CITY OFFICE REIT, INC. The following discussion and analysis is based on, and should be read in conjunction with, the condensed consolidated financial statements and the related notes thereto of theCity Office REIT, Inc. contained in this Quarterly Report on Form 10-Q (this "Report"). As used in this section, unless the context otherwise requires, references to "we," "our," "us," and "our company" refer toCity Office REIT, Inc. , aMaryland corporation, together with our consolidated subsidiaries, includingCity Office REIT Operating Partnership L.P. , aMaryland limited partnership, of which we are the sole general partner and which we refer to in this section as ourOperating Partnership , except where it is clear from the context that the term only meansCity Office REIT, Inc.
Cautionary Statement Regarding Forward-Looking Statements
This Report, including "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have used the words "approximately," "anticipate," "assume," "believe," "budget," "contemplate," "continue," "could," "estimate," "expect," "future," "intend," "may," "outlook," "plan," "potential," "predict," "project," "seek," "should," "target," "will" and similar terms and phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:
• adverse economic or real estate developments in the office sector or the
markets in which we operate;
• increased interest rates, any resulting increase in financing or
operating costs, the impact of inflation and a stall in economic growth
or an economic recession;
• changes in local, regional, national and international economic
conditions, including as a result of the coronavirus disease
("COVID-19")
pandemic;
• the extent to which "work from home" and hybrid work policies continue as
a result of the
COVID-19
pandemic;
• our inability to compete effectively;
• our inability to collect rent from tenants or renew tenants' leases on
attractive terms if at all;
• demand for and market acceptance of our properties for rental purposes,
including as a result of near-term market fluctuations or long-term
trends that result in an overall decrease in the demand for office space;
• decreased rental rates or increased vacancy rates, including as a result
of the ongoing
COVID-19
pandemic;
• our failure to obtain necessary financing or access the capital markets
on favorable terms or at all;
• changes in the availability of acquisition opportunities;
• availability of qualified personnel;
• our inability to successfully complete real estate acquisitions or
dispositions on the terms and timing we expect, or at all;
• our failure to successfully operate acquired properties and operations;
• changes in our business, financing or investment strategy or the markets
in which we operate;
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• our failure to generate sufficient cash flows to service our outstanding
indebtedness;
• environmental uncertainties and risks related to adverse weather
conditions and natural disasters;
• our failure to maintain our qualification as a REIT for U.S. federal
income tax purposes;
• government approvals, actions and initiatives, including the need for
compliance with environmental requirements;
• outcome of claims and litigation involving or affecting us;
• financial market fluctuations;
• changes in real estate, taxation and zoning laws and other legislation
and government activity and changes to real property tax rates and the
taxation of REITs in general; and
• other factors described in our news releases and filings with the
including but not limited to those described in our Annual Report on Form
10-K
for the year ended
Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and in our subsequent reports
filed with the SEC .
The forward-looking statements contained in this Report are based on historical
performance and management's current plans, estimates and expectations in light
of information currently available to us and are subject to uncertainty and
changes in circumstances. There can be no assurance that future developments
affecting us will be those that we have anticipated. Actual results may differ
materially from these expectations due to the factors, risks and uncertainties
described above, changes in global, regional or local political, economic,
business, competitive, market, regulatory and other factors described in our
news releases and filings with the SEC , including but not limited to those
described in our Annual Report on Form
10-K
for the year ended December 31, 2022 under the heading "Risk Factors" and in our
subsequent reports filed with the SEC , many of which are beyond our control.
Should one or more of these risks or uncertainties materialize, or should any of
our assumptions prove to be incorrect, our actual results may vary in material
respects from what we may have expressed or implied by these forward-looking
statements. We caution that you should not place undue reliance on any of our
forward-looking statements. Any forward-looking statement made by us in this
Report speaks only as of the date of this Report. Factors or events that could
cause our actual results to differ may emerge from time to time, and it is not
possible for us to predict all of them. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by applicable
securities laws.
Overview
Company
We were formed as a Maryland corporation on November 26, 2013 . On April 21,
2014 , we completed our IPO of shares of common stock. We contributed the net
proceeds of the IPO to our Operating Partnership in exchange for common units in
our Operating Partnership . Both we and our Operating Partnership commenced
operations upon completion of the IPO and certain related formation
transactions.
Revenue Base
As of
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Office Leases
Historically, most leases for our properties have been on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense "stop," whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant's proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries within rental and other revenues on our condensed consolidated statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected as tenant recoveries. We are also a lessor for a fee simple ground lease at the AmberGlen property.
