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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-27 · 113 added, 102 removed, 315 unchanged (41% of the section changed)

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Government agencies that serve essential functions.

We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S.

We generate over 90% of our revenue by leasing our properties to such agencies, either directly or through the U.S.

General Services Administration, which we refer to herein as the GSA.

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We may also consider other potential opportunities to add properties to our portfolio, including acquiring properties leased to state and local governments with strong creditworthiness and other opportunities that directly or indirectly support the mission of select government agencies.

As of December 31, 2023, we wholly owned 81 operating properties and nine operating properties through an unconsolidated joint venture (the “JV”) in the United States encompassing approximately 8.8 million leased square feet (8.3 million pro rata), including 88 operating properties that were leased primarily to U.S.

Government tenant agencies, one operating property entirely leased to tenant agencies of a U.S.

state government and one operating property that was entirely leased to a private tenant.

As of December 31, 2024, we wholly owned 90 operating properties and ten operating properties through an unconsolidated joint venture (the “JV”) in the United States encompassing approximately 9.7 million leased square feet (9.2 million pro rata), including 92 operating properties that were leased primarily to U.S.

Government tenant agencies, four operating properties leased to tenant agencies of a U.S.

state or local government and three operating properties that were entirely leased to private tenants.

As of December 31, 2024, our operating properties were 97% leased.

For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition.

In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion.

In addition, we wholly owned two properties under development that we expect will encompass approximately 0.2 million leased square feet upon completion.

Our operating partnership holds substantially all of our assets and conducts substantially all of our business.

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federal income tax purposes commencing with our taxable year ended December 31, 2015.

On October 3, 2023, we acquired a 95,273 leased square foot Class A facility located in Anaheim, California.

The building was renovated in 2020.

The facility is 100% leased by tenant agencies of the state of California for beneficial use of the Employment Development Department and Department of Industrial Relations and has lease expirations ranging from 2033 to 2034.

On October 3, 2023, we acquired a 91,185 leased square foot Department of Homeland Security (“DHS”) facility in Atlanta, Georgia.

The building was renovated to suit in 2023.

The facility is primarily leased to the GSA for beneficial use of the Customs and Border Protection and Transportation Security Administration agencies and has lease expirations ranging from 2031 to 2038.

On October 19, 2023, we acquired a 35,005 leased square foot Judiciary of the U.S.

Government (“JUD”) courthouse in Newport News, Virginia.

The building is a build-to-suit courthouse completed in 2008.

The facility is leased to the GSA for beneficial use of JUD with a lease expiration of July 2033.

On April 12, 2024, we acquired a 129,046 leased square foot U.S.

Immigration and Customs Enforcement (“ICE”) facility near Dallas, Texas that has lease expirations ranging from 2032 to 2040.

On May 7, 2024, we acquired a 27,840 leased square foot Homeland Security Investigations (“HSI”) facility in Orlando, Florida with a 15-year lease that does not expire until March 2036.

On May 9, 2024, we acquired a 49,420 leased square foot ICE facility in Orlando, Florida with a 20-year lease that does not expire until August 2040.

On September 4, 2024, we acquired a 99,246 leased square foot Northrop Grumman facility near Dayton, Ohio with a 5-year lease through August 2029.

On October 10, 2024, we acquired a 104,136 leased square foot Northrop Grumman facility in Aurora, Colorado with a 9-year lease through February 2032.

On November 21, 2024, we acquired a 100,000 leased square foot Internal Revenue Service (“IRS”) facility in Ogden, Utah with a 5-year lease through January 2029.

On November 27, 2024, we acquired a 295,253 square foot campus across three assets leased primarily to the Wake County Public School System with a 10-year lease through June 30, 2034.

Investment in unconsolidated real estate venture

On October 13, 2021, we formed the JV with a global investor to fund the acquisition of a portfolio of ten properties anticipated to encompass 1,214,165 leased square feet (the “VA Portfolio”) that would be 100% leased to the Veterans Affairs (“VA”).

We own a 53.0% interest in the JV, subject to preferred allocations as provided in the JV agreement.

During the years ended 2022 and 2021, the JV closed on eight of the ten properties included in the Portfolio Acquisition.

On September 22, 2023, the JV acquired a 69,276 square foot VA outpatient facility located in Corpus Christi, Texas.

