line of Credit has the option to bear interest at varying levels (determined with reference to the greater of the credit ratingfor Piedmont or Piedmont OP) based on the London Interbank Offered Rate (“LIBOR”) or the Base Rate, defined as the greater of the prime rate, the federalfunds rate plus 0.5%, or LIBOR for a one-month period plus 0.9%. LIBOR loans are available with interest periods selected by Piedmont of one, two (ifavailable), three, or six months, or to the extent available from all lenders in each case, one year or periods of less than one month. The stated interest ratespread over LIBOR can vary from 0.775% to 1.45% based upon the greater of the then current credit rating of Piedmont.Further, during the year ended December 31, 2018, Piedmont amended and restated its $300 Million Unsecured 2011 Term Loan (the "Amended andRestated $300 Million Unsecured 2011 Term Loan") to extend its maturity date 22 months, from January 15, 2020 to November 30, 2021. The amendmentalso decreases the stated interest rate spread over LIBOR from a range of 0.9% to 1.90% to a range of 0.85% to 1.65%. The specific spread in effect from timeto time is based upon the greater of the credit rating for Piedmont or Piedmont OP; however, as of December 31, 2018, the spread over LIBOR is 1.0%. Allother material terms of the facility remain unchanged.F- 20 Table of ContentsIndex to Financial StatementsFinally, during the year ended December 31, 2018, Piedmont entered into a $250 million unsecured term loan facility (the “$250 Million Unsecured 2018Term Loan”) with a consortium of lenders. The term of the $250 Million Unsecured 2018 Term Loan is seven years with a maturity date of March 31, 2025;however, Piedmont may prepay the $250 Million Unsecured 2018 Term Loan, in whole or in part, at any time after March 29, 2020 without premium orpenalty. The $250 Million Unsecured 2018 Term Loan has the option to bear interest at varying levels based on either (i) LIBOR for an interest periodselected by Piedmont of one, two, three, or six months, or to the extent available from all lenders in each case, one year or periods of less than one month, or(ii) Base Rate, defined as the greater of the prime rate, the federal funds rate plus 0.5%, or LIBOR for a one-month period plus 1%; plus a stated interest ratespread based on the higher credit rating level issued for either Piedmont or Piedmont OP. The stated interest rate spread over LIBOR can vary from 1.45% to2.40% based upon the then current credit rating of Piedmont or Piedmont OP, whichever is higher. In conjunction with this new facility, Piedmont alsoentered into three interest rate swap agreements for a total notional amount of $150 million which effectively fixed $150 million of the $250 MillionUnsecured 2018 Term Loan at an interest rate of approximately 4.11%.The $500 Million Unsecured 2018 Line of Credit, the Amended and Restated $300 Million Unsecured 2011 Term Loan, and the $250 Million Unsecured2018 Term Loan all have certain financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least1.75, an unencumbered leverage ratio of at least 1.60, a fixed charge coverage ratio of at least 1.50, a leverage ratio of no more than 0.60, and a secured debtratio of no more than 0.40.As of December 31, 2018, Piedmont believes it was in compliance with all financial covenants associated with its debt instruments. See Note 6 for adescription of Piedmont’s estimated fair value of debt as of December 31, 2018.The following table summarizes the terms of Piedmont’s indebtedness outstanding as of December 31, 2018 and 2017, including net discounts/premiums andunamortized debt issuance costs (in thousands):Facility (1) Stated Rate Effective Rate(2) Maturity Amount Outstanding as of 2018 2017Secured (Fixed) $35 Million Fixed-Rate Loan (3) 5.55% 3.75% 9/1/2021 $29,706 $30,670$160 Million Fixed-Rate Loan (4) 3.48% 3.58% 7/5/2022 160,000 160,000Net premium and unamortized debt issuance costs 645 946Subtotal/Weighted Average (5) 3.80% 190,351 191,616Unsecured (Variable and Fixed) $170 Million Unsecured 2015 Term Loan LIBOR +1.125% 2.54% 5/15/2018 — 170,000$300 Million Unsecured 2013 Term Loan LIBOR +1.20% 2.78%(7) 1/31/2019 — 300,000$500 Million Unsecured 2015 Line of Credit (6) LIBOR +1.00% 3.17% 6/18/2019 — 23,000$500 Million Unsecured 2018 Line of Credit (6) LIBOR +0.90% 3.35% 9/30/2022(8 ) 205,000 —Amended and Restated $300 Million Unsecured 2011Term Loan LIBOR + 1.00% 3.20%(7) 11/30/2021 300,000 300,000$350 Million Unsecured Senior Notes 3.40% 3.43% 6/01/2023 350,000 350,000$400 Million Unsecured Senior Notes 4.45% 4.10% 3/15/2024 400,000 400,000$250 Million Unsecured 2018 Term Loan LIBOR +1.60% 4.12%(9 ) 3/31/2025 250,000 —Discounts and unamortized debt issuance costs (9,879) (7,689)Subtotal/Weighted Average (5) 3.75% 1,495,121 1,535,311Total/Weighted Average (5) 3.76% $1,685,472 $1,726,927(1) Other than the $35 Million Fixed-Rate Loan, all of Piedmont’s outstanding debt as of December 31, 2018 and 2017 is interest-only.(2) Effective rate after consideration of settled or in-place interest rate swap agreements, issuance premiums/discounts, and/or fair market value adjustments upon assumptionof debt.F- 21 Table of ContentsIndex to Financial Statements(3) Collateralized by the 5 Wall Street building in Burlington, Massachusetts.(4) Collateralized by the 1901 Market Street building in Philadelphia, Pennsylvania.(5) Weighted average is based on contractual balance of outstanding debt and the stated or effectively fixed interest rates as of December 31, 2018.(6) On a periodic basis, Piedmont may select from multiple interest rate options, including the prime rate and various-length LIBOR locks on all or a portion of the principal.All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’s current credit rating.(7) The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes in Piedmont's creditrating, the rate to that shown as the effective rate through the maturity date of the interest rate swap agreements (see Note 5 for more detail).(8) Piedmont may extend the term for up to one additional year (through two available six month extensions to a final extended maturity date of September 29, 2023)provided Piedmont is not then in default and upon payment of extension fees.(9) The facility has a stated variable rate; however, Piedmont has entered into interest rate swap agreements which effectively fix, exclusive of changes to Piedmont's creditrating, $150 million of the principal balance to 4.11% through March 29, 2020, and $100 million of the principal balance to 4.21% from March 30, 2020 through thematurity date of the loan. For the remaining variable portion of the loan, Piedmont may periodically select from multiple interest rate options, including the prime rate andvarious-length LIBOR locks on all or a portion of the principal. All LIBOR selections are subject to an additional spread over the selected rate based on Piedmont’scurrent credit rating. The rate presented is the weighted-average rate for the effectively fixed and variable portions of the debt outstanding as of December 31, 2018.A summary of Piedmont's consolidated principal outstanding for aggregate debt maturities of its indebtedness as of December 31, 2018, is provided below (inthousands):2019$93220201,072 2021327,702 2022365,000(1) 2023350,000 Thereafter650,000 Total$1,694,706 (1) Includes the balance outstanding as of December 31, 2018 on the $500 Million Unsecured 2018 Line of Credit of $205 million. However, Piedmont may extend the termfor up to one additional year (through two available six month extensions to a final extended maturity date of September 29, 2023) provided Piedmont is not then indefault and upon payment of extension fees.Piedmont’s weighted-average interest rate as of December 31, 2018 and 2017, for the aforementioned borrowings was approximately 3.76% and 3.48%,respectively. Piedmont made interest payments on all indebtedness, including interest rate swap cash settlements, of approximately $63.1 million, $67.6million, and $69.0 million during the years ended December 31, 2018, 2017, and 2016, respectively.5. Derivative InstrumentsRisk Management Objective of Using DerivativesIn addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest rate, liquidity, and creditrisk. In certain situations, Piedmont has entered into derivative financial instruments such as interest rate swap agreements and other similar agreements tomanage interest rate risk exposure arising from current or future variable rate debt transactions. Interest rate swap agreements involve the receipt or paymentof future known and uncertain cash amounts, the value of which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is toadd stability to interest expense and to manage its exposure to interest rate movements.Cash Flow Hedges of Interest Rate RiskInterest 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 exchange of the underlying notional amount.F- 22 Table of ContentsIndex to Financial StatementsIn January 2018, Piedmont repaid the $300 Million Unsecured 2013 Term Loan in advance of its maturity without penalty (see Note 4 above). In connectionwith this early debt prepayment, six interest rate swap agreements which were identified as cash flow hedges were also terminated, resulting in a receipt ofapproximately $0.8 million from Piedmont's counterparties for the settlement of the swaps. These proceeds were recorded in accumulated othercomprehensive income/(loss) ("OCI") and will be amortized as an offset to interest expense in the consolidated statement of income over the original term ofthe terminated interest rate swaps through January 2019. In connection with this termination Piedmont also recognized a non-cash loss of approximately $1.3million due to it becoming probable that the hedged forecasted transactions would not occur, offset by a mark-to-market gain on these cash flow hedges ofapproximately $0.1 million for the year ended December 31, 2018.As of December 31, 2018, Piedmont was party to interest rate swap agreements, all of which are designated as effective cash flow hedges and fully hedge thevariable cash flows covering the entire outstanding balances of the Amended and Restated $300 Million Unsecured 2011 Term Loan through January 2020,and $150 million of the $250 Million Unsecured 2018 Term Loan. The maximum length of time over which Piedmont is hedging its exposure to thevariability in future cash flows for forecasted transactions is 75 months.A detail of Piedmont’s interest rate derivatives outstanding as of December 31, 2018 is as follows:Interest Rate Derivatives: Number ofSwapAgreements Associated Debt Instrument Notional Amount(in millions) Effective Date Maturity DateInterest rate swaps 3 Amended and Restated $300 MillionUnsecured 2011 Term Loan $300 11/22/2016 1/15/2020Interest rate swaps 2 $250 Million Unsecured 2018 TermLoan 100 3/29/2018 3/31/2025Interest rate swaps 1 $250 Million Unsecured 2018 TermLoan 50 3/29/2018 3/29/2020 Total $450 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, 2018 and 2017, respectively, is as follows (in thousands): Interest rate swaps classified as:December 31, 2018 December 31, 2017Gross derivative assets$1,199 $688Gross derivative liabilities(839) (1,478)Net derivative asset/(liability)$360 $(790)The gain/(loss) on Piedmont's interest rate derivatives, including previously settled forward swaps, that was recorded in OCI and the accompanyingconsolidated statements of income as a component of interest expense for the years ended December 31, 2018, 2017, and 2016, respectively, was as follows(in thousands):F- 23 Table of ContentsIndex to Financial StatementsInterest Rate Swaps in Cash Flow Hedging Relationships2018 2017 2016Amount of gain/(loss) recognized in OCI$692 $2,479 $(4,126)Amount of previously recorded gain/(loss) reclassified from OCI into Interest Expense$1,558 $(3,502) $(4,548)Amount of loss recognized on derivative reclassified from OCI into Loss on Extinguishment of Debt$(1,258) $— $— Total amount of Interest Expense presented in the consolidated statements of income$(61,023) $(68,124) $(64,860)Total amount of Loss on Extinguishment of Debt presented in the consolidated statements of income(1)$(1,680) $— $—(1) Includes the write-off of approximately $0.4 million of discounts and unamortized debt issuance costs associated with the repayment of debt. (see Note 4).Piedmont estimates that approximately $3.1 million will be reclassified from OCI as a reduction to interest expense over the next twelve months. Piedmontdid not recognize any hedge ineffectiveness on its cash flow hedges during the three years ended December 31, 2018.See Note 6 for fair value disclosures of Piedmont's derivative instruments.Credit-risk-related Contingent FeaturesPiedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its indebtedness, including adefault where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also be declared in default on its derivativeobligations. If Piedmont were to breach any of the contractual provisions of the derivative contracts, it could be required to settle its liability obligationsunder the agreements at their termination value of the estimated fair values plus accrued interest, or approximately $0.3 million as of December 31, 2018.Additionally, Piedmont has rights of set-off under certain of its derivative agreements related to potential termination fees and amounts payable under theagreements, if a termination were to occur.F- 24 Table of ContentsIndex to Financial Statements6. Fair Value Measurements of Financial InstrumentsPiedmont 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 foreach of Piedmont’s financial instruments, as well as its level within the GAAP fair value hierarchy, as of December 31, 2018 and 2017, respectively (inthousands): December 31, 2018 December 31, 2017Financial InstrumentCarrying Value EstimatedFair Value Level WithinFair ValueHierarchy Carrying Value EstimatedFair Value Level WithinFair ValueHierarchyAssets: Cash and cash equivalents (1)$4,571 $4,571 Level 1 $7,382 $7,382 Level 1Tenant receivables, net (1)$10,800 $10,800 Level 1 $12,139 $12,139 Level 1Restricted cash and escrows (1)$1,463 $1,463 Level 1 $1,373 $1,373 Level 1Interest rate swaps$1,199 $1,199 Level 2 $688 $688 Level 2Liabilities: Accounts payable and accrued expenses (1)$47,328 $47,328 Level 1 $126,429 $126,429 Level 1Interest rate swaps$839 $839 Level 2 $1,478 $1,478 Level 2Debt, net$1,685,472 $1,698,213 Level 2 $1,726,927 $1,759,905 Level 2(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, 2018 and 2017; 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, includingthe 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 tothese inputs to make them applicable to the remaining life of Piedmont's outstanding debt. Piedmont has not changed its valuation technique for estimatingthe fair value of its debt.Piedmont’s interest rate swap agreements presented above, and as further discussed in Note 5, are classified as “Interest rate swap” assets and liabilities in theaccompanying consolidated balance sheets and were carried at estimated fair value as of December 31, 2018 and 2017. The valuation of these derivativeinstruments was determined using widely accepted valuation techniques including discounted cash flow analysis based on the contractual terms of thederivatives, including the period to maturity of each instrument, and uses observable market-based inputs, including interest rate curves and impliedvolatilities. Therefore, the estimated fair values determined are considered to be based on significant other observable inputs (Level 2). In addition, Piedmontconsidered both its own and the respective counterparties’ risk of nonperformance in determining the estimated fair value of its derivative financialinstruments by estimating the current and potential future exposure under the derivative financial instruments that both Piedmont and the counterparties wereat 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 theinterest rate swaps; however, as of December 31, 2018 and 2017, this credit valuation adjustment did not comprise a material portion of the estimated fairvalue. Therefore, Piedmont believes that any unobservable inputs used to determine the estimated fair values of its derivative financial instruments are notsignificant 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- 25 Table of ContentsIndex to Financial Statements7. Impairment Loss on Real Estate AssetsPiedmont recorded the following impairment losses on real estate assets for the years ended December 31, 2018, 2017, and 2016 (in thousands): 2018 2017 2016150 West Jefferson (1) $— $— $8,2599221 Corporate Boulevard (2) — — 2,6929200 and 9211 Corporate Boulevard (3) — — 22,950Disposal Group of 13 Assets (4) — 46,461 —Total impairment loss on real estate assets (5) $— $46,461 $33,901(1) Piedmont recognized an impairment loss on real estate assets based upon the difference between the carrying value of the asset including a proportionate amount ofgoodwill (because the asset met the definition of a disposed "business" at the time of measurement) and the contracted sales price, less estimated selling costs.