JPMorgan cuts Piedmont Office Trust target to $9, keeps neutral

On Monday, JPMorgan analyst Anthony Paolone revised the price target for Piedmont Office Realty Trust (NYSE:PDM) stock, reducing it to $9.00 from the previous $10.00, while maintaining a Neutral rating. The stock currently trades at $7.57, with a market capitalization of approximately $941 million. According to InvestingPro data, PDM has experienced a significant -15.6% year-to-date decline, though it shows a notable 7.66% return over the past week. The adjustment follows the company’s fourth-quarter 2024 earnings release, which led to a recalibration of Piedmont’s financial model, primarily due to an anticipated increase in interest expenses.

Paolone’s analysis indicates a downward revision of Piedmont’s 2025 Core Funds From Operations (FFO) per share estimate to $1.42, a slight decrease from the prior $1.45 prediction. This new estimate represents a year-over-year decline of 4.7% and is just below the Bloomberg consensus of $1.43. The company’s own guidance suggests a midpoint of $1.41, with a projected range between $1.38 and $1.44. Looking further ahead, the 2026 Core FFO per share forecast has been adjusted to $1.39 from $1.42, implying a 2.1% year-over-year decrease, compared to a Bloomberg consensus of $1.43. Despite these challenges, InvestingPro analysis reveals that PDM has maintained dividend payments for 16 consecutive years, currently offering a substantial 6.59% dividend yield.

The primary factors contributing to the reduced estimates are the higher interest expenses and asset dispositions occurring at increased capitalization (cap) rates. In terms of occupancy rates, Paolone anticipates a year-over-year increase of 50 basis points, from 85.5% at the end of the fourth quarter of 2024 to 86.0% by the fourth quarter of 2025, followed by a similar increase in 2026. Despite a robust leasing pipeline, the forecasted occupancy growth remains conservative due to potential move-outs from key tenants such as Ryan, Piper Sandler, Eversheds, and Epsilon within the next two years.

The analyst expects Piedmont to engage in significant capital recycling, predicting the sale of $485 million worth of assets at approximately an 11% GAAP cap rate over the next 24 months. This includes an anticipated $300 million from the sale of 60 Broad Street in New York City at a 10% cap rate, along with some land sales. For the nearer term, sales are estimated at $135 million in 2025 at a 12.5% GAAP cap rate, with proceeds likely to be used for debt reduction. Should Piedmont reinvest in other assets, there could be potential earnings upside, as the earnings dilution would be less significant.

Paolone’s Net Asset Value (NAV) per share estimate for Piedmont stands at $10, based on a 9.1% blended cap rate for the portfolio. The current stock price implies a cap rate of 9.9%. Utilizing a Discounted Cash Flow (DCF) model, which includes assumptions such as a 3% long-term Adjusted Funds From Operations (AFFO) growth, a 100% payout ratio, and a 12% equity discount rate, the analyst arrived at the new year-end 2025 price target of $9 per share, a decrease from the prior target of $10. InvestingPro analysis suggests the stock is currently overvalued, with additional metrics and insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of PDM among 1,400+ US equities.

In other recent news, Piedmont Office Realty Trust Inc. reported its fourth-quarter 2024 earnings, revealing a notable shortfall in expected earnings per share (EPS). The actual EPS was -$0.24, significantly below the forecasted -$0.04. However, the company exceeded revenue expectations, bringing in $143.23 million compared to the anticipated $128.63 million. Despite this revenue success, the EPS miss highlights ongoing challenges within the company. Piedmont’s performance in leasing was notable, with 2.4 million square feet completed in 2024 and a year-end lease percentage of 88.4%. Looking ahead, the company has set a Core FFO guidance of $1.38 to $1.44 per share for 2025. Analyst firms have not recently issued any upgrades or downgrades for Piedmont, but the company’s strategic focus remains on leasing and rental rate growth. Piedmont also plans to target $200-300 million in potential growth assets in 2025.

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