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Item 1A. Risk Factors

2026-03-12 compared with 2025-03-20 · 27 added, 33 removed, 111 unchanged (35% of the section changed)

The following discusses risk factors that could affect our business, operations and financial condition.

If any of these risks, as well as other risks and uncertainties that we have not yet identified or that we currently believe are not material, become realized, we could be materially adversely affected and the value of our securities could decline.

The following discusses those risk factors that we believe could have a material effect on our business, operations and financial condition.

In addition, the following risk factors may contain “forward looking statements” and should be read in conjunction with Management’s Discussion and Analysis of Financial condition and Results of Operations, and the financial statements and related notes in this Annual Report on Form 10-K.

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• inability to collect rent from tenants;

• competition from other real estate investors, including other real estate operating companies, publicly-traded REITs and institutional investment funds;

• competition from other real estate investors, including other real estate operating companies, publicly-traded real estate investment trusts ("REITs") and institutional investment funds;

• reduced tenant demand for office space and residential units from matters such as:

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We may not be able to compete successfully with other entities that operate in our industry.

We experience a great deal of competition in attracting tenants for the properties and in locating land to develop and properties to acquire.

We experience a great deal of competition in attracting tenants for the properties and in locating land to develop as well as properties to acquire.

In our effort to lease properties, we compete for tenants with a broad spectrum of other landlords in each of the markets.

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Our business may be impacted as a result of any health emergency.

Considerable uncertainty still surrounds the recent Covid-19 pandemic, including its conclusion, the availability of and effectiveness of vaccines, the potential short-term and long term effects, including but not limited to shifts in consumer housing demand based on geography, affordability, housing type (e.g., multi-family vs.

single family) and unit type (e.g., office studio vs.

multi-bedroom), mainly resulting from the paradigm shift of work culture, the decentralization of corporate headquarters and the success of “work from home” models.

Moreover, local, state and national measures taken to limit the spread of the recent pandemic have already resulted in significant economic impacts and mortality rates, the duration and scope of which cannot currently be predicted.

The extent to which our financial condition or operating results will be effected in the future by any future pandemic will largely depend on future demand and developments, which are highly uncertain and cannot be accurately predicted with any degree of accuracy.

Epidemics, pandemics or other outbreaks of an illness, disease or virus, such as COVID-19, can severely disrupt general economic activities in a variety of ways that are difficult to predict.

For example, governments and businesses may take actions to mitigate the public health crisis, including quarantines, stay-at-home orders, density limitations, social distancing measures, and/or restrictions on types of business that may continue to operate.

The extent to which an outbreak could impact our business will depend on factors such as the duration and spread, its severity, the actions taken to contain the virus, the emergence and impact of future virus variants, and how quickly and to what extent normal economic and operating conditions resume.

The impacts to our business could impact our financial condition, results of operations, cash flows, liquidity and our ability to meet our debt service obligations.

A shift toward remote or hybrid work could reduce demand for office space and adversely affect our office portfolio and financial performance.

The continued adoption of remote and hybrid work arrangements may reduce long-term demand for traditional office space.

If tenants reduce their office footprints, do not renew leases, or seek more flexible terms, we could experience higher vacancy rates, lower rental income, increased leasing concessions, and longer lease-up periods across our office portfolio.

These conditions could negatively impact our net operating income, cash flows, and property values, potentially requiring additional capital expenditures, impairments of office assets, or dispositions at unfavorable prices.

Declines in asset values or cash flows could also increase leverage, limit access to capital, or adversely affect our ability to refinance existing indebtedness.

If these risks materialize, our business, financial condition, and results of operations could be materially adversely affected.

We face risks associated with and have been the target of security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems.

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Malicious damage (such as the introduction of viruses and cyber-attacks) or a large-scale malfunction may adversely affect our business and results, including damage to our reputation, and our financial condition.

FACTORS AFFECTING OUR ASSETS

FACTORS AFFECTING OUR COMPANY

Adverse events concerning our existing tenants or negative market conditions affecting our existing tenants could have an adverse impact on our ability to attract new tenants, release space, collect rent or renew leases, and thus could adversely affect cash flow from operations and inhibit growth.

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These management companies are directly responsible for the day-to-day operation of our properties with limited supervision by us, and they often have potentially significant decision-making authority with respect to those properties.

Thus, the success of our business may depend in large part on the ability of our third-party property managers to manage the day-to-day operations, and any adversity experienced by our property managers could adversely impact the operation and profitability of our properties.