(2) Piedmont 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 eventualdisposition. As a result, Piedmont recognized a loss on impairment of approximately $2.7 million during the year ended December 31, 2016 calculated as the differencebetween the carrying value of the asset including a proportionate amount of goodwill and the anticipated contract sales price, less estimated selling costs.(3) 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 buildingin July 2016. 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 lossof approximately $23.0 million. The impairment loss was calculated as the difference between the carrying value of the asset including a proportionate amount of goodwilland the anticipated contracted sales price, less estimated selling costs.(4) The impairment loss was calculated as the difference between the carrying value of the asset and the anticipated contracted sales price, less estimated selling costs.(5) 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 byGAAP, as there are direct observations and transactions involving the assets by unrelated, third party purchasers.8. Commitments and ContingenciesCommitments Under Existing Lease AgreementsUnder its existing lease agreements, Piedmont may be required to fund significant tenant improvements, leasing commissions, and building improvements. Inaddition, certain agreements contain provisions that require Piedmont to issue corporate or property guarantees to provide funding for capital improvementsor other financial obligations. Piedmont classifies its capital improvements into two categories: (i) improvements which maintain the building's existing assetvalue and its revenue generating capacity (“non-incremental capital expenditures”) and (ii) improvements which incrementally enhance the building's assetvalue by expanding its revenue generating capacity (“incremental capital expenditures”). As of December 31, 2018, commitments related to Piedmont'sexisting lease portfolio to fund potential non-incremental capital expenditures over the next five years for tenant improvements totaled approximately $45.6million , 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. Insome cases, these obligations may expire with the leases without further recourse to Piedmont. As of December 31, 2018, commitments for incremental capitalexpenditures for tenant improvements associated with executed leases totaled approximately $32.6 million.Contingencies Related to Tenant Audits/DisputesCertain lease agreements include provisions that grant tenants the right to engage independent auditors to audit their annual operating expensereconciliations. Such audits may result in the re-interpretation of language in the lease agreements which could result in the refund of previously recognizedtenant reimbursement revenues, resulting in financial loss to Piedmont. Piedmont recorded reductions in reimbursement revenues related to such tenantaudits/disputes of approximately $0.5 million, $0.3 million and $1.1 million during the years ended December 31, 2018, 2017, and 2016, respectively.F- 26 Table of ContentsIndex to Financial StatementsLitigationPiedmont 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 proceedingsare reasonably likely to have a material adverse effect on results of operations or financial condition. Piedmont is not aware of any such legal proceedingscontemplated by governmental authorities.9. Stock Based CompensationDeferred Stock AwardsThe Compensation Committee of Piedmont's Board of Directors has periodically granted deferred stock awards to all of Piedmont's employees andindependent directors. Employee awards typically vest ratably over a multi-year period and independent director awards vest over one year. Certainemployees' long-term equity incentive program is split equally between the time-vested awards described above and a multi-year performance share programwhereby the actual awards are contingent upon Piedmont's total stockholder return ("TSR") relative to a peer group of office REITs' TSR. The peer group ispredetermined by the Board of Directors, advised by an outside compensation consultant. Any shares earned are awarded at the end of the multi-yearperformance period and vest upon award. The fair values of performance-based awards are estimated using a Monte Carlo valuation method.A rollforward of Piedmont's equity based award activity for the year ended December 31, 2018 is as follows: Shares Weighted-AverageGrant Date FairValueUnvested and Potential Stock Awards as of December 31, 2017868,437 $21.69Deferred Stock Awards Granted354,236 $17.84Increase in Estimated Potential Future Performance Share Awards, net of forfeitures506,793 $25.20Performance Stock Awards Vested(161,005) $18.47Deferred Stock Awards Vested(332,019) $19.21Deferred Stock Awards Forfeited(8,959) $19.77Unvested and Potential Stock Awards as of December 31, 20181,227,483 $23.14The following table provides additional information regarding stock award activity during the years ended December 31, 2018, 2017, and 2016 (inthousands except for per share data): 2018 2017 2016Weighted-Average Grant Date Fair Value of Deferred Stock Granted During the Period(per share)$17.84 $21.38 $19.96Total Grant Date Fair Value of Deferred Stock VestedDuring the Period$6,378 $5,899 $4,806Share-based Liability Awards Paid During the Period (1)$2,947 $2,877 $1,127(1) Amounts reflect the issuance of performance share awards related to the 2015-17, 2014-16, and 2013-15 Performance Share Plans during the years ended December 31,2018, 2017, and 2016 respectively.F- 27 Table of ContentsIndex to Financial StatementsA detail of Piedmont’s outstanding employee deferred stock awards as of December 31, 2018 is as follows:Date of grant Type of Award Net SharesGranted (1) GrantDate FairValue Vesting Schedule Unvested andPotential Shares as ofDecember 31, 2018 January 3, 2014 Deferred Stock Award 72,969 $16.45 Of the shares granted, 20% vested or willvest on January 3, 2015, 2016, 2017, 2018,and 2019, respectively. 16,416 May 24, 2016 Deferred Stock Award 208,003 $19.91 Of the shares granted, 25% vested on thedate of grant, and 25% of the shares vest onMay 24, 2017, 2018, and 2019, respectively. 60,487 May 24, 2016 Fiscal Year 2016-2018Performance Share Program — $23.02 Shares awarded, if any, will vestimmediately upon determination of award in2019. 139,127(2) May 18, 2017 Deferred Stock Award 219,863 $21.38 Of the shares granted, 25% vested on thedate of grant, and 25% vested or will vest onMay 18, 2018, 2019, and 2020, respectively. 123,343 May 18, 2017 Fiscal Year 2017-2019Performance Share Program — $30.45 Shares awarded, if any, will vestimmediately upon determination of award in2020. 251,123(2) May 17, 2018 Deferred Stock Award-Boardof Directors 31,388 $17.84 Of the shares granted, 100% will vest byMay 17, 2019. 31,388 May 17, 2018 Deferred Stock Award 302,706 $17.84 Of the shares granted, 25% vested on thedate of grant, and 25% vested or will vest onMay 17, 2019, 2020, and 2021, respectively. 239,567 May 17, 2018 Fiscal Year 2018-2020Performance Share Program — $23.52 Shares awarded, if any, will vestimmediately upon determination of award in2021. 366,032(2) Total 1,227,483 (1) Amounts reflect the total grant to employees and independent directors, net of shares surrendered upon vesting to satisfy required minimum tax withholding obligationsthrough December 31, 2018.(2) Estimated based on Piedmont's cumulative TSR for the respective performance period through December 31, 2018. Share estimates are subject to change in future periodsbased upon Piedmont's relative performance compared to its peer group of office REITs' total stockholder return.During the years ended December 31, 2018, 2017, and 2016, Piedmont recognized approximately $9.7 million, $9.5 million and $8.0 million ofcompensation expense related to stock awards, of which approximately $8.6 million, $7.7 million and $6.5 million, related to the amortization of nonvestedshares, respectively. During the year ended December 31, 2018, a total of 355,055 shares were issued to employees. As of December 31, 2018, approximately$3.9 million of unrecognized compensation cost related to nonvested, annual deferred stock awards remained, which Piedmont will record in its consolidatedstatements of income over a weighted-average vesting period of approximately one year.10. Earnings Per ShareThere 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 sharesoutstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weightedaverage number of common shares outstanding during the period, including unvested deferred stock awards. Diluted weighted average number of commonshares reflects the potential dilution under the treasury stockF- 28 Table of ContentsIndex to Financial Statementsmethod that would occur if the remaining unvested deferred stock awards vested and resulted in additional common shares outstanding. Unvested deferredstock awards which are determined to be anti-dilutive are not included in the calculation of diluted weighted average common shares. For each of the yearsended December 31, 2018, 2017, and 2016, Piedmont excluded approximately 0.1 million of such anti-dilutive shares.The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the consolidated statements of incomefor the years ended December 31, 2018, 2017, and 2016, respectively (in thousands): 2018 2017 2016Weighted-average common shares—basic130,161 145,044 145,230Plus: Incremental weighted-average shares from time-vested deferred and performance stockawards475 336 405Weighted-average common shares—diluted130,636 145,380 145,635 Common stock issued and outstanding as of period end126,219 142,359 145,23511. Operating LeasesPiedmont’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 andbenefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leasesand the creditworthiness of the tenant; however, generally they are not significant. Exposure to credit risk is limited to the extent that tenant receivablesexceed this amount. Security deposits related to tenant leases are included in accounts payable, accrued expenses, and accrued capital expenditures in theaccompanying consolidated balance sheets.The future minimum rental income from Piedmont’s investment in real estate assets under non-cancelable operating leases as of December 31, 2018 ispresented below (in thousands):Years ending December 31: 2019 $370,4952020 352,5412021 337,9512022 324,9602023 291,603Thereafter 1,247,649Total $2,925,19912. Property Dispositions and Assets Held for SaleProperty DispositionsNone of Piedmont's property dispositions during the three years ended December 31, 2018 met the criteria to be reported as discontinued operations. Theoperational results and gain/(loss) on sale of real estate assets are presented as continuing operations in the accompanying consolidated statements of income,unless otherwise indicated below. Details of such properties sold are presented below (in thousands):F- 29 Table of ContentsIndex to Financial StatementsBuildings Sold Location Date of Sale Gain/(Loss) on Sale ofReal Estate Assets Net Sales Proceeds 1055 East Colorado Boulevard Pasadena, California April 21, 2016 $29,462 $60,076 Fairway Center II Brea, California April 28, 2016 $14,406 $33,062 1901 Main Street Irvine, California May 2, 2016 $29,964 $63,149(1) 9221 Corporate Boulevard Rockville, Maryland July 27, 2016 $(192)(2) $12,035 150 West Jefferson Detroit, Michigan July 29, 2016 $(664)(2) $77,844 9200 and 9211 Corporate Boulevard Rockville, Maryland September 28, 2016 $(41)(2) $12,519 11695 Johns Creek Parkway Johns Creek, Georgia December 22, 2016 $1,978 $13,827 Braker Pointe III Austin, Texas December 29, 2016 $18,579 $48,006 Sarasota Commerce Center II Sarasota, Florida June 16, 2017 $6,493 $23,090 Two Independence Square Washington, D.C. July 5, 2017 $109,381 $352,428 8560 Upland Drive Denver, Colorado July 27, 2017 $3,683 $12,334(3) 2017 Disposition Portfolio(4) Various(4) January 4, 2018 $45,275 $419,644(5) 800 North Brand Boulevard Glendale, California November 29, 2018 $30,416 $155,583 (1) Piedmont accepted a secured promissory note from the buyer for $33.0 million of the sales proceeds which was subsequently repaid in full. As such, the full proceedsfrom 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.(2) As discussed in Note 7 above, Piedmont recognized an impairment loss prior to, or in conjunction with, the sale of the property. Therefore, loss recognized upon theconsummation of the sale consists solely of adjustments made subsequent to the sale for closing cost estimates or post-closing prorations.(3) Property was owned as part of an unconsolidated joint venture. As such, the gain on sale is presented as equity in income/(loss) of unconsolidated joint ventures in theaccompanying consolidated statement of income. Amounts shown above reflect Piedmont's approximate 72% ownership.(4) The 2017 Disposition Portfolio is comprised of the following properties: Desert Canyon 300 in Phoenix, Arizona; Windy Point I & II in Schaumburg, Illinois; 2300Cabot Drive in Lisle, Illinois; 1075 West Entrance Drive in Auburn Hills, Michigan; Auburn Hills Corporate Center in Auburn Hills, Michigan; 5301 Maryland Way inBrentwood, Tennessee; Suwanee Gateway One in Suwanee, Georgia; 5601 Hiatus Road in Tamarac, Florida; Piedmont Pointe I & II in Bethesda, Maryland; 1200Crown Colony Drive in Quincy, Massachusetts; and 2120 West End Avenue in Nashville, Tennessee.(5) Piedmont accepted a secured promissory note from the buyer for $3.2 million which was subsequently repaid in full.Assets Held for SaleDuring the fourth quarter of 2018, Piedmont entered into a binding, non-refundable contract with an unrelated third party buyer to sell the One IndependenceSquare building. The sale is expected to close during first quarter 2019. As a result, One Independence Square met the criteria for held for sale classificationas of December 31, 2018. Therefore, the appropriate real estate related amounts are reclassified for both December 31, 2018 and 2017 in the accompanyingconsolidated balance sheets. The amounts classified as held for sale as of December 31, 2017 also include the 2017 Disposition Portfolio, as well as the 800North Brand Boulevard building, which were sold during the year ended December 31, 2018.F- 30 Table of ContentsIndex to Financial StatementsDetails of amounts held for sale as of December 31, 2018 and 2017 are presented below (in thousands): December 31, 2018 December 31, 2017Real estate assets held for sale, net: Land $30,562 $128,668Building and improvements, less accumulated depreciation of $48,453 and $270,552 as ofDecember 31, 2018, and 2017, respectively 77,936 430,136Construction in progress 2,054 2,645Total real estate assets held for sale, net $110,552 $561,449 Other assets held for sale, net: Straight-line rent receivables $10,756 $44,666Prepaid expenses and other assets 430 2,067Deferred lease costs, less accumulated amortization of $2,446 and $20,169 as of December31, 2018 and 2017, respectively 9,605 37,560Total other assets held for sale, net $20,791 $84,293 Other liabilities held for sale, net: Intangible lease liabilities, less accumulated amortization of $0 and $935 as of December 31,2018 and 2017, respectively $— $38013. Supplemental Disclosures for the Statement of Consolidated Cash FlowsCertain noncash investing and financing activities for the years ended December 31, 2018, 2017, and 2016 (in thousands) are outlined below: 2018 2017 2016Accrued capital expenditures and deferred lease costs$10,854 $11,276 $14,427Change in accrued dividends and discount on dividend reinvestments$(74,828) $71,267 $30,532Change in accrued share repurchases as part of an announced plan$3,140 $1,276 $—Investment in consolidated joint venture$— $63,026 $—The following table provides a reconciliation of cash, cash equivalents, and restricted cash and escrows as reported, or previously reported, within theconsolidated balance sheets to the consolidated statements of cash flows as of years ended ended December 31, 2018, 2017, and 2016 (in thousands). 