What changed in this filing

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Item 1A. Risk Factors

2025-03-05 compared with 2024-02-27 · 131 added, 101 removed, 345 unchanged (40% of the section changed)

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Changes in workplace practices and office space utilization, including remote and hybrid work arrangements, have negatively impacted our company and these factors may continue and worsen.

For example, the increased adoption of and familiarity with remote and hybrid work practices has resulted in decreased demand for and utilization of office space.

For example, the increased adoption of and

familiarity with remote and hybrid work practices has resulted in decreased demand for and utilization of office space.

These trends have impacted our leasing efforts as certain of our tenants have elected to not renew their leases, or to renew them for less space than they were occupying, resulting in increases in vacancy rates at our properties and decreases in rental income.

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If substantial office space reconfiguration is required, a tenant may explore other office space and find it more advantageous to relocate than to renew its lease and renovate the existing space.

Less successful leasing efforts and increased leasing costs may cause our business, operating results, financial condition and prospects to be materially adversely impacted.

We could experience difficulties or delays renewing leases or re-leasing space, which will increase our costs to operate and maintain such properties without receiving income.

Less successful leasing efforts, lower rents and increased leasing costs have caused our business, operating results, financial condition and prospects to be materially adversely impacted, and may continue to do so.

Leases representing approximately 13.5% of our annualized base rent are scheduled to expire in 2025 and we could experience difficulties or delays renewing leases or re-leasing vacant space, which will increase our costs to operate and maintain such properties without receiving income.

We derive nearly all of our net income from rent received from our tenants, and our profitability is significantly dependent upon our ability to minimize vacancies in our properties and ensure our tenants timely pay rent at an attractive rate.

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If lease defaults occur, we may experience delays in enforcing our rights as landlord.

As of December 31, 2023, our portfolio, including our pro rata share of properties owned by the Arch Street Joint Venture, had a weighted average lease term of 4.0 years, and had 12 vacant operating properties, with an aggregate 1.4 million square feet, including three properties, with an aggregate of 0.4 million square feet, that have remained vacant for over one year.

If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will seek to re-lease the space to new tenants.

We may not, however, be able to re-lease the space to suitable replacement tenants on a timely basis, or at all.

Even if we are able to renew leases with existing tenants or enter into new leases with replacement tenants, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, may be less favorable to us than current lease terms.

As a result, our net income and ability to pay dividends to stockholders could be materially adversely affected.

Further, if any of our properties cannot be leased on terms and conditions favorable to us, we may seek to dispose of the property;

however, such property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to

effectively dispose of those properties and could require us to expend capital to fund necessary capital improvements or alterations.

Leases representing approximately 13.5% of our annualized base rent are scheduled to expire in 2025, and as of December 31, 2024, our portfolio, including our proportionate share of properties owned by the Arch Street Joint Venture, had a weighted average lease term of 5.2 years, and had 11 vacant operating properties, with an aggregate 1.7 million square feet, including six properties, with an aggregate of 0.6 million square feet, that have remained vacant for over one year.

If our tenants decide not to renew their leases, terminate their leases early or default on their leases, we will experience a loss in the associated rental revenue and will incur property operating costs that will no longer be reimbursed by the vacating tenant.

When tenant leases expire, we confirm the condition of the premises and will seek to enforce the performance of any outstanding tenant obligations, such as repair and maintenance and lease surrender obligations.

These efforts can lead to disputes with the tenants, and we cannot provide any assurance we will be successful in enforcing the tenant’s obligations.

Accordingly, we may incur enforcement and property operating and capital costs in connection with expired leases that may not be recoverable.

Tenant lease expirations, delays in re-leasing vacant space and tenant defaults could have a material adverse effect on our financial condition, results of operations and ability to pay dividends to stockholders.

Most of our properties depend upon a single tenant for all or a majority of their rental income;

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A default by a single or major tenant, the failure of a guarantor to fulfill its obligations or premature termination of a lease to such a tenant or such tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our stockholders.

We expect to continue to convert certain vacant properties to multi-tenant use, and cannot provide any assurance that the investments we make of time and capital to do so will increase the value of the subject properties.

Where we determine it will maximize the value of the subject property, we have converted certain vacant properties to multi-tenant use and expect we will continue to do so.

Our multi-tenant properties are subject to a variety of risks not typically encountered in real estate properties that are operated by or for a single tenant, which could materially adversely affect the value of our investment, including:

• conversion to multi-tenant use will require us to make significant investment in the subject property, such as to create common areas, separate building systems, construct new demising walls and corridors and install restrooms and access points;

• in order to attract high quality anchor tenants, we may be required to install and guarantee the full operation of significant amenities like cafeterias and gyms and the cost to operate these amenities may not be recoverable particularly if the building is not fully occupied;

• multi-tenant properties generally require greater landlord responsibility to manage and operate the properties and bear the associated costs, which will place added burden on our property management team and will result in costs that may not be recoverable from the tenants.

We may incur costs to convert properties to multi-tenant use and to operate multi-tenant properties that may not be recoverable and we cannot provide any assurance that our decision to convert properties to multi-tenant will increase the value of the subject properties.

