As that chart shows, the REIT has woefully underperformed the S&P 500 over the last five years.
One factor weighing on Piedmont has been the pandemic's impact on office usage. While the REIT collected nearly all the rent it billed in 2020 and has seen strong demand for its space, as evidenced by new and renewal lease activity, shares of office REITs have declined due to an uncertain future for office demand. Many companies plan to allow for increased remote and hybrid work in the future. Further, new COVID-19 variants have forced companies to push back their return to office plans.
However, the pandemic isn't the only factor weighing on Piedmont's stock in recent years. Demand for office space in the Northeast had been under pressure well before the pandemic. More and more companies are relocating and expanding into the Sun Belt region due to its better business climate.
That led Piedmont to make a move of its own, rotating capital out of Northeastern markets into the Sun Belt region. Since 2019, the REIT has sold more than $1.1 billion of office assets in Washington, D.C., Chicago, Philadelphia, and New Jersey, using nearly $750 million of that capital to increase its exposure to Atlanta, Dallas, and Orlando. Before that, it exited the Phoenix, Detroit, Nashville, Tennessee, and South Florida markets, using the proceeds to reduce debt, repurchase shares, and fund investment opportunities in its core markets.
The company's capital recycling strategy has had some impact on FFO-per-share growth. Overall, core FFO has increased from $1.67 per share in 2016 to $1.89 per share in 2020, or only about 12% over the last few years. That growth is primarily due to its share repurchase program, as it has retired about 14% of its outstanding shares over the past five years.
While Piedmont’s FFO has grown in recent years, it hasn't increased its dividend since 2014, keeping it flat at $0.21 per share. However, it did declare a $0.50 per share special dividend in 2017 after realizing a gain from selling assets that year.
While the company hasn't grown its dividend in years, it still offers a compelling payout. The dividend yield has averaged around 4.5%, well above the REIT sector's sub-3% yield.
The bottom line on Piedmont Office Realty Trust
Piedmont has been steadily moving its portfolio toward the Southeast, where demand for office space is growing faster than in the Northeast. That rotation, along with pandemic-related uncertainty, has weighed on its share price in recent years. However, Piedmont believes this strategy will create more value for its investors over the long run. That upside potential makes it an interesting office REIT, especially for those seeking a high-yielding income stream.