2018 2017 2016Cash and cash equivalents, beginning of period $7,382 $6,992 $5,441Restricted cash and escrows, beginning of period 1,373 1,212 5,174Total cash, cash equivalents, and restricted cash and escrows shown in the consolidated statement ofcash flows, beginning of period $8,755 $8,204 $10,615 Cash and cash equivalents, end of period $4,571 $7,382 $6,992Restricted cash and escrows, end of period 1,463 1,373 1,212Total cash, cash equivalents, and restricted cash and escrows shown in the consolidated statement ofcash flows, end of period $6,034 $8,755 $8,204F- 31 Table of ContentsIndex to Financial StatementsAmounts in restricted cash and escrows typically represent escrow accounts for the payment of real estate taxes which are required under certain of Piedmont'sdebt agreements; earnest money deposited by a buyer to secure the purchase of one of our properties; or security or utility deposits held for tenants as acondition of their lease agreement.14. Income TaxesPiedmont’s income tax basis net income for the years ended December 31, 2018, 2017, and 2016, is calculated as follows (in thousands): 2018 2017 2016GAAP basis financial statement net income$130,296 $133,564 $99,732Increase/(decrease) in net income resulting from: Depreciation and amortization expense recognized for financial reporting purposes in excess ofamounts recognized for income tax purposes54,420 62,916 69,214Rental income accrued for income tax purposes less than amounts for financial reporting purposes(9,681) (25,432) (18,964)Net amortization of above/below-market lease intangibles for income tax purposes in excess ofamounts for financial reporting purposes(7,453) (6,041) (4,895)Gain on disposal of property for financial reporting purposes less than/(in excess of) amounts forincome tax purposes(36,241) 10,068 (118,713)Taxable income or loss of Piedmont Washington Properties, Inc., in excess of/(less than) amount forfinancial reporting purposes(2,089) 176 (1,042)Other expenses, including impairment loss on real estate assets, for financial reporting purposes inexcess of/ (less than) amounts for income tax purposes(37,394) 49,859 42,019Taxable income for POH in excess of/(less than) amount for financial reporting purposes(64) (28) 648Income tax basis net income, prior to dividends paid deduction$91,794 $225,082 $67,999For income tax purposes, dividends to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder’s investedcapital. The composition of Piedmont’s distributions per common share is presented below: 2018 2017 2016Ordinary income100.00% 53.61% 81.77%Return of capital—% —% 18.23%Capital gains—% 46.39% —% 100% 100% 100%As of December 31, 2018 and 2017, the tax basis carrying value of Piedmont’s total assets was approximately $3.6 billion and $4.2 billion, respectively.Approximately $2.4 million and $3.8 million of accrued interest and penalties related to uncertain tax positions was included in accounts payable, accruedexpenses, and accrued capital expenditures in the accompanying consolidated balance sheets as of December 31, 2018 and 2017, respectively. Piedmontrecognized approximately $1.4 million and $0.1 million of recoveries of previously recorded estimated accrued interest and penalties during the year endedDecember 31, 2018 and 2017, respectively, and no additional expense or recoveries for the year ended December 31, 2016, related to such positions. The taxyears 2015 to 2017 remain open to examination by various federal and state taxing authorities.Tax Cuts and Jobs ActThe Tax Cuts and Jobs Act ("H.R. 1"), which generally took effect for taxable years that began on or after January 1, 2018 (subject to certain exceptions),made many significant changes to the U.S. federal income tax laws that profoundly impact the taxation of individuals and corporations (including bothregular C corporations and corporations that have elected to be taxed as REITs). There are numerous interpretive issues related to H.R. 1 and the IRScontinues to issue clarifying guidance; however, Piedmont has completed its initial taxable income estimates for the year ended December 31, 2018 and noneof the revisions resulting fromF- 32 Table of ContentsIndex to Financial StatementsH.R. 1 were significant enough to warrant a change to Piedmont's current distribution policy. However, Piedmont did record an approximate $0.2 millionreduction to its tax liability related to its taxable REIT subsidiary as a result of the rate reduction included in H.R. 1 during the year ended December 31,2018.15. Quarterly Results (unaudited)A summary of the unaudited quarterly financial information for the years ended December 31, 2018 and 2017, is presented below (in thousands, except per-share data): 2018 First Second Third FourthRevenues$129,900 $129,174 $129,708 $137,185Gain/(loss) on sale of real estate assets$45,209 $(23) $— $30,505Net income$57,828 $10,940 $16,114 $45,409Net income applicable to Piedmont$57,830 $10,942 $16,114 $45,410Basic earnings per share$0.43 $0.09 $0.13 $0.35Diluted earnings per share$0.42 $0.09 $0.13 $0.35Dividends declared per share$0.21 $0.21 $0.21 $0.21 2017 First Second Third Fourth Revenues$148,463 $148,679 $137,587 $139,444 Gain/(loss) on sale of real estate assets$(53) $6,492 $109,512 $(77) Net income/(loss)$15,101 $23,707 $126,129 $(31,388) Net income/(loss) applicable to Piedmont$15,104 $23,710 $126,133 $(31,383) Basic and diluted earnings/(loss) per share$0.10 $0.16 $0.87 $(0.21) Dividends declared per share$0.21 $0.21 $0.21 $0.71(1) (1) On December 13, 2017, Piedmont's board of directors declared a special dividend of $0.50 per share.F- 33 Table of ContentsIndex to Financial Statements16. Guarantor and Non-Guarantor Financial InformationThe following condensed consolidating financial information for Piedmont (the "Parent", "Guarantor", and/or "Consolidated"), Piedmont OP (the "Issuer"),and the other directly and indirectly owned subsidiaries of Piedmont as the Guarantor (the "Non-Guarantors") is provided pursuant to the requirements ofRule 3-10 of Regulation S-X regarding financial statements of guarantors and issuers of guaranteed registered securities. The Issuer is a wholly-ownedsubsidiary of the Guarantor, and all guarantees by the Guarantor of securities issued by the Issuer are full and unconditional. The principal elimination entriesrelate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Non-Guarantor Subsidiaries.F- 34 Table of ContentsIndex to Financial StatementsCondensed Consolidated Balance SheetsAs of December 31, 2018(in thousands)Piedmont(Parent)(Guarantor) Piedmont OP(the Issuer) Non-GuarantorSubsidiaries Eliminations ConsolidatedAssets: Real estate assets, at cost: Land$— $36,094 $471,328 $— $507,422Buildings and improvements, less accumulated depreciation— 176,927 2,128,469 (300) 2,305,096Intangible lease assets, less accumulated amortization— — 77,676 — 77,676Construction in progress— 5,708 10,140 — 15,848Real estate assets held for sale, net— — 110,552 — 110,552Total real estate assets— 218,729 2,798,165 (300) 3,016,594Cash and cash equivalents150 — 4,939 (518) 4,571Tenant and straight-line receivables, net— 16,143 157,246 — 173,389Investment in subsidiaries1,744,122 2,704,337 166 (4,448,625) —Notes receivable— 810 144,500 (145,310) —Prepaid expenses, restricted cash, escrows, interest rate swaps, and other assets42 5,682 22,318 (24) 28,018Goodwill— 98,918 — — 98,918Deferred lease costs, net— 15,158 234,990 — 250,148Other assets held for sale, net— — 20,791 — 20,791Total assets$1,744,314 $3,059,777 $3,383,115 $(4,594,777) $3,592,429Liabilities: Debt, net$— $1,495,904 $335,717 $(145,310) $1,686,311Accounts payable, accrued expenses, dividends payable, interest rate swaps andaccrued capital expenditures32,174 14,543 83,316 (542) 129,491Deferred income— 2,274 26,505 — 28,779Intangible lease liabilities, net— — 35,708 — 35,708Total liabilities32,174 1,512,721 481,246 (145,852) 1,880,289Equity: Total stockholders’ equity1,712,140 1,547,056 2,901,869 (4,448,925) 1,712,140Total liabilities and stockholders’ equity$1,744,314 $3,059,777 $3,383,115 $(4,594,777) $3,592,429F- 35 Table of ContentsIndex to Financial StatementsCondensed Consolidated Balance SheetsAs of December 31, 2017(in thousands)Piedmont(Parent)(Guarantor) Piedmont OP(the Issuer) Non-Guarantors Eliminations Piedmont(Consolidated)Assets: Real estate assets, at cost: Land$— $36,094 $454,531 $— $490,625Buildings and improvements, less accumulated depreciation— 180,886 2,062,933 (300) 2,243,519Intangible lease assets, less accumulated amortization— 181 77,624 — 77,805Construction in progress— 85 11,259 — 11,344Real estate assets held for sale, net— 32,815 528,634 — 561,449Total real estate assets— 250,061 3,134,981 (300) 3,384,742Cash and cash equivalents150 3,890 3,342 — 7,382Tenant and straight-line rent receivables, net, and amounts fromunconsolidated joint ventures— 16,891 139,727 — 156,618Advances to affiliates1,674,276 6,297,632 — (7,971,908) —Investment in subsidiary3,437,299 — 172 (3,437,471) —Notes receivable— 88,810 144,500 (233,310) —Prepaid expenses, restricted cash, escrows, interest swaps and other assets2 5,094 18,483 (740) 22,839Goodwill— 98,918 — — 98,918Deferred lease costs, net— 16,611 228,564 — 245,175Other assets held for sale, net— 2,266 82,027 — 84,293Total assets$5,111,727 $6,780,173 $3,751,796 $(11,643,729) $3,999,967Liabilities: Debt, net$— $1,535,239 $424,998 $(233,310) $1,726,927Accounts payable, accrued expenses, dividends payable, and accruedcapital expenditures104,028 20,279 93,086 (740) 216,653Advances from affiliates5,277,957 941,494 1,850,712 (8,070,163) —Deferred income— 3,631 25,951 — 29,582Intangible lease liabilities, net— — 38,458 — 38,458Interest rate swaps— 1,478 — — 1,478Liabilities held for sale, net— — 380 — 380Total liabilities5,381,985 2,502,121 2,433,585 (8,304,213) 2,013,478Equity: Total stockholders’ equity(270,258) 4,278,052 1,318,211 (3,339,516) 1,986,489Total liabilities and stockholders’ equity$5,111,727 $6,780,173 $3,751,796 $(11,643,729) $3,999,967F- 36 Table of ContentsIndex to Financial StatementsCondensed Consolidated Statements of IncomeFor the year ended December 31, 2018(in thousands)Piedmont(Parent)(Guarantor) PiedmontOP(the Issuer) Non-Guarantors Eliminations ConsolidatedRevenues: Rental income$— $35,221 $378,473 $(2,027) $411,667Tenant reimbursements— 9,489 83,700 (446) 92,743Property management fee revenue— — 17,118 (15,668) 1,450Other property related income— 130 19,977 — 20,107 — 44,840 499,268 (18,141) 525,967Expenses: Property operating costs— 19,583 207,896 (18,141) 209,338Depreciation— 11,514 96,442 — 107,956Amortization— 1,990 61,305 — 63,295Impairment loss on real estate assets— — — — —General and administrative289 6,576 22,848 — 29,713 289 39,663 388,491 (18,141) 410,302 (289) 5,177 110,777 — 115,665Other income (expense): Interest expense— (54,095) (14,558) 7,630 (61,023)Other income/(expense)— 144 9,124 (7,630) 1,638Loss on extinguishment of debt— (1,680) — — (1,680)Gain on sale of real estate assets— 1,417 74,274 — 75,691 — (54,214) 68,840 — 14,626Income/(loss) before consolidated subsidiaries(289) (49,037) 179,617 — 130,291Income from subsidiaries130,585 178,648 — (309,233) —Net income130,296 129,611 179,617 (309,233) 130,291Net loss applicable to noncontrolling interest— — 5 — 5Net income applicable to Piedmont$130,296 $129,611 $179,622 $(309,233) $130,296F- 37 Table of ContentsIndex to Financial StatementsCondensed Consolidated Statements of IncomeFor the year ended December 31, 2017(in thousands)Piedmont(Parent)(Guarantor) PiedmontOP(the Issuer) Non-Guarantors Eliminations ConsolidatedRevenues: Rental income$— $42,407 $414,509 $(1,791) $455,125Tenant reimbursements— 11,702 86,911 (474) 98,139Property management fee revenue— — 18,205 (16,470) 1,735Other property related income— 144 19,030 — 19,174 — 54,253 538,655 (18,735) 574,173Expenses: Property operating costs— 22,805 218,371 (18,735) 222,441Depreciation— 12,995 106,293 — 119,288Amortization— 3,049 72,318 — 75,367Impairment loss on real estate assets— 87 46,374 — 46,461General and administrative347 6,443 22,529 — 29,319 347 45,379 465,885 (18,735) 492,876 (347) 8,874 72,770 — 81,297Other income (expense): Interest expense— (56,769) (26,715) 15,360 (68,124)Other income/(expense)— 9,168 6,849 (15,360) 657Equity in income of unconsolidated joint ventures— 3,845 — — 3,845Gain on sale of real estate assets, net— 6,431 109,443 — 115,874 — (37,325) 89,577 — 52,252Net income/(loss)(347) (28,451) 162,347 — 133,549Net loss applicable to noncontrolling interest— — 15 — 15Net income/(loss) applicable to Piedmont$(347) $(28,451) $162,362 $— $133,564F- 38 Table of ContentsIndex to Financial StatementsCondensed Consolidated Statements of IncomeFor the year ended December 31, 2016(in thousands)Piedmont(Parent)(Guarantor) PiedmontOP(the Issuer) Non-Guarantors Eliminations ConsolidatedRevenues: Rental income$— $53,527 $389,022 $(2,631) $439,918Tenant reimbursements— 14,295 81,104 (498) 94,901Property management fee revenue— — 16,947 (15,033) 1,914Other property related income— 1,266 17,716 — 18,982 — 69,088 504,789 (18,162) 555,715Expenses: Property operating costs— 33,829 205,344 (18,377) 220,796Depreciation— 16,657 111,076 — 127,733Amortization— 3,715 71,404 — 75,119Impairment loss— 8,259 25,642 — 33,901General and administrative311 26,452 36,065 (35,446) 27,382 311 88,912 449,531 (53,823) 484,931 (311) (19,824) 55,258 35,661 70,784Other income (expense): Interest expense— (49,108) (27,636) 11,884 (64,860)Other income/(expense)282 9,560 2,029 (11,884) (13)Net recoveries from casualty events— — 34 — 34Equity in income of unconsolidated joint ventures— 362 — — 362Gain on sale of real estate assets, net— 31,275 62,135 — 93,410 282 (7,911) 36,562 — 28,933Net income/(loss)(29) (27,735) 91,820 35,661 99,717Net loss applicable to noncontrolling interest— — 15 — 15Net income/(loss) applicable to Piedmont$(29) $(27,735) $91,835 $35,661 $99,732F- 39 Table of ContentsIndex to Financial StatementsConsolidating Statements of Comprehensive IncomeFor the Year Ended December 31, 2018(in thousands)Piedmont(Parent)(Guarantor) Piedmont OP(the Issuer) Non-Guarantors Eliminations Piedmont(Consolidated)Net income$130,296 $129,611 $179,622 $(309,233) $130,296Effective portion of gain/(loss) on derivative instruments that aredesignated and qualify as cash flow hedges692 692 — (692) 692Plus: Reclassification of net (gain)/loss included in net income(300) (300) — 300 (300)Other comprehensive income392 392 — (392) 392 Comprehensive income$130,688 $130,003 $179,622 $(309,625) $130,688F- 40 Table of ContentsIndex to Financial StatementsCondensed Consolidated Statements of Cash FlowsFor the year ended December 31, 2018(in thousands)Piedmont(Parent)(Guarantor) PiedmontOP (theIssuer) Non-Guarantors Eliminations ConsolidatedNet Cash Provided By/(Used In) Operating Activities$135,755 $141,293 $235,562 $(309,741) $202,869 Cash Flows from Investing Activities: Investment in real estate assets, consolidated joint venture, and real estate relatedintangibles, net of accruals— (14,479) (209,540) — (224,019)Intercompany note receivable— 88,000 — (88,000) —Net sales proceeds from wholly-owned properties— 36,572 538,655 — 575,227Note receivable issuance— — (3,200) — (3,200)Note receivable payment— — 3,200 — 3,200Deferred lease costs paid— (3,090) (24,340) — (27,430)Distributions from subsidiaries349,135 5,405 — (354,540) —Net cash provided by/(used