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Item 1A. Risk Factors

2023-02-23 compared with 2022-02-17 · 114 added, 175 removed, 423 unchanged (41% of the section changed)

The risks summarized and detailed below are not the only risks facing us.

Please be aware that additional risks and uncertainties not currently known to us or that we currently believe to be immaterial could also materially harm our business, operating results, cash flows and/or financial condition, impair our future prospects, negatively affect our ability to make distributions to our stockholders and/or cause the price of our common stock to decline.

The risks detailed below are not the only risks facing us.

Please be aware that additional risks and uncertainties not currently known to us or that we currently believe to be immaterial could also materially harm our business, operating results, cash flows or financial condition, impair our future prospects, negatively affect our ability to make distributions to our stockholders or cause the price of our common stock to decline.

You should also refer to the other information contained in our periodic reports, including the Cautionary Note Regarding Forward-Looking Statements, our consolidated financial statements and the related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations for a further discussion of the risks, uncertainties, and assumptions relating to our business.

Summary of Risk Factors

Material risks that may affect our business, operating results and financial condition include, but are not limited to, the following:

Risks Related to Our Business and Operations

• economic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, such as work-from-home practices and utilization of co-working space;

• competition in the leasing market;

• conditions of the office market in general, and of the specific markets in which we operate;

• lease termination and/or tenant defaults, particularly by one of our significant lead tenants;

• early terminations of leases;

• managing properties owned by governmental tenants;

• adverse market and economic conditions;

• difficulty in identifying and consummating suitable acquisitions that meet our investment criteria;

• future acquisitions of properties may not yield anticipated returns, may disrupt our business, and may strain our resources;

• acquired properties may be located in new, unfamiliar markets;

• illiquidity of real estate investments;

• inability to dispose of properties in a timely or efficient manner;

• development and construction delays;

• our redevelopment and development strategies may not be successful;

• actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic and the emergence of variant strains, and governmental and private measures taken to combat such health crises;

• future terrorist attacks;

• cybersecurity incidents and security;

• uninsured losses or losses in excess of our insurance coverage;

• insolvency of our insurance carriers;

• lack of sole decision-making authority for our joint venture investments;

• costs of complying with governmental laws and regulations;

• liability for environmental contamination or adverse environmental conditions in our buildings;

• failure to comply with the Americans with Disabilities Act or similar regulations;

• physical and transitional effects of climate change;

• loss of key personnel;

• litigation;

• ineffective disclosure controls or internal controls;

Risks Related to Our Organization and Structure

• our organizational documents contain provisions that may have an anti-takeover effect and discourage third parties from seeking change of control transactions;

• our charter limits the number of shares a person may own which may discourage a takeover;

• our board of directors can take many actions without stockholder approval;

• our board of directors can issue stock with terms that may subordinate the rights of our common stockholders which may discourage a takeover;

• our board of directors could elect for us to be subject to certain Maryland law limitations on changes in control that could prevent transactions;

• our rights and the rights of our stockholders to recover claims against our board of directors and officers are limited;

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Risks Related to Tax Matters

• failure to qualify as a REIT;

• changes in tax laws;

• incurring certain tax liabilities;

• differences between the recognition of taxable income and the actual receipt of cash;

• our distributions do not qualify for certain reduced tax rates;

• a re-characterization of transactions may result in lost tax benefits or prohibited transactions;

• adverse changes in state and local tax laws;

• property taxes affecting returns on real estate;

Risks Associated with Debt Financing

• continuing to incur mortgage or other debt;

• rising interest rates;

• restrictive debt covenants;

• increases in variable-rate debt payments;

• changes in interest rates that impact our interest rate derivative contracts;

• replacement of USD LIBOR with Secured Overnight Financing Rate ("SOFR");

• a downgrade in our credit rating;

General Risks

• changes in our dividend policy;

• price and volume fluctuations in the public market, including on the New York Stock Exchange;

• future offering of debt securities;

• market interest rates changes and resulting effect on the value of our common stock;

• securities analysts' coverage of our common stock.

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Risks Related to Our Business and Operations

Economic, regulatory, socio-economic and/or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties.

Economic, regulatory, socio-economic or technology changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties.

The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties.

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The following factors, among others, may adversely affect the operating performance and long- or short-term value of our properties:

• changes in the national, regional, and local economic climate, particularly in markets in which we have a concentration of properties;

• changes in the national, regional, or local economic climate, particularly in markets in which we have a concentration of properties;

• local office market conditions such as employment rates and changes in the supply of, or demand for, space in properties similar to those that we own within a particular area;

• changes in the patterns of office or parking garage use due to telecommuting or work-from-home arrangements becoming more prevalent or that reduce the demand for office workers or parking spaces generally;

• increased demand for "co-working" or sharing of office space with other companies;

• changes in the patterns of office or parking garage use due to work-from-home arrangements, or remote work technology (e.g.

