What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-31 · 173 added, 168 removed, 369 unchanged (48% of the section changed)

2 unchanged sentences

OVERVIEW (dollars in thousands, except per share and per square foot data)

We are a real estate investment trust, or REIT, organized under Maryland law.

As of June 30, 2024, our wholly owned properties were comprised of 151 properties and we had a noncontrolling ownership interest of 51% in one unconsolidated joint venture that owned two properties containing approximately 346,000 rentable square feet.

As of June 30, 2024, our properties are located in 30 states and the District of Columbia and contain approximately 20,293,000 rentable square feet.

As of June 30, 2024, our properties were leased to 260 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 6.6 years.

government is our largest tenant, representing approximately 19.3% of our annualized rental income as of June 30, 2024.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of June 30, 2024, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

We are a REIT organized under Maryland law.

As of September 30, 2024, our wholly owned properties were comprised of 145 properties and we had a noncontrolling ownership interest of 51% in an unconsolidated joint venture that owned two properties containing approximately 346,000 rentable square feet.

As of September 30, 2024, our properties are located in 30 states and the District of Columbia and contain approximately 19,543,000 rentable square feet.

As of September 30, 2024, our properties were leased to 237 different tenants with a weighted average remaining lease term (based on annualized rental income) of approximately 7.2 years.

government is our largest tenant, representing approximately 16.6% of our annualized rental income as of September 30, 2024.

The term annualized rental income as used herein is defined as the annualized contractual base rents from our tenants pursuant to our lease agreements as of September 30, 2024, plus straight line rent adjustments and estimated recurring expense reimbursements to be paid to us, and excluding lease value amortization.

Leases representing approximately 4.4% and 9.8% of our annualized rental income are scheduled to expire during the remainder of 2024 and 2025, respectively, and we may be unable to renew leases or find replacement tenants.

Certain changes in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint, continue to impact the market.

Certain changes in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint, continue to impact the office sector and our portfolio.

The utilization and demand for office space continues to face headwinds and the duration and ultimate impact of current trends on the demand for office space at our properties remains uncertain and subject to change.

Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations nor the long-term outlook for leasing our properties.

Accordingly, we do not yet know what the full extent of the impacts will be on our or our tenants’ businesses and operations nor the long-term outlook for leasing at our properties.

Higher interest rates, inflationary pressures, geopolitical hostilities and tensions, and concerns that the U.S.

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We also have a significant amount of debt maturing in the next 12 months.

Deteriorating office fundamentals, high interest rates and market sentiment towards the office sector will likely restrict our access to, and increase our cost of, capital as we seek to refinance our debts.

As of October 30, 2024, our total available liquidity was comprised of $146,448 of cash and, in addition to long-term debt, we had $456,700 of the 2025 Notes due on February 1, 2025.

Given the limited alternatives available to us to obtain debt or equity to refinance our maturing debt, the illiquid nature of our real estate assets and our ability to incur additional debt while maintaining compliance with the financial covenants in our existing debt agreements, we are currently in negotiations with certain holders of the 2025 Notes regarding a potential note exchange.

However, we are not able to conclude that it is probable that the negotiations will result in an exchange that refinances the 2025 Notes prior to their maturity.

Accordingly, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or October 30, 2024.

For more information about the risks relating to these dynamics and conditions and their impacts on us and our business, see Part I, Item IA, “Risk Factors”, of our 2023 Annual Report.

Property Operations

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of June 30, 2024 and excludes two properties owned by an unconsolidated joint venture in which we owned a 51% interest.

Unless otherwise noted, the data presented in this section includes properties classified as held for sale as of September 30, 2024 and excludes two properties owned by an unconsolidated joint venture in which we owned a 51% interest.

For more information regarding our properties classified as held for sale and our unconsolidated joint venture, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Occupancy data for our properties as of June 30, 2024 and 2023 was as follows (square feet in thousands):

Occupancy data for our properties as of September 30, 2024 and 2023 was as follows (square feet in thousands):

All Properties (1)

Comparable Properties (2)

September 30,

2024 2023 2024 2023

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82.8 % 89.9 % 89.3 % 93.9 %

(1) Based on properties we owned on June 30, 2024 and 2023, respectively.

(1) Based on properties we owned on September 30, 2024 and 2023, respectively.

(2) Based on properties we owned continuously since January 1, 2023;

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(4) Percent leased includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any, as of the measurement date.

The average effective rental rate per square foot for our properties for the three and six months ended June 30, 2024 and 2023 were as follows:

Three Months Ended June 30, Six Months Ended June 30,

The average effective rental rate per square foot for our properties for the three and nine months ended September 30, 2024 and 2023 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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(1) Average effective rental rate per square foot represents annualized total rental income during the period specified divided by the average rentable square feet leased during the period specified.

(2) Based on properties we owned on June 30, 2024 and 2023, respectively.

(3) Based on properties we owned continuously since April 1, 2023 and January 1, 2023;

(2) Based on properties we owned on September 30, 2024 and 2023, respectively.

(3) Based on properties we owned continuously since July 1, 2023 and January 1, 2023;

excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we owned a 51% interest.

During the three and six months ended June 30, 2024, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

During the three and nine months ended September 30, 2024, changes in rentable square feet leased and available for lease at our properties were as follows (square feet in thousands):

Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024

Leased Available for Lease Total Leased Available for Lease Total

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End of period 16,181 3,362 19,543 16,181 3,362 19,543

(1) Based on leases entered during the three and six months ended June 30, 2024, respectively.

During the three and six months ended June 30, 2024, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

Three Months Ended June 30, 2024

(1) Based on leases entered during the three and nine months ended September 30, 2024, respectively.