in) investing activities349,135 112,408 304,775 (442,540) 323,778Cash Flows from Financing Activities: Debt issuance costs paid— (1,040) — — (1,040)Proceeds from debt— 977,062 — — 977,062Repayments of debt— (1,019,000) (1,455) — (1,020,455)Intercompany note payable— — (88,000) 88,000 —Costs of issuance of common stock(85) — — — (85)Value of shares withheld to pay tax obligations related to employee stockcompensation(2,219) — — — (2,219)Repurchases of common stock as part of announced plan(298,538) — — — (298,538)Distributions(184,048) (214,596) (449,212) 663,763 (184,093)Net cash provided by/(used in) financing activities(484,890) (257,574) (538,667) 751,763 (529,368)Net increase/(decrease) in cash, cash equivalents, and restricted cash and escrows— (3,873) 1,670 (518) (2,721)Cash, cash equivalents, and restricted cash and escrows, beginning of year150 3,907 4,698 — 8,755Cash, cash equivalents, and restricted cash and escrows, end of year$150 $34 $6,368 $(518) $6,034F- 41 Table of ContentsIndex to Financial StatementsCondensed Consolidated Statements of Cash FlowsFor the year ended December 31, 2017(in thousands)Piedmont(Parent)(Guarantor) PiedmontOP(the Issuer) Non-Guarantors Eliminations ConsolidatedNet Cash Provided By/(Used In) Operating Activities$5,497 $(18,989) $256,297 $— $242,805 Cash Flows from Investing Activities: Investment in real estate assets, consolidated joint venture, and real estaterelated intangibles, net of accruals— (1,614) (113,479) — (115,093)Intercompany note receivable— 100 (48,710) 48,610 —Net sales proceeds from wholly-owned properties— 23,028 352,490 — 375,518Net sales proceeds received from unconsolidated joint ventures— 12,334 — — 12,334Investments in unconsolidated joint ventures— (1,162) — — (1,162)Deferred lease costs paid— (4,081) (26,904) — (30,985)Net cash provided by/(used in) investing activities— 28,605 163,397 48,610 240,612Cash Flows from Financing Activities: Debt issuance costs paid— (132) — — (132)Proceeds from debt— 180,000 — — 180,000Repayments of debt— (335,000) (141,401) — (476,401)Intercompany note payable— (14,289) 62,899 (48,610) —Costs of issuance of common stock(182) — — — (182)Value of shares withheld to pay tax obligations related to employee stockcompensation(3,403) — — — (3,403)Repurchases of common stock as part of announced plan(60,474) — — — (60,474)(Distributions to)/repayments from affiliates180,791 160,019 (340,810) — —Dividends paid and discount on dividend reinvestments(122,229) — (45) — (122,274)Net cash provided by/(used in) financing activities(5,497) (9,402) (419,357) (48,610) (482,866)Net increase/(decrease) in cash, cash equivalents, and restricted cash andescrows— 214 337 — 551Cash, cash equivalents, and restricted cash and escrows, beginning of year150 3,693 4,361 — 8,204Cash, cash equivalents, and restricted cash and escrows, end of year$150 $3,907 $4,698 $— $8,755F- 42 Table of ContentsIndex to Financial StatementsCondensed Consolidated Statements of Cash FlowsFor the year ended December 31, 2016(in thousands)Piedmont(Parent)(Guarantor) Piedmont OP(the Issuer) Non-Guarantors Eliminations ConsolidatedNet Cash Provided/(Used In) by Operating Activities$5,214 $(26,263) $217,236 $35,660 $231,847 Cash Flows from Investing Activities: Investment in real estate assets, consolidated joint venture, and real estaterelated intangibles, net of accruals— (5,060) (454,836) — (459,896)Intercompany note receivable— 440 (71,900) 71,460 —Net sales proceeds from wholly-owned properties— 200,220 165,698 — 365,918Deferred lease costs paid— (2,758) (23,138) — (25,896)Net cash provided by/(used in) investing activities— 192,842 (384,176) 71,460 (119,874)Cash Flows from Financing Activities: Debt issuance costs paid— (264) — — (264)Proceeds from debt— 695,000 — — 695,000Repayments of debt— (538,000) (168,875) — (706,875)Intercompany note payable— (9,600) 81,060 (71,460) —Costs of issuance of common stock(342) — — — (342)Value of shares withheld to pay tax obligations related to employee stockcompensation(2,344) — — — (2,344)Repurchases of common stock as part of announced plan(7,943) — — — (7,943)(Distributions to)/repayments from affiliates97,016 (312,218) 250,862 (35,660) —Dividends paid and discount on dividend reinvestments(91,601) — (15) — (91,616)Net cash provided by/(used in) financing activities(5,214) (165,082) 163,032 (107,120) (114,384)Net increase/(decrease) in cash, cash equivalents, and restricted cash andescrows— 1,497 (3,908) — (2,411)Cash, cash equivalents, and restricted cash and escrows, beginning of year150 2,196 8,269 — 10,615Cash, cash equivalents, and restricted cash and escrows, end of year$150 $3,693 $4,361 $— $8,204F- 43 Table of ContentsIndex to Financial Statements17. Subsequent events Declaration of Dividend for the First Quarter 2019 On February 5, 2019, the board of directors of Piedmont declared dividends for the first quarter 2019 in the amount of $0.21 per share on its common stock tostockholders of record as of the close of business on February 28, 2019. Such dividends are to be paid on March 15, 2019.F- 44 Table of ContentsIndex to Financial StatementsPiedmont Office Realty Trust, Inc.Schedule III - Real Estate and Accumulated DepreciationDecember 31, 2018(dollars in thousands)S- 1 Table of ContentsIndex to Financial Statements Initial Cost Gross Amount at WhichCarried at December 31, 2018 DescriptionLocation OwnershipPercentage Encumbrances Land Buildings andImprovements Total(a) CostsCapitalizedSubsequenttoAcquisition(b) Land Buildings andImprovements Total(c) AccumulatedDepreciationandAmortization Date ofConstruction DateAcquired Life onwhichDepreciationandAmortizationis Computed(in years)(d)1430 ENCLAVEPARKWAYHouston, TX 100% None 7,100 37,915 45,015 2,050 5,506 41,559 47,065 20,788 1994 12/21/2000 0-40CRESCENT RIDGEIIMinnetonka,MN 100% None 7,700 45,154 52,854 8,536 8,021 53,369 61,390 25,620 2000 12/21/2000 0-4090 CENTRALSTREETBoxborough,MA 100% None 3,642 29,497 33,139 1,462 3,642 30,959 34,601 13,188 2001 5/3/2002 0-406031CONNECTIONDRIVEIrving, TX 100% None 3,157 43,656 46,813 4,691 3,157 48,347 51,504 20,356 1999 8/15/2002 0-406021CONNECTIONDRIVEIrving, TX 100% None 3,157 42,662 45,819 10,545 3,157 53,207 56,364 22,029 2000 8/15/2002 0-406011CONNECTIONDRIVEIrving, TX 100% None 3,157 29,034 32,191 10,666 3,157 39,700 42,857 12,425 1999 8/15/2002 0-40ONEINDEPENDENCESQUAREWashington,DC 100% None 29,765 104,814 134,579 24,426 30,562 128,443 159,005 48,453 1991 11/22/2002 0-40US BANCORPCENTERMinneapolis,MN 100% None 11,138 175,629 186,767 23,472 11,138 199,101 210,239 78,042 2000 5/1/2003 0-40GLENRIDGEHIGHLANDS TWOAtlanta, GA 100% None 6,662 69,031 75,693 (16,208) 6,662 52,823 59,485 24,203 2000 8/1/2003 0-40200BRIDGEWATERCROSSINGBridgewater,NJ 100% None 8,182 84,160 92,342 (13,916) 8,328 70,098 78,426 28,421 2002 8/14/2003 0-40400 VIRGINIAAVEWashington,DC 100% None 22,146 49,740 71,886 134 22,146 49,874 72,020 19,117 1985 11/19/2003 0-404250 NORTHFAIRFAX DRIVEArlington, VA 100% None 13,636 70,918 84,554 13,636 13,636 84,554 98,190 29,283 1998 11/19/2003 0-401225 EYE STREETWashington,DC 98.1% None 21,959 47,602 69,561 8,270 21,959 55,872 77,831 21,464 1986 11/19/2003 0-401201 EYE STREETWashington,DC 98.6% None 31,985 63,139 95,124 8,672 31,985 71,811 103,796 24,231 2001 11/19/2003 0-401901 MARKETSTREETPhiladelphia,PA 100% 160,000 13,584 166,683 180,267 53,684 20,829 213,122 233,951 86,647 1987 12/18/2003 0-4060 BROADSTREETNew York, NY 100% None 32,522 168,986 201,508 14,807 60,708 155,607 216,315 62,891 1962 12/31/2003 0-401414MASSACHUSETTSAVENUECambridge, MA 100% None 4,210 35,821 40,031 (8,031) 4,365 27,635 32,000 10,421 1873 1/8/2004 0-40ONE BRATTLESQUARECambridge, MA 100% None 6,974 64,940 71,914 (23,725) 7,113 41,076 48,189 15,703 1991 2/26/2004 0-40600 CORPORATEDRIVELebanon, NJ 100% None 3,934 — 3,934 16,281 3,934 16,281 20,215 8,173 2005 3/16/2004 0-403100CLARENDONBOULEVARDArlington, VA 100% None 11,700 69,705 81,405 46,315 11,791 115,929 127,720 29,690 1987 12/9/2004 0-40 S- 2 Table of ContentsIndex to Financial Statements Initial Cost Gross Amount at WhichCarried at December 31, 2018 DescriptionLocation OwnershipPercentage Encumbrances Land Buildings andImprovements Total(a) CostsCapitalizedSubsequenttoAcquisition(b) Land Buildings andImprovements Total(c) AccumulatedDepreciationandAmortization Date ofConstruction DateAcquired Life onwhichDepreciationandAmortizationis Computed(in years)(d)400BRIDGEWATERCROSSINGBridgewater,NJ 100% None 10,400 71,052 81,452 (14,215) 10,400 56,837 67,237 18,090 2002 2/17/2006 0-40LAS COLINASCORPORATECENTER IIrving, TX 100% None 3,912 18,830 22,742 (3,701) 2,543 16,498 19,041 6,281 1998 8/31/2006 0-40LAS COLINASCORPORATECENTER IIIrving, TX 100% None 4,496 29,881 34,377 (3,846) 2,543 27,988 30,531 9,774 1998 8/31/2006 0-40TWO PIERCEPLACEItasca, IL 100% None 4,370 70,632 75,002 8,783 8,156 75,629 83,785 20,322 1991 12/7/2006 0-40ONE MERIDIANCROSSINGSRichfield,MN 100% None 2,919 24,398 27,317 318 2,919 24,716 27,635 5,749 1997 10/1/2010 0-40TWOMERIDIANCROSSINGSRichfield,MN 100% None 2,661 25,742 28,403 673 2,661 26,415 29,076 6,167 1998 10/1/2010 0-40500 WESTMONROESTREETChicago, IL 100% None 36,990 185,113 222,103 52,437 36,990 237,550 274,540 54,023 1991 3/31/2011 0-40THE DUPREEAtlanta, GA 100% None 4,080 14,310 18,390 894 4,080 15,204 19,284 5,235 1997 4/29/2011 0-40THE MEDICIAtlanta, GA 100% None 1,780 11,510 13,290 5,473 1,780 16,983 18,763 4,690 2008 6/7/2011 0-40225PRESIDENTIALWAYBoston, MA 100% None 3,626 36,916 40,542 217 3,612 37,147 40,759 11,241 2001 9/13/2011 0-40235PRESIDENTIALWAYBoston, MA 100% None 4,154 44,048 48,202 240 4,138 44,304 48,442 13,360 2000 9/13/2011 0-40400TOWNPARKLake Mary,FL 100% None 2,570 20,555 23,125 4,725 2,570 25,280 27,850 5,811 2008 11/10/2011 0-40ARLINGTONGATEWAYArlington,VA 100% None 36,930 129,070 166,000 (1,777) 36,930 127,293 164,223 19,521 2005 3/4/2013 0-405 & 15WAYSIDEROADBurlington,MA 100% None 7,190 55,445 62,635 6,653 7,190 62,098 69,288 10,185 1999 / 2001 3/22/2013 0-406565MACARTHURBOULEVARDIrving, TX 100% None 4,820 37,767 42,587 (464) 4,820 37,303 42,123 5,690 1998 12/5/2013 0-40ONE LINCOLNPARKDallas, TX 100% None 6,640 44,810 51,450 1,428 6,640 46,238 52,878 8,151 1999 12/20/2013 0-40161CORPORATECENTERIrving, TX 100% None 2,020 10,680 12,700 (16) 2,020 10,664 12,684 2,698 1998 12/30/2013 0-405 WALLSTREETBurlington,MA 100% 29,706 9,560 50,276 59,836 365 9,560 50,641 60,201 9,378 2008 6/27/2014 0-401155PERIMETERCENTER WESTAtlanta, GA 100% None 5,870 66,849 72,719 32 5,870 66,881 72,751 12,969 2000 8/28/2014 0-40 Initial Cost Gross Amount at WhichCarried at December 31, 2018 DescriptionLocation OwnershipPercentage Encumbrances Land Buildings andImprovements Total(a) CostsCapitalizedSubsequenttoAcquisition(b) Land Buildings andImprovements Total(c) AccumulatedDepreciationandAmortization Date ofConstruction DateAcquired Life onwhichDepreciationandAmortizationis Computed(in years)(d)500 TOWNPARKLake Mary,FL 100% None 2,147 21,925 24,072 4,108 2,147 26,033 28,180 1,644 2017 N/A 0-40PARK PLACEON TURTLECREEKDallas, TX 100% None 4,470 38,048 42,518 2,836 4,470 40,884 45,354 6,079 1986 1/16/2015 0-4080 CENTRALSTREETBoxborough,MA 100% None 1,980 8,930 10,910 245 1,980 9,175 11,155 1,451 1988 7/24/2015 0-40ENCLAVEPLACEHouston, TX 100% None 1,890 60,094 61,984 3,756 1,890 63,850 65,740 5,188 2015 N/A 0-40SUNTRUSTCENTEROrlando, FL 100% None 11,660 139,015 150,675 923 11,660 139,938 151,598 16,979 1988 11/4/2015 0-40GALLERIA 300Atlanta, GA 100% None 4,000 73,554 77,554 1,880 4,000 75,434 79,434 9,400 1987 11/4/2015 0-40GLENRIDGEHIGHLANDSONEAtlanta, GA 100% None 5,960 50,013 55,973 157 5,960 50,170 56,130 6,321 1998 11/24/2015 0-40CNL CENTER IOrlando, FL 99% None 6,470 77,858 84,328 (28) 6,470 77,830 84,300 8,382 1999 8/1/2016 0-40CNL CENTER IIOrlando, FL 99% None 4,550 55,609 60,159 455 4,550 56,064 60,614 5,458 2006 8/1/2016 0-40ONE WAYSIDEROADBoston, MA 100% None 6,240 57,124 63,364 (4,471) 6,240 52,653 58,893 3,289 1997 / 2008 8/10/2016 0-40 GALLERIA 200Atlanta, GA 100% None 6,470 55,825 62,295 549 6,470 56,374 62,844 5,179 1984 10/7/2016 0-40750 WEST JOHNCARPENTERFREEWAYIrving, TX 100% None 7,860 36,303 44,163 1,931 7,860 38,234 46,094 4,196 1999 11/30/2016 0-40NORMANPOINTE IBloomington,MN 100% None 4,358 22,322 26,680 251 4,360 22,571 26,931 1,034 2000 12/28/2017 0-40501 WESTCHURCHSTREETOrlando, FL 100% None 2,805 28,119 30,924 — 2,805 28,119 30,924 1,035 2003 2/23/2018 0-409320EXCELSIORBOULEVARDHopkins, MN 100% None 3,760 35,289 39,049 — 3,760 35,289 39,049 408 2010 10/25/2018 0-4025BURLINGTONMALL ROADBurlington,MA 100% None 10,230 54,787 65,017 — 10,230 54,787 65,017 555 1987 12/12/2018 0-40PIEDMONTPOWER, LLC (e)Bridgewater,NJ 100% None — 79 79 2,740 — 2,819 2,819 818 N/A 12/20/2011 0-40UNDEVELOPEDLAND PARCELS(f)Various 100% None 18,061 — 18,061 (860) 15,914 1,287 17,201 41 N/A Various N/ATotal—AllProperties $504,209 $3,161,864 $3,666,073 $258,458 $537,984 $3,386,547 $3,924,531 $907,937 (a) Total initial cost excludes purchase price allocated to intangible lease origination costs and intangible lease liabilities.(b) Includes write-offs of fully depreciated/amortized capitalized assets, as well as impairment loss on real estate assets.(c) The net carrying value of Piedmont’s total assets for federal income tax purposes is approximately $3.6 billion.(d) Piedmont’s assets are depreciated or amortized using the straight-line method over the useful lives of the assets by class. Generally, Tenant Improvements and LeaseIntangibles are amortized over the lease term. Generally, Building Improvements are depreciated over 5 - 25 years, Land Improvements are depreciated over 20 - 25 years,and Buildings are depreciated over 40 years.(e) Represents solar panels at the 400 Bridgewater Crossing building.(f) Undeveloped Land Parcels includes land parcels which Piedmont may develop in the future.S- 3 Table of ContentsIndex to Financial StatementsPiedmont Office Realty Trust, Inc.Schedule III - Real Estate and Accumulated DepreciationDecember 31, 2018(dollars in thousands) 2018 2017 2016 Real Estate: Balance at the beginning of the year$4,438,209 $4,800,025 $4,725,096 Additions to/improvements of real estate206,442 85,368 422,908 Assets disposed(675,692) (353,911)(1) (296,319) Assets impaired— (46,461)(2) (30,898)(3) Write-offs of intangible assets (4)(33,067) (37,188) (11,896) Write-offs of fully depreciated/amortized assets(11,361) (9,624) (8,866) Balance at the end of the year$3,924,531 $4,438,209 $4,800,025 Accumulated Depreciation and Amortization: Balance at the beginning of the year$1,053,467 $1,058,704 $1,019,663 Depreciation and amortization expense128,456 145,837 155,274 Assets disposed(229,558) (104,262)(1) (95,471) Write-offs of intangible assets (4)(33,067) (37,188) (11,896) Write-offs of fully depreciated/amortized assets(11,361) (9,624) (8,866) Balance at the end of the year$907,937 $1,053,467 $1,058,704 (1) Includes the disposition of the 8560 Upland Drive property, Piedmont's last remaining investment in an unconsolidated joint venture.(2) Piedmont recognized an impairment loss on a disposal group of real estate assets as part of the 2017 Disposition Portfolio (see Note 7).(3) Does not include impairment loss recognized on other assets as a result of the allocation of goodwill (see Note 7).