Government budgetary pressures and priorities, and trends in government employment and office leasing may adversely impact our business.

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These factors have reduced the demand for government leased space, and may continue to do so.

Our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations.

However, efforts to manage space utilization rates may result in the government tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy.

The Trump Administration’s initiative to dramatically cut government spending introduces additional uncertainty for our portfolio of properties leased to the United States Government.

The Department of Government Efficiency (“DOGE”) has begun to look at ways to increase government office utilization and shrink the federal government’s real estate portfolio.

This could lead to the General Services Administration (“GSA”) exercising termination options under or otherwise seeking to terminate our leases with the United States Government or make it more likely the United States Government terminates the applicable lease at lease expiration.

As of December 31, 2024, approximately 94,000 of our occupied square feet leased to the GSA were within periods during which the tenant has the right to terminate their space without a termination fee, or “non-firm terms.” The GSA recently announced a suspension of the execution of substantially all GSA funded obligations, including new leases and lease amendments.

This action by the GSA has resulted in delays of the GSA authorizing us to proceed with landlord work at our property in Lincoln, Nebraska and that is a condition to lease commencement of our lease with the United States Government at this property, as well as delays in lease negotiations at certain other properties leased to the United States Government.

We do not know how long the suspension will continue and cannot provide any assurance as to how ongoing developments with respect to DOGE and the Trump Administration’s efforts to reduce government spending may impact our portfolio of properties leased to the United States Government.

Efforts to manage space utilization rates and reduce government spending may result in the government tenants exercising early termination rights under our leases, vacating our properties upon expiration of our leases in order to relocate, or renewing their leases for less space than they currently occupy.

Also, our government tenants’ desire to reconfigure leased office space to manage utilization per employee may require us to spend significant amounts for tenant improvements, and tenant relocations are often more prevalent in those circumstances.

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Additionally, the COVID-19 pandemic and its aftermath have had negative impacts on government budgets and resources, and it is unclear what the effect of these impacts will be on government demand for leasing office space.

We are invested in the Arch Street Joint Venture and have co-invested in and may in the future co-invest in joint ventures with third parties.

The Arch Street Joint Venture, including the limitations it places on our ability to acquire new properties, may adversely affect our ability to acquire wholly-owned properties and any joint venture investments could be adversely affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners.

Our partner in the Arch Street Joint Venture has not had access to sufficient liquidity to contribute its share of the capital requirements that have recently arisen, thereby exposing us to liabilities in excess of our share of the joint venture and other risks.

We are invested in the Arch Street Joint Venture where we own a 20% minority, non-controlling interest and our partner owns the remaining 80% interest.

Our partner in the Arch Street Joint Venture did not have access to sufficient liquidity to contribute its share of capital call obligations that have recently arisen, and this issue may continue to the extent additional partner capital is required in the future.

During November 2024, our joint venture partner was unable to contribute its proportionate share of the capital required to pay down $3.4 million of principal on the Arch Street Joint Venture non-recourse mortgage notes to satisfy the 60% loan-to-value condition to extend the maturity date of such debt.

As a result, we made a member loan to the Arch Street Joint Venture in the amount of $1.4 million.

As of December 31, 2024, the outstanding principal associated with the Arch Street Joint Venture mortgage notes was $131.6 million, and our proportionate share was $26.3 million.

During February 2025, we made an additional member loan of $8.3 million when our partner was unable to contribute its share of leasing costs related to a lease extension that was completed for one of the properties in the Arch Street Joint Venture portfolio.

As part of the terms of the recent extension of the Arch Street Joint Venture mortgage notes, the mortgage lender is expected to re-appraise the property where the lease was extended in February 2025, and we are also committed to make an additional member loan as and if needed to repay principal on the mortgage notes to continue to satisfy the 60% loan-to-value extension condition.

Our member loan to the Arch Street Joint Venture, which had $9.2 million receivable as of March 5, 2025, earns interest at 15% per annum and is non-recourse and unsecured, and structurally subordinate to the Arch Street Joint Venture mortgage notes.

Interest and principal are payable monthly solely out of the excess

cash from the joint venture after payment of property operating expenses, interest and principal on the Arch Street mortgage notes and other joint venture expenses and excess proceeds from the sale of any of the joint venture properties.

Our partner’s failure to meet capital call obligations exposes us to certain risks, including:

• we may have insufficient liquidity or decide it is no longer in our best interest to continue to make member loan or other investments to fund the joint venture’s capital requirements, which could expose us to loss of all or substantially all of our investment in the joint venture;

• we may be unable to recover our member loan or other investments in the joint venture in a timely manner or at all;

• the investments we have recently made or may make in the future in the joint venture reduce our available liquidity and therefore may limit our ability to grow or make other investments in our portfolio.

The Arch Street Joint Venture and any other joint venture investments we make could be adversely affected by the lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners.

We are invested in the Arch Street Joint Venture and have co-invested and may in the future co-invest with third parties through partnerships, joint ventures or other structures in which we acquire non-controlling interests in, or share responsibility for, managing the affairs of a property, partnership, co-tenancy or other entity.

