What changed in this filing

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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-21 · 40 added, 43 removed, 391 unchanged (18% of the section changed)

24 unchanged sentences

Our performance is dependent upon the economic conditions of the markets in which our properties are located.

Our results of operations will be significantly influenced by the economies and other conditions of the real estate markets in which we operate, particularly in Philadelphia, Pennsylvania, the suburbs of Philadelphia, Pennsylvania, Austin, Texas, Washington, D.C., Northern Virginia and Southern Maryland.

Any adverse changes in economic conditions in any of these economies or real estate markets could negatively affect cash available for distribution and debt service.

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The local economic climate, which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics and other factors, and local real estate conditions, such as demand for office space, operating expenses and real estate taxes, may affect revenues and the value of properties, including properties to be acquired or developed.

We have incurred, and may in the future incur, impairment charges.

We evaluate on a quarterly basis our real estate portfolios for indicators of impairment.

Impairment charges reflect management's judgment of the probability and severity of the decline in the value of real estate assets and investments we own.

These charges and provisions may be required as a result of factors beyond our control, including, among other things, changes in our expected holding periods, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters.

During the year ended December 31, 2023, we recognized aggregate impairment charges of $168.8 million, with $131.6 million related to our Real Estate Investments and $37.2 million related to our Investment in Unconsolidated Real Estate Ventures.

If we are required to take additional impairment charges, our results of operations could be adversely impacted.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Impairment.” See also Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Comparison of Year Ended December 31, 2023 to the Year Ended December 31, 2022 – Provision for Impairment.”

We may suffer adverse consequences due to the financial difficulties, bankruptcy or insolvency of our tenants.

Periodically, our tenants experience financial difficulties, including bankruptcy, insolvency or a general downturn in their business, and these difficulties may have an adverse effect on our cash flow, results of operations, financial condition and ability to make distributions to our shareholders.

ability to make distributions to our shareholders.

We cannot assure you that any tenant that files for bankruptcy protection will continue to pay us rent.

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As a result, it is likely that we would recover substantially less than the full value of the remaining rent during the term.

See Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Influence Future Results of Operations - Tenant Credit Risk.”

See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Influence Future Results of Operations - Tenant Credit Risk.”

Real Estate Industry Risk Factors

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• dependence on the financial, technology and professional services sector as part of our tenant base;

• construction costs exceeding original estimates due to rising interest rates, inflation, diminished availability of materials and labor, and increases in the costs of materials and labor;

• construction costs exceeding original estimates due to high interest rates, inflation, diminished availability of materials and labor, and increases in the costs of materials and labor;

• construction and lease-up delays resulting in increased debt service, fixed expenses and construction or renovation costs;

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• limited experience in developing or redeveloping properties in certain of our geographic markets may lead us to incorrectly project development costs and returns on our investments.

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Influence Future Results of Operations - Development Risk.”

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Influence Future Results of Operations - Development Risk.”

Our development projects and third party property management business may subject us to certain liabilities.

We may hire and supervise third party contractors to provide construction, engineering and various other services for wholly owned development projects, development projects undertaken by real estate ventures in which we hold an equity interest and manage or properties we are managing on behalf of unaffiliated third parties.

Certain of these contracts may be structured such that we are the principal rather than the agent.

Certain of these contracts may be structured

such that we are the principal rather than the agent.

As a result, we may assume liabilities in the course of the project and be subjected to, or become liable for, claims for construction defects, negligent performance of work or other similar actions by third parties we have engaged.

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As part of our project management business, we are responsible for managing various contractors required for a project, including general contractors, in order to ensure that the cost of a project does not exceed the contract amount and that the project is completed on time.

In the event that one or more

of the contractors involved does not, or cannot, perform as a result of bankruptcy or for another reason, we may be responsible for cost overruns, as well as the consequences of late delivery.

In the event that one or more of the contractors involved does not, or cannot, perform as a result of bankruptcy or for another reason, we may be responsible for cost overruns, as well as the consequences of late delivery.

In the event that we have not accurately estimated our own costs of providing services under guaranteed cost contracts, we may be exposed to losses on such contracts.

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Moreover, our venture partners may, at any time, have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the appropriate timing and terms of any sale or refinancing of a property.

In some instances, our venture partners may have competing interests in our markets that could create conflicts of interest.

In some instances, our venture partners may have competing interests in our markets that could create conflicts of

If the objectives of our venture partners or the lenders to our unconsolidated real estate ventures are inconsistent with our own objectives, we may not be able to act exclusively in our interests and the value of our investment in the unconsolidated real estate ventures may be affected.