(4) Consists of write-offs of intangible lease assets related to lease restructurings, amendments, and terminations.S- 4 Exhibit 10.31EMPLOYMENT AGREEMENTEMPLOYMENT AGREEMENT (as amended from time to time, the “Agreement”) dated as of January 1, 2019, by andbetween Piedmont Office Realty Trust, Inc.. (the “Company”), with its principal place of business at 5565 Glenridge Connector, Suite450, Atlanta, GA 30342 and Christopher Kollme, residing at the address set forth on the signature page hereof (the “Executive”).WHEREAS, the Company desires to secure the Executive’s continued employment with the Company by entering into thisAgreement, effective as of January 1, 2019 (the “Effective Date”), and the Executive wishes to continue his employment on the termsset forth below.Accordingly, the parties hereto agree as follows:1.Term. The Company hereby employs the Executive, and the Executive hereby accepts such employment, for an initial termcommencing as of Effective Date and continuing for a period ending on December 31, 2019, unless sooner terminated in accordancewith the provisions of Section 4 (the period during which the Executive is employed pursuant to this Agreement being hereinafterreferred to as the “Term”). The Term shall automatically be extended for successive one-year periods in accordance with the terms ofthis Agreement (subject to termination as aforesaid) unless either party notifies the other party of non-renewal in writing, in accordancewith Section 6.4, at least ninety (90) days prior to the expiration of the initial Term or any subsequent renewal period. The delivery bythe Company to Executive of written notice indicating that it intends not to extend the Term as provided in this Section 1 prior to theexpiration of the then operative Term shall not be deemed a termination of Executive’s employment by the Company without Causefor purposes of this Agreement, except as set forth in Section 4.5. If the Term expires, and Executive and Company agree thatExecutive will remain employed by the Company, but do not enter into a new employment agreement, then such employment shall be“at-will” and this Agreement will be of no further force and effect other than with respect to the provisions of this Agreement that areexpressly intended to survive the expiration of the Term.2.Duties. During the Term, the Executive shall be employed by the Company as Executive Vice President of Finance andStrategy of the Company, and, as such, the Executive shall faithfully perform for the Company the duties of such office and shallperform such other duties of an executive, managerial or administrative nature, which are consistent with such office, as shall bespecified and designated from time to time by the Board of Directors of the Company (the “Board”), including also serving as anofficer, manager, agent, trustee or other representative with respect to any subsidiary, affiliate or joint venture of the Company (each a“Subsidiary”). If requested by the Board, Executive shall serve as a member of the board of directors (or equivalent) of the Companyor any Subsidiary without additional compensation. The Executive shall devote substantially all of his business time and effort to theperformance of his duties hereunder. Notwithstanding the foregoing, nothing herein shall prohibit Executive from (i) engaging inpersonal investment activities for the Executive and his family that do not give rise to any conflict of interests with the Company or itsaffiliates, (ii) subject to prior approval of the Board, accepting directorships unrelated to the Company that do not give rise to anyconflict of interests with the Company or its affiliates and (iii) engaging in charitable and civic activities, so long as such activities andoutside interests described in clauses (i), (ii) and (iii) hereof do not interfere, in any material respect, with the performance of theExecutive’s duties hereunder. The Executive shall be based in the Atlanta, Georgia metropolitan area. 3.Compensation.3.1. Salary. The Company shall pay the Executive during the Term a base salary at a level to be determined by theCompensation Committee of the Board (the “Compensation Committee”), which shall not be less the Executive’s current base salary,in accordance with the customary payroll practices of the Company applicable to senior executives (the “Base Salary”). TheCompensation Committee may provide for such increases in Base Salary as it may in its discretion deem appropriate; provided that inno event shall the Base Salary be decreased during the Term without the written consent of Executive.3.2. Bonus. During the Term, in addition to the Base Salary, for each fiscal year of the Company ending during the Term,the Executive shall be eligible to earn an annual target cash bonus of 50% (after meeting threshold performance criteria), 100% (aftermeeting target performance criteria) and up to 150% (after meeting maximum performance criteria) of the Base Salary (the “TargetBonus Amount”) payable during such fiscal year based upon criteria to be reasonably established not later than the first sixty (60) daysof that fiscal year by the Compensation Committee in consultation with Executive (the “Annual Bonus”), which bonus shall bepursuant to the OIP (as defined below). The Annual Bonus actually earned for any fiscal year shall be determined by theCompensation Committee in good faith and paid to Executive within thirty (30) days following completion of the Company’s financialstatement audit for the applicable fiscal year, but in no event later than December 31 of the year following the end of the relevant fiscalyear (the “Outside Payment Date”). Notwithstanding the foregoing, if the Company’s financial statement audit has not been completedwithin three months after the end of the fiscal year, the Company will pay the portion of Executive’s bonus that the CompensationCommittee is able to determine that Executive is entitled to (if any) no later than the 120 days after the end of the fiscal year and theremaining portion, if any, of Executive’s Annual Bonus shall be paid no later than the Outside Payment Date.3.3. Incentive Award. During the Term, in addition to the Base Salary and Annual Bonus, the Executive shall be eligible toparticipate in the Company’s 2007 Omnibus Incentive Plan or other incentive plan as in effect from time to time (as such plan isapproved by the Stockholders) (the “OIP”), and awards which may be granted to Executive thereunder shall vest on a basis specifiedby the Compensation Committee and may be subject to the achievement of pre-established performance-related goals determined bythe Compensation Committee, and otherwise shall be subject to such plan and definitive documentation governing the award. Grantsduring the Term under the OIP shall be made at such times and in such amounts as the Compensation Committee shall determine in itsdiscretion.3.4. Employee Benefits. Except with respect to benefits specifically provided for otherwise in this Agreement, the Executiveshall be entitled during the Term to participate in any group life, hospitalization or disability insurance plans, health programs,retirement plans, fringe benefit programs and similar benefits that are available to other senior executives of the Company generally, onthe same terms as such other executives, in each case to the extent that the Executive is eligible under the terms of such plans orprograms.3.5. Vacation. The Executive shall be entitled to the number of vacation days per fiscal year based upon tenure with theCompany, as set forth in the Company’s employee handbook, which number shall be pro-rated in the case of any partial fiscal yearduring the Term and which vacation days shall otherwise be taken consistent with the Company’s vacation policies. Vacation andother paid time-off (PTO) shall be taken and provided in accordance with the Company’s vacation and PTO policies and plans.3.6. Expenses. During the Term, the Company shall reimburse Executive for all reasonable business expenses incurred byExecutive in the performance of Executive’s duties hereunder in accordance with the Company’s policies as in effect from time totime. 3.7. Forfeiture. If the Company is required to prepare an accounting restatement due to the material noncompliance of theCompany, as a result of misconduct, with any financial reporting requirement under the securities laws, Executive shall reimburse inlike-kind the Company to the extent required by Section 304 of the Sarbanes-Oxley Act of 2002 for any bonus or other incentive-based or equity-based compensation received by Executive from the Company during the 12-month period following the first publicissuance or filing with the Securities and Exchange Commission (whichever occurs first) of the financial document embodying suchfinancial reporting requirement and shall reimburse the Company for any profits realized from the sale of securities of the Companyduring that 12-month period.4.Termination. Notwithstanding any other provision of this Agreement, the provisions of this Section 4 shall exclusivelygovern Executive’s rights (except as otherwise expressly set forth herein) upon termination of employment with the Company.Following Executive’s termination of employment, except as set forth in this Section 4, Executive (and Executive’s legal representativeand estate) shall have no further rights to any compensation or any other benefits under this Agreement.4.1. Definitions.(a)“Accrued Rights” means the sum of the following: (i) any accrued but unpaid Base Salary through the dateof termination; (ii) a payment in respect of all unpaid, but accrued and unused vacation/PTO through the date of termination; (iii) anyAnnual Bonus earned but unpaid as of the date of termination for any previously completed fiscal year (i.e., not for the year ofemployment termination); (iv) reimbursement for any unreimbursed business expenses properly incurred by Executive in accordancewith Company policy through the date of termination; and (v) such rights, if any, under any award granted to Executive pursuant to theOIP and other compensation programs and employee benefits to which Executive may be entitled upon termination of employmentaccording to the documents governing such benefits.(b)“Cause” means any of the following: (i) any material act or material omission by Executive which constitutesintentional misconduct in connection with the Company’s or any Subsidiary’s business or relating to Executive’s duties hereunder or awillful violation of law in connection with the Company’s or any Subsidiary’s business or relating to Executive’s duties hereunder; (ii)an act of fraud, conversion, misappropriation or embezzlement by Executive with respect to the Company’s or any Subsidiary’s assetsor business or assets in the possession or control of the Company or any Subsidiary or conviction of, indictment for (or its proceduralequivalent) or entering a guilty plea or plea of no contest with respect to a felony, the equivalent thereof or any crime involving anymoral turpitude with respect to which imprisonment is a common punishment; (iii) any act of dishonesty committed by Executive inconnection with the Company’s or any Subsidiary’s business or relating to Executive’s duties hereunder; (iv) the willful neglect ofmaterial duties of Executive or gross misconduct by Executive, (v) the use of illegal drugs or excessive use of alcohol to the extent thatany of such uses, in the Board’s good faith determination, materially interferes with the performance of Executive’s duties to theCompany or any Subsidiary; (vi) any other failure (other than any failure resulting from incapacity due to physical or mental illness) byExecutive to perform his material and reasonable duties and responsibilities as an employee, director or consultant of the Company orany Subsidiary; or (vii) any breach of the provisions of Section 5; any of which continues without cure, if curable, reasonablysatisfactory to the Board within ten (10) days following written notice from the Company or any Subsidiary (except in the case of awillful failure to perform his duties or a willful breach, which shall require no notice or allow no such cure right). For purposes of theforegoing sentence, no act, or failure to act, on Executive’s part shall be considered “willful” unless the Executive acted, or failed toact, in bad faith or without reasonable belief that his act or failure to act was in the best interest of the Company or any Subsidiary. (c)“Disability” means physical or mental incapacity whereby Executive is unable with or without reasonableaccommodation for a period of six (6) consecutive months or for an aggregate of nine (9) months in any twenty-four (24) consecutivemonth period to perform the essential functions of Executive’s duties.(d)“Good Reason” shall be present where Executive gives notice to the Board of his voluntary resignation(unless the following occur with Executive’s written consent specifically referring to this Section 4) following either: (i) the failure ofthe Company to pay or cause to be paid Base Salary or Annual Bonus when due hereunder; (ii) a material diminution in Executive’sstatus, including, title, position, duties, authority or responsibility; (iii) a material adverse change in the criteria to be applied by theCompany with respect to Executive’s Target Bonus Amount (unless Executive has consented to such criteria); (iv) the relocation of theCompany’s executive offices to a location outside of the Atlanta, Georgia metropolitan area without the consent of Executive; or (v)the failure to provide Executive with awards under the OIP (or another incentive plan then in effect) that are reasonably and generallycomparable to awards granted to other executive officers (other than the CEO) of the Company under the OIP (after taking intoaccount all awards granted to Executive and such other executives under the OIP, unless Executive has consented to the awards or theCEO has recommended to the Compensation Committee that another executive officer receive a disproportionate award).Notwithstanding the foregoing, (1) Good Reason (A) shall not be deemed to exist unless the Executive gives to the Company a writtennotice identifying the event or condition purportedly giving rise to Good Reason expressly referencing this Section 4.1(e) within 90days after the time at which Executive first becomes aware of the event or condition and (B) shall not be deemed to exist at any timeafter the Board has determined that there exists an event or condition which could serve as the basis of a termination of the Executive’semployment for Cause so long as the Board gives notice to Executive of such determination within thirty (30) days of suchdetermination and such notice is given within 120 days after the time at which the Board first becomes aware of the event or conditionsconstituting Cause; and (2) if there exists an event or condition that constitutes Good Reason, the Company shall have 30 days fromthe date notice of Good Reason is given to cure such event or condition and, if the Company does so, such event or condition shall notconstitute Good Reason hereunder; and if the Company does not cure such event or condition within such 30-day period, theExecutive shall have ten (10) business days thereafter to give the Company notice of termination of employment on account thereof(specifying a termination date no later than ten (10) days from the date of such notice of termination).4.2. Termination by the Company for Cause or by Executive’s Resignation without Good Reason. The Term andExecutive’s employment hereunder may be terminated by the Company for Cause and shall terminate upon Executive’s resignationwithout Good Reason, and in either case Executive shall be entitled to receive only his Accrued Rights.4.3. Death/Disability. The Term and Executive’s employment hereunder shall terminate upon Executive’s death orDisability. Upon termination of Executive’s employment hereunder due to death or Disability, Executive or Executive’s legalrepresentative or estate (as the case may be) shall be entitled to receive (i) the Accrued Rights, plus (ii) an amount equal to a pro-ratedportion of the Annual Bonus Executive otherwise would have been paid for the fiscal year in which such termination of employmentoccurs, payable when the Annual Bonus would otherwise have been paid to Executive pursuant to Section 3.2, based upon (a) actualperformance for such fiscal year, as determined at the end of such fiscal year and (b) the percentage of such fiscal year that shall haveelapsed through the date of Executive’s termination of employment, plus (iii) provided that Executive or Executive’s legalrepresentative or estate (as the case may be) first executes and returns to the Company (and does not revoke within any applicablewaiting period relevant thereto) a release of all claims arising out of or relating to this Agreement or Executive’s employment by theCompany or any Subsidiary (other than any claims for indemnification to which Executive may be entitled as a result of his serving as an officeror Director of the Company or any Subsidiary) that is in form and substance reasonable satisfactory to the Company:(a)an amount, payable in a lump sum without discount within 30 days of the date of termination as a result ofExecutive’s death or Disability (subject to Section 6.20) equal to the sum of Executive’s (i) annual Base Salary at the time oftermination and (ii) the average Annual Bonus actually earned and paid for the last three full calendar years of the Term completed onthe date of termination. In the event that there are less than three full calendar years of the Term completed on the date of termination,the average shall be based on the average Annual Bonus actually earned and paid (or payable) during the Term through the date oftermination.