In connection with Arch Street Capital Partners’ consent to the transfer of the equity interests in the Arch Street Joint Venture to us in the Separation, we entered into the ROFO Agreement with the Arch Street Joint Venture, whereby we will agree to not acquire any property within certain investing parameters without first offering the property for purchase to the Arch Street Joint Venture.

The ROFO Agreement will expire not later than November 12, 2024.

As our investment in the Arch Street Joint Venture is a minority, non-controlling interest, the investment decision by the Arch Street Joint Venture with respect to any property offered pursuant to the ROFO Agreement is controlled by Arch Street Capital Partners.

If the Arch Street Joint Venture decides to acquire a property, our participation in the profitability and growth related to that property may be adversely impacted by our limited participation rights, and our ability to determine the strategy with respect to properties we own through the Arch Street Joint Venture is materially limited compared to acquisitions we make directly, including with respect to leasing, disposition and joint venture opportunities (including if such actions are necessary to maintain compliance with our debt commitments).

If the Arch Street Joint Venture elects not to purchase a property offered pursuant to the ROFO Agreement, their rights to first review the opportunity may delay or otherwise interfere in our ability to competitively bid or acquire such property, which, in turn, adversely affect our ability to act on our investment strategies in accordance with our business plan.

Our ability to determine the strategy with respect to properties we own through the Arch Street Joint Venture is materially limited compared to acquisitions we make directly, including with respect to leasing, disposition and joint venture opportunities (including if such actions are necessary to maintain compliance with our debt commitments).

We also may enter into future joint ventures pursuant to which we will not be able to exercise sole decision-making authority regarding the properties owned through such joint ventures or similar ownership structure.

In addition, investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including potential deadlocks in making major decisions, restrictions on our ability to exit the joint venture, reliance on joint venture partners and the possibility that a joint venture partner might become bankrupt or fail to fund its share of required capital contributions, thus exposing us to liabilities in excess of our share of the joint venture or jeopardizing our REIT status.

The funding of our capital contributions to such joint ventures may be dependent on proceeds from asset sales, credit facility advances or sales of equity securities.

The funding of our capital contributions to such joint ventures may be dependent on proceeds from the sale of real estate assets, credit facility advances or sales of equity securities.

Joint venture partners, including Arch Street Capital Partners, may have business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our best interests.

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Any of the foregoing may have a material adverse effect on our business, financial condition and results of operations.

government’s “green lease” policies may adversely affect us.

In recent years, the U.S.

government has instituted “green lease” policies which allow a government tenant to require Leadership in Energy and Environmental Design for commercial interiors, or LEED ® -CI, designation in selecting new premises or renewing leases at existing premises, and these policies have and may continue to be expanded to cover additional enhanced requirements.

In addition, the Energy Independence and Security Act of 2007 allows the General Services Administration to give preference to buildings for lease that have received an “Energy Star” label.

The United States Government’s “green lease” policies may adversely affect us.

In recent years, the United States Government has instituted “green lease” policies which allow a government tenant to require Leadership in Energy and Environmental Design for commercial interiors, or LEED ® -CI, designation in selecting new premises or renewing leases at existing premises, and these policies have and may continue to be expanded to cover additional enhanced requirements.

In addition, the Energy Independence and Security Act of 2007 allows the United States Government to give preference to buildings for lease that have received an “Energy Star” label.

Complying with enhanced requirements may be costly and time consuming, but our failure to do so may result in our competitive disadvantage in acquiring new or retaining existing government tenants.

We may be unable to successfully execute on our strategy to shift our portfolio concentration over time away from traditional office properties, towards more dedicated use assets.

As part of our investment strategy, we intend to shift our portfolio concentration over time away from traditional office properties, towards more dedicated use assets that have an office component.

We believe that by doing so we will increase that value of our portfolio, as it is our experience that dedicated use assets have greater tenant utilization and higher renewal probability.

As of December 31, 2024, our portfolio was comprised of 75.0% and 68.2% traditional office properties, calculated based on rentable square feet and annualized base rent, respectively.

In order to increase the percentage of dedicated use assets in our portfolio, we will need to acquire additional dedicated use assets and/or dispose of traditional office properties.

Our ability to acquire new properties and dispose of existing properties in our portfolio is dependent upon competitive and market conditions, which may not be favorable to us at any given time, as well as other factors outside of our control.

We may not be

successful in executing our strategy of shifting our portfolio concentration over time towards more dedicated use assets, and whether or not we are successful in executing such strategy, we may not achieve our objective of increasing the value of our portfolio.

Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.

We may acquire properties if market conditions permit and we are presented with an attractive opportunity to do so.

We may face competition for such acquisition opportunities from other investors, and such competition may adversely affect us by subjecting us to the following risks:

• an inability to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors;

• we may incur costs on unsuccessful acquisitions that we will not be able to recover;

• an increase in the purchase price for such acquisition property in the event we are able to acquire such desired property.

Accordingly, competition for acquisitions may limit our opportunities to grow our business, which may have a material adverse effect on our business, financial condition and results of operations.

We may suffer adverse effects from acquisitions of commercial real estate properties.

We may pursue acquisitions of additional commercial real estate properties as part of our business strategy.

We intend to pursue acquisitions of additional commercial real estate properties as part of our business strategy.