Metaverse, Zoom, etc) becoming more prevalent or other changes that reduce the demand for office workers or parking spaces generally;

• increased demand for "co-working", open workspaces, or sharing of office space with other companies;

• increased supply of office space due to the conversion of other asset classes such as shopping malls and other retail establishments to office space;

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• changes in interest rates and availability of permanent financing sources that may render the sale of a property difficult or unattractive or otherwise reduce returns to stockholders;

• changes in market rental rates and related concessions granted to tenants including, but not limited to, free rent, and tenant improvement allowances;

• changes in market rental rates and related concessions granted to tenants, including free rent and tenant improvement allowances;

• the financial stability of our tenants or groups of tenants in specific industry sectors (such as the oil and gas, hospitality, travel, retail, and co-working sectors), including bankruptcies, financial difficulties, or lease defaults by our tenants;

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• the need to periodically fund the costs to repair, renovate, and re-let space;

• earthquakes, tornadoes, hurricanes and other natural disasters, civil unrest, terrorist acts or acts of war, which may result in uninsured or under-insured losses;

• earthquakes, tornadoes, hurricanes and other natural disasters, civil unrest, terrorist acts or acts of war, any of which may result in uninsured or under-insured losses;

• health crises such as the spread of communicable diseases and governmental or private measures taken to combat such health crises;

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Any of the above factors may prevent us from generating sufficient cash flow to operate our business, make distributions to our stockholders, or maintain the value of our real estate properties.

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We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to the existing leases, or we may expend significant capital in our efforts to re-let space.

Every year, we compete with a number of other developers, owners, and operators of office and office-oriented, mixed-use properties to renew leases with our existing tenants and to attract new tenants.

The competition for credit worthy tenants is intense, and we may have difficulty competing, especially with competitors who have purchased properties at discounted prices allowing them to offer space at reduced rental rates, or those that have the ability to offer superior amenities or more flexible leasing terms.

The competition for credit worthy corporate tenants is intense, and we may have difficulty competing, especially with competitors who have purchased properties at discounted prices allowing them to offer space at reduced rental rates, or those that have the ability to offer superior amenities or more flexible leasing terms.

If our competitors offer office accommodations 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 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 to new tenants, the terms and other costs of renewal or re-letting, including the cost of required

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renovations or additional amenities, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases or require significant capital outlays.

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

If we are unable to renew leases or re-let space in a reasonable time, or if rental rates decline or tenant improvements, leasing commissions, or other costs increase, our financial condition, operating results, or cash flows could be adversely affected.

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This concentration exposes us to the risk of economic downturns in the office sector to a greater extent than if our portfolio also included other sectors of the real estate industry.

Further, our portfolio of properties is primarily located in seven major metropolitan areas:

Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York.

Collectively, these seven metropolitan areas accounted for approximately 96% of our ALR as of December 31, 2021.

As a result, we are particularly susceptible to adverse market conditions in these cities, including any reduction in demand for office properties, industry slowdowns, civil unrest, governmental cut backs, relocation of businesses and changing demographics.

Adverse economic or real estate developments in these markets, or in any of the other markets in which we operate, or any decrease in demand for office space resulting from the local or national government and business climates or changing office market trends, could adversely affect our rental revenues and operating results.

We depend on tenants for our revenue, and accordingly, lease terminations and/or tenant defaults, particularly by one of our significant lead tenants, could adversely affect the income produced by our properties.

Collectively, over two-thirds of our ALR is generated from our properties located in our Sunbelt markets as of December 31, 2022.

As a result, we are particularly susceptible to adverse market conditions in these markets, including any reduction in demand for office properties, industry slowdowns, civil unrest, natural disasters, governmental cut backs, relocation of businesses, business layoffs or downsizing, and changing demographics.

Our operations may also be affected if competing properties are built in any of these markets.

We may be adversely affected by trends in the office real estate industry.

Businesses have increasingly implemented remote work and flexible work arrangements.

There has also been a trend of businesses utilizing open workspaces and “co-working” spaces.

These practices enable businesses to reduce their space requirements.

These trends, some of which could accelerate as a result of changes in work practices during the COVID-19 pandemic, could erode demand for commercial office space and, in turn, place downward pressure on occupancy, rental rates and property valuations.

We depend on tenants for our revenue, and accordingly, lease terminations or tenant defaults, particularly by one of our significant lead tenants, could adversely affect the income produced by our properties.

The success of our investments materially depends on the financial stability of our tenants, any of whom may experience a change in their business at any time.

Many of our tenants have been adversely impacted by the specific consequences of the COVID-19 pandemic or various geopolitical developments that negatively affect international trade.

If any of our tenants, or groups of tenants in specific industry sectors, experience or anticipate an adverse change in their respective businesses for any reason, they may delay lease commencements, decline to extend or renew their leases upon expiration, fail to make rental payments when due, or declare bankruptcy.

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The occurrence of any of the situations described above, particularly if it involves one of our significant lead tenants, could seriously harm our operating performance.