(b)continued medical benefits for Executive, Executive’s spouse and Executive’s eligible dependents, who at thetime of Executive’s termination are enrolled in the Company’s benefits plan provided for a period of twelve (12) months following theExecutive’s termination of employment. Such benefits shall be substantially identical to benefits maintained for other senior executivesof the Company, and shall be contingent upon Executive’s eligible dependents continuing to fund any applicable “employee portion”of any premiums of other co-pay or employee funded amounts. Executive acknowledges that such benefit continuation is intended, andshall be deemed, to satisfy the obligations of the Company and any of its subsidiaries and affiliates to provide continuation of benefitsunder COBRA for such period and that the Company may satisfy such obligation by paying any applicable COBRA premiums orcausing such premiums to be paid. Executive’s entitlement to benefits pursuant to this Section 4.3 (b) shall cease if, during such period,Executive is employed by or otherwise is rendering services to a third party for which Executive is entitled to receive medical benefits.In the event of a termination of employment pursuant to this Section 4.3, each grant made to Executive pursuant to the OIP orany similar plan that is subject to a time based vesting condition shall become vested (i) in accordance with the terms of the grant oraward, or (ii) as though such grant or award had vested in equal quarterly amounts over the applicable vesting period specified in thegrant or award, whichever results in highest number of vested securities or other rights. Executive or his estate shall have (i) thirty daysor (ii) the period specified in the grant or award whichever is greater, in which to exercise those rights; provided that in no event shallsuch exercise period be extended past the date the grant or award expires by its terms.4.4. Termination by the Company without Cause or Resignation by Executive for Good Reason. The Term andExecutive’s employment hereunder may be terminated by the Company without Cause at any time and for any reason or byExecutive’s resignation for Good Reason at any time upon ten (10) days written notice by the terminating party, although theCompany may waive services during that period. If Executive’s employment is terminated by the Company without Cause (other thanby reason of death or Disability) or if Executive resigns for Good Reason, Executive shall be entitled to receive (i) the Accrued Rights,plus (ii) an amount equal to a pro-rated portion of the Annual Bonus Executive otherwise would have been paid for the fiscal year inwhich such termination of employment occurs, payable when the Annual Bonus would otherwise have been paid to Executivepursuant to Section 3.2 based upon (A) actual performance for such fiscal year, as determined at the end of such fiscal year and (B) thepercentage of such fiscal year that shall have elapsed through the date of Executive’s termination of employment, plus (iii) providedthat Executive first executes and returns to the Company (and does not revoke within any applicable waiting period relevant thereto) arelease of all claims arising out of or relating to this Agreement or Executive’s employment by the Company or any Subsidiary (otherthan any claims for indemnification to which Executive may be entitled as a result of his serving as an officer or director of theCompany or any Subsidiary) that is in form and substance reasonably satisfactory to the Company, and subject to Executive’s continued compliance with the provisions of Section 5 ofthis Agreement (to the extent expressly applicable after the Term):(a)an amount, payable in a lump sum without discount on the thirtieth (30th) day following the Executive’s dateof termination (subject to Section 6.20), equal to the sum of Executive’s (i) annual Base Salary at the time of termination and (ii) theaverage Annual Bonus actually earned and paid for the last three full calendar years ending prior to the termination date. In the eventthat there are less than three full calendar years of the Term completed on the date of termination, the average shall be based on theaverage Annual Bonus actually earned and paid (or payable) during the Term through the date of termination.(b)continued medical benefits for Executive, Executive’s spouse and Executive’s eligible dependents, who at thetime of Executive’s termination are enrolled in the Company’s benefits plans, for a period of twelve (12) months following Executive’stermination of employment. Such benefits shall be substantially identical to the benefits maintained for other senior executives of theCompany, and shall be contingent upon Executive or the Excutive’s eligible dependents continuing to fund any applicable “employeeportion” of any premiums or other co-pay or employee-funded amounts. Executive acknowledges that such benefit continuation isintended, and shall be deemed, to satisfy the obligations of the Company and any of its subsidiaries and affiliates to providecontinuation of benefits under COBRA for such period and that the Company may satisfy such obligation by paying any applicableCOBRA premiums or causing such premiums to be paid. Executive’s entitlement to benefits pursuant to this Section 4.4(b) shall ceaseif, during such period, Executive is employed by or otherwise is rendering services to a third party for which Executive is entitled toreceive medical benefits.(c)In the event of a termination of employment pursuant to this Section 4.4, each grant made to Executivepursuant to the OIP or any similar plan that is subject to a time based vesting condition shall become 100 % vested. Executive shallhave (i) thirty days or (ii) the period specified in the grant or award whichever is greater, in which to exercise those rights; providedthat in no event shall such exercise period be extended past the date the grant or award expires by its terms.4.5. Termination of Employment by Expiration of the Term. If the Company notifies Executive that it is not renewing theinitial Term or any renewal period in accordance with Section 1 hereof, and thereafter the Executive terminates his or her employmentwith the Company not later than the end of the initial Term or the renewal period, as applicable, then Executive shall be entitled toreceive (i) the Accrued Rights, plus (ii) an amount equal to a pro-rated portion of the Annual Bonus that Executive otherwise wouldhave been paid for the fiscal year in which such termination of employment occurs, payable when the Annual Bonus would otherwisehave been paid to Executive pursuant to Section 3.2, based upon (a) actual performance for such fiscal year, as determined at the endof such fiscal year and (b) the percentage of such fiscal year that shall have elapsed through the date of Executive’s termination ofemployment, plus (iii) provided that Executive first executes and returns to the Company (and does not revoke within any applicablewaiting period relevant thereto) a release of all claims arising out of or relating to the Agreement or Executive’s employment by theCompany or any Subsidiary (other than any claims for indemnification to which Executive may be entitled as a result of his serving asan officer or director of the Company or any Subsidiary) that is in form and substance reasonable satisfactory to the Company, andsubject to Executive’s continued compliance with the provisions of Section 5 of this Agreement (to the extent expressly applicable afterthe Term):(a)an amount, payable in a lump sum without discount within 30 days of the date of termination (subject toSection 6.20), equal to the sum of Executive’s (i) annual Base Salary at the time of termination and (ii) the average Annual Bonusactually earned and paid for the last three full calendar years ending prior to the termination date. In the event that there are less thanthree full calendar years of the Term completed on the date of termination, the average shall be based on the average Annual Bonus actually earned and paid (or payable)during the Term through the date of termination.(b)continued medical benefits for Executive, Executive’s spouse and Executive’s eligible dependents, who at thetime of Executive’s termination are enrolled in Company’s benefits plans provided for a period of twelve (12) months followingExecutives termination of employment. Such benefits shall be substantially identical to the benefits maintained for other seniorexecutives of the Company, and shall be contingent upon Executive or Executive’s eligible dependents continuing to fund anyapplicable “employee portion” of any premiums or other co-pay or employee funded amounts. Executive acknowledges that suchbenefit continuation is intended, and shall be deemed, to satisfy the obligations of the Company and any of its subsidiaries and affiliatesto provide continuation of benefits under COBRA for such period and the Company may satisfy such obligation by paying anyapplicable COBRA premiums or causing such premiums to be paid. Executive’s entitlement to benefits pursuant to this Section 4.5 (b)shall cease if, during such period, Executive is employed by or otherwise is rendering services to a third party for which Executive isentitled to receive medical benefits.(c)If Executive notifies the Company that he is not renewing the initial Term or any renewal period not for GoodReason in accordance with Section 1 and this Section 4.5 hereof and, thereafter, Executive’s employment with the Companyterminates as a result of the expiration of the Term, then Executive shall not be entitled to any severance pay or benefits under Section4 hereof.4.6. Notice of Termination. Any purported termination of employment by the Company or by Executive (other than due toExecutive’s death) shall be communicated by written notice to the other party, which indicates the specific termination provision in thisAgreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination ofemployment under the provision so indicated and the date of employment termination.4.7. Employee Termination and Board/Committee/Officer Resignation. Upon termination of Executive’s employmentfor any reason, Executive’s employment with each of the Company and each Subsidiary shall be terminated and Executive shall bedeemed to resign, as of the date of such termination and to the extent applicable, from the boards of directors (and any committeesthereof) of the Company and any Subsidiary and affiliates and as an officer of the Company and any Subsidiary. Executive shallconfirm such resignation(s) in writing to the Company.4.8. Excess Parachute Payments.(a)In the event that it shall be determined, based upon the advice of the independent public accountants for theCompany (the “Accountants”), that any payment, benefit or distribution by the Company or any of its subsidiaries or affiliates (a“Payment”) constitute “parachute payments” under Section 280G(b)(2) of the Code, as amended, then, if the aggregate present valueof all such Payments (collectively, the “Parachute Amount”) exceeds 2.99 times the Executive’s “base amount”, as defined in Section2800(b)(3) of the Code (the “Executive Base Amount”), the amounts constituting “parachute payments” which would otherwise bepayable to or for the benefit of Executive shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 timesthe Executive Base Amount (the “Reduced Amount”); provided that such amounts shall not be so reduced if the Executive determines,based upon the advice of the Accountants, that without such reduction Executive would be entitled to receive and retain, on a net aftertax basis (including, without limitation, any excise taxes payable under Section 4999 of the Code), an amount which is greater than theamount, on a net after tax basis, that the Executive would be entitled to retain upon his receipt of the Reduced Amount. (b)If the determination made pursuant to clause (a) of this Section 4.8 results in a reduction of the Payments,such Payments shall be reduced in the order that would provide the Executive with the largest amount of after-tax proceeds (with suchorder determined by the Accountants in a manner that is both consistent with, and avoids imposition of excise taxes under, CodeSections 280G and 409A). The Executive shall at any time have the unilateral right to forfeit any equity award in whole or in part,except to the extent such forfeiture would result in an impermissible substitution under Code Section 409A.(c)As a result of the uncertainty in the application of Section 280G of the Code at the time of a determinationhereunder, it is possible that payments will be made by the Company which should not have been made under clause (a) of this Section4.8 (“Overpayment”) or that additional payments which are not made by the Company pursuant to clause (a) of this Section 4.8 shouldhave been made (“Underpayment”). In the event that there is a final determination by the Internal Revenue Service, or a finaldetermination by a court of competent jurisdiction, that an Overpayment has been made, any such Overpayment shall be repaid byExecutive to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In theevent that there is a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or achange in the provisions of the Code or regulations pursuant to which an Underpayment arises, any such Underpayment shall bepromptly paid by the Company to or for the benefit of Executive, together with interest at the applicable Federal rate provided for inSection 7872(f)(2) of the Code.5.Covenants.5.1. Confidentiality.(a)For purposes of this Agreement, “Confidential Information” means confidential information relating to thebusiness of the Company or its Subsidiaries that (i) has been made known to Executive through his relationship with the Company orits Subsidiaries, (ii) has value to the Company or its Subsidiaries and (iii) is not generally known to the public. Confidential Informationincludes, without limitation, information relating to business strategies, investment and disposition strategies, information regardingcurrent or prospective deals and transactions, terms of transaction documents (including but not limited to purchase and saleagreements, operating agreements, lease agreements and employment agreements), financial information, client information, researchactivities, marketing plans and strategies, and non-public personnel information, regardless of whether such information is marked“confidential.” Confidential Information includes trade secrets (as defined under applicable law) as well as information that does notrise to the level of a trade secret, and includes information that has been entrusted to the Company by a third party under an obligationof confidentiality. Confidential Information does not include any information that has been voluntarily disclosed to the public by theCompany or its Subsidiaries (except where such public disclosure has been made by Executive without authorization) or that has beenindependently developed and disclosed by others, or that otherwise enters the public domain through lawful means.(b)Executive acknowledges that, in his employment hereunder, he will occupy a position of trust and confidencewith the Company and its Subsidiaries. Executive agrees that Executive shall not, except (i) as may be required to perform his dutieshereunder, (ii) as provided in Section 6.19 or as otherwise required by applicable law or (iii) with the prior written consent of theCompany, use, disclose or disseminate any Confidential Information. This provision shall be in addition to all requirements ofapplicable law with respect to maintaining the secrecy and confidentiality of confidential information and trade secrets, and Executive’sobligations hereunder will continue for so long as the information in question continues to constitute Confidential Information. 