Acquisitions of commercial properties entail risks, such as the risk that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions fail to perform as expected.

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• inability of tenants to pay rent;

• competition from the development of new office space in our market or sub-markets and the quality of competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record;

• competition from the development of new space in our market or sub-markets and the quality of competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record;

• civil unrest, acts of war, terrorism, adverse political conditions, acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured losses) and other factors beyond our control.

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We compete with a number of other owners and operators of office properties to renew leases with our existing tenants and to attract new tenants.

If our properties are not as attractive to existing or new tenants as properties owned by our competitors due to age of the buildings, physical condition, lack of amenities or other similar factors, we could lose tenants, it could take longer to re-lease our properties and we could suffer lower rental rates.

If our properties are not as attractive to existing or new tenants as properties owned by our competitors due to the age of the buildings, physical condition, lack of amenities or other similar factors, we could lose tenants, it could take longer to re-lease our properties and we could suffer lower rental rates.

To the extent that we are able to renew leases that are scheduled to expire in the short-term or re-let such space to new tenants, heightened competition may require us to give rent concessions or provide tenant improvements to a greater extent than we otherwise would have.

If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge, or may not be able to increase rates to market rates, in order to retain tenants upon expiration of their existing leases.

Even if our tenants renew their leases or we are able to re-let the space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates, and rent or other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures.

Even if our tenants renew their leases or we can re-let the space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates, and rent or other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures.

Our inability to renew leases or re-let space in a reasonable time, a decline in rental rates or an increase in tenant improvement allowances, leasing commissions, rent concessions or other costs may have a material adverse effect on our business, financial condition and results of operations.

Tenant defaults may have a material adverse effect on our business, financial condition and results of operations.

Tenant payment defaults may have a material adverse effect on our business, financial condition and results of operations.

Nearly all of our revenues and income comes from rental income from real property.

As such, our business, financial condition and results of operations could be adversely affected if our tenants default on their lease obligations.

As such, our business, financial condition and results of operations could be adversely affected if our tenants default on their lease payment obligations.

Our ability to manage our assets is also subject to federal bankruptcy laws and state laws that limit creditors’ rights and remedies available to real property owners to collect delinquent rents.

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If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict the amount and recoverability of our claims against the tenant.

A tenant’s default on its obligations may have a material adverse effect on our business, financial condition and results of operations.

A tenant’s default on its payment obligations may have a material adverse effect on our business, financial condition and results of operations.

Some of our leases provide tenants with the right to terminate their leases early, which may have a material adverse effect on our business, financial condition and results of operations.

Certain of our leases permit our tenants to terminate their leases as to all or a portion of their leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice by a certain date and, in most cases, paying a termination fee.

As of December 31, 2024, 11.2% of our occupied square footage was subject to early termination provisions.

During the year ended December 31, 2024, one tenant exercised an early termination option which will result in the partial termination of approximately 30,000 square feet under an approximately 127,000 square foot lease in the year ending December 31, 2025.

During the year ended December 31, 2023, one tenant exercised an early termination option, which resulted in the partial termination of approximately 30,000 square feet under an approximately 200,000 square foot lease in the year ended December 31, 2023.

To the extent that our tenants exercise early termination rights, our cash flow and earnings will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net effective rent by leasing the vacated space to new third-party tenants.

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We have a significant amount of indebtedness and may need to incur more in the future.

As of December 31, 2023, we have approximately $471.0 million of total outstanding indebtedness.

As of December 31, 2024, we had approximately $492.0 million of total outstanding consolidated indebtedness.

In addition, in connection with executing our business strategies going forward, we expect to invest in our current portfolio and, as market conditions permit, intend to acquire additional properties and make strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness.

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We might become more highly leveraged as a result, and our financial condition, results of operations and funds available for distribution to stockholders might be negatively affected, and the risk of default on our indebtedness could increase, which may have a material adverse effect on our business, financial condition and results of operations.

We have existing debt and refinancing risks that could have a material adverse effect on our business, financial condition and results of operations, including the risk that we will be unable to extend or refinance some or all of our debt, including uncertainty with regard to our ability to extend and continue to comply with or otherwise refinance our Revolving Facility which is scheduled to mature on November 12, 2024.

We have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under our $425.0 million Revolving Facility.

Our Revolving Facility is scheduled to mature in November 2024, and we have the option to extend the maturity an additional 18 months until May 12, 2026.

The extension option is subject to customary conditions, including there being no default or event of default, such as the failure to satisfy a financial or other covenant.

Our ability to satisfy these conditions and continue to comply with the terms of the Revolving Facility is partially dependent upon us having a sufficient level of unencumbered asset value as defined in the credit agreement with respect to the Revolving Facility.

The level of unencumbered asset value is partially dependent upon future leasing activity at the underlying properties and/or us acquiring additional properties to add to the unencumbered asset pool, and there is uncertainty about our ability to renew or re-lease properties and/or acquire additional properties at a sufficient level to meet the requirements to extend and continue to comply with the Revolving Facility.

Accordingly, the extension option may not be available to us.