During the three and nine months ended September 30, 2024, we entered into new and renewal leases as summarized in the following table (square feet in thousands):

Three Months Ended September 30, 2024

New Leases Renewals Total

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$ 4.36 $ 6.65 $ 6.57

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

New Leases Renewals Total

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(1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

During the three and six months ended June 30, 2024, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and six months ended June 30, 2024, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

During the three and nine months ended September 30, 2024, changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the three and nine months ended September 30, 2024, when compared to prior effective rental rates per square foot in effect for the same space (and excluding space acquired vacant), were as follows (square feet in thousands):

Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024

Old Effective Rent Per Square Foot (1)

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(1) Effective rental rates include contractual base rents from our tenants pursuant to our lease agreements, plus straight line rent adjustments and estimated expense reimbursements to be paid to us, and exclude lease value amortization.

During the three and six months ended June 30, 2024 and 2023, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

Three Months Ended June 30, Six Months Ended June 30,

During the three and nine months ended September 30, 2024 and 2023, amounts capitalized at our properties for lease related costs, building improvements and development, redevelopment and other activities were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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(3) Development, redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue.

Includes capitalized interest and other operating costs of $1,172 for the six months ended June 30, 2024 and $3,721 and $6,713 for the three and six months ended June 30, 2023, respectively.

We did not capitalize any interest and other operating costs during the three months ended June 30, 2024.

As of June 30, 2024, we had estimated unspent leasing related obligations of $80,649, of which we expect to spend $40,947 over the next 12 months.

As of June 30, 2024, we had leases at our properties totaling approximately 3,763,000 rentable square feet that were scheduled to expire through December 31, 2025.

As of July 30, 2024, we expect tenants with leases totaling approximately 2,968,000 rentable square feet that are scheduled to expire through December 31, 2025, excluding space that has been re-leased and space for which we are in advanced negotiations to re-lease, not to renew or to downsize their leased space upon expiration, and we cannot be sure as to whether other tenants will renew their leases upon expiration.

Includes capitalized interest and other operating costs of $1,172 for the nine months ended September 30, 2024 and $1,978 and $8,691 for the three and nine months ended September 30, 2023, respectively.

We did not capitalize any interest and other operating costs during the three months ended September 30, 2024.

As of September 30, 2024, we had estimated unspent leasing related obligations of $100,646, of which we expect to spend $66,949 over the next 12 months.

As of September 30, 2024, we had leases at our properties totaling approximately 3,090,000 rentable square feet that were scheduled to expire through December 31, 2025.

As of October 29, 2024, we expect tenants with leases totaling approximately 2,637,000 rentable square feet that are scheduled to expire through December 31, 2025, excluding space that has been re-leased and space for which we are in advanced negotiations to re-lease, not to renew or to downsize their leased space upon expiration, and we cannot be sure as to whether other tenants will renew their leases upon expiration.

Of the 2,637,000 rentable square feet leased to tenants known to be vacating, 1,765,000 rentable square feet relate to properties, excluding properties classified as held for sale, not encumbered by debt.

We continue to proactively engage with our existing tenants and are focused on overall tenant retention.

Prevailing market conditions and our tenants’ needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, all of which factors are beyond our control.

Prevailing market conditions and our tenants’ needs at the time we ne gotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties, all of which are beyond our control.

Whenever we renew or enter into new leases for our properties, we intend to seek rents which are equal to or higher than our historical rents for the same properties;

however, our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions, which are beyond our control.

however, our ability to maintain or increase the rents for our properties will depend in large part upon market conditions, which are beyond our control.

We cannot be sure of the rental rates that will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter.

Also, we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations or lower rents upon lease renewal or reletting.

Additionally, we may incur significant costs and make significant concessions to renew our leases with current tenants or lease our properties to new tenants.

As of June 30, 2024, our lease expirations by year were as follows (square feet in thousands):

Also, we may experience material declines in our rental income due to vacancies upon lease expirations, early terminations or lower rents upon lease renewal or reletting.

Additionally, we may incur significant costs and make significant concessions to renew our leases with current tenants or attract new tenants to our properties.

As of September 30, 2024, our lease expirations by year were as follows (square feet in thousands):

Number of Leases Expiring Leased

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2033 and thereafter

53 6,119 37.7 % 100.0 % 180,040 39.7 % 100.0 %

Total 304 16,181 100.0 % $ 452,825 100.0 %

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Some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability.

As of June 30, 2024, tenants occupying approximately 2.2% of our rentable square feet and responsible for approximately 2.5% of our annualized rental income as of June 30, 2024 had exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034, 2035, 2036, 2037 and 2040, early termination rights become exercisable by other tenants who occupied an additional approximately 0.5%, 3.6%, 1.4%, 1.5%, 3.9%, 2.6%, 1.7%, 0.6%, 0.4%, 0.2%, 0.9%, 0.1%, 0.1% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 0.8%, 6.6%, 2.1%, 2.1%, 4.8%, 2.3%, 2.3%, 0.7%, 0.6%, 0.7%, 1.3%, 0.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of June 30, 2024.

In addition, as of June 30, 2024, pursuant to leases with eight of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These eight tenants occupied approximately 3.8% of our rentable square feet and contributed approximately 3.9% of our annualized rental income as of June 30, 2024.

(2) Leased square feet is pursuant to leases existing as of June 30, 2024, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

As of September 30, 2024, tenants occupying approximately 2.2% of our rentable square feet and responsible for approximately 2.6% of our annualized rental income as of September 30, 2024 had exercisable rights to terminate their leases before the stated terms of their leases expire.

Also, in 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034, 2035, 2036, 2037 and 2040, early termination rights become exercisable by other tenants who occupied an additional approximately 2.0%, 1.4%, 1.6%, 4.1%, 2.7%, 1.8%, 0.6%, 3.2%, 0.3%, 0.9%, 0.1%, 0.2% and 0.3% of our rentable square feet, respectively, and contributed an additional approximately 0.1%, 2.4%, 2.2%, 2.3%, 5.1%, 2.5%, 2.4%, 0.7%, 4.4%, 0.7%, 1.4%, 0.3%, 0.2% and 0.4% of our annualized rental income, respectively, as of September 30, 2024.

In addition, as of September 30, 2024, pursuant to leases with seven of our tenants, these tenants had rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets.

These seven tenants occupied approximately 3.9% of our rentable square feet and contributed approximately 4.2% of our annualized rental income as of September 30, 2024.

(2) Leased square feet is pursuant to leases existing as of September 30, 2024, and includes (i) space being fitted out for tenant occupancy pursuant to our lease agreements, if any, and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants, if any.

Square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants.

(3) In July 2024, we extended the lease term through 2037 for a tenant that leases 554 square feet representing $16,210 in annualized rental income as of June 30, 2024.

We generally will seek to renew or extend the terms of leases at properties with tenants when they expire.

However, market and economic factors, along with increases in remote work, changes in space utilization and government spending and budget priorities, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy.

If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet some of these properties.

As of June 30, 2024, we derived 23.7% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

If we are unable to extend or renew our leases, or we renew leases for reduced space, it may be time consuming and expensive to relet our properties.

As of September 30, 2024, we derived 24.1% of our annualized rental income from our properties located in the metropolitan Washington, D.C.

market area, which includes Washington, D.C., Northern Virginia and suburban Maryland.

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and/or (c) tenants with investment grade rated parent entities that do not guarantee the tenant’s lease obligations.

As of June 30, 2024, tenants contributing 52.3% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 8.5% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of June 30, 2024, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

As of September 30, 2024, tenants contributing 51.2% of annualized rental income were investment grade rated (or their payment obligations were guaranteed by an investment grade rated parent) and tenants contributing an additional 8.2% of annualized rental income were subsidiaries of an investment grade rated parent (although these parent entities were not liable for the payment of rents).

As of September 30, 2024, tenants representing 1% or more of our total annualized rental income were as follows (square feet in thousands):

Tenant Credit Rating Sq.

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6 State of California Investment Grade 431 2.7 % 12,745 2.8 %

7 Northrop Grumman Corporation Investment Grade 337 2.0 % 10,781 2.2 %

7 Sonesta International Hotels Corporation Not Rated 240 1.5 % 10,828 2.4 %

8 Northrop Grumman Corporation Investment Grade 337 2.1 % 10,781 2.4 %

9 State of Georgia Investment Grade 308 1.9 % 7,713 1.7 %

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11 PNC Bank Investment Grade 441 2.7 % 7,019 1.6 %

12 Allstate Insurance Corporation Investment Grade 468 2.8 % 6,486 1.3 %

12 Automatic Data Processing, Inc.

Investment Grade 289 1.8 % 6,346 1.4 %

13 Allstate Insurance Corporation Investment Grade 458 2.8 % 6,270 1.4 %

14 Open Text Corporation Non Investment Grade 166 1.0 % 6,178 1.4 %

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19 Science Applications International Corp Non Investment Grade 159 1.0 % 5,254 1.2 %

20 BAE Systems plc Investment Grade 165 1.0 % 4,892 1.0 %

20 Rocky Mountain University of Health Professions, Inc.

Not Rated 170 1.1 % 4,862 1.1 %

21 Berkshire Hathaway Inc.

Investment Grade 134 0.8 % 4,674 1.0 %

22 CommScope Holding Company Inc.

Non Investment Grade 96 0.6 % 4,546 1.0 %

Total 9,127 56.5 % $ 271,616 60.0 %

(1) In July 2024, we extended the lease term through 2037 for 554 square feet with this tenant.

Disposition Activities

During the six months ended June 30, 2024, we sold one property containing approximately 248,000 rentable square feet for a sales price of $38,500, excluding closing costs.

The net proceeds from this sale were used to repay amounts outstanding under our revolving credit facility.

During the nine months ended September 30, 2024, we sold seven properties containing approximately 998,000 rentable square feet for a sales price of $84,810, excluding closing costs.

The net proceeds from these sales were used to repay amounts outstanding under our revolving credit facility.

We continue to evaluate our portfolio and are currently in various stages of marketing certain of our properties for sale, and we may seek to sell additional properties in the future.

As of July 30, 2024, we have entered into agreements to sell 12 properties containing approximately 1,395,000 rentable square feet for an aggregate sales price of $93,539, excluding closing costs.

As of October 29, 2024, we have entered into agreements to sell 17 properties containing approximately 1,609,000 rentable square feet for an aggregate sales price of $119,152, excluding closing costs.

We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise.

In addition, our pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the pricing will not change.

For more information about our disposition activities, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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RESULTS OF OPERATIONS (amounts in thousands, except per share amounts)

Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023

Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

Comparable Properties (1) Results

Three Months Ended June 30,

Three Months Ended September 30,

Non-Comparable

Properties Results

Three Months Ended June 30,

Three Months Ended September 30,

Consolidated Results

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 $ Change % Change 2024 2023 2024 2023 $ Change % Change

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Loss on impairment of real estate 41,847 — 41,847 n/m

Transaction related costs — 11,181 (11,181) n/m

Transaction related costs 738 16,135 (15,397) (95.4 %)

General and administrative 4,927 5,720 (793) (13.9 %)

Total other expenses 93,559 74,121 19,438 26.2 %

Loss on sale of real estate (64) (2,305) 2,241 (97.2 %)

Gain on sale of real estate 8,456 244 8,212 n/m

Interest and other income 196 281 (85) (30.2 %)