5.2. Non-solicitation.(a)During the Executive’s employment with the Company and a period of one-year following Executive’stermination for any reason, (the “Restricted Period”), the Executive shall not, except on behalf of the Company or one of itsSubsidiaries or with the Company’s prior written consent, directly or by assisting others, (i) solicit or encourage to leave theemployment or other service of the Company or any of its Subsidiaries, any Consultant or managerial-level employee of the Companyor its Subsidiaries, or (ii) solicit for employment (on behalf of the Executive or any other person or entity) any former Consultant orformer managerial-level employee of the Company or its Subsidiaries if that person has left the employment of or discontinuedproviding services to the Company or any of its Subsidiaries within the then prior one-year period.(b)During the Restricted Period, the Executive will not, whether for his own account or for the account of anyother person or entity, intentionally interfere with the Company’s or any of its Subsidiaries’ relationship with, or, directly or byassisting others, endeavor to entice away from the Company or any of its Subsidiaries, any existing or actively sought tenant, co-investor, co-developer, joint venturer or other customer (together, “Customer”) of the Company or any of its Subsidiaries, and withwhom Executive had Material Contact during the last twelve (12) months of the Executive’s employment with the Company.(c)For purposes of this Agreement, (x) Consultant means an independent contractor who provides managerial-level services and who performs (or in the last year has performed) a substantial portion of his or her services for the Company or aSubsidiary, and (y) Material Contact means contact between Executive and each Customer or potential Customer (i) with whomExecutive dealt on behalf of the Company or its Subsidiaries, (ii) whose dealings with the Company or its Subsidiaries werecoordinated or supervised by Executive, (iii) about whom Executive obtained Confidential Information in the ordinary course ofbusiness as a result of Executive’s association with the Company or its Subsidiaries, or (iv) who receives products or servicesauthorized by the Company or its Subsidiaries, the sale or possession of which results or resulted in possible compensation,commissions, or earnings for Executive.5.3. Non-competition. During the Restricted Period, unless Employee has obtained the Board’s prior written approval,Executive shall not, directly or by assisting others, render executive services which are the same or substantially similar to the serviceswhich Executive provided to the Company during the last twelve (12) months of Executive’s employment by the Company, to anyperson or entity engaged in a Competing Business that has a Concentrated Holding in a submarket in which the Company also has aConcentrated Holding as of the date on which Executive ceases to be employed by the Company. “Competing Business” shall meanthe business of owning or managing commercial office buildings. “Concentrated Holding” shall mean the ownership of both two ormore properties and 500,000 square feet of office space in a particular submarket.5.4. Company Policies. During the Term, Executive shall also be subject to and shall abide by all written reasonable policiesand procedures of the Company provided to him, including regarding the protection of confidential information and intellectualproperty and potential conflicts of interest, except to the extent that such policies and procedures conflict with the other provisions ofthis Agreement, in which case this Agreement shall control. Executive acknowledges that the Company may amend any such policiesand guidelines from, time to time, and that Executive remains at all times bound by their most current version to the extent madeknown to him and reasonable in scope. 5.5. Intellectual Property. As between Executive and the Company, the Company shall be the sole owner of all theproducts and proceeds of Executive’s services hereunder including, without limitation, all inventions, innovations, improvements,technical information, systems, software developments, methods, designs, formulas, analyses, drawings, reports, service marks,trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable) that relate to the Company’sactual business, research and development or existing products or services and that were conceived, developed or made by Executive(whether or not during usual business hours or on the premises of the Company and whether or not alone or in conjunction with anyother person) during Executive’s employment with the Company, together with all patent applications, letters patent, trademarks, tradenames and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of theforegoing (collectively referred to as “Work Product”). Executive hereby assigns to the Company all of Executive’s right, title andinterest in and to any and all such Work Product, and Executive agrees to perform all actions reasonably requested by the Company toestablish and confirm the Company’s ownership of such Work Product, whether during or after the Term, without any additionalcompensation.5.6. General; Continuing Effect of Section 5. Executive and the Company intend that: (i) this Section 5 concerning (amongother things) the exclusive services of Executive to the Company and/or its Subsidiaries shall be construed as a series of separatecovenants; (ii) if any portion of the restrictions set forth in this Section 5 should, for any reason whatsoever, be declared invalid by anarbitrator or a court of competent jurisdiction, the validity or enforceability of the remainder of such restrictions shall not thereby beadversely affected; and (iii) Executive declares that the territorial, time and other limitations set forth in this Section 5 are reasonableand properly required for the adequate protection of the business of the Company and/or its Subsidiaries. In the event that any suchlimitation is deemed to be unreasonable by an arbitrator or a court of competent jurisdiction, Executive agrees to the reduction whichsuch arbitrator or court shall have deemed reasonable. All of the provisions of this Section 5 are in addition to any other writtenagreements on the subjects covered herein that Executive may have with the Company and/or any of its Subsidiaries and are not meantto and do not excuse any additional obligations that Executive may have under such agreements.5.7. Specific Performance. Executive acknowledges and agrees that the confidential information, non-competition, non-solicitation, intellectual property rights and other rights of the Company referred to in Section 5 of this Agreement are each ofsubstantial value to the Company and/or its Subsidiaries and that any breach of Section 5 by Executive would cause irreparable harmto the Company and/or its Subsidiaries, for which the Company and/or its Subsidiaries would have no adequate remedy at law.Therefore, in addition to any other remedies that may be available to the Company and/or any of its Subsidiaries under this Agreementor otherwise, the Company and/or its Subsidiaries shall be entitled to obtain temporary restraining orders, preliminary and permanentinjunctions and/or other equitable relief to specifically enforce Executive’s duties and obligations under this Agreement, or to enjoinany breach of this Agreement, without the need to post a bond or other security and without the need to demonstrate special damages.6.Other Provisions.6.1. Severability. Any provision of this Agreement which is deemed invalid, illegal or unenforceable in any jurisdictionshall, as to that jurisdiction and subject to this paragraph be ineffective to the extent of such invalidity, illegality or unenforceability,without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provisions of thisAgreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal orunenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reducedonly to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 6.2. Construction. The parties acknowledge that this Agreement is the result of arm’s-length negotiations betweensophisticated parties, each afforded representation by legal counsel. Each and every provision of this Agreement shall be construed asthough both parties participated equally in the drafting of the same, and any rule of construction that a document shall be construedagainst the drafting party shall not be applicable to this Agreement.6.3. Arbitration. Except as necessary for the Company and its Subsidiaries, affiliates, successors or assigns or Executive tospecifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree thatany and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in anyway, in whole or in part, to Executive’s employment by the Company or any Subsidiary, the termination of such employment or anyother dispute by and between the parties or their subsidiaries, affiliates, successors or assigns related thereto, shall be submitted tobinding arbitration in Atlanta, Georgia according to Georgia law and the rules and procedures of the American Arbitration Association.The parties agree that each party shall bear its or his own expenses incurred in connection with any such dispute.6.4. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be deliveredpersonally, by nationally-recognized overnight courier service or sent by certified, registered or express mail, postage prepaid. Anysuch notice shall be deemed given when so delivered personally, when delivered by nationally-recognized overnight courier service or,if mailed, five days after the date of deposit in the United States mails as follows:If to the Company, to:Piedmont Office Realty Trust, Inc.5565 Glenridge Connector, Suite 450Atlanta, GA 30342Attention: Chairman of the Boardwith a copy to:King & Spalding1180 Peachtree StreetAtlanta, Georgia 30309Attention: Keith TownsendIf to the Executive, to:Christopher Kollmeat the address set forth on the signature page hereofwith a copy to:[]Any such person may by notice given in accordance with this Section 6.4 to the other parties hereto designate another address orperson for receipt by such person of notices hereunder. 6.5. Entire Agreement. This Agreement contains the entire agreement between the parties and their predecessors withrespect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.6.6. Waivers and Amendments. Except as set forth in Sections 5.6 and 6.1, this Agreement may be amended, superseded,canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the caseof a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereundershall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single orpartial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other suchright, power or privilege.6.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED INACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO ANY PRINCIPLES OFCONFLICTS OF LAW WHICH COULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHERTHAN THE STATE OF GEORGIA. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE, TO THE FULLESTEXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGALPROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY TRANSACTIONSCONTEMPLATED HEREBY.6.8. Assignment. This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by theExecutive; any purported assignment by the Executive in violation hereof shall be null and void. This Agreement, and the Company’srights and obligations hereunder, may not be assigned by the Company except that the Company may assign its rights and obligationsto any Subsidiary of the Company, provided that any such assignment shall not relieve the Company of any obligations hereunder thatare not performed by such Subsidiary; any purported assignment by the Company in violation hereof shall be null and void.Notwithstanding the foregoing, in the event of any sale, transfer or other disposition of all or substantially all of the Company’s assetsor business, whether by merger, consolidation or otherwise, the Company may assign this Agreement and its rights hereunder to asuccessor in interest to substantially all of the business operations of the Company. It is anticipated that the Executive’s employer ofrecord and salary and bonus payor may be a Subsidiary, but in that case the Company and such Subsidiary will be jointly and severallyliable for all amounts payable to Executive hereunder.6.9. Withholding. The Company shall be entitled to withhold from any payments or deemed payments any amount of taxwithholding it determines to be required by law.6.10. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respectivesuccessors, permitted assigns, heirs, executors and legal representatives.6.11. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when soexecuted and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Eachcounterpart may consist of two copies hereof each signed by one of the parties hereto.6.12. Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 3.7, 4, 5,and 6 shall survive termination of this Agreement and any termination of Executive’s employment hereunder. 6.13. Existing Agreements. The Executive represents to the Company that he is not subject or a party to any employment orconsulting agreement, non-competition covenant or other agreement, covenant or understanding which might prohibit him fromexecuting this Agreement or limit his ability to fulfill his responsibilities hereunder.6.14. Set Off. The Company’s obligation to pay Executive the amounts provided and to make the arrangements providedhereunder shall be subject to set-off, counterclaim or recoupment of amounts owed by Executive to the Company or its Subsidiaries tothe extent permitted by applicable law; provided, however, that the Company may not exercise its right of set-off except to the extentthat the Board (with Executive recused) determines in good faith that Executive has failed to pay to the Company or any of itsSubsidiaries any amount owed to them and the amount of any such set-off shall be limited to the amount the Board (with Executiverecused) determines in good faith is owed to the Company or any of its Subsidiaries.6.15. Executive’s Representations. Executive hereby represents to the Company that the execution and delivery of thisAgreement by Executive and the Company and the performance by Executive of Executive’s duties hereunder shall not constitute abreach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a partyor otherwise bound. Executive represents and warrants that he is not subject to any employment agreement, nondisclosure agreement,common law nondisclosure obligation, fiduciary duty, noncompetition agreement, restrictive covenant or any other obligation to anyformer employer or to any other person or entity in any way relating to the right or ability of Executive to be employed by and/orperform services for the Company and its Subsidiaries. Executive further represents and warrants that he has not brought to ordisclosed to the Company or to its Subsidiaries, and covenants that he will not bring to or disclose to the Company or to its Subsidiariesor use in connection with his employment with the Company, any trade secrets or proprietary information from any of his prioremployers or from any other person or entity.6.16. Cooperation in Third-Party Disputes. During the Term and for a period of two years thereafter, at the request of theCompany, Executive shall cooperate with the Company and/or its Subsidiaries and each of their respective attorneys or other legalrepresentatives (collectively referred to as “Attorneys”) in connection with any claim, litigation, or judicial or arbitral proceeding whichis now pending or may hereinafter be brought against the Company and/or any of its Subsidiaries or affiliates by any third party.Executive’s duty of