These third parties may fail to manage our properties effectively or in accordance with their agreements with us, may be negligent in their performance and may engage in criminal or fraudulent activity.

If any of these events occur, we could incur losses or face liabilities from the loss or injury to our property or to persons at our properties.

Thus any adversity experienced by our property managers could adversely impact the operation and profitability of our properties.

These third parties may fail to manage our properties effectively or in accordance with their agreements with us, may be negligent in their performance and may engage in unprofessional activity.

If any of these events occur, we could incur losses or face liabilities from the injury to persons at our properties.

In addition, disputes may arise between us and these third-party managers and operators, and we may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective service providers to operate and manage the relevant properties, which in turn could adversely affect us, including damage to our relationships with such franchisers or we may be in breach of our management agreement.

Our property insurance coverage is limited, and any uninsured losses could cause us to lose part or all of our investment in our insured properties.

We carry property and general liability insurance on all of our properties with coverage limits that we deem adequate and appropriate under the circumstances (certain policies subject to deductibles) to insure against property restoration and liability claims, which include the cost of legal defense.

There are, however, certain types of extraordinary losses that either may be uninsurable or are not generally insured because it is not economically feasible to insure against those losses.

Should any uninsured loss occur, we could lose our investment in, and anticipated revenues from, a property, and these losses could have a material adverse effect on our operations.

The occurrence of storm damage, flood or other natural disaster or personal injury on our properties in excess of our insured limits may materially and adversely affect our business, financial condition and results of operations.

We may experience increased operating costs which could adversely affect our financial results and the value of our properties.

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If operating expenses increase in our markets, we may not be able to increase rents or reimbursements in all of these markets to offset the increased expenses, without at the same time decreasing occupancy rates.

If this occurs, our ability to make distributions to shareholders and service indebtedness could be adversely affected.

Our ability to achieve growth in operating income depends in part on its ability to develop additional properties or acquire and redevelop or renovate existing properties.

We intend to continue to develop properties where warranted by market conditions.

We have a number of ongoing development and land projects being readied for commencement.

Additionally, general construction and development activities include the following risks:

• construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property;

• construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs;

• some developments may fail to achieve expectations, possibly making them less profitable;

• we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project;

• we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred.

If we determine to alter or discontinue its development efforts, future costs of the investment may be expensed as incurred rather than capitalized and we may determine the investment is impaired resulting in a loss;

• we may expend funds on and devote management’s time to projects which will not be completed;

• occupancy rates and rents at newly-completed properties may fluctuate depending on various factors including market and economic conditions, and may result in lower than projected rental rates and reduced income from operations.

We face risks associated with property acquisitions.

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A significant portion of our debt is insured with HUD.

As of December 31, 2024, we had $126.3 million in mortgage notes payable insured by the U.S.

Department of Housing and Urban Development ("HUD"), which represented 68% of our total indebtedness.

HUD insured loans allow Lenders to extend loans at a relatively low interest rate for terms of up to 40 years for properties under new construction, or up to 35 years for acquisition or refinancing of existing properties.

As of December 31, 2025, we had $123.6 million in mortgage notes payable insured by HUD, which represented 58% of our mortgage notes payable.

HUD insured loans allow Lenders to extend loans at a relatively lower interest rate for terms of up to 40 years for properties under new construction, or up to 35 years for acquisition or refinancing of existing properties.

In return for lower interest rates and favorable terms, HUD loans involve extensive regulatory compliance.

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We currently have, and may incur more, indebtedness that bears interest at variable rates.

Accordingly, if interest rates increase, so will the interest costs, which could adversely affect cash flow and the ability to pay principal and interest on our debt and the ability to make distributions to shareholders.

If interest rates increase, so may our interest costs, which could adversely affect cash flow and the ability to pay principal and interest on our debt and the ability to make distributions to shareholders.

Further, rising interest rates could limit our ability to refinance existing debt when it matures.

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Ownership through partnerships and joint ventures could limit property performance.

We have in the past, and may in the future, develop and/or acquire properties in partnerships and similar joint ventures, including those in which we may own a preferred interest, when we believe circumstances warrant this type of investment.

Our organizational documents do not limit the amount of available funds that we can invest in partnerships or other joint venture structures.

As of December 31, 2024, we had no active joint ventures with any investment funds at risk.

We have in the past, and may in the future, develop and/or acquire properties in partnerships and joint ventures, including those in which we may own a preferred interest, when we believe circumstances warrant this type of investment.

Investments in partnerships and joint ventures, including limited liability companies, involve risks such as the following:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors