Geographic Diversity Helps Piedmont Office Realty Trust Stand Out Among Competitors

Don Miller, president and CEO of Piedmont Office Realty Trust (NYSE: PDM), participated in a video interview at Nareit’s REITweek: 2018 Investor Conference in New York.

With Piedmont trading at a discount to the valuation of its assets, Miller admits some short-term factors, like the outflows from active management and from Japanese investors, have negatively affected the company’s stock recently. But, he says the longer-term concern is the perception of capital expenditures, noting that office companies agree it’s an issue but also think “it’s been somewhat overblown.”

“With capital costs going up, in New York City in particular, and many investors being [there], the perception is that that’s happening elsewhere as well,” he said. “It’s not actually increasing in other markets, and maybe even decreasing to some degree.”

Miller also reflected on Piedmont having properties in eight different geographic markets, a factor that he thinks makes the company stand out from its competitors. He added that the analyst community and buy side investors have a harder time underwriting the valuation of the company because they tend to apply a cap rate across a variety of markets, rather than deal individually and build up the valuation model on an individual asset basis.

“When you do that, you get to a realization that the valuation is probably quite a bit higher than many of them think,” Miller said. “It’s our job to continue to educate folks to try to understand that better.”

Miller said that with job growth steady across the country, the creation of office jobs has had a positive impact on Piedmont’s markets where “those office-using jobs have translated into office absorption, but without the same level of supply impact on us.” He noted that Atlanta, Orlando, Florida, and Dallas have all had very positive growth in rents as a result.

“The one place that’s probably been a disappointment, interestingly, despite the fact that there’s been positive job growth, has been Washington, D.C.,” Miller said, adding that the city has been “much more tepid” than its surrounding metro area.