What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-02-09 compared with 2020-02-04 · 104 added, 55 removed, 245 unchanged (39% of the section changed)

2 unchanged sentences

If any of these risks actually occur, our business, results of operations, prospects and financial condition could be adversely affected.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic and its ongoing impact on the U.S.

economy could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets.

The spread of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity, including initially causing a worldwide economic recession, and has contributed to significant volatility in financial markets.

The global impact of the pandemic has been rapidly evolving and many countries, including the United States, continue to react by instituting stay-at-home orders, restricting many business and travel activities, mandating the partial or complete closures of certain business and schools and taking other actions to mitigate the spread of the virus, most of which have a negative effect on economic activity, including the use of and demand for office space.

Many private businesses, including some of our customers, have recommended certain of their employees to continue to work from home or are rotating employees in and out of the office to encourage social distancing in the workplace.

Due to these events, during 2020, the usage of our assets was significantly lower and, as a result, parking and parking-related revenues were lower during this period.

We cannot predict when, if and to what extent these restrictions and other actions will end and when, if and to what extent economic activity, including the use of and demand for office space, will return to pre-COVID-19 levels.

The COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which we and our customers operate.

A number of our customers have requested rent relief during this pandemic.

We have also incurred and may in the future incur losses due to customers that default on their leases, file bankruptcy and/or otherwise experience significant financial difficulty as a result of the COVID-19 pandemic.

In 2020, such losses totaled $4.5 million, consisting of lost rental revenues resulting from customers that filed bankruptcy or otherwise irrevocably defaulted on their leases and non-cash credit losses of straight-line rent receivables.

Of the straight-line rent receivable credit losses incurred during 2020, $1.3 million were due to the conversion of fixed rent leases to percentage rent leases for certain customers that remain in occupancy but have been impacted by social distancing measures.

In addition, many of our employees are currently working remotely.

An extended period of work-from-home arrangements involving our employees could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.

The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

• a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or customer action;

• the reduced economic activity could severely impact our customers’ businesses, financial condition and liquidity and may cause one or more of our customers to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

• the reduced economic activity could negatively impact our prospects for leasing additional space and/or renewing leases with existing customers;

• severe disruption and instability in the global financial markets, negative impacts to our credit ratings and deteriorations in credit and financing conditions may affect our ability to access debt and equity capital on attractive

terms, or at all, resulting in an inability to fund our business operations, including funding our development pipeline or addressing maturing liabilities on a timely basis, and such an environment may affect our customers’ ability to fund their business operations and meet their obligations to us;

• the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our revolving credit facility and other debt agreements and result in a default and potentially an acceleration of repayment of indebtedness, which in turn could negatively impact our ability to make additional borrowings under our revolving credit facility and pay dividends, among other things;

• weaker economic conditions due to the pandemic could require us to recognize future impairment losses;

• a deterioration in our or our customers’ ability to operate in affected areas or delays in the supply of products or services to us or our customers from vendors that are needed for our or our customers’ operations could adversely affect our operations and those of our customers;

• potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, could materially and negatively impact the future demand for office space over the long-term even after the pandemic subsides;

• the potential negative impact on the health of our employees, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

The extent to which the COVID-19 pandemic impacts our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its resulting impact on economic activity, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic, social and behavioral effects of the pandemic and containment measures, among others.

Financial difficulties experienced by our customers, including the potential for bankruptcies or other early terminations of their leases, could reduce our cash flows, which could impact our ability to continue paying dividends to our stockholders at expected levels or at all.

The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic.

Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance.

Moreover, many of the other risk factors set forth in this Annual Report should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

Risks Related to our Operations

Adverse economic conditions in our markets that negatively impact the demand for office space, such as high unemployment, may result in lower occupancy and rental rates for our portfolio, which would adversely affect our results of operations .

5 unchanged sentences

In addition, the timing of changes in occupancy levels tends to lag the timing of changes in overall economic activity and employment levels.

Occupancy in our office portfolio decreased from 92.0% at December 31, 2019 to 90.3% at December 31, 2020.

Average occupancy in 2021 will be lower, perhaps significantly lower, if the COVID-19 pandemic causes vacancies and move-outs due to (a) customers that default on their leases, file bankruptcy or otherwise experience significant financial difficulty and/or (b) potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, which could materially and negatively impact the future demand for office space over the long-term.

Further, given the COVID-19 pandemic and its impact on economic activity, we have been experiencing slower speculative new leasing and we expect that trend will continue in 2021.