As of December 31, 2021, only two tenants represented 5% or more of our revenue stream:

As of December 31, 2022, our two largest tenants were:

US Bancorp (5.0% of ALR) and State of New York (4.6% of ALR).

The revenues generated by the properties that any of our lead tenants occupy are substantially dependent upon the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency, or a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments, which may have a substantial adverse effect on our operating performance.

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a general downturn in the business of any of these tenants may result in the failure or delay of such tenant’s rental payments, which may have a substantial adverse effect on our operating performance.

Some of our leases provide tenants with the right to terminate their leases early.

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We may face additional risks and costs associated with directly managing properties occupied by government tenants.

We currently own five properties in which some of the tenants are federal government agencies.

Lease agreements with these federal government agencies contain certain provisions required by federal law, which require, among other things, that the lessor or the owner of the property complies with certain rules and regulations, including but not limited to, rules and regulations related to anti-kickback procedures, examination of records, audits and records, equal opportunity provisions, prohibitions against segregated facilities, certain executive orders, subcontractor costs or pricing data, and certain provisions intended to assist small businesses.

Through one of our wholly-owned subsidiaries, we directly manage properties with federal government agency tenants and, therefore, we are subject to additional risks associated with compliance with all such federal

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rules and regulations.

We currently own six properties in which at least one of the tenants is a federal government agency.

Lease agreements with these federal government agencies contain certain provisions required by federal law, which require, among other things, that the lessor or the owner of the property complies with certain rules and regulations, rules and regulations related to anti-kickback procedures, examination of records, audits and records, equal opportunity provisions, prohibitions against segregated facilities, certain executive orders, subcontractor costs or pricing data, and certain provisions intended to assist small businesses.

We face additional risks and costs associated with directly managing properties occupied by government tenants, including an increased risk of default by such tenants during periods in which state or federal governments are shut down or on furlough.

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In addition, adverse economic conditions could also cause us to recognize additional asset impairment charges in the future, which could materially and adversely affect our business, financial condition and results of operations.

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Adverse market and economic conditions could cause us to recognize impairment charges on our goodwill.

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If that occurs, our goodwill could potentially be impaired.

Impairment charges recognized in order to reduce our goodwill could materially and adversely affect our financial condition and results of operations.

Impairment charges recognized in order to reduce our goodwill could materially and adversely affect our results of operations.

In conjunction with the performance of our goodwill impairment assessment during the year ended December 31, 2022, we recognized an impairment charge related to our goodwill of approximately $16.0 million.

See Note 2 to our accompanying consolidated financial statements for more information.

Our earnings growth will partially depend upon future acquisitions of properties, and we may not be successful in identifying and consummating suitable acquisitions that meet our investment criteria.

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Likewise, we may incur costs pursuing acquisitions that we are ultimately unsuccessful in completing.

We also face significant competition for attractive investment opportunities from a large number of other real estate investors, including investors with significant capital resources such as domestic and foreign corporations and financial institutions, publicly traded and privately held REITs, private institutional investment funds, investment banking firms, life insurance companies and pension funds.

We also face significant competition for attractive investment opportunities from a large number of other real estate investors, including investors with significant capital resources such as domestic and foreign corporations and financial institutions, other publicly traded and privately held REITs, private institutional investment funds, investment banking firms, life insurance companies and pension funds.

As a result of competition, we may be unable to acquire additional properties, the purchase price may be significantly elevated, or we may have to accept lease-up risk for a property with lower occupancy, any of which could adversely affect our financial condition, results of operations or cash flows.

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Future acquisitions of properties may not yield anticipated returns, may disrupt our business, and may strain management resources.

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In deciding whether to acquire a particular property, we make certain assumptions regarding the expected future performance of that property.

However, newly acquired properties may fail to perform as expected.

Costs necessary to bring acquired properties up to standards established for their intended market position may exceed our expectations, which may result in the properties’ failure to achieve projected returns.

However, newly acquired properties may fail to perform as expected for a variety of reasons.

For example, costs necessary to bring acquired properties up to standards established for their intended market position may exceed our expectations, which may result in the properties’ failure to achieve projected returns.

To the extent that we engage in acquisition activities, they will pose the following risks, among others:

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• we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, unknown/undisclosed latent structural issues or maintenance problems, claims by tenants, vendors or others against the former owners of the properties, and claims for indemnification by general partners, directors, officers, and others indemnified by the former owners of the properties.

Acquired properties may be located in new markets, where we may face risks associated with investing in an unfamiliar market.

We may acquire properties in new markets, where we may face risks associated with investing in an unfamiliar market.

We may acquire properties located in markets in which we do not have an established presence.

We may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures.

We may face risks associated

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with a lack of market knowledge or understanding of the local economy, acquiring additional properties in the new market and achieving economies of scale, forging new business relationships in the area and unfamiliarity with local government and permitting procedures.

As a result, the operating performance of properties acquired in new markets may be less than we anticipate, and we may have difficulty integrating such properties into our existing portfolio.

In addition, the time and resources that may be required to obtain market knowledge and/or integrate such properties into our existing portfolio could divert our management’s attention from our existing business or other attractive opportunities.

In addition, the time and resources that may be required to obtain market knowledge or integrate such properties into our existing portfolio could divert our management’s attention from our existing business or other attractive opportunities.

The illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties.

Because real estate investments are relatively illiquid and large-scale office properties such as those in our portfolio are particularly illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial, and investment conditions is limited.

The real estate market is affected by many forces, such as general economic conditions, availability of financing, interest rates, and other factors, including supply and demand, that are beyond our control.

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Our inability to dispose of assets at opportune times or on favorable terms could adversely affect our cash flows and results of operations.

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We may not be able to dispose of properties that no longer meet our strategic plans or to timely and efficiently apply the proceeds from any disposition of properties.

We may seek to dispose of properties that no longer meet our strategic plans with the intent to use the proceeds generated from such potential disposition to acquire additional properties better aligned with our investment criteria and growth strategy or to fund other operational needs.

We may not be able to dispose of these properties for the proceeds we expect, or at all, and we may incur costs and divert management attention from our ongoing operations as part of efforts to dispose of these properties, regardless of whether such efforts are ultimately successful.

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As such, we may not be able to adequately time any decrease in revenues from the sale of properties with a corresponding increase in revenues associated with the acquisition of new properties.

The failure to dispose of properties, or to timely and more efficiently apply the proceeds from any disposition of properties to attractive acquisition opportunities, could have an adverse effect on our results of operations.

Our operating results may suffer because of development and construction delays and resultant increased costs and risks.

From time to time, we engage in various development and re-development projects where we may be subject to uncertainties associated with re-zoning, environmental concerns of governmental entities and/or community groups, and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables.

Delays in completing construction could also give tenants the right to terminate pre-construction leases.

We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction.

Further, we may incur unanticipated additional costs related to disputes with existing tenants during redevelopment projects.

These and other factors can result in increased costs of a project or loss of our investment.

In addition, we will be subject to normal lease-up risks relating to newly constructed projects.

Projects with long lead times may increase leasing risk due to changes in market conditions.

The failure to dispose of properties, or to timely and efficiently apply the proceeds from any disposition of properties, could have an adverse effect on our cash flows and results of operations.

Our real estate redevelopment and development strategies may not be successful.

From time to time, we engage in various development and redevelopment activities to the extent attractive projects become available.

When we engage in development activities, we are subject to risks associated with those activities that could adversely affect our financial condition, results of operations and cash flows, including, but not limited to:

From time to time, we engage in various development and re-development activities to the extent attractive projects become available.

• uncertainties associated with zoning, land-use, building, occupancy and other governmental permits and authorizations, as well as, environmental concerns of governmental entities or community groups;

• our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables;

• delays in completing construction could give tenants the right to terminate pre-construction leases;

• risks associated with making progress payments or other advances to builders before they complete construction;

• unanticipated additional costs related to disputes with existing tenants during redevelopment projects;

• normal lease-up risks relating to newly constructed projects;

• projects with long lead times may increase leasing risk due to changes in market conditions;

• development projects in which we have invested may be abandoned and the related investment will be impaired;

• we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;

• we may not be able to obtain land on which to develop;

• we may not be able to obtain financing for development projects, or obtain financing on favorable terms;

• we may not be able to obtain financing for development projects on favorable terms (if at all);

• construction costs of a project may exceed the original estimates or construction may not be concluded on schedule, making the project less profitable than originally estimated or not profitable at all (including the possibility of errors or omissions in the project's design, contract default, contractor or subcontractor default, performance bond surety default, the effects of local weather conditions, the possibility of local or national strikes and the possibility of shortages in materials, building supplies or energy and fuel for equipment);

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• upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we financed through construction loans;

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• we may not achieve sufficient occupancy levels and/or obtain sufficient rents to make a completed project profitable;

• substantial renovation and development activities may require a significant amount of management’s time and attention, diverting their attention from our other operations.

Actual or threatened public health epidemics or outbreaks, such as the COVID-19 pandemic that the world is currently experiencing, as well as governmental and private measures taken to combat such health crises, could have a material adverse effect on our business operations and financial results.

The COVID-19 pandemic that the world is currently experiencing has adversely impact the U.S.

and global economies and our business and results of operations, changing in several ways the manner in which we operate with more emphasis on tenant and employee wellness, higher reliance on remote connectivity, and increased monitoring of tenant credit worthiness.

Various mandates from international, federal, state and local authorities requiring forced closures or other restrictions continue to impact certain markets in which our buildings are located.

Although some of these restrictions have been relaxed in certain jurisdictions, others have been reinstated in areas that experienced a resurgence of COVID-19 cases and the emergence of variant strains.