Additionally, we do not expect to have generated sufficient cash from operations to repay the principal outstanding under the Revolving Facility, which was $116.0 million as of December 31, 2023, on its scheduled maturity date.

We have had preliminary discussions with the administrative agent of the Revolving Facility to potentially amend the facility in a manner that would result in an extension of the facility and a reduction in the amount of unencumbered asset value required under the financial covenants of the Revolving Facility.

However, there is no assurance that we will be able to reach an agreement with the lenders of the Revolving Facility on favorable terms and in a timely manner, or at all.

If we are unable to meet the conditions to extend and continue to comply with the Revolving Facility, or otherwise modify the Revolving Facility to allow us to extend and continue to comply with, or otherwise refinance, this facility, we might be forced to sell assets to generate cash, which might be on unfavorable terms, if at all, or we might not be able to make all required payments of principal and interest on our debt, which could result in a default, result in our lenders foreclosing on our assets, or otherwise have a material adverse effect on our financial condition and results of operations.

The mortgage notes associated with the Arch Street Joint Venture are also scheduled to mature in November 2024, and the Arch Street Joint Venture has two successive one-year options to extend the maturity until November 27, 2026.

The extension options are subject to satisfaction of certain conditions, including satisfaction of certain financial and operating covenants.

We believe the Arch Street Joint Venture will be able to satisfy the extension conditions or otherwise extend the loan on terms mutually acceptable to the Arch Street Joint Venture and the existing lenders, but we cannot provide any assurance it will be able to do so.

We have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under our Revolving Facility.

Our Revolving Facility under which we had $119.0 million borrowed as of December 31, 2024 is scheduled to mature in May 2026, and our $355.0 million CMBS Loan is scheduled to mature in February 2027.

We are dependent upon the Revolving Facility, which is a fully recourse borrowing facility guaranteed in full by us, for liquidity to execute our business strategies, and our CMBS Loan provides cross-collateralized financing for a total of 19 properties in our portfolio, and therefore the lender will have recourse to any and all of the assets that secure the debt in the event we default.

We cannot provide assurance we will be able to extend, refinance or repay these debt obligations at maturity.

Our ability to extend or refinance debt will be affected by our financial condition and various other factors existing at the relevant time, including factors beyond our control, such as capital and credit market conditions, the state of the national and regional economies, local real estate conditions and the equity in and value of the related collateral.

We may be required to make significant principal repayments to extend or refinance our debt obligations.

Following the Arch Street Joint Venture’s exercise of the first extension option and satisfaction of the related conditions in November 2024, the non-recourse mortgage notes associated with the Arch Street Joint Venture of $131.6 million as of December 31, 2024 are scheduled to mature on November 27, 2025, and the Arch Street Joint Venture has one remaining one-year option to extend the maturity until November 27, 2026.

Our proportionate share of the mortgage notes was $26.3 million as of December 31, 2024.

The extension option is subject to satisfaction of certain conditions, including satisfaction of certain financial and operating covenants.

The Arch Street Joint Venture may be unable to satisfy the extension conditions, and we cannot provide any assurance the Arch Street Joint Venture will be able to satisfy the extension conditions or otherwise extend or refinance the mortgage notes.

If the Arch Street Joint Venture is unable to extend or refinance the mortgage notes, our investment in the Arch Street Joint Venture could be materially adversely affected.

As a result of the indebtedness we incur, we are, and expect to be, subject to the risks normally associated with debt financing including:

• that we will be unable to extend or refinance some or all of our debt or increase the availability of overall debt on terms as favorable as those of our existing debt, or at all;

• that we will be unable to extend, refinance or repay our debt as it becomes due or increase the availability of overall debt on terms as favorable as those of our existing debt, or at all;

• that interest rates may rise;

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• that if our degree of leverage is viewed unfavorably by lenders or potential joint venture partners, it could affect our ability to obtain additional financing.

If we are unable to repay, extend or refinance our indebtedness as it becomes due, we may need to sell assets or to seek protection from our creditors under applicable law, which may have a material adverse effect on our business, financial condition and results of operations.

If we are unable to extend, refinance or repay our indebtedness as it becomes due, we may need to sell assets or to seek protection from our creditors under applicable law, which may have a material adverse effect on our business, financial condition and results of operations.

Financial covenants could materially adversely affect our ability to conduct our business.

We have incurred debt pursuant to the Revolving Facility and the CMBS Loan.

The credit agreement governing the Revolving Facility and the CMBS Loan each contain various financial and other covenants, including, with respect to the Revolving Facility, covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales, and the payment of certain dividends and share repurchases, and with respect to the CMBS Loan, certain cash management requirements.

These restrictions, as well as any additional restrictions to which we may become subject in connection with additional financings or refinancings, could restrict our ability to pursue business initiatives, effect certain transactions or make other changes to our business that may otherwise be beneficial to us, which could adversely affect our business, financial condition and results of operations.

In addition, violations of these covenants could cause declarations of default under, and acceleration of, any related indebtedness, which would result in adverse consequences to our financial condition.

The credit agreement governing the Revolving Facility and the CMBS Loan each contain various financial and other covenants, including, with respect to the Revolving Facility, various financial covenants and other covenants restricting, subject to certain exceptions, liens, investments, mergers, asset sales, and the payment of certain dividends and share repurchases.