The building is a build-to-suit property that was completed during 2022.

The outpatient facility is leased to the VA and has a lease expiration of November 2042.

The facility is the ninth of ten properties to be acquired in the previously announced the VA Portfolio.

We anticipate the JV will acquire the tenth and final property in the VA Portfolio in 2024.

On August 29, 2024, the JV acquired a 193,100 square foot Veteran Affairs (“VA”) outpatient facility in Jacksonville, Florida with a 20-year lease that does not expire until October 2043.

On April 4, 2024, we acquired land to develop a 50,777 square foot Federal courthouse in Flagstaff, Arizona.

The courthouse will be primarily leased to the GSA for beneficial use of the Judiciary of the U.S.

Government (“JUD”) over a 20 year non-cancelable term.

Results of Operations

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Corporate general and administrative

Provision for credit losses

Total expenses

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Interest expense, net

Gain on the sale of operating properties

Impairment loss

Total revenues decreased $6.4 million to $287.2 million for the year ended December 31, 2023 compared to $293.6 million for the year ended December 31, 2022.

The $10.6 million decrease in Rental income is primarily attributable to the disposal of ten operating properties during the year ended December 31, 2022 offset by an increase in revenues from the three operating properties acquired since December 31, 2022 and a full period of operations from the three operating properties acquired during the year ended December 31, 2022.

The $3.0 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements.

The $0.7 million increase in Asset management income is attributable to the fee earned by us for asset management of the JV from the one property acquired since December 31, 2022 and a full period of operations from the four properties acquired during the year ended December 31, 2022.

The $0.5 million increase in Other income is primarily attributable to an increase in interest income.

Gain on the sale of real estate

Total revenues increased $14.8 million to $302.1 million for the year ended December 31, 2024 compared to $287.2 million for the year ended December 31, 2023.

The $15.7 million increase in Rental income is primarily attributable to the nine operating properties acquired since December 31, 2023 and a full period of operations from the three operating properties acquired during the year ended December 31, 2023.

The $2.4 million decrease in Tenant reimbursements is primarily attributable to a decrease in tenant project reimbursements.

The $0.2 million increase in Asset management income is attributable to the fee earned by us for asset management of the JV from the one property acquired since December 31, 2023 and a full period of operations from the one property acquired during the year ended December 31, 2023.

The $1.3 million increase in Other income is primarily attributable to an increase in interest income from our loan receivable.

Total expenses increased by $2.8 million to $225.3 million for the year ended December 31, 2024 compared to $222.5 million for the year ended December 31, 2023.

The $5.2 million increase in Property operating expenses is primarily attributable to an increase in tenant reimbursable projects.

The $0.4 million decrease in Real estate taxes is also primarily attributable to the disposal of ten operating properties during the year ended December 31, 2022, offset by the three operating properties acquired since December 31, 2022 as well as a full period of operations from the three operating properties acquired during the year ended December 31, 2022.

Additionally, the $7.0 million decrease in Depreciation and amortization is primarily attributable to the disposal of ten operating properties during the year ended December 31, 2022 and a decrease in amortization related to fully amortized lease intangibles, offset by three operating properties acquired since December 31, 2022, as well as a full period of operations from the three operating properties acquired during the year ended December 31, 2022.

The $2.3 million increase in Corporate and general administrative costs was primarily due to an increase in employee costs.

The $1.8 million decrease in Property operating expenses is primarily attributable to a decrease in tenant reimbursable projects and utility costs across the portfolio partially offset by an increase from the nine operating properties acquired since December 31, 2023 and a full period of operations from the three operating properties acquired during the year ended December 31, 2023.

The $0.5 million increase in Real estate taxes is primarily attributable to the nine operating properties acquired since December 31, 2023 as well as a full period of operations from the three operating properties acquired during the year ended December 31, 2023.

The $5.0 million increase in Depreciation and amortization is primarily attributable to the nine operating properties acquired since December 31, 2023 as well as a full period of operations from the three operating properties acquired during the year ended December 31, 2023.

The $2.7 million decrease in Corporate and general administrative costs was primarily due to a decrease in employee costs and non-cash compensation.

The $1.5 million increase in Provision for credit losses is primarily due to a construction loan entered into on August 6, 2024 to lend up to $52.1 million to a developer.