For additional information regarding our average occupancy and rental rate trends over the past five years, see “Item 2.

20 unchanged sentences

A default by a significant customer on its lease payments would cause us to lose the revenue and any other amounts due under such lease.

In the event of a customer default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur substantial costs re-leasing the property.

In the event of a customer default or bankruptcy (including as a result of the COVID-19 pandemic), we may experience delays in enforcing our rights as landlord and may incur substantial costs re-leasing the property.

We cannot evict a customer solely because of its bankruptcy.

10 unchanged sentences

As a result, we may from time to time make significant capital expenditures to maintain or enhance the competitiveness of our properties.

There can be no assurances that any such expenditures would result in higher occupancy or higher rental rates or deter existing customers from relocating to properties owned by our competitors.

be no assurances that any such expenditures would result in higher occupancy or higher rental rates or deter existing customers from relocating to properties owned by our competitors.

Costs of complying with governmental laws and regulations may adversely affect our results of operations .

22 unchanged sentences

Increases in same property operating expenses would adversely affect our results of operations unless offset by higher rental rates, higher cost recovery income, the impact of any newly acquired or developed properties, lower general and administrative expenses and/or lower interest expense.

Natural disasters and climate change could have an adverse impact on our cash flow and operating results.

Climate change may add to the unpredictability and frequency of natural disasters and severe weather conditions and create additional uncertainty as to future trends and exposures.

Many of our buildings are located in areas that are subject to natural disasters and severe weather conditions such as hurricanes, earthquakes, droughts, snow storms, floods and fires.

The impact of climate change or the occurrence of natural disasters can delay new development projects, increase investment costs to repair or replace damaged properties, increase operating costs, create additional investment costs to make improvements to existing properties to comply with climate change regulations, increase future property insurance costs and negatively impact the demand for office space.

Our insurance coverage on our properties may be inadequate.

We carry insurance on all of our properties, including insurance for liability, fire, windstorms, floods, earthquakes, environmental concerns and business interruption.

Insurance companies, however, limit or exclude coverage against certain types of losses, such as losses due to terrorist acts, named windstorms, earthquakes and toxic mold.

Thus, we may not have insurance coverage, or sufficient insurance coverage, against certain types of losses and/or there may be decreases in the insurance coverage available.

Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a property or properties, as

well as the anticipated future operating income from the property or properties.

If any of our properties were to experience a catastrophic loss, it could disrupt our operations, delay revenue, result in large expenses to repair or rebuild the property and/or damage our reputation among our customers and investors generally.

Further, if any of our insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection.

In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms.

Such events could adversely affect our results of operations and financial condition.

We have obtained title insurance policies for each of our properties, typically in an amount equal to its original purchase price.

However, these policies may be for amounts less than the current or future values of our properties, particularly for land parcels on which we subsequently construct a building.

In such event, if there is a title defect relating to any of our properties, we could lose some of the capital invested in and anticipated profits from such properties.

Failure to comply with Federal government contractor requirements could result in substantial costs and loss of substantial revenue.

We are subject to compliance with a wide variety of complex legal requirements because we are a Federal government contractor.

These laws regulate how we conduct business, require us to administer various compliance programs and require us to impose compliance responsibilities on some of our contractors.

Our failure to comply with these laws could subject us to fines and penalties, cause us to be in default of our leases and other contracts with the Federal government and bar us from entering into future leases and other contracts with the Federal government.

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

We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems.

The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems) and, in some cases, may be critical to the operations of certain of our customers.

Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, 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.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.

A security breach or other significant disruption involving our IT networks and related systems could:

• disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers;

• result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;

• result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;

• result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes;

• result in our inability to maintain the building systems relied upon by our customers for the efficient use of their leased space;

• require significant management attention and resources to remedy any damages that result;

• subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements;

• damage our reputation among our customers and investors generally.

Additionally, we face potential heightened cybersecurity risks during the COVID-19 pandemic as our level of dependence on our IT networks and related systems increases, stemming from employees working remotely, and the number of malware campaigns and phishing attacks preying on the uncertainties surrounding the COVID-19 pandemic increases.

These heightened cybersecurity risks may increase our vulnerability to cyber attacks and cause disruptions to our internal control procedures.

Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.

Risks Related to our Capital Recycling Activity

Recent and future acquisitions and development properties may fail to perform in accordance with our expectations and may require renovation and development costs exceeding our estimates.

21 unchanged sentences

We also cannot predict the length of time needed to find a willing purchaser and close the sale of a property.