Such restrictions have affected the global economy and the regional U.S.

economies in which we operate, and

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have negatively impacted some of our tenants’ ability to pay their rent.

The restrictions put in place to combat the pandemic have also caused certain of our retail and restaurant tenants to close or operate at reduced capacity for an extended period of time, which could cause such tenants to default on their leases.

Our tenant’s inability to pay rent under our leases could adversely affect our own liquidity, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms in the future.

Although various governmental financial programs may mitigate the risk of our tenants being unable to pay their rent under our leases, governmental assistance may not be available to all affected tenants or may be significantly delayed or discontinued.

Piedmont has a $4.0 million general reserve as of December 31, 2021 related to tenant lease related assets.

There can be no assurances that this amount will be sufficient to cover any future losses of rental income should our tenants be unable to pay rents when such rents become due.

Actual or threatened public health epidemics or outbreaks such as the recent COVID-19 pandemic, as well as governmental and private measures taken to combat such health crises, could have a material adverse effect on our business operations and financial results.

Actual or threatened public health epidemics or outbreaks, and the actions taken to combat such epidemics or outbreaks, may adversely impact the global economy or the economic and other conditions in the markets in which we operate.

In particular, the recent COVID-19 pandemic and its associated variants adversely impacted the global economy and the regional U.S.

economies in which we operate, and negatively impacted some of our tenants’ ability to pay their rent.

The recent COVID-19 pandemic also accelerated some company’s adoption of remote work platforms and may result in a longer-term decrease in the need for office space among some companies.

While some effects of the COVID-19 pandemic have begun to subside, the rise of additional viral variants could cause a resurgence of the pandemic and its adverse impacts in the future.

Among other effects, any restrictions put in place to combat public health epidemics or outbreaks could cause some of our tenants to close or operate at reduced capacity for an extended period of time, in some cases causing such tenants to default on their leases, or could result in technological and social changes that reduce the long-term necessity for office space among companies generally.

Our tenants' inability to pay rent under our leases and any declines in demand for office space could adversely affect our own liquidity and operating results.

Future terrorist attacks, armed hostilities, or civil unrest in the major metropolitan areas in which we own properties could significantly impact the demand for, and value of, our properties.

Our portfolio of properties is primarily located in the following major metropolitan areas:

Dallas, Atlanta, Washington, D.C., Minneapolis, Boston, Orlando, and New York, any of which could be, and some of which have been, the target of terrorist attacks, armed hostilities, or civil unrest.

Atlanta, Dallas, Washington, D.C./Northern Virginia, Boston, Orlando, Minneapolis, and New York, any of which could be, and some of which have been, the target of terrorist attacks, armed hostilities, or civil unrest.

Future terrorist attacks and other acts of hostility, civil unrest, or war could severely impact the demand for, and value of, our properties.

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In addition, social engineering and phishing are a particular concern for companies with employees.

We are continuously working to install new networks and to upgrade our existing networks, building operating and information technology systems, and to train employees against phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches.

We are continuously working to install new

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networks and to upgrade our existing networks, building operating and information technology systems, and to train employees against phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches.

However, such upgrades, new technology and training may not be sufficient to protect us from all risks.

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Although we make efforts to maintain the security and integrity of these types of information technology networks and related systems, and despite various measures we have implemented to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches

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evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected.

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

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

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Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely impact our results of operations and cash flows.

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Our joint venture investments could be adversely affected by a lack of sole decision-making authority and our reliance on joint venture partners’ financial condition.

From time to time we may enter into strategic joint ventures with institutional investors to acquire, develop, and/or improve properties, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth.

Such joint venture investments involve risks not otherwise present in a wholly-owned property, development, or redevelopment project, including but not limited to the following:

From time to time we may enter into strategic joint ventures with institutional investors to acquire, develop, or improve properties, thereby reducing the amount of capital required by us to make investments and diversifying our capital sources for growth.

Such joint venture investments involve risks not otherwise present in a wholly-owned property, development, or redevelopment project, including the following:

• in these investments, we may not have exclusive control over the development, financing, leasing, management, and other aspects of the project, which may prevent us from taking actions that are opposed by our joint venture partners;

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• such co-venturer may, at any time, have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals;

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• such co-venturer may be in a position to take action contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a REIT;

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Any material expenditures, liabilities, fines, or damages we must pay will reduce our net income and cash flows.

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As the present or former owner or operator of real property, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination.

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Some of our properties are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.

In addition, certain of our properties are on,

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adjacent to, or near sites upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products or other hazardous or toxic substances.

In addition, certain of our properties are on, adjacent to, or near sites upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products or other hazardous or toxic substances.

The cost of defending against claims of liability, of remediating any contaminated property, or of paying personal injury claims could reduce our net income and cash flows.

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In addition, environmental laws and the common law may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos.

The properties also may contain or develop harmful mold or suffer from other air quality issues.

Our properties also may contain or develop harmful mold or suffer from other air quality issues.

