What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-17 compared with 2022-02-18 · 92 added, 15 removed, 376 unchanged (22% of the section changed)

5 unchanged sentences

For cautions about relying on forward-looking statements see “Forward Looking Statements” at the beginning of this Report.

Our risk factors are grouped into the following categories:

Below is a summary of our risk factors:

Risks Related to Our Properties and Our Business

• The COVID-19 global pandemic has and could continue to adversely affect our business, financial position, results of operations, cash flows, our ability to service our debt, our ability to pay dividends to our stockholders, our REIT status, our ability to capitalize on business opportunities as they arise, our ability to raise capital, and/or the market price of our common stock.

• Persistent higher inflation could adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock.

• All of our properties are located in Los Angeles County, California, and Honolulu, Hawaii, and we are therefore exposed to greater risk than if we owned a more geographically diverse portfolio.

Our properties in Los Angeles County are concentrated in certain submarkets, exposing us to risks associated with those specific areas.

• Our operating performance is subject to risks associated with the real estate industry.

• We have a substantial amount of debt, which exposes us to interest rate fluctuation risk and the risk of not being able to refinance our debt, which in turn could expose us to the risk of default under our debt obligations.

• The rents we receive from new leases may be less than our asking rents, and we may experience rent roll-down from time to time.

• In order to successfully compete against other properties, we need to maintain, repair, and renovate our properties, which reduces our cash flows.

• We face intense competition, which could adversely impact the occupancy and rental rates of our properties.

• Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance.

• We may be unable to renew leases or lease vacant space.

• Our business strategy for our office portfolio focuses on leasing to smaller-sized tenants which may present greater credit risks.

• Real estate investments are generally illiquid.

• We may incur significant costs to comply with laws, regulations and covenants.

• Because we own real property, we are subject to extensive environmental regulations, which create uncertainty regarding future environmental expenditures and liabilities.

• Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.

• Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.

• We may be unable to complete acquisitions that would grow our business, or successfully integrate and operate acquired properties.

• We may be unable to successfully expand our operations into new markets and submarkets.

• We are exposed to risks associated with property development.

• We are exposed to certain risks when we enter into JVs or issue securities of our subsidiaries, including our Operating Partnership.

• If we default on the ground lease to which one of our properties is subject, our business could be adversely affected.

• We may not have sufficient cash available for distribution to stockholders at expected levels in the future.

• We face risks associated with contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control.

• Terrorism and war could harm our business and operating results.

Risks Related to Our Organization and Structure

• Tax consequences to holders of OP Units upon a sale or refinancing of our properties may cause the interests of our executive officers to differ from the interests of our stockholders.

• Our executive officers have significant influence over our affairs.

• Under their employment agreements, certain of our executive officers will receive severance if they are terminated without cause or resign for good reason.

• The loss of any of our executive officers or key senior personnel could significantly harm our business.

• Compensation awards to our management may not be tied to or correspond with improved financial results or the market price of our common stock.

• Our board of directors may change significant corporate policies without stockholder approval.

• Our growth depends on external sources of capital which are outside of our control.

• We face risks associated with short-term liquid investments.

• Our charter, the partnership agreement of our Operating Partnership, and Maryland law contain provisions that may delay or prevent a change of control transaction.

• Our fiduciary duties as the sole stockholder of the general partner of our Operating Partnership could create conflicts of interest.

Risks Related to Taxes and Our Status as a REIT

• Our property taxes could increase due to property tax rate changes, reassessments or changes in property tax laws, which would adversely impact our cash flows.

• Failure to qualify as a REIT would result in higher taxes and reduced cash available for distributions.

• If the Operating Partnership, or any of its subsidiaries, were treated as a regular corporation for federal income tax purposes, we could cease to qualify as a REIT.

• Even if we qualify as a REIT, we will be required to pay some taxes which would reduce cash available for distributions.

• REIT distribution requirements could adversely affect our liquidity and cause us to forego otherwise attractive opportunities.

• REIT stockholders can receive taxable income without cash distributions.

• 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 a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis .

• Legislative or other actions affecting REITs could have a negative effect on our investors or us, including our ability to maintain our qualification as a REIT or the federal income tax consequences of such qualification.

investors may be subject to FIRPTA, which would impose tax on certain distributions and on the sale of common stock if we are unable to qualify as a “domestically controlled” REIT or if our stock is not considered to be regularly traded on an established securities market.

General Risks

• Security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our IT networks and related systems could harm our business.

• Litigation could have an adverse effect on our business.

• If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results.

• New accounting pronouncements could adversely affect our operating results or the reported financial performance of our tenants.

Risks Related to Our Properties and Our Business

2 unchanged sentences

The extent to which the pandemic ultimately impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of each variant, 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.

Even if the pandemic subsides, we may continue to experience significant impacts to our business as a result of its global economic impact, including any resulting economic recession.