The financial covenants under the Revolving Facility are discussed in the section in this report entitled “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Liquidity and Capital Resources – Credit Agreements – Revolving Facility Covenants”.

The CMBS Loan includes a minimum debt yield test of 8.0%.

Failure to satisfy this test, although not an event of default under the indebtedness, could cause cash flows from the 19 properties financed, after debt service, and certain property operating expenses and loan reserves, to be diverted to the lender, as additional collateral until the minimum debt yield test has been satisfied.

Under the CMBS Loan agreement, we are permitted to prepay outstanding principal under the indebtedness to satisfy the debt yield test.

As of September 30, 2024 (most recent reporting period available and confirmed with lender) the minimum debt yield was satisfied.

Our ability to continue to meet the debt yield test will be dependent upon whether leases that are scheduled to expire in the collateral pool are extended and if they do not the pace at which we re-lease the properties following lease expiration.

We cannot provide any assurance that we will continue to satisfy the minimum debt yield test under the CMBS Loan through maturity of the indebtedness in February 2027, and our failure to do so could have a material adverse effect on our liquidity.

The financial and other covenants under our existing indebtedness, as well as any additional restrictions to which we may become subject in connection with additional financings or refinancings, could restrict our ability to pursue business initiatives, effect certain transactions or make other changes to our business that may otherwise be beneficial to us, which could adversely affect our business, financial condition and results of operations.

In addition, violations of these covenants could cause declarations of default under, and acceleration of, any related indebtedness, which would result in material adverse consequences to our financial condition.

The Revolving Facility contains cross-default provisions that give the lenders the right to declare a default if we are in default resulting in (or permitting the) acceleration of other debt under other loans in excess of certain amounts.

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As market conditions permit, we intend to acquire new properties which will similarly require us to make capital investments.

We do not expect our cash flows from operations to be sufficient to fund our future capital investments and, therefore, we will be dependent upon our ability to access third-party sources of capital, including the Revolving Facility and other sources of debt and equity capital.

We do not expect our cash flows from operations alone to be sufficient to fund our future capital investments and, therefore, we will be dependent upon our ability to access third-party sources of capital, including the Revolving Facility and other sources of debt and equity capital.

Our access to third-party sources of capital depends on a number of factors, including general market conditions, the market’s view of the quality of our assets, the market’s perception of our growth potential, our current debt levels and our current and expected future earnings.

There can be no assurance that we will be able to obtain the capital necessary to fund the investments we will be required to make in our existing portfolio or to acquire new properties on terms favorable to us or at all.

If we are unable to obtain a sufficient level of third-party financing to fund our capital needs, our ability to achieve our business strategies will be materially adversely effected.

There can be no assurance that we will be able to obtain the capital necessary to fund the investments we will be required to make in our existing portfolio or to acquire new properties on terms

favorable to us or at all.

If we are unable to obtain a sufficient level of third-party financing to fund our capital needs, our ability to achieve our business strategies will be materially adversely affected.

Our expenses may remain constant or increase, even if our revenues decrease, which may have a material adverse effect on our business, financial condition and results of operations.

Costs associated with our business, such as debt repayments, real estate taxes, insurance premiums and maintenance costs, are relatively inelastic and generally do not decrease, and may increase, when a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause a reduction in property revenues.

As a result, if revenues drop,

we may not be able to reduce our expenses accordingly, which may have a material adverse effect on our business, financial condition and results of operations.

As a result, if revenues drop, we may not be able to reduce our expenses accordingly, which may have a material adverse effect on our business, financial condition and results of operations.

Property taxes may increase without notice.

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Our ability to successfully execute on our asset disposition and capital recycling sale program is dependent on market conditions, and such conditions have been and may continue to be unfavorable for commercial real estate generally and office assets in particular, as well as for buyer financing of these assets.

In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all.

Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations.

In general, when we sell properties that are vacant or soon to be vacant, the valuation will be discounted if the new owner is required to make capital improvements and to reflect that the new owner will bear carrying costs until the property has been leased up and take the risk that the property may not be leased up on a timely basis, favorable terms or at all.

As part of our asset disposition activities, we have sought and may continue to seek to sell properties to buyers who intend to re-develop the subject property.

While these sale transactions can result in higher sale valuations, they also normally require us as seller to bear a portion of the buyer’s redevelopment risk through longer due diligence periods during which we remain responsible for carrying costs of the property and the buyer may terminate the transaction.

Our inability to respond rapidly to changes in the performance of our investments could adversely affect our business, financial condition and results of operations.

We could be exposed to losses on loans we have made to buyers of the properties we have sold.

As part of our asset disposition activity, we have provided seller financing to certain buyers.

As part of our asset disposition activity, we have provided seller financing to certain buyers and may continue to do so.

To date, these loans have been structured as first mortgage loans with an unsecured recourse guaranty from the buyer principal(s).

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In the event of any default under our loans, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the amounts we recover from the mortgaged collateral and the recourse guaranty, and the principal amount and unpaid interest of the loan.