Income from unconsolidated real estate venture

The $2.1 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from the one operating property acquired by the JV since December 31, 2022 and a full period of operations from the four operating properties acquired by the JV during the year ended December 31, 2022.

The $0.6 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from the one operating property acquired by the JV since December 31, 2023 and a full period of operations from the one operating property acquired by the JV during the year ended December 31, 2023.

Interest expense, net

Interest expense, net increased by $13.3 million to $62.4 million for the year ended December 31, 2024 compared to $49.2 million for the year ended December 31, 2023.

The increase is primarily attributable to higher weighted average borrowings and interest rates on our swapped term loans.

Gain on the sale of operating properties

In the fourth quarter of 2022, we recognized a Gain on the sale of operating properties totaling $13.6 million which was attributable to the disposition of a portfolio of ten properties.

No dispositions were made during the year ended December 31, 2023.

Impairment loss

In the third quarter of 2022, we recognized an impairment loss totaling approximately $5.5 million for our ICE – Otay property and reduced its carrying value to its estimated fair value, which declined due to the changes in expected cash flows related to the

tenant's lease expiration in 2022.

ICE – Otay is a 47,919 rentable square foot office building located in San Diego, California.

No impairment charges were incurred during the year ended December 31, 2023.

The increase is primarily attributable to the fixed rate, senior unsecured notes entered into during the three months ended June 30, 2024 and September 30, 2024 and higher weighted average interest rates across the Company's borrowings.

Gain on the sale of real estate

For the year ended December 31, 2024, we recognized a Gain on the sale of a land parcel totaling $0.2 million.

Comparison of Results of Operations for the Years Ended December 31, 2023 and December 31, 2022

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Liquidity and Capital Resources

We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant improvements, development activities at FDA – Atlanta, planned and possible acquisitions of properties, including the final VA Portfolio property through the JV, stockholder distributions to maintain our qualification as a REIT and other capital obligations associated with conducting our business.

At December 31, 2023, we had approximately $21.9 million available in cash and cash equivalents and there was approximately $370.9 million available under our revolving credit facility.

We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant improvements, development activities at FDA – Atlanta and JUD – Flagstaff, planned and possible acquisitions of properties, stockholder distributions to maintain our qualification as a REIT, potential repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business.

At December 31, 2024, we had approximately $19.4 million available in cash and cash equivalents, $8.5 million of restricted cash and there was approximately $125.3 million available under our revolving credit facility.

Our primary expected sources of capital are as follows:

• cash and cash equivalents;

• existing cash balances;

• operating cash flow;

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Our short-term liquidity requirements consist primarily of funds to pay for the following:

• development and redevelopment activities, including major redevelopment, renovation or expansion programs at FDA – Atlanta and other individual properties;

• property acquisitions under contract, including our JV share of the remaining Portfolio Acquisition properties;

• development and redevelopment activities, including major redevelopment, renovation or expansion programs at FDA – Atlanta, JUD – Flagstaff and other individual properties;

• potential property acquisitions;

• tenant improvements, allowances and leasing costs;

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• debt repayment requirements;

• commitments to fund advancements through loan receivables;

• corporate and administrative costs;

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Shelf Registration Statement on Form S-3

We expect to file an automatic universal shelf registration statement on Form S-3 with the SEC following the filing of this Annual Report on Form 10-K.

The registration statement will be deemed automatically effective and provide for the registration of unspecified amounts of securities.

However, there can be no assurance that we will be able to complete any offerings of securities in the future under such registration statement, once filed.

Offering of Common Stock on a Forward Basis

On August 11, 2021, we completed an underwritten public offering of 6,300,000 shares of common stock offered on a forward basis.

In connection with the offering, we also entered into separate forward sale agreements with each of the forward purchasers (the “Forward Sales Agreements”), pursuant to which the forward purchasers borrowed and sold to the underwriters an aggregate of 6,300,000 shares of our common stock.

On December 28, 2021, we issued 3,991,000 shares of our common stock for net proceeds of $85.0 million, which shares were issued in partial settlement of the Forward Sales Agreements entered into in connection with the underwritten public offering.

During the three months ended March 31, 2023, we issued 2,309,000 shares of common stock under the Forward Sale Agreements and received net cash proceeds of approximately $46.8 million.

As of December 31, 2023, all shares of common stock under the Forward Sales Agreements had been issued and settled.