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Consequently, we may not be able to alter our portfolio promptly in response to changes in economic or other conditions.

In addition, the Internal Revenue Code limits our ability, as a REIT, to sell properties that we have held for fewer than two years without potential adverse consequences to us.

In addition, the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), limits our ability, as a REIT, to sell properties that we have held for fewer than two years without potential adverse consequences to us.

Furthermore, properties that we have developed and have owned for a significant period of time or that we acquired in exchange for partnership interests in the Operating Partnership often have a low tax basis.

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Our properties are also subject to various regulatory requirements, such as those relating to the environment, fire and safety.

Our failure to comply with these requirements could result in the imposition of fines and damage awards and could result in a default under some of our tenant

Our failure to comply with these requirements could result in the imposition of fines and damage awards and could result in a default under some of our tenant leases.

Moreover, the costs to comply with any new or different regulations could adversely affect our cash flow and our ability to make distributions to shareholders.

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Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT.

Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings or interpretations of tax law, that make it more difficult, or impossible, for us to remain

qualified as a REIT.

If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.

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We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions.

In addition, for tax years beginning after December 31, 2022, we would possibly also be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, such as the nondeductible one percent excise tax on certain stock repurchases.

If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders.

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If any subsidiary REIT failed to qualify as a REIT, we could be directly or indirectly subject to higher taxes and could fail to remain qualified as a REIT.

We directly or indirectly (through disregarded subsidiaries or pass-through entities) own shares of certain subsidiaries that have elected to be taxed as a REIT for U.S.

We directly or indirectly (through disregarded subsidiaries or pass-through entities) own shares of certain subsidiaries that have elected to be taxed as REITs for U.S.

federal income tax purposes.

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In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business.

The determination as to whether a particular sale or series of sales is/are a prohibited transaction depends on the facts and circumstances related to

The determination as to whether a particular sale or series of sales is/are a prohibited transaction depends on the facts and circumstances related to that sale.

We cannot guarantee that sales of our properties would not be prohibited transactions unless we comply with certain statutory safe-harbor provisions.

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If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, or if we are unable to identify and complete the acquisition of suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences.

From time to time we seek to dispose of properties in transactions that are intended to qualify as tax-deferred “like kind exchanges” under Section 1031 of the Internal Revenue Code of 1986, as amended (a “Section 1031 Exchange”).

It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable.

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These incentives typically have specific sunset provisions and may be subject to governmental discretion in the eligibility or award of the applicable incentives.

We invest and plan to continue to heavily invest in Qualified Opportunity Zones as part of the federal program and Keystone Opportunity Zones in Pennsylvania due to the related tax benefits.

We have invested and may continue to invest in Qualified Opportunity Zones as part of the federal program and Keystone Opportunity Zones in Pennsylvania due to the related tax benefits.

The expiration of these incentive programs or the inability of potential tenants or users to be eligible for or to obtain governmental approval of the incentives may have an adverse effect on the value of our Properties and on our cash flow and net income, and may result in impairment charges.

18 unchanged sentences

Disaster Risk Factors

A pandemic, epidemic or outbreak of a contagious disease, such as the ongoing COVID-19 pandemic, could adversely affect us.

Pandemics, epidemics, and other public health crises, including the ongoing COVID-19 pandemic, have impacted, and could continue to impact many countries around the globe, including the U.S.

The COVID-19 pandemic’s long-term impact on global economies, financial markets, and the job market remain uncertain and could result in prolonged economic downturns and recessions that adversely impact us and our tenants.

The global impact of the outbreak has been rapidly evolving and there is significant uncertainty regarding its continued impact on the U.S.

economy and consumer confidence.

A pandemic, epidemic or outbreak of a contagious disease could adversely affect us.

Pandemics, epidemics, and other public health crises have impacted, and could continue to impact many countries around the globe, including the U.S.

Demand for space at our properties is dependent on a variety of macroeconomic factors, such as employment levels, inflation, interest rates, changes in stock market valuations, rent levels and availability of competing space.

These factors can be significantly adversely affected by a variety of factors beyond our control.

The extent to which the COVID-19 pandemic continues to impact our results will depend on future developments, many of which are highly uncertain and cannot be predicted.

The impact of the COVID-19 pandemic could negatively impact our business in a number of ways, including:

The impact of pandemics, epidemics and other public health crises could negatively impact our business in a number of ways, including:

(i) deterioration in the financial condition of our tenants and in their ability to pay rents;

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If market interest rates go up, prospective purchasers of our securities may require a higher yield.

Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costs and

potentially decrease funds available for distribution.