cooperation shall include, but shall not be limited to, (a) meeting with the Company’s and/or its Subsidiaries’Attorneys by telephone or in person at mutually convenient times and places in order to state truthfully Executive’s knowledge of thematters at issue and recollection of events; (b) appearing at the Company’s and/or its Subsidiaries’ and/or their Attorneys’ request (and,to the extent possible, at a time convenient to Executive that does not conflict with the needs or requirements of Executive’s then-current employer or personal commitments) as a witness at depositions, trials or other proceedings, without the necessity of a subpoena,in order to state truthfully Executive’s knowledge of the matters at issue; and (c) signing at the Company’s request declarations oraffidavits that truthfully state the matters of which Executive has knowledge. The Company shall promptly reimburse Executive forExecutive’s actual and reasonable travel or other out-of-pocket expenses (including reasonable attorneys’ fees) that Executive mayincur in cooperating with the Company and/or its Subsidiaries under this Section 6.16.6.17. Compensation Committee. All discretionary and other actions and authority granted to the Compensation Committeeby this Agreement may be taken by the full Board or any other committee of the Board it designates if the Board does not have aCompensation Committee.6.18. Indemnification. Executive shall be entitled to the same rights to indemnification in connection with his service, if any,as a director of the Company or any of its Subsidiaries as the other Board members and the same rights to indemnification in connection with his service as an executive officer of the Company or any of itsSubsidiaries as the other executive officers and such indemnification rights shall survive the termination of his employment hereunder.Executive’s rights to indemnification specifically include all such rights arising pursuant to (i) the Company’s Articles of Incorporationand Bylaws; (ii) any written agreements between the Company and its directors or officers; (iii) insurance policies (including anyextended reporting periods available to directors thereunder) providing coverage to the Company’s directors, officers and employees,including any directors and officers indemnification insurance.6.19. Permitted Disclosures. Nothing contained in this Agreement limits Executive’s ability to file a charge or complaintwith the Equal Employment Opportunity Commission or any other federal, state or local governmental agency or commission(collectively, “Government Agencies”), or prevents Executive from providing truthful testimony in response to a lawfully issuedsubpoena or court order. Further, this Agreement does not limit Executive’s ability to communicate with any Government Agencies orotherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providingdocuments or other information, without notice to the Company. Executive is hereby notified that under the Defend Trade Secrets Act:(a) no individual will be held criminally or civilly liable under federal or state trade secret law for disclosure of a trade secret (as definedin the Economic Espionage Act) that is: (i) made in confidence to a federal, state, or local government official, either directly orindirectly, or to an attorney, and made solely for the purpose of reporting or investigating a suspected violation of law; or (ii) made in acomplaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal so that it is not made public; and(b) an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose thetrade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files anydocument containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order.6.20. Section 409A.(a)The intent of the parties is that payments and benefits under this Agreement comply with or be exempt fromSection 409A of the Code and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and theCompany shall have complete discretion to interpret and construe this Agreement and any associated documents in any manner thatestablishes an exemption from (or compliance with) the requirements of Code Section 409A. If for any reason, such as imprecision indrafting any provision of this Agreement (or of any award of compensation, including, without limitation, equity compensation orbenefits) does not accurately reflect its intended establishment of an exemption from (or compliance with) Code Section 409A, asdemonstrated by consistent interpretations or other evidence of intent, such provision shall be considered ambiguous as to its exemptionfrom (or compliance with) Code Section 409A and shall be interpreted by the Company in a manner consistent with such intent, asdetermined in the discretion of the Company.(b)A termination of employment shall not be deemed to have occurred for purposes of any provision of thisAgreement providing for the payment of any amounts or benefits that are considered nonqualified deferred compensation under CodeSection 409A upon or following a termination of employment unless such termination is also a “separation from service” within themeaning of Code Section 409A, and, for purposes of any such provision of this Agreement, references to a “termination,” “terminationof employment” or like terms shall mean “such a separation from service.” The determination of whether and when a separation fromservice has occurred for proposes of this Agreement shall be made in accordance with the presumptions set forth in Section 1.409A-1(h) of the Treasury Regulations. (c) Any provision of this Agreement to the contrary notwithstanding, if at the time of the Executive’s separationfrom service, the Company determines that the Executive is a “specified employee,” within the meaning of Code Section 409A, then tothe extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of such separation fromservice would be considered nonqualified deferred compensation under Code Section 409A such payment or benefit shall be paid orprovided at the date which is the earlier of (i) six (6) months and one day after such separation from service and (ii) the date of theExecutive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to thisSection 6.19 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall bepaid or provided to the Executive in a lump-sum, and any remaining payments and benefits due under this Agreement shall be paid orprovided in accordance with the normal payment dates specified for them herein.(d)Any reimbursements and in-kind benefits provided under this Agreement that constitute deferredcompensation within the meaning of Code Section 409A shall be made or provided in accordance with the requirements of CodeSection 409A, including, without limitation, that (i) in no event shall any fees, expenses or other amounts eligible to be reimbursed bythe Company under this Agreement be paid later than the last day of the calendar year next following the calendar year in which theapplicable fees, expenses or other amounts were incurred; (ii) the amount of expenses eligible for reimbursement, or in-kind benefitsthat the Company is obligated to pay or provide, in any given calendar year shall not affect the expenses that the Company is obligatedto reimburse, or the in-kind benefits that the Company is obligated to pay or provide, in any other calendar year; (iii) the Executive’sright to have the Company pay or provide such reimbursements and in-kind benefits may not be liquidated or exchanged for any otherbenefit; and (iv) in no event shall the Company’s obligations to make such reimbursements or to provide such in-kind benefits applylater than the Executive’s remaining lifetime (or if longer, through the second (2nd) anniversary of the Executive’s termination ofemployment).(e)For purposes of Code Section 409A, the Executive’s right to receive any installment payments shall be treatedas a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment periodwith reference to a number of days (for example, “payment shall be made within thirty (30) days following the date of termination”),the actual date of payment within the specified period shall be within the sole discretion of the Company. In no event may theExecutive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement, to the extent suchpayment is subject to Code Section 409A.(f)The Company makes no representation or warranty and shall have no liability to the Executive or any otherperson if any provisions of this Agreement are determined to constitute deferred compensation subject to Code Section 409A but donot satisfy an exemption from, or the conditions of, Code Section 409A.6.21. Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of thisAgreement.[Signature Page Follows] IN WITNESS WHEREOF, the parties hereto have signed their names as of the day and year first above written.PIEDMONT OFFICE REALTY TRUST, INC.By: /s/ Donald A. Miller, CFAName: Donald A. Miller, CFATitle: Chief Executive OfficerChristopher Kollme/s/ Christopher KollmeAddress: Exhibit 21.1Subsidiaries of Piedmont Office Realty Trust, Inc. and Piedmont Operating Partnership, LPSubsidiary State of OrganizationPiedmont Operating Partnership, LP DelawarePiedmont Washington Properties, Inc. MarylandPiedmont Office Holdings, Inc. GeorgiaPiedmont Office Management, LLC GeorgiaPiedmont Government Services, LLC GeorgiaPiedmont Leasing, LLC DelawarePiedmont Power, LLC DelawarePiedmont-Las Colinas Springing Member, LLC DelawarePiedmont 1901 Market Business Trust DelawarePiedmont 1901 Market LLC DelawarePiedmont Bridgewater I, LLC DelawarePiedmont-Bridgewater, NJ, LLC DelawarePiedmont-Independence Square, LLC DelawarePiedmont-3100 Clarendon LLC DelawarePiedmont-1075 West Entrance, LLC DelawarePiedmont-Multi-State Owner, LLC DelawarePiedmont-Nashville, TN, LLC DelawarePiedmont-One Brattle Square I, LLC DelawarePiedmont-One Brattle Square II, LLC Delaware4250 North Fairfax Property LLC Delaware4250 N. Fairfax Owner, LLC Delaware400 Virginia Avenue LLC Delaware1201 Eye Street, N.W. Associates LLC Delaware1215 ESDI, LLC Delaware1225 Equity LLC Delaware1225 Eye Street, N.W. Associates LLC Delaware1201 Equity LLC DelawareTTF Lending LLC DelawareTZO Lending LLC DelawarePiedmont-Two Pierce Place, LLC DelawarePiedmont-Las Colinas Corporate Center I, LP DelawarePiedmont-Las Colinas Corporate Center I, GP, LLC DelawarePiedmont-Las Colinas Corporate Center II, LP DelawarePiedmont-Las Colinas Corporate Center II, GP, LLC DelawareCypress Concourse A, LLC DelawarePiedmont 60 Broad Street, LLC DelawarePiedmont-800 Nicollet Avenue, LLC DelawarePiedmont-800 Nicollet Avenue Owner, LLC DelawarePiedmont-800 Nicollet Avenue Springing Member, LLC Delaware800 North Brand Glendale, CA, LLC DelawarePiedmont-1430 Enclave Parkway, L.P. DelawarePiedmont-1430 Enclave Parkway, GP, LLC DelawareEnclave Place GP, LLC Delaware Enclave Parkway Development, L.P. DelawarePiedmont-Windy Point I, LLC DelawarePiedmont-Windy Point II, LLC DelawarePiedmont-2300 Cabot Drive, LLC DelawareRock Spring, L.L.C. DelawareRock Spring II, L.L.C. Delaware500 W Monroe Mezz II, LLC Delaware500 W Monroe Mezz I-B, LLC Delaware500 W Monroe Chicago, LLC DelawarePiedmont 500 West Monroe Mezz I, LLC DelawarePiedmont 500 West Monroe Fee, LLC DelawareSuwanee Gateway One, LLC DelawareMeridian Crossings, LLC DelawareDupree Atlanta, LLC DelawareMedici Atlanta, LLC DelawarePresidential Way Woburn, LLC Delaware400 TownPark, LLC DelawareGavitello, Atlanta, LLC DelawareGlenridge Highlands III, LLC DelawarePiedmont - 901 N. Glebe, LLC DelawarePiedmont 5 & 15 Wayside, LLC DelawarePiedmont JV Partnership Interests, LLC DelawarePiedmont OP - Piedmont JV Partnership Interests, LLC Joint Venture (MI/TN) GeorgiaPiedmont Royal Lane, LP DelawarePiedmont Royal Lane GP, LLC DelawarePiedmont 6565 MacArthur Boulevard, LP DelawarePiedmont 6565 MacArthur Boulevard GP, LLC DelawarePiedmont One Lincoln Park, LP DelawarePiedmont One Lincoln Park GP, LLC DelawarePiedmont 161 Corporate Center, LP DelawarePiedmont 161 Corporate Center GP, LLC DelawarePiedmont 5 Wall Street Burlington, LLC DelawarePiedmont 1155 PCW, LLC DelawarePiedmont - Two Pierce Place Land, LLC DelawarePiedmont TownPark Land, LLC DelawarePiedmont Park Place, LP DelawarePiedmont Park Place, GP, LLC DelawarePiedmont HBC, LLC DelawarePiedmont 500 TownPark, LLC DelawarePiedmont 80 Central, LLC DelawarePiedmont 300 Galleria, LLC DelawarePiedmont 200 & 250 South Orange Avenue, LLC DelawarePiedmont Glenridge Highlands One, LLC DelawarePiedmont Suwanee Gateway Land, LLC DelawarePiedmont Lending I, LLC DelawarePiedmont Lending II, LLC Delaware Piedmont Towers Orlando Member, LLC DelawarePiedmont-CNL Towers Orlando, LLC DelawarePiedmont-CNL Towers Orlando Owner, LLC DelawarePiedmont One Wayside, LLC DelawarePiedmont 200 Galleria, LLC DelawarePiedmont 200 Galleria Owner, LLC DelawarePiedmont 750 W John Carpenter, LLC DelawarePiedmont Norman Pointe I, LLC DelawarePiedmont 501 W Church Street, LLC DelawarePiedmont 9320 Excelsior, LLC DelawarePiedmont 25 Mall Road, LLC Delaware Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statements Nos. 333-166858 and 333-212973 on Form S-3 and Nos. 333-218087, 333-142448,333-48422, and 333-81319 on Form S-8 of our reports dated February 20, 2019, relating to the consolidated financial statements and financial statementschedule of Piedmont Office Realty Trust, Inc. and subsidiaries, and the effectiveness of Piedmont Office Realty Trust, Inc. and subsidiaries’ internal controlover financial reporting, appearing in this Annual Report on Form 10-K of Piedmont Office Realty Trust, Inc. and subsidiaries for the year ended December31, 2018./s/ Deloitte & Touche LLPAtlanta, GeorgiaFebruary 20, 2019 Exhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements:•Registration Statement (Form S-3ASR No. 333-212973) of Piedmont Office Realty Trust, Inc.,•Registration Statement (Form S-3D No. 333-166858) of Piedmont Office Realty Trust Inc., and•Registration Statement (Form S-8 Nos. 333-218087, 333-142448, 333-48422, and 333-81319) of Piedmont Office Realty Trust, Inc.;of our report dated February 21, 2018, except for the reclassifications discussed in Note 2 under Reclassifications and Accounting Pronouncements Adoptedduring the Year Ended December 31, 2018, specifically Revenue Recognition and Gain/(Loss) on Sale of Real Estate Assets and Assets Held for Sale atDecember 31, 2017 presented in Note 12, as to which the date is February 20, 2019, with respect to the consolidated financial statements of Piedmont OfficeRealty Trust, Inc. included in this Annual Report (Form 10-K) of Piedmont Office Realty Trust, Inc. for the year ended December 31, 2018./s/ Ernst & Young LLPAtlanta, GeorgiaFebruary 20, 2019 EXHIBIT 31.1 PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONPURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Donald A. Miller, CFA, certify that:1.I have reviewed this annual report on Form 10-K of Piedmont Office Realty Trust, Inc.;2.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 makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Dated: February 20, 2019 By: /s/ DONALD A. MILLER, CFA Donald A. Miller, CFA Principal Executive Officer EXHIBIT 31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATIONPURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert E. Bowers, certify that:1.I have reviewed this annual report on Form 10-K of Piedmont Office Realty Trust, Inc.;2.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 makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Dated: February 20, 2019 By: /s/ ROBERT E. BOWERS Robert E. Bowers Principal Financial Officer EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TOSECTION 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, 2018, as filedwith the Securities and Exchange Commission (the “Report”), the undersigned, Donald A. Miller, CFA, Chief Executive Officer of the Registrant, herebycertifies, 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 20, 2019 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TOSECTION 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, 2018, as filedwith 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 20, 2019
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