Not all of the impacts of the pandemic can be predicted at this time, however, some of the potential impacts from the pandemic could include:

Even as the pandemic subsides, we may continue to experience significant impacts to our business as a result of its global economic impact, including any resulting economic recession.

Not all of the impacts of the pandemic are known at this time, however, some of the potential impacts from the pandemic could include:

• Government actions, including but not limited to lease enforcement moratoriums, that reduce or otherwise hinder our ability to collect rent promptly or at all, adversely affect tenant demand, increase our costs or otherwise reduce our collections;

9 unchanged sentences

• Increases in the cost or availability, or changes to the terms, of insurance.

Persistent higher inflation could adversely impact our operating results, cash flows, financial position, our ability to pay dividends and distributions, and the market price of our common stock.

Some of the potential adverse impacts of higher inflation on our business could include:

• an increase in our rental operating costs and our general and administrative costs;

• we may be unable to increase rental rates at the same rate as inflation;

• if we are able to increase rental rates at the same rate as inflation, it could reduce tenant demand for our properties;

• we may be unable to recover higher rental operating costs from our office tenants;

• higher operating costs billed to our office tenants could reduce tenant demand for our office properties;

• higher inflation is usually accompanied by higher interest rates, which could:

(i) increase our borrowing costs, (ii) adversely impact our property valuations, and (iii) cause an economic recession which would adversely affect our business;

• an increase in recurring capital expenditures to maintain our properties;

• an increase in construction costs, which would increase the cost of development and respositioning projects;

• reduced cash flows would adversely impact our ability to pay dividends and distributions.

All of our properties are located in Los Angeles County, California, and Honolulu, Hawaii, and we are therefore exposed to greater risk than if we owned a more geographically diverse portfolio.

10 unchanged sentences

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

• reduced tenant demand for office space and residential units from matters such as (i) trends in space utilization, (ii) changes in the relative popularity of our properties, (iii) the type of space we provide or (iv) purchasing versus leasing;

• reduced demand for parking space due to the impact of technology such as self driving cars, and the increasing popularity of car ride sharing services;

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

(i) trends in space utilization, (ii) changes in the relative popularity of our properties, (iii) the type of space we lease, (iv) purchasing versus leasing, (v) increasing crime or homelessness in our submarkets or (vi) economic recessions;

• reduced demand for parking space due to matters such as:

(i) reduced attendance in our buildings, (ii) the impact of technology such as self-driving cars, or (iii) the increasing popularity of car ride sharing services;

• increases in the supply of office space and residential units;

• fluctuations in interest rates and the availability of credit, which could adversely affect our ability to obtain financing on favorable terms or at all;

• increases in expenses (or our reduced ability to recover expenses from our tenants), including insurance costs, labor costs (such as the unionization of our employees or the employees of any parties with whom we contract for services to our buildings), energy prices, real estate assessments and other taxes, as well as costs of compliance with laws, regulations and governmental policies;

• increases in operating costs (or our reduced ability to recover operating costs from our tenants), including:

(i) insurance costs, (ii) labor costs (such as the unionization of our employees or the employees of any parties with whom we contract for services to our buildings), (iii) energy prices, (iv) real estate assessments and other taxes, and (v) costs of compliance with laws, regulations and governmental policies;

• utility disruptions;

10 unchanged sentences

Our substantial indebtedness, and the limitations and other constraints imposed on us by our debt agreements, especially during economic downturns when credit is harder to obtain, could adversely affect us, including the following:

• periods of rising and high interest rates would adversely affect:

(i) our results of operations, (ii) our ability to pay dividends and distributions, (iii) the market price of our common stock, and (iv) our ability to borrow or to borrow on favorable terms;

• our cash flows may be insufficient to meet our required principal and interest payments;

9 unchanged sentences

• any foreclosure on our properties could also create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the REIT distribution requirements imposed by the Code;

• most of our floating rate debt and related hedges are indexed to USD-LIBOR, any regulatory changes which impact the USD-LIBOR benchmark, such as the transition to the Secured Overnight Financing Rate (see Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in this Report) or other indexes, could impact our borrowing costs or the effectiveness of our hedges.

• most of our floating rate debt and related hedges are indexed to USD-LIBOR, any regulatory changes which impact the USD-LIBOR benchmark, such as the transition to SOFR (see Item 7A - "Quantitative and Qualitative Disclosures about Market Risk" in this Report) or other indexes, could impact our borrowing costs or the effectiveness of our hedges.

The rents we receive from new leases may be less than our asking rents, and we may experience rent roll-down from time to time.

9 unchanged sentences

Our business operations in Los Angeles County, California and Honolulu, Hawaii are susceptible to, and could be significantly affected by, adverse weather conditions and natural disasters such as earthquakes, tsunamis, hurricanes, volcanoes, drought, wind, floods, landslides and fires.

The likelihood of such disasters may be increased as a result of climate changes, and climate changes could also have other impacts such as rising sea levels, which could impact our properties in Honolulu.