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Gain on early extinguishment of debt 264 — 264 n/m

Income (loss) before income tax benefit (expense) and equity in net losses of investees 76,244 (11,340) 87,584 n/m

Income tax benefit (expense) 107 (211) 318 (150.7 %)

Loss before income tax expense and equity in earnings of unconsolidated joint venture (58,018) (18,733) (39,285) n/m

Income tax expense (230) (95) (135) 142.1 %

Equity in net losses of investees (166) (765) 599 (78.3 %)

Net income (loss) $ 76,171 $ (12,242) $ 88,413 n/m

Net loss $ (58,414) $ (19,593) $ (38,821) 198.1 %

Weighted average common shares outstanding (basic and diluted) 51,197 48,403 2,794 5.8 %

Per common share amounts (basic and diluted):

Net income (loss) $ 1.56 $ (0.25) $ 1.81 n/m

Net loss $ (1.14) $ (0.41) $ (0.73) 178.0 %

n/m - not meaningful

(1) Comparable properties consists of 131 properties we owned on June 30, 2024 and which we owned continuously since April 1, 2023 and excludes 15 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we own a 51% interest.

(1) Comparable properties consists of 123 properties we owned on September 30, 2024 and which we owned continuously since July 1, 2023 and excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we own a 51% interest.

(2) Our definition of net operating income, or NOI, and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

Rental income.

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Real estate taxes.

Real estate taxes for non-comparable properties declined $1,520 related to our property disposition activities, partially offset by an increase of $1,410 due to the substantial completion of redevelopment activities at certain properties.

Real estate taxes for comparable properties declined $1,064 primarily due to refunds received in the 2024 period as a result of successful tax appeals at certain of our properties.

Real estate taxes increased $2,217 for redevelopment properties due to the substantial completion of redevelopment activities at certain properties and $1,535 for comparable properties resulting from successful tax appeals at certain of our properties in the 2023 period, partially offset by a decrease of $1,082 related to our property disposition activities.

Utility expenses.

Utility expenses for non-comparable properties declined $170 related to our property disposition activities, partially offset by an increase of $114 due to the substantial completion of redevelopment activities at certain properties.

Utility expenses for comparable properties increased $76 primarily due to higher water and sewer costs in the 2024 period.

Utility expenses for comparable properties increased $465 primarily due to higher electricity costs in the 2024 period and $51 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decrease of $107 related to our property disposition activities.

Other operating expenses.

Other operating expenses for non-comparable properties declined $2,133 related to our property disposition activities, partially offset by an increase of $609 due to the substantial completion of redevelopment activities at certain properties.

Other operating expenses for comparable properties increased $1,058 due to higher repair and maintenance and insurance costs in the 2024 period.

Other operating expenses for comparable properties increased $197 due to higher repair and maintenance and salary costs in the 2024 period.

Depreciation and amortization.

Depreciation and amortization for comparable properties declined $3,487 due to certain leasing related assets becoming fully depreciated since April 1, 2023, partially offset by depreciation and amortization of improvements made to certain of our properties since April 1, 2023.

Depreciation and amortization for comparable properties declined $519 due to certain leasing related assets becoming fully depreciated since July 1, 2023, partially offset by depreciation and amortization of improvements made to certain of our properties since July 1, 2023.

Depreciation and amortization for non-comparable properties increased $2,551 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decline of $8,251 related to our property disposition activities.

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Transaction related costs.

Transaction related costs in the 2024 period consist of costs related to our evaluation of potential financing transactions.

Transaction related costs in the 2023 period consist of costs incurred in connection with our terminated merger with Diversified Healthcare Trust, or DHC, and related financings.

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The decrease in general and administrative expenses is primarily the result of a decrease in base business management fees resulting from a decrease in average total market capitalization and a decrease in share based compensation in the 2024 period compared to the 2023 period.

Loss on sale of real estate.

We recorded a $2,305 net loss on sale of real estate resulting from the sale of two properties in the 2023 period.

Gain on sale of real estate.

We recorded a $8,456 net gain on sale of real estate resulting from the sale of six properties in the 2024 period.

We recorded a $244 gain on sale of real estate resulting from the sale of one property in the 2023 period.

Interest and other income.

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Gain on early extinguishment of debt .

We recorded a gain on early extinguishment of debt of $225,798 in the 2024 period resulting from the Senior Note Exchange.

For more information regarding the Senior Note Exchange, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income tax benefit (expense).

Income tax benefit (expense) is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate or the repayment of debt.

We recorded a gain on early extinguishment of debt of $264 in the 2024 period resulting from the exchange of certain of the 2025 Notes for our common shares.

For more information regarding these exchanges, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income tax expense.

Income tax expense is primarily the result of operating income earned in jurisdictions where we are subject to state income taxes and can fluctuate based on the timing of our income, including as a result of gains or losses on the sale of real estate or the repayment of debt.

Equity in net losses of investees.

Equity in net losses of investees represents our proportionate share of losses from our investments in two unconsolidated joint ventures.

Net income (loss).

Net income (loss) and net income (loss) per basic and diluted common share increased in the 2024 period compared to the 2023 period primarily as a result of the changes noted above.

Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023

Net loss and net loss per basic and diluted common share decreased in the 2024 period compared to the 2023 period primarily as a result of the changes noted above.

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

Comparable Properties (1) Results

Six Months Ended June 30,

Nine Months Ended September 30,

Non-Comparable

Properties Results

Six Months Ended June 30,

Nine Months Ended September 30,

Consolidated Results

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 $ Change % Change 2024 2023 2024 2023 $ Change % Change

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Total other expenses 337,190 203,523 133,667 65.7 %

(Loss) gain on sale of real estate

(2,448) 243 (2,691) n/m

Interest and other income 1,583 501 1,082 n/m

Gain on sale of real estate 6,008 487 5,521 n/m

Interest and other income 1,779 782 997 127.5 %

Interest expense (116,405) (80,591) (35,814) 44.4 %

Gain on early extinguishment of debt 225,637 — 225,637 n/m

Income (loss) before income tax benefit (expense) and equity in net losses of investees 71,346 (10,922) 82,268 n/m

Income tax benefit (expense) 51 (241) 292 (121.2 %)

Income (loss) before income tax expense and equity in earnings of unconsolidated joint venture 13,328 (29,655) 42,983 (144.9 %)

Income tax expense (179) (336) 157 (46.7 %)

Equity in net losses of investees (576) (2,290) 1,714 (74.8 %)

Net income (loss) $ 70,987 $ (12,688) $ 83,675 n/m

Net income (loss) $ 12,573 $ (32,281) $ 44,854 (138.9 %)

Weighted average common shares outstanding (basic and diluted) 49,444 48,365 1,079 2.2 %

Per common share amounts (basic and diluted):

Net income (loss) $ 1.45 $ (0.27) $ 1.72 n/m

Net (loss) income $ 0.25 $ (0.67) $ 0.92 (137.3 %)

n/m - not meaningful

(1) Comparable properties consists of 131 properties we owned on June 30, 2024 and which we owned continuously since January 1, 2023 and excludes 15 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we own a 51% interest.

(1) Comparable properties consists of 123 properties we owned on September 30, 2024 and which we owned continuously since January 1, 2023 and excludes 17 properties classified as held for sale, five properties affected by significant redevelopment activities and two properties owned by an unconsolidated joint venture in which we own a 51% interest.

(2) Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures.”

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Rental income.

Rental income for non-comparable properties increased $8,535 due to the lease-up of certain properties affected by significant redevelopment activities, partially offset by a decline in rental income of $1,489 related to our property disposition activities.

Rental income for non-comparable properties decreased $18,197 related to our property disposition activities, partially offset by an increase in rental income of $13,081 due to the lease-up of certain properties affected by significant redevelopment activities.

Rental income for comparable properties declined $10,923 as a result of increased vacancies and lower rents from lease renewals at certain of our properties in the 2024 period.

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Real estate taxes.

Real estate taxes for non-comparable properties declined $2,366 related to our property disposition activities, partially offset by an increase of $2,337 due to the substantial completion of redevelopment activities at certain

Real estate taxes for comparable properties declined $770 primarily due to refunds received in the 2024 period as a result of successful tax appeals at certain of our properties.

Real estate taxes for non-comparable properties increased $4,553 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decrease of $3,404 related to our property disposition

Real estate taxes for comparable properties increased $723 primarily due to successful tax appeals at certain of our properties in the 2023 period.

Utility expenses.

Utility expenses for non-comparable properties increased $485 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decline of $420 related to our property disposition activities.

Utility expenses for comparable properties increased $847 primarily due to the lease-up of certain previously vacant properties and increased utility expenses at newly vacant properties where tenants previously paid utility expenses directly in the 2024 period.

Utility expenses increased $536 due to the substantial completion of redevelopment activities at certain properties and $1,204 for comparable properties primarily due to the lease-up of certain previously vacant properties and increased utility expenses at newly vacant properties where tenants previously paid utility expenses directly in the 2024 period, partially offset by a decline of $420 related to our property disposition activities.

Other operating expenses.

Other operating expenses for non-comparable properties declined $1,492 related to our property disposition activities, partially offset by an increase of $1,168 due to the substantial completion of redevelopment activities at certain properties.

Other operating expenses for comparable properties increased $2,111 due to higher repair and maintenance costs, snow removal costs and insurance costs in the 2024 period.

Other operating expenses for comparable properties increased $2,423 due to higher repair and maintenance costs, snow removal costs and insurance costs in the 2024 period and $1,778 due to the substantial completion of redevelopment activities at certain properties, partially offset by a decline of $3,741 related to our property disposition activities.

Depreciation and amortization.

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Transaction related costs.

Transaction related costs consist of costs incurred in connection with our terminated merger with DHC and related financings.

Transaction related costs in the 2024 period consist of costs related to our evaluation of potential financing transactions.

Transaction related costs in the 2023 period consist of costs incurred in connection with our terminated merger with DHC and related financings.

General and administrative.

(Loss) gain on sale of real estate.

We recorded a $2,448 loss on sale of real estate resulting from the sale of one property in the 2024 period.

We recorded a $243 net gain on sale of real estate resulting from the sale of five properties in the 2023 period.

Gain on sale of real estate.

We recorded a $6,008 net gain on sale of real estate resulting from the sale of seven properties in the 2024 period.

We recorded a $487 net gain on sale of real estate resulting from the sale of six properties in the 2023 period.

Interest and other income.

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Interest expense.

The increase in interest expense is due to higher weighted average interest rates and higher average outstanding debt balances in the 2024 period.

The increase in interest expense is due to higher weighted average interest rates in the 2024 period.

Gain on early extinguishment of debt.

We recorded a net gain on early extinguishment of debt of $225,373 in the 2024 period resulting from the Senior Note Exchange.

For more information regarding the Senior Note Exchange, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income tax benefit (expense).

We recorded a gain on early extinguishment of debt of $225,637 in the 2024 period resulting from the Senior Note Exchange and exchanges of certain of the 2025 Notes for our common shares.

For more information regarding the Senior Note Exchange and the exchanges of the 2025 Notes for our common shares, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Income tax expense.

Equity in net losses of investees.