Any of these materials or conditions could result in liability for personal injury and costs of remediating adverse conditions, which could have an adverse effect on our results of operations or cash flows.

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If our tenants become subject to liability for noncompliance, it could affect their ability to make rental payments to us.

We face possible risks associated with the physical effects of climate change.

We face risks associated with the physical effects of climate change.

The physical effects of climate change could have a material adverse effect on our properties, operations, and business.

The majority of our portfolio of properties is located along the Eastern coast of the United States.

To the extent that climate change causes variations in weather patterns, our markets could experience increases in storm intensity, larger flood zones, and/or rising sea-levels.

Over time, these conditions could result in physical damage to our buildings or a decline in demand for office space in our buildings.

Climate change could also indirectly negatively impact our business by causing increased costs associated with property and casualty or flood insurance, energy, or storm cleanup.

We may face possible risks associated with the transition to a lower-carbon economy.

Our markets could experience increases in rainfall, storm intensity, larger flood zones, water shortages, hurricanes, changing temperature averages or extremes, or rising sea-levels as a result of global climate change.

Over time, these conditions could result in physical damage

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to our buildings or a decline in demand for office space in our buildings.

Climate change could also indirectly negatively impact our business by causing increased costs associated with energy, storm cleanup, or property and casualty or flood insurance premiums, deductibles, claims or liabilities, or a decrease in or unavailability of coverage, for properties in areas subject to severe weather.

We may face risks associated with the transition to a lower-carbon economy.

Transitioning to a lower-carbon economy may entail extensive policy, legal, technological, and market changes to address mitigation and adaption requirements related to climate change.

Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to us and/or our tenants.

Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to us or our tenants.

Policy action around climate change such as implementing carbon-pricing mechanisms to reduce green house gas emission, shifting energy use toward lower emission sources, adopting energy-efficiency solutions, encouraging greater water efficiency measures, and promoting more sustainable land-use practices can result in financial impacts to both us and our tenants, including additional costs of auditing and reporting such data.

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Climate change has also been identified as a potential source of reputational risk tied to changing customer or community perceptions of an organization's contribution to or detraction from the transition to a lower-carbon economy.

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We depend on key personnel, each of whom would be difficult to replace.

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There can be no assurance that our insurance policies will fully cover any payments or legal costs associated with any potential legal action.

Further, the ultimate resolution of such action could impact the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and candidates for our board of directors.

Further, the ultimate resolution of such action could impact the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, or adversely impact our ability to attract officers and candidates for our board of directors.

If our disclosure controls or internal controls over financial reporting are not effective, investors could lose confidence in our reported financial information.

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Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in the trading price of our common stock, or otherwise materially adversely affect our business, reputation, results of operations, financial condition, or liquidity.

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Risks Related to Our Organization and Structure

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This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our stockholders.

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Our board of directors can take many actions without stockholder approval.

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For example, our board of directors can do the following:

• within the limits provided in our charter, prevent the ownership, transfer, and/or accumulation of stock in order to protect our status as a REIT or for any other reason deemed to be in our best interest and the interest of our stockholders;

• within the limits provided in our charter, prevent the ownership, transfer, or accumulation of stock in order to protect our status as a REIT or for any other reason deemed to be in our best interest and the interest of our stockholders;

• issue additional shares of stock without obtaining stockholder approval, which could dilute the ownership of our then-current stockholders;

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• determine that it is no longer in our best interest to attempt to qualify, or to continue to qualify, as a REIT.

• suspend, modify or terminate the dividend reinvestment plan.

Any of these actions could increase our operating expenses, impact our ability to make distributions, or reduce the value of our assets without giving our stockholders the right to vote.

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Such preferred stock also could have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock, or otherwise be in the best interest of our stockholders.

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Our board of directors could elect for us to be subject to certain Maryland law limitations on changes in control that could have the effect of preventing transactions in the best interest of our stockholders.

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• “control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, except solely by virtue of a revocable proxy, entitle the stockholder to exercise one of three increasing ranges of voting power in electing candidates for the board of directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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Our bylaws contain a provision exempting any acquisition by any person of shares of our stock from the control share acquisition statute, and our board of directors has adopted a resolution exempting any business combination with any person from the business combination statute.

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In addition, we may be obligated to fund the defense costs incurred by our board of directors and officers (as well as by our employees and agents) in some cases.

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Risks Related to Tax Matters

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No assurance can be given that we, or our subsidiary REIT, will qualify as a REIT for any particular year.

If we, or our subsidiary REIT, were to fail to qualify as a REIT in any taxable year for which a REIT election has been made, the non-qualifying REIT would not be allowed a deduction for dividends paid to its stockholders in computing our taxable income and would be subject to U.S.

federal income tax on its taxable income at corporate rates.

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As a result of such additional tax liability, we might need to borrow funds or liquidate certain investments on terms that may be disadvantageous to us in order to pay the applicable tax.

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Failure of our operating partnership to be treated as a disregarded entity or a partnership would have serious adverse consequences to our stockholders.

