Piedmont (PDM) Announces Special Dividend On Asset Sales

Piedmont Office Realty Trust’s (NYSE:PDM) board of directors recently announced a special cash dividend of 50 cents per common share, giving investors another reason to rejoice. The special dividend distribution was primarily due to taxable gains that the company realized on asset dispositions in 2017.

This dividend will be paid on Jan 9, 2018, to shareholders of record on Dec 26, 2017.

Notably, this office real estate investment trust (REIT) made a sale of around $396 million of assets in 2017. Particularly, Piedmont resorted to the sale of non-strategic office assets which helped reduce exposure in non-core markets. These strategic disposals helped the company exit from non-strategic markets while increasing its capacity for future asset acquisitions.

Usually, special dividends are paid by REITs on capital gains from the sale of assets to avoid paying taxes. Solid dividend payouts remain the biggest attraction for REIT investors as the U.S. law requires these companies to distribute 90% of the annual taxable income in the form of dividends to shareholders.

Along with special dividends, Piedmont continues to pay regular quarterly dividend. In fact, on Oct 31, 2017, the company approved a quarterly cash dividend on common stock of 21 cents per share. The fourth-quarter dividend is scheduled to be paid on Jan 4, 2018, to shareholders of record as of Nov 24, 2017.

The company’s three notable dispositions for 2017 include Sarasota Commerce Center II, Two Independence Square (NYSE:SQ) and 8560 Upland Drive. Particularly, Sarasota Commerce Center II was sold for 23.5 million and marked the company’s exodus from the Sarasota, FL market.

Piedmont has also shed interest in Two Independence Square — Piedmont’s largest non-strategic asset in Washington D.C. It was sold for approximately $360 million and the company recorded $110 million in gains. The sale helped it trim its exposure to the Southwest submarket in Washington, lower overall market exposure and register significant gain for stockholders.

Furthermore, the 8560 Upland Drive property in Englewood, CO, was sold to Hendricks Commercial Properties for $17.6 million. It also enabled Piedmont to depart from the Denver office market.

The net sale proceeds of the 8560 Upland Drive and Two Independence Square properties were used to pay down the company’s line of credit and strengthen its balance sheet. The company repaid the outstanding balance on its $500-million line of credit and a $140-million maturity mortgage. This improved Piedmont’s leverage levels and debt metrics.

Although these asset sales were a strategic fit for the company, the dilutive impact on earnings from such moves might be impossible to avoid in the near term. In fact, per the company’s earnings call of the latest reported quarter, the above-mentioned properties, combined, account for nearly $24 million of property net operating income (NOI) on an annualized basis. This loss of income is expected to affect Piedmont’s bottom-line performance in 2018.

Shares of this Zacks Rank #3 (Hold) company have underperformed its industry so far this year. During this time frame, the stock has declined 4.1%, whereas the industry has registered growth of 6.1%.

Better-ranked stocks in the real estate investment trust space include Franklin Street Properties (NYSE:FSP) , Columbia Property Trust (NYSE:CXP) and MedEquities Realty Trust (NYSE:MRT) . All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Franklin Street Properties’ funds from operations (FFO) per share estimates for 2017 remained unchanged at $1.05 over the past month. Its share price has increased 4.2% in three months’ time.

Columbia Property Trust’s FFO per share estimates for the current year have moved up 2.7% to $1.15 in a month’s time. Over the past three months, the company’s shares have gained 5.1%.

MedEquities Realty‘s 2017 FFO per share estimates remained unchanged at $1.12 over the past month. The stock has been down 5.8% for the past three months.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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