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We present certain “non-GAAP financial measures” within the meaning of the applicable SEC rules, including the calculations below of NOI, funds from operations, or FFO, and normalized funds from operations, or Normalized FFO.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net (loss) income as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net (loss) income as presented in our condensed consolidated statements of comprehensive net (loss) income.

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net (loss) income.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Net Operating Income

The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.

The calculation of NOI excludes certain components of net (loss) income in order to provide results that are more closely related to our property level results of operations.

We calculate NOI as shown below.

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Other real estate companies and REITs may calculate NOI differently than we do.

The following table presents the reconciliation of net income (loss) to NOI for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, Six Months Ended June 30,

The following table presents the reconciliation of net income (loss) to NOI for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Net income (loss) $ 76,171 $ (12,242) $ 70,987 $ (12,688)

Net (loss) income $ (58,414) $ (19,593) $ 12,573 $ (32,281)

Equity in net losses of investees 166 765 576 2,290

Income tax (benefit) expense (107) 211 (51) 241

Income (loss) before income tax (benefit) expense and equity in net losses of investees 76,244 (11,340) 71,346 (10,922)

Income tax expense 230 95 179 336

(Loss) income before income tax expense and equity in net losses of investees (58,018) (18,733) 13,328 (29,655)

Gain on early extinguishment of debt (264) — (225,637) —

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Interest and other income (196) (281) (1,779) (782)

Loss (gain) on sale of real estate 64 2,305 2,448 (243)

Gain on sale of real estate (8,456) (244) (6,008) (487)

General and administrative 4,927 5,720 15,861 17,430

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We calculate FFO and Normalized FFO as shown below.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us.

FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net (loss) income, calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and our proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the other items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

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Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

The following table presents the reconciliation of net income (loss) to FFO and Normalized FFO for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, Six Months Ended June 30,

The following table presents the reconciliation of net (loss) income to FFO and Normalized FFO for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Net income (loss) $ 76,171 $ (12,242) $ 70,987 $ (12,688)

Net (loss) income $ (58,414) $ (19,593) $ 12,573 $ (32,281)

Depreciation and amortization:

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Loss on impairment of real estate 41,847 — 173,579 —

Loss (gain) on sale of real estate 64 2,305 2,448 (243)

Gain on sale of real estate (8,456) (244) (6,008) (487)

FFO 21,640 33,269 328,792 125,329

Transaction related costs

738 16,135 971 30,534

Gain on early extinguishment of debt (264) — (225,637) —

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Normalized FFO per common share (basic and diluted) $ 0.43 $ 1.02 $ 1.89 $ 3.22

$ 0.68 $ 1.11 $ 1.47 $ 2.20

LIQUIDITY AND CAPITAL RESOURCES

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Our principal sources of funds to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate from our properties, net proceeds from property sales and borrowings under our revolving credit facility.

We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter.

Our future cash flows from operating activities will depend primarily upon:

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• our ability to develop, redevelop or reposition properties to produce cash flows in excess of our cost of capital and property operating and capital expenses.

The office industry has been adversely affected by shifts in office space utilization, including increased remote work arrangements and tenants consolidating their real estate footprint.

Demand for office space continues to face headwinds and the duration and ultimate impact of current trends on our properties remains uncertain and subject to change.

These conditions continue to have a significant negative impact on our results of operations, financial position and cash flows.

We are actively pursuing several strategic initiatives to improve liquidity, including asset sales and debt refinancing opportunities.

We plan to selectively sell certain properties from time to time to manage leverage levels and to improve our asset diversification, our geographic make-up and the average age of our properties, lengthen the weighted average term of our leases and increase tenant retention.

During the six months ended June 30, 2024, we sold one property for an aggregate sales price of $38,500 , excluding closing costs.

During the nine months ended September 30, 2024 , we sold seven properties for an aggregate sales price of $84,810 , excluding closing costs.

W e continue to evaluate our portfolio and are currently in various stages of marketing certain of our properties for sale.

As of July 30, 2024, we had 12 properties containing approximately 1,395,000 rentable square feet which are under agreement to sell for an aggregate sales price of $93,539.

As of October 29, 2024, we had 17 properties containing approximately 1,609,000 rentable square feet which are under agreement to sell for an aggregate sales price of $119,152.

We cannot be sure we will sell any properties we are marketing for sale for prices in excess of their carrying values or otherwise.

In addition, our pending sales are subject to conditions;

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the terms will not change.

accordingly, we cannot be sure that we will complete these sales or that these sales will not be delayed or the pricing will not change.

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash, cash equivalents and restricted cash at beginning of period $ 26,714 $ 12,249

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The decrease in cash provided by operating activities for the 2024 period compared to the 2023 period was primarily due to higher interest expense and decreased NOI due to property dispositions and reductions in occupied space at certain of our properties in the 2024 period.

The decrease in cash used in investing activities in the 2024 period compared to the 2023 period was primarily due to decreased capital expenditures in the 2024 period and higher proceeds received from property sales.

The decrease in cash used in investing activities in the 2024 period compared to the 2023 period was primarily due to decreased capital expenditures in the 2024 period, partially offset by higher proceeds received from property sales.

The change from cash provided by financing activities in the 2023 period to cash used in financing activities in the 2024 period was primarily due to lower net borrowings and payment of debt issuance costs, partially offset by decreased distributions to our common shareholders in the 2024 period.

Our Investment and Financing Liquidity and Resources (dollar amounts in thousands, except per share amounts)

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses or fund acquisitions, we maintain a revolving credit facility which is governed by our credit agreement.

Our obligations under our credit agreement are secured by a pledge by certain of our subsidiaries of all of their respective equity interests in certain of our direct and indirect property owning subsidiaries and first mortgage liens on 19 properties owned by the pledged subsidiaries with a gross book value of real estate assets of $1,001,437 as of June 30, 2024.