On February 28, 2024, we filed an automatic universal shelf registration statement on Form S-3 with the SEC, which was deemed automatically effective and provides for the registration of unspecified amounts of securities.

However, there can be no assurance that we will be able to complete any such offerings of securities in the future.

We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act.

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December 31, 2024

(1) Shares issued by us, which were all issued in settlement of forward sales transactions.

Additionally, as of December 31, 2023, we had entered into a forward sales transaction under the 2019 ATM Program for the sale of an additional 500,000 shares of our common stock that have not yet been settled.

Subject to our right to elect net share settlement, we expect to physically settle the forward sales transaction by December 2024, the maturity date, as set forth in the applicable forward sale transaction placement notice.

Assuming the forward sales transaction is physically settled in full utilizing a net weighted average initial forward sales price of $13.52 per share, we expect to receive net proceeds of approximately $6.8 million, after deducting offering costs, subject to adjustments in accordance with the applicable forward sale transaction.

(1) Shares issued by us, which were all issued in settlement of forward sale transactions.

As of December 31, 2024, we had settled all of our outstanding forward sale transactions under the 2019 ATM Program.

We accounted for the forward sale transactions as equity.

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2024 revolving credit facility (2)

July 2025 (3)

S + 145bps (3)

June 2028 (4)

Total revolving credit facility

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2016 term loan facility

March 2024 (5)

January 2025 (6)

2018 term loan facility

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2021 series B senior notes

2024 series A senior notes

2024 series B senior notes

Total notes payable

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CBP - Savannah

USCIS - Kansas City

Total mortgage notes payable

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Total mortgage notes payable, net

(1) At December 31, 2023, the USD SOFR with a five day lookback (“S”) was 5.31%.

(1) The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums.

The spread over the applicable rate for each of our $450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), our $200.0 million senior unsecured term loan facility (as amended, our “2018 term loan

facility”) and our $100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on our consolidated leverage ratio, as set forth in the respective loan agreements.

(2) Our revolving credit facility had available capacity of $370.9 million at December 31, 2023, with an accordion feature that permits us to request additional lender commitments for up to $250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions.

(2) The $400.0 million 2024 revolving credit facility (the “2024 revolving credit facility”) had available capacity of $125.3 million at December 31, 2024, which includes an accordion feature that provides us with additional capacity of up to $300.0 million, subject to syndication of the increase and the satisfaction of customary terms and conditions.

(3) Our 2024 revolving credit facility is subject to one interest rate swap with an effective date of June 23, 2023 and a notional value of $100.0 million, of which $25.5 million is associated with our 2024 revolving credit facility, to effectively fix the interest rate on the $25.5 million at 5.46% annually.

The spread over the secured overnight financing rate (“SOFR”) is based on our consolidated leverage ratio, as defined in our 2024 revolving credit facility agreement.

Additionally, at December 31, 2024, $249.1 million of amounts outstanding under our 2024 revolving credit facility had a floating rate of 4.31% under USD SOFR with a five day lookback.

(4) Our 2024 revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.

(4) Entered into one interest rate swap with an effective date of September 29, 2023 with a notional value of $100.0 million to effectively fix the interest rate at 5.05% annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

(5) On January 23, 2024, we entered into the seventh amendment to the 2016 term loan facility agreement to extend the maturity date of the loan to January 30, 2025.

(6) Entered into two interest rate swaps with an effective date of June 23, 2023 with an aggregate notional value of $200.0 million to effectively fix the interest rate at 5.39% annually, based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement.

(5) Our 2016 term loan facility (our “2016 term loan facility”) is subject to three interest rate swaps, all with effective dates of December 23, 2024 and an aggregate notional value of $100.0 million, which effectively fixes the interest rate at 5.31% annually.

The spread over SOFR is based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

(6) On January 8, 2025, we entered into the ninth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016, to extend the maturity date of our 2016 term loan facility from January 30, 2025 to January 28, 2028.

(7) Our 2018 term loan facility (as amended, our “2018 term loan facility”) is subject to two interest rate swaps with effective dates of June 23 and September 29, 2023 and an aggregate notional value of $200.0 million, of which $174.5 million is associated with our 2018 term loan facility, to effectively fix the interest rate on the $174.5 million at 5.23% annually.

The spread over SOFR is based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement.