Factors That May Influence Our Operating Results and Financial Condition
Economic Environment and Inflation
Economic conditions in theU.S. and globally continue to be volatile, primarily due to rising inflation. As inflation continued to reach new highs, it set off a chain reaction of events, beginning with theU.S. Federal Reserve taking and signaling severe tightening measures, interest rates rising across the yield curve, volatility and losses in the public equity and debt markets, and now increasing concerns that theU.S. economy may experience a recession. The banking and lending sector in particular has been impacted by the interest rate environment. This evolving operating environment impacts our operating activities as:
• business leaders may generally become more reticent to make large capital
allocation decisions, such as entry into a new lease, given the uncertain
economic environment;
• our cost of capital has increased due to higher interest rates and credit
spreads, and private market debt financing is significantly more
challenging to arrange; and
• retaining and attracting new tenants has become increasingly challenging
due to potential business layoffs, downsizing and industry slowdowns.
Despite the challenging economic environment, there is increasing evidence that many businesses have or will tighten up in-person work policies as economic conditions worsen. Many of these companies increased their workforce during the pandemic without increasing their available space. We expect these factors to help offset, at least partially, the recessionary headwinds to space demand.
COVID-19
Our business has been and will likely continue to be impacted by the
COVID-19
pandemic. In addition, our business has been and will likely continue to be
impacted by tenant uncertainty regarding office space needs given the evolving
remote and hybrid working trends as a result of the
COVID-19
pandemic. While the usage of our assets in the first quarter of 2023 was still
lower than
pre-pandemic
levels, usage has been increasing year over year. Usage of our assets in the
near future depends on corporate and individual decisions regarding return to
usage of office space, which is impossible to estimate.
Leasing activity has been and is expected to be impacted by the
COVID-19
pandemic until and unless tenants increase utilization of their spaces. We have
experienced and we expect that we will continue to experience slower new leasing
and there remains uncertainty over existing tenants' long-term space
requirements. Overall, this could reduce our anticipated rental revenues. In
addition, certain tenants in our markets have and may explore opportunities to
sublease all or a portion of their leased square footage to other tenants or
third parties. While subleasing generally does not impact the ability to collect
payment from the original lessee and will not result in any decrease in the
rental revenues expected to be received from the primary tenant, this trend
could reduce our ability to lease incremental square footage to new tenants,
could increase the square footage of our properties that "goes dark," could
reduce anticipated rental revenue should tenants determine their long-term needs
for square footage are lower than originally anticipated and could impact the
pricing and competitiveness for leasing office space in our markets.
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We will continue to actively evaluate business operations and strategies to optimally position ourselves given current economic and industry conditions.
Business and Strategy
We focus on owning and acquiring office properties in our footprint of growth markets predominantly in theSun Belt . Our markets generally possess growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, generally low-cost centers for business operations and a high quality of life. We believe these characteristics have made our markets desirable, as evidenced by domestic net migration generally towards our geographic footprint. We utilize our management's market-specific knowledge and relationships as well as the expertise of local real estate property and leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation.
Rental Revenue and Tenant Recoveries
The amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants' industries, including as a result of rising interest rates and the increasing likelihood of aU.S. recession, that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria. 18
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Our Properties