In order to meet cash needs that may result from our desire or need to pay operating or capital expenses, make distributions or fund acquisitions, we maintain a revolving credit facility which is governed by our credit agreement.

We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayments are due until maturity.

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Interest payable on borrowings under our credit agreement is based on a rate of SOFR plus a margin of 350 basis points.

We are also required to pay an unused facility fee on the amount of total lending commitments, which was 25 basis points per annum at June 30, 2024.

As of June 30, 2024, the annual interest rate payable on borrowings under our credit agreement was 8.9%.

As of June 30, 2024 and July 30, 2024, we had $178,000 and $190,000, respectively, outstanding under our revolving credit facility, $100,000 outstanding under our term loan and $147,000 and $135,000, respectively, available for borrowing under our revolving credit facility.

We are also required to pay an unused facility fee on the amount of total lending commitments, which was 25 basis points per annum at September 30, 2024.

As of September 30, 2024, the annual interest rate payable on borrowings under our credit agreement was 8.4%.

As of September 30, 2024, we had $200,000 outstanding under our revolving credit facility, $100,000 outstanding under our term loan and $125,000 available for borrowing under our revolving credit facility.

In October 2024, we

borrowed $125,000 under our revolving credit facility to preserve financial flexibility.

As of October 29, 2024, we had fully drawn our $325,000 revolving credit facility and $100,000 was outstanding under our term loan.

Senior Secured Notes Issuance and Senior Unsecured Notes Redemption

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The aggregate net proceeds from this offering were $270,712, after initial purchaser discounts and other offering expenses.

The 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and secured by a pledge of all of the respective equity interests of the subsidiary guarantors and first mortgage liens on 17 properties with a gross book value of real estate assets of $618,644 as of June 30, 2024.

The 2029 Notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after March 31, 2028.

In March 2024, we redeemed, at par plus accrued interest, all $350,000 of our 4.25% senior unsecured notes due 2024 using the proceeds from the 2029 Notes and borrowings under our revolving credit facility.

Senior Notes Exchange

Senior Notes Exchanges

In June 2024, in connection with the Senior Note Exchange, we exchanged $567,429 of the New 2029 Notes for $865,219 aggregate principal of the Existing Notes.

The New 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and are secured by first mortgage liens on 19 properties with a gross book value of real estate assets of $715,986 as of June 30, 2024 and second mortgage liens on the 19 properties securing our credit agreement.

The New 2029 Notes are fully and unconditionally guaranteed on a joint, several and senior secured basis by certain of our subsidiaries and are secured by first mortgage liens on 19 properties with a gross book value of real estate assets of $716,969 as of September 30, 2024 and second mortgage liens on the 19 properties securing our credit agreement.

The New 2029 Notes require semi-annual payments of interest only and are prepayable, at par plus accrued interest, after June 3, 2028.

For more information regarding the Senior Note Exchange and the New 2029 Notes, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of June 30, 2024, our debt maturities (other than our revolving credit facility), consisting of senior notes, a term loan and mortgage notes, were as follows:

During the three and nine months ended September 30, 2024, in a series of exchange transactions, we exchanged an aggregate principal amount of $8,300 of the 2025 Notes for an aggregate 3,184,432 of our common shares.

In October 2024, in a series of exchange transactions, we exchanged an additional aggregate principal amount of $34,154 of the 2025 Notes for an aggregate principal amount of $42,570 of new 9.0% senior secured notes due 2029 on substantially similar terms as the New 2029 Notes and 1,870,238 of our common shares.

For more information regarding the Senior Note Exchange, our subsequent senior note exchanges and the New 2029 Notes, see Note 7 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of September 30, 2024, our debt maturities (other than our revolving credit facility), consisting of senior notes, a term loan and mortgage notes, were as follows:

Year Debt Maturities

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however, certain of our mortgage notes will require payments of principal and interest after a specified date through maturity.

In addition to our debt obligations, as of June 30, 2024, we had estimated unspent leasing related obligations of $80,649, of which we expect to spend $40,947 over the next 12 months.

We currently expect to use cash balances, borrowings under our revolving credit facility, net proceeds from property sales, incurrences or assumptions of mortgage debt and net proceeds from offerings of debt or equity securities to fund our future operations, capital expenditures, distributions to our shareholders and property acquisitions.

When significant amounts are outstanding under our credit agreement or the maturities of our indebtedness approach, we expect to explore refinancing alternatives.

Such alternatives may include incurring term debt, issuing debt or equity securities, extending the maturity date of our revolving credit facility and entering into a new credit facility.

We may assume additional mortgage debt in connection with our acquisitions or elect to place new mortgages on properties we own as a source of financing.

We may also seek to participate in additional joint ventures or other arrangements that may provide us with additional sources of financing.

Although we cannot be sure that we will be successful in consummating any particular type of financing, we believe that we will have access to financing, such as debt and equity offerings, to fund capital expenditures and to pay our obligations or fund future acquisitions.

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

We currently do not have sufficient sources of liquidity to repay our $499,154 senior unsecured notes due 2025 and are evaluating market-based alternatives to obtain debt or equity financing.

Based on the significant number of unencumbered properties in our portfolio, our successful history of obtaining debt financings and our current financing metrics, we believe it is probable that we can obtain new debt financing that will allow us to satisfy the 2025 senior unsecured notes as they become

Additionally, as we have evaluated our financing options, we have determined that certain assets in our portfolio may not be suitable for secured financing.

We are considering whether to sell those assets to raise cash and are at various stages of the sales process for those properties.

We also continue to engage with Moelis & Company LLC as our financial advisor to assist in evaluating our options to address our upcoming debt maturities.

In addition to our debt obligations, as of September 30, 2024, we had estimated unspent leasing related obligations of $100,646, of which we expect to spend $66,949 over the next 12 months.