Certain of our properties have low tax bases relative to their estimated current market values, and accordingly, the sale of such assets would generate significant taxable gains unless we sold such properties in a tax-deferred exchange under Section 1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction.

1031 of the Internal Revenue Code or another tax-free or tax-deferred transaction.

For an exchange to qualify for tax-deferred treatment under Section 1031, the net proceeds from the sale of a property must be held by an escrow agent until applied toward the purchase of real estate qualifying for gain deferral.

5 unchanged sentences

Our use of joint ventures may limit our flexibility with jointly owned investments .

In appropriate circumstances, we own, develop and acquire properties in joint ventures with other persons or entities when circumstances warrant the use of these structures.

From time to time, we own, develop and acquire properties in joint ventures with other persons or entities when circumstances warrant the use of these structures.

Types of joint venture investments include noncontrolling ownership interests in entities such as partnerships and limited liability companies and tenant-in-common interests in which we own less than 100% of the undivided interests in a real estate asset.

5 unchanged sentences

• our joint venture partners may be structured differently than us for tax purposes, which could create conflicts of interest;

our joint venture partners may have competing interests in our markets that could create conflicts of interest.

Our insurance coverage on our properties may be inadequate.

We carry insurance on all of our properties, including insurance for liability, fire, windstorms, floods, earthquakes, environmental concerns and business interruption.

Insurance companies, however, limit or exclude coverage against certain types of losses, such as losses due to terrorist acts, named windstorms, earthquakes and toxic mold.

Thus, we may not have insurance coverage, or sufficient insurance coverage, against certain types of losses and/or there may be decreases in the insurance coverage available.

Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a property or properties, as well as the anticipated future operating income from the property or properties.

In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms.

Such events could adversely affect our results of operations and financial condition.

We have obtained title insurance policies for each of our properties, typically in an amount equal to its original purchase price.

However, these policies may be for amounts less than the current or future values of our properties, particularly for land parcels on which we subsequently construct a building.

In such event, if there is a title defect relating to any of our properties, we could lose some of the capital invested in and anticipated profits from such property.

• we or our joint venture partners may have competing interests in our markets that could create conflicts of interest.

Risks Related to our Financing Activities

Our use of debt could have a material adverse effect on our financial condition and results of operations.

10 unchanged sentences

We may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration.

If any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow and ability to pay distributions.

If any refinancing is done at higher interest rates, the increased interest expense would adversely affect our cash flow and ability to pay distributions.

Any such refinancing could also impose tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding new development activity, making opportunistic acquisitions, repurchasing our securities or paying distributions.

While we do not currently have significant amounts of mortgage debt, we may in the future mortgage additional properties, which could also restrict our ability to sell any such underlying assets.

While we do not currently have significant amounts of mortgage debt, we may in the future mortgage additional

properties, which could also restrict our ability to sell any such underlying assets.

If we do not meet any such mortgage financing obligations, any properties securing such indebtedness could be foreclosed on.

6 unchanged sentences

We may incur additional variable rate debt in the future.

If interest rates increase, then so would the interest expense on our unhedged variable rate debt, which could adversely affect our

financial condition and results of operations.

If interest rates increase, then so would the interest expense on our unhedged variable rate debt, which would adversely affect our financial condition and results of operations.

From time to time, we manage our exposure to interest rate risk with interest rate hedge contracts that effectively fix or cap a portion of our variable rate debt.

7 unchanged sentences

Our revolving credit facility and bank term loans bear interest at a spread above LIBOR.

In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

The Financial Conduct Authority (“FCA”) that regulates LIBOR intends to stop compelling banks to submit rates for the calculation of LIBOR at some point in the future.

As a result, a committee formed by the Federal Reserve Board and the Federal Reserve Bank of New York identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in financial contracts.

2 unchanged sentences

If our revolving credit facility and/or any of our bank term loans are not transitioned to a satisfactory alternative rate and LIBOR is discontinued, the interest rates on our unhedged variable rate debt may be adversely affected.

While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point.

While we expect LIBOR to be available in substantially its current form until at least the end of 2021, it is possible that LIBOR will become unavailable prior to that point.

In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

Failure to comply with Federal government contractor requirements could result in substantial costs and loss of substantial revenue.

We are subject to compliance with a wide variety of complex legal requirements because we are a Federal government contractor.

These laws regulate how we conduct business, require us to administer various compliance programs and require us to impose compliance responsibilities on some of our contractors.