To the extent we suffer such losses with respect to these loans, it could adversely affect our results of operations and financial condition.

Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.

We may acquire properties if market conditions permit and we are presented with an attractive opportunity to do so.

We may face competition for such acquisition opportunities from other investors, and such competition may adversely affect us by subjecting us to the following risks:

• we may incur costs on unsuccessful acquisitions that we will not be able to recover;

• an increase in the purchase price for such acquisition property in the event we are able to acquire such desired property.

Accordingly, competition for acquisitions may limit our opportunities to grow our business, which may have a material adverse effect on our business, financial condition and results of operations.

To the extent we suffer such losses with respect to these loans, it could adversely affect our business, financial condition and results of operations.

We, our tenants and our properties are subject to various federal, state and local regulatory requirements, such as environmental laws, state and local fire and safety requirements, building codes and land use regulations.

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Failure to comply with these requirements could subject us, or our tenants, to governmental fines or private litigant damage awards.

In addition, compliance with these requirements, including new requirements or stricter interpretation of existing requirements, may require us, or our tenants, to incur significant expenditures.

compliance with these requirements, including new requirements or stricter interpretation of existing requirements, may require us, or our tenants, to incur significant expenditures.

We do not know whether existing requirements will change or whether future requirements, including any requirements that may emerge from pending or future climate change regulations or legislation, will develop.

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The operating costs and capital expenditures associated with meeting new and evolving regulatory and legal requirements and tenant preferences, including those related to reporting and managing greenhouse gas emissions, could negatively impact our financial results.

Increased scrutiny and changing expectations from investors, tenants, employees, and others regarding our environmental, social, and governance (“ESG”) practices and reporting could cause us to incur additional costs, devote additional resources and expose us to additional risks.

Companies across all industries are facing increasing scrutiny related to their ESG practices and reporting.

Investors, tenants, employees, and other stakeholders have begun to focus increasingly on ESG practices and to place increasing importance on the implications and social costs of their investments, business decisions and consumer choices.

Many investors, particularly institutional investors, may use ESG practices and scores to benchmark companies against their peers and as a basis for making investment or voting decisions.

Given this increased focus and demand as well as the potential for future legal or regulatory requirements, public reporting regarding ESG practices is becoming more broadly expected.

If our ESG practices and reporting do not meet investor, tenant, or employee expectations, which continue to evolve, our reputation and investor interest and tenant and employee retention may be negatively impacted.

Any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate governance, environmental compliance, employee health and safety

practices, human capital management and workforce inclusion and diversity.

It is possible that investors and other stakeholders may not be satisfied with our ESG reporting, our ESG practices or the speed or comprehensiveness with which we adopt and implement them.

Increased scrutiny and changing expectations from investors, tenants, employees, and others regarding our sustainability, social, and governance practices (“sustainability”) and reporting could cause us to incur additional costs, devote additional resources and expose us to additional risks.

Companies across all industries are facing increasing scrutiny related to their sustainability practices and reporting.

Investors, tenants, employees, and other stakeholders have begun to focus increasingly on sustainability practices and to place increasing importance on the implications and social costs of their investments, business decisions and consumer choices.

Many investors, particularly institutional investors, may use sustainability practices and scores to benchmark companies against their peers and as a basis for making investment or voting decisions.

Given this increased focus and demand as well as the potential for future legal or regulatory requirements, public reporting regarding sustainability practices is becoming more broadly expected.

If our sustainability practices and reporting do not meet investor, tenant, or employee expectations, which continue to evolve, our reputation and investor interest and tenant and employee retention may be negatively impacted.

Any disclosure we make may include our policies and practices on a variety of sustainability matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management and workforce inclusion and diversity.

It is possible that investors and other stakeholders may not be satisfied with our sustainability reporting, our sustainability practices or the speed or comprehensiveness with which we adopt and implement them.

In addition, the criteria by which we are benchmarked against our peers and scored may change.

We could also incur additional costs and devote additional resources to monitoring, reporting and implementing various ESG practices.

Our failure, or perceived failure, to meet any goals and objectives we may set in any ESG disclosure or the expectations of our various stakeholders could negatively impact our reputation, investor interest and tenant and employee retention, as well as our cost of or access to capital.

We could also incur additional costs and devote additional resources to monitoring, reporting and implementing various sustainability practices.

Our failure, or perceived failure, to meet any goals and objectives we may set in any sustainability disclosure or the expectations of our various

stakeholders could negatively impact our reputation, investor interest and tenant and employee retention, as well as our cost of or access to capital.

Compliance or failure to comply with the Americans with Disabilities Act could result in substantial costs.

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There can be no assurance that our efforts to maintain the security and integrity of our information technology networks and related systems will be effective.

A security breach involving our information technology networks

and related systems could disrupt our operations in numerous ways that may have a material adverse effect on our business, financial condition and results of operations.

We have a limited operating history as a REIT and an independent public company, and the obligations and requirements to which we are subject as a public company are extensive and have resulted in increased cost and time commitments which we anticipate will continue.

We have a limited operating history as a REIT and as an independent public company, and our stockholders should not rely on the past performance of Realty Income or VEREIT to predict our future results.