Higher market interest rates would not, however, result in more funds for us to distribute and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for distribution.

Thus, higher market interest rates could cause the market price of our common shares to go down;

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Our Board of Trustees also has the power to establish the preferences and rights of each class or series of units in the Operating Partnership, and may afford the holders in any series or class of preferred units preferences, distributions, powers and rights, voting or otherwise, senior to the rights of holders of common units.

We have incurred, and may in the future incur, impairment charges.

We evaluate on a quarterly basis our real estate portfolios for indicators of impairment.

Impairment charges reflect management's judgment of the probability and severity of the decline in the value of real estate assets and investments we own.

If we are required to take additional impairment charges, our results of operations could be adversely impacted.

An increase in interest rates would increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt or sell assets on favorable terms or at all.

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While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement or termination of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under the applicable accounting guidance.

In addition, an increase in interest rates could decrease the amounts third parties are willing or able to pay for our assets, thereby limiting our ability to recycle capital and change our portfolio promptly in response to changes in economic or other conditions.

In addition, an increase in interest rates could decrease

the amounts third parties are willing or able to pay for our assets, thereby limiting our ability to recycle capital and change our portfolio promptly in response to changes in economic or other conditions.

For more information about our interest costs on variable rate debt see Part II, Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources."

Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our equity shares or debt securities.

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If we breach covenants in our secured debt agreements, the lenders can declare a default and take possession of the property securing the defaulted loan.

For more information about the terms and covenants relating to our indebtedness see Part II, Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources."

Certain of our mortgages include restrictive covenants and default provisions, which could limit our flexibility, limit our ability to sell the encumbered properties and require us to repay the indebtedness prior to its maturity.

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In the event that our unsecured debt is downgraded by Moody’s Investor Services or Standard & Poor’s from the current ratings, we would likely incur higher borrowing costs and the market prices of our common shares and debt securities might decline.

Discontinuation of the London interbank offered rate and transition to an alternative benchmark could adversely affect our operating results

In March 2021, the Chief Executive of the U.K.

Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after June 30, 2023.

Due to the cessation of LIBOR, we have entered into financial transactions, including the 2022 Credit Agreement, that use the Secured Overnight Financing Rate (“SOFR”) as an interest rate benchmark.

SOFT is calculated differently from LIBOR and has inherent differences, which could give rise to uncertainties, including the limited historical data and volatility in the benchmark rate.

The full effects of the transition to SOFR, or any other benchmark rate, remains uncertain.

Any other unforeseen impacts of the discontinuation of LIBOR and subsequent transition to SOFR, or any other benchmark rate, could have a negative impact on our results of operations and our variable rate debt.

Data security breaches may cause damage to our business and reputation.

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There can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

Protected information, networks, systems and facilities remain vulnerable because the techniques used in such attempted security breaches evolve and may not be recognized or detected until launched against a target.

Protected information, networks, systems and facilities

remain vulnerable because the techniques used in such attempted security breaches evolve and may not be recognized or detected until launched against a target.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures.

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We currently carry property insurance against all-risks of physical loss or damage (unless otherwise excluded in the policy) including time element and commercial general liability coverage on all of our properties.

There are, however, types of losses, such as lease and other contract claims, biological, radiological and nuclear hazards and acts of war that generally are

There are, however, types of losses, such as lease and other contract claims, biological, radiological and nuclear hazards and acts of war that generally are not insured.

We cannot assure you that we will be able to renew insurance coverage in an adequate amount or at reasonable prices.

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Such events could adversely affect our cash flow and ability to make distributions to shareholders.

If one or more of our insurance providers were to fail to pay a claim as a result of insolvency, bankruptcy or otherwise, the nonpayment of such claims could have an adverse effect on our financial condition and results of operations.

If one or more of our

insurance providers were to fail to pay a claim as a result of insolvency, bankruptcy or otherwise, the nonpayment of such claims could have an adverse effect on our financial condition and results of operations.

In addition, if one or more of our insurance providers were to become subject to insolvency, bankruptcy or other proceedings and our insurance policies with the provider were terminated or cancelled as a result of those proceedings, we cannot guarantee that we would be able to find alternative coverage in adequate amounts or at reasonable prices.

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While we carry general liability and umbrella policies to mitigate such losses on our general liability risks, our results could be materially impacted by claims and other expenses related to such insurance plans if future occurrences and claims differ from these assumptions and historical trends or if employee health-care claims which we self-insure up to a set limit per employee (and which are insured above such self-insured retention amount) exceed our expectations or historical trends.

Unresolved Staff Comments

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