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Atlanta based office properties are at the centre of a new financing plan from Piedmont Realty Trust, Inc. (NYSE: PDM), which is seeking to raise $200 million through exchangeable senior notes due in 2031. The company owns, manages, develops and operates approximately 16 million square feet of Class A office properties in major U.S. Sunbelt markets. Its business model also includes a hospitality focused approach to office operations, with the company promoting its buildings as “Piedmont PLACEs” designed to improve the tenant workplace experience.
The financing announcement arrived as Piedmont shares were under pressure. Shares fell more than 5% in early trading today. The immediate concern appears to be the possibility that some of the notes could eventually be exchanged for common stock, increasing the number of shares outstanding or creating expectations of future dilution. The structure may also encourage note purchasers or their financial counterparties to hedge their exposure by trading in Piedmont shares.
The notes would be issued by Piedmont Operating Partnership, LP, the company’s operating partnership, in a private placement for qualified institutional buyers under Rule 144A. Piedmont would fully and unconditionally guarantee the securities on a senior, unsecured basis. The operating partnership also expects to give the initial purchasers an option to buy up to an additional $30 million of notes, which could bring the total offering to $230 million if the option is exercised.
The securities are expected to mature on February 1, 2031, unless they are repurchased, redeemed or exchanged earlier. Interest would be paid twice a year, although the interest rate, initial exchange rate and other important terms have not yet been determined. Noteholders would have the right to exchange their securities under specified conditions. Piedmont could settle those exchanges with cash, common shares or a combination of both.
The company would have several ways to redeem the notes. Beginning August 6, 2029, it could redeem them for cash if Piedmont’s common stock exceeds 130% of the exchange price for a specified period and other requirements are met. Piedmont could also redeem notes in certain circumstances to help preserve its status as a real estate investment trust for U.S. federal income tax purposes. If a qualifying corporate event occurs, noteholders could require the operating partnership to repurchase their securities for cash.
Piedmont says the main purpose of the financing is to retire all of its outstanding 9.250% senior notes due 2028. The repayment would include any applicable make whole premium and accrued interest. To complete that plan, the company expects to combine the offering proceeds with money from forward sale transactions under its at the market equity program, cash on hand and borrowings under its line of credit. If the additional notes are sold, Piedmont plans to use the extra money for the same debt repayment and reduce the related credit line borrowings.
Up to approximately $50 million of the proceeds may also be used to repurchase Piedmont shares from certain note purchasers in privately negotiated transactions. The repurchases could support the share price around the time of pricing, but the company cautioned that the overall market effect cannot be predicted. The notes, guarantee and any shares issued upon exchange will not initially be registered under U.S. securities laws, although Piedmont intends to provide limited registration rights for the resale of exchange shares.
The final terms will determine how investors assess the transaction. A lower interest cost could help Piedmont address its 2028 obligations, while the exchange feature introduces uncertainty about future share issuance. For now, the early share decline shows that investors are weighing the refinancing benefit against the potential effects on common shareholders.