We cannot assure you we will be able to successfully operate our company as a REIT and an independent public company.

Further, as a public company, we are subject to the reporting requirements of the U.S.

A security breach involving our information technology networks and related systems could disrupt our operations in numerous ways that may have a material adverse effect on our business, financial condition and results of operations.

The obligations and requirements to which we are subject as a public company are extensive and will increase when we no longer qualify as an “emerging growth company.”

As a public company, we are subject to the reporting requirements of the U.S.

Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act and the Dodd-Frank Act and are required to prepare our financial statements in accordance with the rules and regulations promulgated by the SEC.

These and other public company obligations and requirements have placed and are expected to continue to place significant demands on our management, administrative and operational resources, including accounting and information technology resources.

To comply with these obligations and requirements, we have upgraded our systems, including duplicating computer hardware infrastructure, implementing additional financial and management controls, reporting systems and procedures and hiring additional accounting, finance and information technology staff, and we may need to continue to do so.

These rules and regulations have also increased our legal and financial compliance costs and have made some activities more time-consuming and costlier, and we anticipate these increases in cost and time commitments will continue.

These and other public company obligations and requirements place significant demands on our management, administrative and operational resources, including accounting and information technology resources.

If we are unable to satisfy these compliance obligations in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired and our business, prospects, financial condition and results of operations could be harmed.

As of the date of filing of this Annual Report on Form 10-K, we qualify as an “emerging growth company.” As such, we are eligible to take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including, but not limited to, compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the requirements to hold a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved.

These exemptions will expire no later than December 31, 2026 (the last day of the fiscal year following the fifth anniversary of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act), at which time our public company compliance demands and costs will increase.

We cannot predict if investors will find our common stock less attractive because we will rely on the exemptions available to us as an emerging growth company.

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Our ability to retain such individuals, or to attract a suitable replacement should he leave, is dependent on the competitive nature of the employment market.

services of Mr.

The loss of services of Mr.

McDowell or other key personnel may have a material adverse effect on our business, financial condition and results of operations.

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We have elected to be taxed as a REIT and believe we have been organized and have operated in a manner that has allowed us to qualify and to remain qualified as a REIT for U.S.

federal income tax purposes commencing with our initial taxable year

ended December 31, 2021.

federal income tax purposes commencing with our initial taxable year ended December 31, 2021.

We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court.

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If either Realty Income or VEREIT failed to qualify as a REIT during certain periods prior to the Distribution, we would be prevented from electing to qualify as a REIT.

Under applicable Treasury Regulations, if Realty Income or VEREIT failed to qualify as a REIT during certain periods prior to the Distribution, unless Realty Income’s or VEREIT’s failure were subject to relief under U.S.

federal income tax laws, we would be prevented from electing to qualify as a REIT prior to the fifth calendar year following the year in which Realty Income or VEREIT failed to qualify.

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The rules also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s length basis.

Taxable REIT subsidiaries that we own or may form will pay federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us, unless necessary to maintain our REIT qualification.

necessary to maintain our REIT qualification.

In certain circumstances, the ability of our taxable REIT subsidiaries to deduct interest expenses for U.S.

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

be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.

Although we do not intend to hold any properties that would be characterized as inventory held for sale to customers in the ordinary course of our business, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.

Legislative or other actions affecting REITs could have a negative effect on us or our investors.

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The ownership limits contained in our charter are based upon direct or indirect ownership at any time by any “person,” which term includes entities.

These ownership limitations in our charter are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to

minimize administrative burdens.

These ownership limitations in our charter are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to minimize administrative burdens.

However, the ownership limits on our common stock also might delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.

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One of the factors that will influence the price of our common stock will be its dividend yield, or the dividend per share as a percentage of the price of our common stock, relative to market interest rates.

If market interest rates remain elevated or continue to rise, prospective purchasers of our common stock may expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.

If market interest rates remain elevated or increase, prospective purchasers of our common stock may expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution.

If market interest rates increase and we are unable to increase our dividend in response, including due to an increase in borrowing costs, insufficient funds available for distribution or otherwise, investors may seek alternative investments with a higher dividend yield, which would result in selling pressure on, and a decrease in the market price of, our common stock.

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We cannot predict whether future issuances or sales of shares of our common stock, or the availability of shares for resale in the open market, will decrease the per share trading price of our common stock.

The issuance of a substantial number of shares of

our common stock in the open market or the issuance of a substantial number of shares of our common stock upon the exercise of the warrants granted to affiliates of Arch Street Capital Partners in connection with the Distribution or the exchange of OP units or other securities exchangeable or convertible into shares of our common stock, or the perception that such issuances might occur, could adversely affect the per share trading price of our common stock.

The issuance of a substantial number of shares of our common stock in the open market or the issuance of a substantial number of shares of our common stock upon the exercise of the warrants granted to affiliates of Arch Street Capital Partners in connection with the Distribution or the exchange of OP units or other securities exchangeable or convertible into shares of our common stock, or the perception that such issuances might occur, could adversely affect the per share trading price of our common stock.

In addition, any such issuance could dilute our existing stockholders’ interests in our company.

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

What changed 10-K

Item 1A. Risk Factors