A security breach or other significant disruption involving our IT networks and related systems could:

disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers;

result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;

result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;

result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes;

result in our inability to maintain the building systems relied upon by our customers for the efficient use of their leased space;

require significant management attention and resources to remedy any damages that result;

subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements;

damage our reputation among our customers and investors generally.

Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.

Risks Related to our Status as a REIT

The Company may be subject to taxation as a regular corporation if it fails to maintain its REIT status, which could have a material adverse effect on the Company’s stockholders and on the Operating Partnership.

9 unchanged sentences

Even if we remain qualified as a REIT, we may face other tax liabilities that adversely affect our financial condition and results of operations.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and

local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes.

In addition, our taxable REIT subsidiary is subject to regular corporate federal, state and local taxes.

3 unchanged sentences

In order to meet these tests, we may be required to forego investments we might otherwise make.

Thus, compliance with the REIT requirements may hinder our performance.

Compliance with the REIT requirements may limit our growth prospects.

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets.

17 unchanged sentences

In the normal course of business, certain entities through which we own real estate have undergone tax audits.

Collectively, tax deficiency notices received to date from the jurisdictions conducting previous audits have not been material.

However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.

While tax deficiency notices from the jurisdictions conducting previous audits have not been material, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.

Risks Related to an Investment in our Securities

The price of our Common Stock is volatile and may decline.

Our Common Stock, particularly at the beginning of the COVID-19 pandemic, has experienced significant price and volume fluctuations, often without regard to our operating performance.

For example, during the year ended December 31, 2020, the closing price for our Common Stock ranged from a high of $52.51 in February 2020 to a low of $28.12 at the beginning of the COVID-19 pandemic in March 2020.

A number of factors may adversely influence the public market price of our Common Stock.

4 unchanged sentences

• our financial condition and performance;

the market's perception of our growth potential and potential future cash dividends;

• the market’s perception of our growth prospects and potential future cash dividends;

• government action or regulation, including changes in tax laws;

11 unchanged sentences

Additional changes to tax laws are likely to continue in the future, and we cannot assure you that any such changes will not adversely affect the taxation of us or our stockholders.

Any such changes could have an adverse

effect on an investment in our Common Stock, on the market value of our properties or the attractiveness of securities of REITs generally in comparison to other asset classes.

Any such changes could have an adverse effect on an investment in our Common Stock, on the market value of our properties or the attractiveness of securities of REITs generally in comparison to other asset classes.

We cannot assure you that we will continue to pay dividends at historical rates.

8 unchanged sentences

The sales of a substantial number of Common Shares, or the perception that such sales could occur, could adversely affect the market price of our Common Stock.

We have filed a registration statement with the SEC allowing us to offer, from time to time, an indefinite amount of equity securities (including Common Stock and Preferred Stock) on an as-needed basis and subject to our ability to effect offerings on satisfactory terms based on prevailing conditions.

We have filed a registration statement with the SEC allowing us to offer, from time to time, an indeterminate amount of equity securities (including Common Stock and Preferred Stock) on an as-needed basis and subject to our ability to effect offerings on satisfactory terms based on prevailing conditions.

In addition, the Company’s board of directors has, from time to time, authorized the Company to issue shares of Common Stock pursuant to the Company’s equity sales agreements.

21 unchanged sentences

The foregoing provisions could have the effect of delaying until the next annual meeting stockholder actions that the holders of a majority of the Company’s outstanding voting securities favor.

These provisions may also discourage another person from making a tender offer for the Company's common stock,

because such person or entity, even if it acquired a majority of the Company's outstanding voting securities, would likely be able to take action as a stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting.

These provisions may also discourage another person from making a tender offer for the Company’s common stock, because such person or entity, even if it acquired a majority of the Company’s outstanding voting securities, would likely be able to take action as a stockholder, such as electing new directors or approving a merger, only at a duly called stockholders meeting.

Maryland law also establishes special requirements with respect to business combinations between Maryland corporations and interested stockholders unless exemptions apply.

13 unchanged sentences

For instance, the acquirer would be required to preserve the limited partner’s right to continue to hold tax-deferred partnership interests that are redeemable for capital stock of the acquirer.

Exceptions would require the approval of two-thirds of the limited partners of our Operating Partnership (other than the Company).

Exceptions would require the approval of

two-thirds of the limited partners of our Operating Partnership (other than the Company).

These provisions may make a change of control transaction involving the Company more complicated and therefore might decrease the likelihood of such a transaction occurring, even if such a transaction would be in the best interest of the Company’s stockholders.

1 unchanged sentence

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