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For example, we will be subject to federal income tax on any undistributed REIT taxable income.

Further, if we fail to distribute during each calendar year at least the sum of (a) 85% of our ordinary income for such year, (b) 95% of our net capital gain income for such year, and (c) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (i) the amounts actually distributed by us, plus (ii) retained amounts on which we pay income tax at the corporate level.

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from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (i) the amounts actually distributed by us, plus (ii) retained amounts on which we pay income tax at the corporate level.

If we realize net income from foreclosure properties that we hold primarily for sale to customers in the ordinary course of business, we must pay tax thereon at the highest corporate income tax rate, and if we sell a property, other than foreclosure property, that we are determined to have held for sale to customers in the ordinary course of business, any gain realized would be subject to a 100% “prohibited transaction” tax.

The term “prohibited transaction” generally includes a sale or other disposition of property (other than foreclosing property) that is held primarily for sale to customers in the ordinary course of a trade or business.

The determination as to whether or not a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale.

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This could cause us to recognize taxable income prior to the receipt of the associated cash.

1 also includes limitations on the deductibility of certain compensation

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paid to our executives, certain interest payments, and certain net operating loss carryforwards, each of which could potentially increase our taxable income and our required distributions.

1 also includes limitations on the deductibility of certain compensation paid to our executives, certain interest payments, and certain net operating loss carryforwards, each of which could potentially increase our taxable income and our required distributions.

1, federal net operating losses incurred in taxable years beginning after December 31, 2017 can be carried forward indefinitely.

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The maximum federal income tax rate for certain dividends paid by domestic corporations to individuals, trusts and estates is generally 20%.

Dividends paid by REITs, however, (other than distributions we properly designate as capital gain dividends or as qualified dividend income) are taxed at the normal income tax rate applicable to the individual recipient (currently a maximum rate of 37%) rather than the 20% preferential rate, subject to a deduction equal to 20% of the amount of certain “qualified REIT dividends” that is available to noncorporate taxpayers through 2025, which has the effect of reducing the maximum effective income tax rate on qualified REIT dividends to 29.6%.

Dividends paid by REITs, however, (other than distributions we properly designate as capital gain dividends or as qualified dividend income) are taxed at the normal income tax rate applicable to the individual recipient (currently a maximum rate of 37%) rather than the 20% preferential rate, subject to a deduction equal to 20% of the amount of certain “qualified REIT dividends” (generally, dividends received by a REIT stockholder that are not designated as capital gain dividends or qualified dividend income) that is available to noncorporate taxpayers through 2025, which has the effect of reducing the maximum effective income tax rate on qualified REIT dividends to 29.6%.

The more favorable rates applicable to regular corporate dividends could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in non-REIT corporations that make distributions, particularly after the scheduled expiration of the 20% deduction applicable to qualified REIT dividends on December 31, 2025.

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A recharacterization of transactions undertaken by our operating partnership may result in lost tax benefits or prohibited transactions, which would diminish cash distributions to our stockholders, or even cause us to lose REIT status.

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Real property owned by us will be subject to real property taxes and, in some instances, personal property taxes or franchise taxes.

Such real and personal property taxes and franchise taxes may increase as property tax or franchise tax rates change and

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as the properties are assessed or reassessed by taxing authorities.

Such real and personal property taxes and franchise taxes may increase as property tax or franchise tax rates change and as the properties are assessed or reassessed by taxing authorities.

An increase in property taxes on or franchise taxes related to our real property could affect adversely our financial condition, results of operations, cash flow and ability to make distributions to stockholders and could decrease the value of that real property.

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We have incurred and are likely to continue to incur mortgage and other indebtedness, which may increase our business risks.

As of December 31, 2021, we had total outstanding indebtedness of approximately $1.9 billion and a total debt to gross assets ratio of 37.1%.

As of December 31, 2022, we had total outstanding indebtedness of approximately $2.0 billion, including $197.0 million of mortgage debt.

Although the instruments governing our indebtedness limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial.

We may incur additional indebtedness to acquire properties or other real estate-related investments, to fund property improvements, and other capital expenditures or for other corporate purposes, such as to repurchase shares of our common stock through repurchase programs that our board of directors have authorized or to fund future distributions to our stockholders.

Significant borrowings by us increase the risks of an investment in us.

Significant borrowings by us increase the risks of investors' willingness to make an investment in us.

Our ability to make payments on our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future.

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Moreover, any acceleration of, or default, with respect to any of our indebtedness could, in turn, constitute an event of default under other debt instruments or agreements, thereby resulting in the acceleration and required repayment of that other indebtedness.

In the future, we may need to refinance all or a portion of our indebtedness on or before maturity.

Periodically, we may need to refinance all or a portion of our indebtedness on or before maturity.

Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things our financial condition, results of operations and market conditions at the time;

and restrictions in the agreements governing our indebtedness.