(8) Effective interest rates are as follows:

VA – Golden 5.03%, USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%, USCIS – Kansas City 2.05%.

On January 26, 2023, we used $15.7 million of available cash to extinguish the mortgage note obligation on DEA – Pleasanton.

On February 3, 2023, we entered into three SOFR-based interest rate swaps each with a notional value of $100.0 million that were designated as cash flow hedges of interest rate risk.

Two of the interest rate swaps, with an aggregate notional value of $200.0 million, became effective in June 2023.

The third swap, with a notional value of $100.0 million, became effective in September 2023.

USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%.

Mortgage Notes Payable

On April 1, 2024, we used $8.4 million of available cash to extinguish the mortgage note obligation on VA – Golden.

On August 6, 2024, we used $51.5 million of available cash to extinguish the mortgage note obligation on USCIS – Kansas City.

2024 Senior Note Agreement

On May 29, 2024, we entered into a master note purchase agreement pursuant to which the Operating Partnership agreed to issue and sell an aggregate of up to $200 million of fixed rate, senior unsecured notes (“Senior Notes”) consisting of (i) 6.56% Series A Senior Notes due May 29, 2033 (“Series A Senior Notes”), in an aggregate principal amount of $150.0 million, and (ii) 6.56% Series B Senior Notes due August 14, 2033 (“Series B Senior Notes”), in an aggregate principal amount of $50.0 million.

The Series A Senior Notes were issued on May 29, 2024 and the Series B Senior Notes were issued on August 14, 2024.

We, together with various subsidiaries of the Operating Partnership, have guaranteed the Senior Notes.

2024 Revolving Credit Facility

On June 3, 2024, we entered into a credit agreement (the “2024 Credit Agreement”) that provides for the $400.0 million 2024 revolving credit facility which includes an accordion feature that provides us with additional capacity of up to $300.0 million, subject to syndication of the increase and the satisfaction of customary terms and conditions.

The 2024 revolving credit facility has an initial four-year term and will mature in June 2028, with two six-month as-of-right extension options, subject to certain conditions and the payment of an extension fee.

Borrowings under the 2024 revolving credit facility will, at the Operating Partnership's option, bear interest at floating rates equal to either (i) a fluctuating rate equal to the sum of (a) the highest of (x) Citibank, N.A.'s base rate, (y) the federal funds effective rate plus 0.50% and (z) the one-month adjusted term SOFR plus 1.00%, plus, in each case, (b) a margin ranging from 0.20% to 0.80% based on our leverage ratio, (ii) the daily simple SOFR plus a credit spread adjustment of 0.10% (the “Adjusted DSS”), or (iii) the term SOFR, plus a credit spread adjustment of 0.10% (the “Term SOFR”), plus, in the case of borrowings bearing interest at Adjusted DSS or Term SOFR, a margin ranging from 1.20% to 1.80% based on our leverage ratio.

2021 Revolving Credit Facility

We are also party to the second amended and restated credit agreement, dated July 23, 2021 (as amended, restated, or otherwise modified from time to time, the “2021 Credit Facility”), which provides for (i) a $450.0 million senior unsecured revolving credit facility (the “2021 revolving credit facility”) and (ii) our 2018 term loan facility.

In connection with the entry into the 2024 Credit Agreement on June 3, 2024, we repaid all amounts outstanding under and terminated the revolver portion of the 2021 Credit Facility, including all unused commitments.

Other than the foregoing, the terms of the 2021 Credit Facility remain unchanged and our 2018 term loan portion of the 2021 Credit Facility remains outstanding.

We recognized an aggregate $0.3 million loss on debt extinguishment during the twelve months ended December 31, 2024 which is included in Interest expense, net on our Consolidated Statement of Operations.

Term Loan Facilities

On January 23, 2024, we entered into the seventh amendment to the senior unsecured term loan agreement, dated as of September 29, 2016, that governs our 2016 term loan facility to extend the maturity date of our 2016 term loan facility from March 29, 2024 to January 30, 2025.

On June 3, 2024, we repaid $25.0 million of amounts outstanding under our 2018 term loan facility using available cash derived from the issuance of Series A Senior Notes.

On July 8, 2024, we used $0.5 million of available cash to pay down a portion of our 2018 term loan facility.

On July 15, 2024, we amended the credit agreements governing our 2016 and 2018 term loan facilities to conform certain definitions related to leverage covenants to the provisions of the 2024 Credit Agreement.