As of October 30, 2024, our total available liquidity was comprised of $146,448 of cash and, in addition to long-term debt, the 2025 Notes are due within one year from the date of issuance of these financial statements.

We are currently in negotiations with certain holders of the 2025 Notes for a potential note exchange.

While we believe a note exchange with certain holders of the 2025 Notes would alleviate the substantial doubt about our ability to continue as going concern, we are not able to conclude that it is probable that the negotiations will result in an exchange that satisfies the 2025 Notes prior to their maturity.

If we are unable to consummate a transaction that refinances the 2025 Notes on terms which, in our view, allow us to continue as a going

concern, our Board of Trustees may consider a reorganization in a bankruptcy court.

As a result of the foregoing, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, or October 30, 2024.

Our ability to obtain, and the costs of, our future debt financings will depend primarily on credit market conditions and our creditworthiness.

We have no control over market conditions.

Potential investors and lenders likely will evaluate our ability to pay distributions to shareholders, fund required debt service and repay debts when they become due by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes.

Potential investors and lenders will likely evaluate our ability to fund required debt service, repay debts when they become due and pay distributions to shareholders by reviewing our business practices and plans to balance our use of debt and equity capital so that our financial profile and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes.

Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows.

We intend to conduct our business in a manner that will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out this intention.

For instance, it is uncertain what the ultimate impacts of inflationary pressures, sustained high interest rates, deteriorating office fundamentals and market sentiment toward the office sector or any economic recession will be.

It is uncertain what the ultimate impacts of inflationary pressures, sustained high interest rates, deteriorating office fundamentals and market sentiment toward the office sector or any economic recession will be.

A protracted and extensive economic recession, further deterioration of office fundamentals or continued or intensified disruptions in capital markets could limit our access to financing from public sources, would likely increase our cost of capital and impact our ability to satisfy covenants and conditions under our credit agreement or senior notes.

During the six months ended June 30, 2024, we paid quarterly distributions to our shareholders totaling $975 using cash on hand.

On July 11, 2024, we declared a regular quarterly distribution payable to shareholders of record on July 22, 2024 of $0.01 per share, or approximately $503.

We expect to pay this distribution on or about August 15, 2024 using cash on hand.

During the nine months ended September 30, 2024, we paid quarterly distributions to our shareholders totaling $1,477 using cash on hand.

On October 16, 2024, we declared a regular quarterly distribution payable to shareholders of record on October 28, 2024 of $0.01 per share, or approximately $555.

We expect to pay this distribution on or about November 14, 2024 using cash on hand.

We determine our distribution payout ratio with consideration for restrictions under our credit agreement, our expected capital expenditures, cash flows from operations and payment of debt obligations.

For more information regarding the distributions we paid and declared during 2024, see Note 9 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We owned a 51% interest in an unconsolidated joint venture which owned two properties at June 30, 2024.

As of June 30, 2024, the properties owned by this joint venture were encumbered by $50,000 principal amount of mortgage indebtedness, none of which is recourse to us.

As of June 30, 2024, we did not control the activities that are most significant to this joint venture and, as a result, we accounted for our investment in this joint venture under the equity method of accounting.

We owned a 51% interest in an unconsolidated joint venture which owned two properties at September 30, 2024.

As of September 30, 2024, the properties owned by this joint venture were encumbered by $50,000 principal amount of mortgage indebtedness, none of which is recourse to us.

As of September 30, 2024, we did not control the activities that are most significant to this joint venture and, as a result, we accounted for our investment in this joint venture under the equity method of accounting.

For more information on the financial condition and results of operations of this joint venture, see Note 4 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other than this joint venture, as of June 30, 2024, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Other than this joint venture, as of September 30, 2024, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants (dollars in thousands)

Our principal debt obligations as of June 30, 2024 consisted of $178,000 of borrowings outstanding under our revolving credit facility, $100,000 outstanding principal amount under our secured term loan, an outstanding principal balance of $1,864,210 of senior notes and mortgage notes with an outstanding principal balance of $177,320.

Our principal debt obligations as of September 30, 2024 consisted of $200,000 of borrowings outstanding under our revolving credit facility, $100,000 outstanding principal amount under our secured term loan, an outstanding principal balance of $1,855,910 of senior notes and mortgage notes with an outstanding principal balance of $177,320.

Also, the two properties owned by the joint venture in which we owned a 51% interest secured an additional mortgage note.

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Our credit agreement and our senior notes indentures and their supplements also contain a number of covenants, including those that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to comply with certain financial covenants and, in the case of our credit agreement, restrict our ability to increase our distribution rate above the current level of $0.01 per common share per quarter.

As of June 30, 2024, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and our senior notes indentures and their supplements.

As of September 30, 2024, we believe we were in compliance with the terms and conditions of our respective covenants under our credit agreement and our senior notes indentures and their supplements.

Our mortgage notes are non-recourse, subject to certain limited exceptions, and do not contain any material financial covenants.

As of June 30, 2024, adjusted total assets for covenant purposes as defined in our senior notes indentures were $5,092,680.

As of September 30, 2024, adjusted total assets for covenant purposes as defined in our senior notes indentures were $5,173,078.

Assets serving as collateral under our credit agreement, our secured senior notes or mortgage notes represented $2,756,946 of adjusted total assets, as defined in our senior notes indentures.

Our unencumbered assets represented $2,416,132 of adjusted total assets.

The following table presents the calculation of adjusted total assets to total assets in accordance with GAAP as of June 30, 2024:

The following table presents the calculation of adjusted total assets to total assets in accordance with GAAP as of September 30, 2024:

Total assets $ 3,725,951

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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-Q

Item 2. Management’s Discussion and Analysis