As a result, we may not be able to refinance our indebtedness on commercially reasonable terms, or at all.

As a result, we may not be

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able to refinance our indebtedness on commercially reasonable terms, or at all.

If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of assets sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations.

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Covenants under our existing indebtedness do, and under any future indebtedness likely will, restrict our ability to pursue certain business initiatives or certain acquisition transactions.

In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under and/or accelerate some or all of our indebtedness, which would have a material adverse effect on us.

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In addition, failure to meet any of these covenants, including the financial coverage ratios, could cause an event of default under or accelerate some or all of our indebtedness, which would have a material adverse effect on us.

Increases in interest rates would cause the amount of our variable-rate debt payments to also increase and could limit our ability to make distributions to our stockholders.

Currently, any outstanding draws on our $600 Million Unsecured 2022 Line of Credit and our variable-rate debt instruments which are not subject to hedging under interest rate swap agreements represent our exposure to interest rate changes.

In addition, any outstanding draws under the $500 Million Unsecured 2018 Line of Credit are subject to LIBOR locks of various length.

In addition, any outstanding draws under the $600 Million Unsecured 2022 Line of Credit are subject to Adjusted SOFR locks of various length.

However, increases in interest rates could increase our interest costs associated with this variable rate debt to the extent our current locks expire and new balances are drawn under the facility.

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The potential termination or renegotiation of the terms of the interest rate derivative contracts as a result of changing counterparties through insolvency or merger could result in an adverse impact on our results of operations and cash flows.

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The replacement of LIBOR with SOFR may adversely affect our results of operations.

The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates and will cease publication of USD LIBOR as of June 30, 2023.

The Federal Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC"), and Office of the Comptroller of the Currency ("OCC") have issued supervisory guidance encouraging banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.

The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified SOFR as its preferred alternative for USD LIBOR.

As of December 31, 2021, our $500 Million Unsecured 2018 Line of Credit and our $250 Million Unsecured 2018 Term Loan had interest rate payments determined directly or indirectly based on LIBOR.

As of December 31, 2022, our $250 Million Unsecured 2018 Term Loan had interest rate payments determined based on LIBOR.

In addition, we currently have interest rate swaps with a notional value of $100 million that also use LIBOR as a reference rate.

Even if our financial instruments are successfully transitioned to SOFR, the interest rate payments determined using SOFR may differ from what such interest rate payments would have been using LIBOR, and the interest expense associated with our $500 Million Unsecured 2018 Line of Credit and our $250 Million Unsecured 2018 Term Loan, or any future indebtedness we incur, may increase relative to what such interest expense would have been had LIBOR continued to have been used as the reference rate.

Even if our financial instruments are successfully transitioned to SOFR, the interest rate payments determined using SOFR may differ from what such interest rate payments would have been using LIBOR, and the interest expense associated with our $250 Million Unsecured 2018 Term Loan may increase relative to what such interest expense would have been had LIBOR continued to have been used as the reference rate.

Additionally, SOFR may not align with our assets, liabilities, and hedging instruments, which could reduce the effectiveness of certain of our interest rate hedges, and could cause increased volatility in our earnings.

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If any of the credit rating agencies that have rated our unsecured debt securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and our ability to satisfy our debt service obligations.

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General Risks

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The market price of our common stock may be highly volatile and could be subject to wide fluctuations and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects.

If the market price of our common stock declines significantly, stockholders may be unable to resell their shares at or above their purchase price.

If the market price of our common stock declines significantly,

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stockholders may be unable to resell their shares at or above their purchase price.

We cannot assure stockholders that the market price of our common stock will not fluctuate or decline significantly in the future.

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• the realization of any of the other risk factors described in this report.

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Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may adversely affect the market price of our common stock.

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One of the factors that investors may consider in deciding whether to buy or sell our common stock is our dividend distribution rate as a percentage of our share price, relative to market interest rates.

If market interest rates increase, prospective investors may desire a higher yield on our common stock or seek securities paying higher dividends or yields.

If market interest rates continue to increase, prospective investors may desire a higher yield on our common stock or seek securities paying higher dividends or yields.

It is likely that the public valuation of our common stock will be based primarily on our earnings and cash flows and not from the underlying appraised value of the properties themselves.

As a result, interest rate fluctuations and capital market conditions can affect the market value of our common stock.

For instance, if interest rates rise, it is possible that the market price of our common stock will decrease, because potential investors may require a higher dividend yield on our common stock as market rates on interest-bearing securities, such as bonds, rise.

For instance, if interest rates continue to rise, it is possible that the market price of our common stock will decrease, because potential investors may require a higher dividend yield on our common stock as market rates on interest-bearing securities, such as bonds, rise.

If securities analysts do not publish research or reports about our business or if they downgrade our common stock or our sector, the price of our common stock could decline.

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If one or more of these analysts ceases coverage of our company, we could lose attention in the market, which in turn could cause the price of our common stock to decline.

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UNRESOLVED STAFF COMMENTS

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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