On December 23, 2024, we entered into three SOFR-based interest rate swaps with a total notional value of $100.0 million that were designated as cash flow hedges of interest rate risk.

The interest rate swaps became effective in December 2024 upon the maturity of our $100.0 million notional value interest rate swap on December 23, 2024.

For more information on our interest rate swaps, see Note 7 to the Consolidated Financial Statements.

On May 30, 2023, we entered into the third amendment to our second amended and restated credit agreement, dated as of July 23, 2021, and into the sixth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016.

These amendments added a daily simple SOFR-based option to the term SOFR-based floating interest rate option as a benchmark rate for borrowings denominated in U.S.

dollars for all purposes under the credit and term loan agreements, including, in each case, a credit spread adjustment of 0.10%.

On July 20, 2023, we exercised in full the $50.0 million delayed draw option on our 2018 term loan facility, increasing our 2018 term loan facility commitments from $150.0 million to $200.0 million, and transferred $50.0 million of our interest rate swap with a notional value of $100.0 million from our revolving credit facility to the $50.0 million delayed draw.

On January 2, 2024, the margin spreads under our credit facility agreement were reduced by 1 basis point as a result of achieving our sustainability metric percentage.

On January 23, 2024, we entered into the seventh amendment to our senior unsecured term loan agreement, dated as of September 29, 2016, to extend the maturity date of our 2016 term loan facility from March 29, 2024 to January 30, 2025.

On January 8, 2025, we entered into the ninth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016, to extend the maturity date of our 2016 term loan facility from January 30, 2025 to January 28, 2028.

See Note 6 to the Consolidated Financial Statements for additional information on our 2024 revolving credit facility, our 2018 term loan facility and our 2016 term loan facility.

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% Secured debt

(1) Our 2016 term loan facility and 2018 term loan facility are swapped to be fixed and as such are included as fixed rate debt in the table above.

(1) Our 2016 term loan facility and 2018 term loan facility are swapped to be fixed and as such are included as fixed rate debt in the table above and $25.5 million of the 2024 revolving credit facility.

Material Cash Commitments

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(1) Due to the long-term nature of certain construction and development contracts included in this line, the amounts reported in the table represent our estimate of the timing for the related obligations being paid .

Additionally, we have a commitment to fund $5.0 million of advancements through a loan receivable.

These commitments are expected to be funded over the next year and are dependent upon the borrower’s election to use the commitments.

As of December 31, 2024, we have a commitment to fund $52.1 million through a loan receivable that will accrue interest monthly at a fixed market rate of 9.00% per annum.

As of December 31, 2024 and the date of this Annual Report on Form 10-K, the outstanding balance of the loan receivable was $35.1 million and $41.4 million, respectively.

We expect to fund the remaining commitment through the anticipated maturity of the loan on August 31, 2027, depending on the borrower's election to use the commitments.

For a more complete description of the real estate loan receivable, see Note 5 to the Consolidated Financial Statements.

Unconsolidated Real Estate Venture

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April 25, 2024

August 2, 2023

July 17, 2024

August 1, 2024

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March 17, 2025

We use long-term investment partnership units in our operating partnership, which we refer to herein as LTIP units, as a form of performance-based award and service-based award for annual long-term incentive equity compensation.

We use long-term investment partnership units in our operating partnership (“LTIP units”), which we refer to herein as LTIP units, as a form of performance-based award and service-based award for annual long-term incentive equity compensation.

LTIP units are convertible into common units upon the satisfaction of certain conditions.

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We generated $162.6 million and $114.5 million of cash from operating activities during the years ended December 31, 2024 and 2023, respectively.

Net cash provided by operating activities for the year ended December 31, 2024 included $107.0 million in net cash from rental activities net of expenses, $43.5 million related to the changes in tenant accounts receivables, prepaid expense and other assets, real estate loan interest receivable, deferred revenue associated with operating leases, principal payments on operating lease obligations and accounts payable, accrued expenses and other liabilities and distributions from investment in unconsolidated real estate venture of $12.1 million.

Net cash provided by operating activities for the year ended December 31, 2023 included $101.7 million in net cash from rental activities net of expenses, distributions from investment in unconsolidated real estate venture of $10.2 million and $2.6 million related to the changes in tenant accounts receivables, prepaid expense and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations and accounts payable, accrued expenses and other liabilities.