The likelihood of such disasters may be increased as a result of climate change, and climate change could also have other impacts such as rising sea levels, which could impact our properties in Honolulu.

Adverse weather conditions, natural disasters and climate change impacts could cause significant damage to our properties or to the economies of the regions in which they are located, the risk of which is enhanced by the concentration of our properties’ locations.

35 unchanged sentences

Such laws and regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties.

Among other things, these restrictions may relate to fire and safety, seismic, asbestos-cleanup or hazardous material abatement requirements.

Among other things, these restrictions may relate to fire and safety, seismic, asbestos abatement or hazardous material cleanup requirements.

There can be no assurance that existing laws and regulations will not adversely affect us or the timing or cost of any future acquisitions, developments or renovations, or that additional regulations that increase such delays or result in additional costs will not be adopted.

4 unchanged sentences

Environmental laws regulate, and impose liability for, releases of hazardous or toxic substances into the environment.

Under various provisions of these laws, an owner or operator of real estate may be liable for costs related to soil or groundwater contamination on, in, or migrating to or from its property.

Under various provisions of these laws, a current or former owner or operator of real estate may be liable for costs related to soil or groundwater contamination on, in, or migrating to or from its property.

Persons who arrange for the disposal or treatment of hazardous or toxic substances may be liable for the costs of cleaning up contamination at the disposal site.

Such laws often impose liability regardless of whether the person knew of, or was responsible for, the presence of the hazardous or toxic substances that caused the contamination.

In addition, some laws may create a lien on a contaminated site in favor of the government for damages and costs it incurs in connection with the contamination.

The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent our property or to borrow using the property as collateral.

Persons exposed to hazardous or toxic substances may sue for personal injury damages, for example, some laws impose liability for release of or exposure to asbestos-containing materials, a substance known to be present in a number of our buildings.

Persons exposed to hazardous or toxic substances at our properties may sue for personal injury damages, for example, some laws impose liability for release of or exposure to asbestos-containing materials, a substance known to be present in a number of our buildings.

In other cases, some of our properties have been (or may have been) impacted by contamination from past operations or from off-site sources.

As a result, in connection with our current or former ownership, operation, management and development of real properties, we may be potentially liable for investigation and cleanup costs, penalties, and damages under environmental laws.

Although most of our properties have been subjected to preliminary environmental assessments, known as Phase I assessments, by independent environmental consultants that identify certain liabilities, Phase I assessments are limited in scope, and may not include or identify all potential environmental liabilities or risks associated with the property.

Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the liabilities disclosed in the Phase I assessments.

Although most of our properties have been subjected to preliminary environmental assessments, known as Phase I assessments, by independent environmental consultants in order to identify potential environmental concerns, Phase I assessments are limited in scope, and may not identify all potential environmental liabilities or risks associated with the property.

For example, a prior owner or operator of a property or historical operations at or near our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the Phase I assessments.

Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the environmental conditions identified in the Phase I assessments.

We cannot assure that these or other environmental studies identified all potential environmental liabilities, or that we will not incur material environmental liabilities in the future.

1 unchanged sentence

See Note 17 to our consolidated financial statements in Item 15 of this Report for more detail regarding our buildings that contain asbestos.

In addition, we may incur costs to comply with federal, state and local legislation and regulations that are implemented to mitigate the effects of climate change.

The costs of complying with evolving regulatory requirements could negatively impact our results of operations.

Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediation.

Moisture may accumulate in buildings or on building materials, and mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time.

Some molds may produce airborne toxins or irritants.

Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria.

Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions.

As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation.

In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury is alleged to have occurred.

Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.

161 unchanged sentences

As a result of the above factors, our failure to qualify as a REIT could impair our ability to raise capital and expand our business, substantially reduce distributions to stockholders, result in us incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes, and adversely affect the market price of our common stock.

Our Fund, and two of our consolidated JVs, also own properties through one or more entities which are intended to qualify as REITs, and we may in the future use other structures that include REITs.

Our Fund, and three of our consolidated JVs, also own properties through one or more entities which are intended to qualify as REITs, and we may in the future use other structures that include REITs.

The failure of any such entities to qualify as a REIT could have similar consequences to the REIT subsidiary and could also cause us to fail to qualify as a REIT.

45 unchanged sentences

real property interests or USRPIs is generally subject to a tax, known as FIRPTA tax, on the gain recognized on the disposition.

Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is a “domestically controlled qualified investment entity.” A domestically controlled qualified investment entity includes a REIT in which, at all times during a specified testing period, less than 50% of the value of its shares is held directly or indirectly by non-U.S.

Such FIRPTA tax does not apply, however, to the disposition of stock in a REIT if the REIT is a “domestically controlled qualified investment entity”.

A domestically controlled qualified investment entity includes a REIT in which, at all times during a specified testing period, less than 50% of the value of its shares is held directly or indirectly by non-U.S.

In the event that we do not constitute a domestically controlled qualified investment entity, a non-U.S.

41 unchanged sentences

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