Net cash provided by operating activities for the year ended December 31, 2022 included $121.4 million in net cash from rental activities net of expenses and distributions from investment in unconsolidated real estate venture of $6.4 million offset by $1.9 million related to the changes in tenant accounts receivables, prepaid expense and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations and accounts payable, accrued expenses and other liabilities.

Investing Activities

We used $409.6 million and $127.0 million in cash for investing activities during the years ended December 31, 2024 and 2023, respectively.

Net cash used in investing activities for the year ended December 31, 2024 primarily included $188.1 million in real estate acquisitions and deposits, $116.0 million in additions to development properties, $40.1 million in investment in unconsolidated real estate venture, $35.4 million in additions to operating properties, and $34.2 million in investment in real estate loan receivable, net, offset by $2.2 million in proceeds from sale, net and $2.0 million in distributions from investment in unconsolidated real estate venture.

Net cash used in investing activities for the year ended December 31, 2023 primarily included $63.4 million in real estate acquisitions and deposits, $28.1 million in additions to operating properties, $17.8 million in additions to development properties and $17.7 million in investment in unconsolidated real estate venture, offset by $0.1 million in distributions from investment in unconsolidated real estate venture.

Net cash used in investing activities for the year ended December 31, 2022 primarily included $143.8 million in investment in unconsolidated real estate venture, $93.7 million in real estate acquisitions and deposits, $22.6 million in additions to operating properties and $12.4 million in additions to development properties, offset by $202.4 million in proceeds from sale of operating properties, net and $1.0 million in distributions from investment in unconsolidated real estate venture.

Financing Activities

We generated $17.2 million and used $59.7 million in cash from financing activities during the years ended December 31, 2023 and 2022, respectively.

Net cash generated in financing activities for the year ended December 31, 2023 included $112.4 million in dividends, $20.0 million in mortgage debt repayment and $0.4 million in payment of deferred offering costs offset by $86.5 million in gross proceeds from issuance of shares of our common stock, $50.0 million delayed draw on our 2018 term loan and $13.5 million in net draws under the revolving credit facility.

Net cash used by financing activities for the year ended December 31, 2022 included $109.2 million in dividends, $10.9 million in mortgage debt repayment, and $0.1 million in payment of deferred offering costs offset by $51.0 million in net draws under the revolving credit facility and $9.5 million in gross proceeds from issuance of shares of our common stock.

We generated $252.9 million and $17.2 million in cash from financing activities during the years ended December 31, 2024 and 2023, respectively.

Net cash generated in financing activities for the year ended December 31, 2024 included $200.0 million in note payable issuances, $195.6 million in net draws under the revolving credit facility, and $71.8 million in gross proceeds from issuance of shares of our common stock offset by $115.9 million in dividends, $64.3 million in mortgage debt repayment, $25.5 million in term loan repayments, $7.9 million in deferred financing costs and $0.9 million in the payment of deferred offering costs.

Net cash generated by financing activities for the year ended December 31, 2023 included $86.5 million in gross proceeds from issuance of shares of our common stock, $50.0 million delayed draw on our 2018 term loan and $13.5 million in net draws under the revolving credit facility offset by $112.4 million in dividends, $20.0 million in mortgage debt repayment and $0.4 million in the payment of deferred offering costs.

Comparison of Cash Flow for the Years Ended December 31, 2023 and December 31, 2022

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We present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.

We adjust FFO to present Core FFO as an alternative measure of our operating performance, which, when applicable, excludes items which we believe are not representative of ongoing operating results, such as liability management related costs (including losses on extinguishment of debt and modification costs), catastrophic event charges, depreciation of non-real estate assets, and the unconsolidated real estate venture’s allocated share of these adjustments.

We adjust FFO to present Core FFO as an alternative measure of our operating performance, which, when applicable, excludes items which we believe are not representative of ongoing operating results, such as liability management related costs (including losses on extinguishment of debt and modification costs), provision for credit losses, catastrophic event charges, depreciation of non-real estate assets, and the unconsolidated real estate venture’s allocated share of these adjustments.

In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results.

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Loss on extinguishment of debt

Provision for credit losses

Natural disaster event expense, net of recovery

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Factors That May Influence Future Results of Operations

Our revenues primarily arise from the rental of space to tenants in our properties and tenant reimbursements, which include reimbursement for operating expenses, which are determined by the base year operating expenses and are subject to reimbursement in subsequent years based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Our revenues primarily arise from the rental of space to tenants in our properties and tenant reimbursements, which include reimbursement for operating expenses, which are determined by the base year operating expenses and are subject to reimbursement in subsequent years largely based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Our revenue also includes amounts due from tenants for real estate taxes, projects and other reimbursements.

Real estate taxes over the base year are reimbursed by the tenant.

Substantially all of our rental income comes from U.S.

Over 90% of our rental income comes from U.S.

Government tenants.

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Development Activities

As of December 31, 2023, we had one property under development.

As of December 31, 2024, we had two properties under development.

We intend to continue to engage in development and redevelopment activities with respect to our properties, including build-to-suit new developments and redevelopments for existing U.S.

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A change in any of the above key assumptions can materially change not only the presentation of acquired properties in our consolidated financial statements but also our reported results of operations.

We completed acquisitions of three wholly owned properties for an aggregate purchase price of $63.1 million during the year ended December 31, 2023.

We completed acquisitions of ten wholly owned properties for an aggregate purchase price of $184.9 million during the year ended December 31, 2024.

We completed acquisitions of three wholly owned properties for an aggregate purchase price of $63.1 million during the year ended December 31, 2023.

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There is no assurance that we will sell ICE – Otay on the terms proposed or at all.

The remeasurement resulted in an impairment loss of $5.5 million, which is included in "Impairment loss" in our Consolidated Statements of Operations.

As of December 31, 2023, no impairment related to our long-lived assets was identified.

The remeasurement resulted in an impairment loss of $5.5 million, which is included in "Impairment loss" in our Consolidated Statements of Operations for the year ended December 31, 2022.

As of December 31, 2024 and 2023, no impairment related to our long-lived assets was identified.

Impairment of Unconsolidated Real Estate Venture

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As of December 31, 2023, the carrying amount of our investment in our unconsolidated real estate venture was $284.5 million, or approximately 9.9% of our total assets.

During the year ended December 31, 2023 and 2022, no other-than-temporary impairment related to our unconsolidated real estate venture was identified.

During the years ended December 31, 2024 and 2023, no other-than-temporary impairment related to our unconsolidated real estate venture was identified.

Loan Receivable and Allowance for Credit Losses

The measurement of expected credit losses under the current expected credit loss (“CECL”) methodology (“ASU 2016-13”) is applicable to our financial assets measured at amortized cost, including loan receivables and certain off-balance sheet credit exposures such as unfunded loan commitments.

We adopted this standard on January 1, 2020 and apply this methodology to our loan receivables and off-balance sheet credit exposure.

To determine our expected credit losses under CECL, we utilize a probability of default (“PD”) and loss given default (“LGD”) methodology.

We determined that we have one portfolio segment and reserve for loan losses on an asset-specific basis.

We have a limited history of incurred losses and consequently have elected to employ external data to perform our CECL calculation.

Our model's inputs consider a default grade or industry relative default grade associated with the borrower and prospective tenant funding the development to determine an appropriate default risk and allowance for credit loss under the PD and LGD methodology.

If a reserve is recorded, the allowance is increased as a provision for credit losses and is decreased by charge-offs when losses are confirmed through the receipt of assets such as cash or via ownership control of the underlying collateral in full.

The allowance for loan losses reflects management's estimate of loan losses as of the balance sheet date.

Quantitative and Qualitati ve Disclosures About Market Risk

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Our objective when undertaking such arrangements will be to reduce our floating rate exposure and we do not intend to enter into hedging arrangements for speculative purposes.

As of December 31, 2023, $1.2 billion, or 93.9% of our debt, excluding unamortized premiums and discounts, had fixed interest rates and $79.0 million, or 6.1%, had variable interest rates based on SOFR.

As of December 31, 2024, $1.4 billion, or 84.5% of our debt, excluding unamortized premiums and discounts, had fixed interest rates or rates effectively fixed through interest rate swaps and $249.1 million, or 15.5%, had variable interest rates based on SOFR.

If market rates of interest on our variable rate debt fluctuate by 25 basis points, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows, by $0.6 million annually.

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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 7. Management’s Discussion and Analysis