As ofMarch 31, 2023 , we owned 25 properties comprised of 60 office buildings with a total of approximately 6.0 million square feet of NRA in the metropolitan areas ofDallas ,Denver ,Orlando ,Phoenix ,Portland ,Raleigh ,San Diego ,Seattle andTampa . The following table presents an overview of our portfolio as ofMarch 31, 2023 . Annualized Gross NRA Annualized Base Annualized Rent per Square Base Rent Economic (000s Square In Place Rent per Square (2) Metropolitan Foot Area Property Interest Feet) Occupancy Foot (1) ($000s)Phoenix, AZ (25.3% of NRA) Block 23 100.0 % 307 94.5 % $ 30.02 $ 32.30$ 8,706 Pima Center 100.0 % 272 45.8 % $ 29.06 $ 29.06$ 3,618 SanTan 100.0 % 267 45.4 % $ 31.98 $ 31.98$ 3,871 5090 N. 40 th St 100.0 % 176 68.1 % $ 34.03 $ 34.03$ 4,068 Camelback Square 100.0 % 172 84.4 % $ 34.41 $ 34.41$ 5,005 The Quad 100.0 % 163 100.0 % $ 32.40 $ 32.72$ 5,282 Papago Tech 100.0 % 163 88.7 % $ 24.40 $ 24.40$ 3,522 Tampa, FL (17.5%) Park Tower 94.8 % 478 89.0 % $ 27.62 $ 27.62$ 11,758 City Center 95.0 % 244 85.5 % $ 28.27 $ 28.27$ 5,895 Intellicenter 100.0 % 204 100.0 % $ 25.64 $ 25.64$ 5,219 Carillon Point 100.0 % 124 100.0 % $ 30.25 $ 30.25$ 3,757 Denver, CO (13.4%) Denver Tech 100.0 % 381 85.6 % $ 24.29 $ 28.74$ 7,731 Circle Point 100.0 % 272 89.3 % $ 19.84 $ 34.71$ 4,816 Superior Pointe 100.0 % 152 81.7 % $ 18.47 $ 31.47$ 2,299 Orlando, FL (12.0%) Florida Research Park 96.6 % 397 88.0 % $ 26.03 $ 27.77$ 8,989 Central Fairwinds 97.0 % 168 89.0 % $ 27.87 $ 27.87$ 4,172 Greenwood Blvd 100.0 % 155 100.0 % $ 24.75 $ 24.75$ 3,837 Dallas, TX (9.8%) 190 Office Center 100.0 % 303 77.5 % $ 26.57 $ 26.57$ 6,241 The Terraces 100.0 % 173 99.0 % $ 38.68 $ 58.68$ 6,609 2525 McKinnon 100.0 % 111 97.8 % $ 30.27 $ 51.27$ 3,298 Raleigh, NC (8.3%) Bloc 83 100.0 % 495 83.5 % $ 37.41 $ 37.63$ 15,459 Portland, OR (5.5%) AmberGlen 76.0 % 203 98.4 % $ 23.78 $ 27.05$ 4,741 Cascade Station 100.0 % 128 100.0 % $ 29.22 $ 31.14$ 3,743 San Diego, CA (4.7%) Mission City 100.0 % 281 75.3 % $ 39.21 $ 39.21$ 8,301 Seattle, WA (3.5%) Canyon Park 100.0 % 207 100.0 % $ 23.86 $ 29.86$ 4,934 Total / Weighted Average -March 31, 2023 (3) 5,996 84.9 % $ 28.71 $ 31.84$ 145,871
(1) Annualized gross rent per square foot includes adjustment for estimated
expense reimbursements of triple net leases.
(2) Annualized base rent is calculated by multiplying (i) rental payments
(defined as cash rents before abatements) for the month ended
by (ii) 12.
(3) Averages weighted based on the property's NRA, adjusted for occupancy.
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Operating Expenses
Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants' base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.
Conditions in Our Markets
Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance. While we generally expect the trend of positive population and economic growth in ourSun Belt cities to continue, there is no way for us to predict whether these trends will continue, especially in light of inflation and rising interest rates as well as the potential changes in tax policy, fiscal policy and monetary policy. In addition, it is uncertain and impossible to estimate the potential impact that the COVID-19 pandemic will have on the short- and long-term demand for office space in our markets.
Critical Accounting Policies and Estimates
The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year endedDecember 31, 2022 included in our Annual Report on Form 10-K for the year endedDecember 31, 2022 except for our election to apply the practical expedients related to Reference Rate Reform (Topic 848) as outlined in Note 2 of the condensed consolidated financial statements.
Results of Operations
Comparison of Three Months Ended
Rental and Other Revenues. Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased$1.1 million , or 2%, to$46.0 million for the three months endedMarch 31, 2023 compared to$44.9 million for the three months endedMarch 31, 2022 . Of this increase, theDecember 2021 acquisitions of Block 23, The Terraces and Bloc 83, which were undergoing first generation lease-up in 2022, contributed$0.6 million ,$0.2 million and$1.3 million , respectively. In addition, revenues fromPark Tower ,Circle Point and FRP Collection increased$0.8 million ,$0.5 million and$0.4 million , respectively, due to higher occupancy over the prior year. A further increase of$0.2 million can be attributed to our 190 Office Center property which recorded higher termination fee income in 2023 compared to 2022. Offsetting these increases, the disposition of Lake Vista Pointe inJune 2022 decreased revenue by$1.1 million . In addition, revenue decreased at SanTan by$1.4 million due to a termination fee recognized in the prior year and lower resulting occupancy in the current period associated with an early tenant departure. Lower occupancy at Pima Center also decreased revenue by$0.5 million . The remaining properties' rental and other revenues were relatively unchanged in comparison to the prior period.
Operating Expenses
Total Operating Expenses. Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by$1.0 million , or 3%, to$36.8 million for the three months endedMarch 31, 2023 , from$35.8 million for the three months endedMarch 31, 2022 . Of this increase, theDecember 2021 acquisitions of Block 23, The Terraces and Bloc 83, which were undergoing first generation lease-up in 2022, contributed$0.4 million ,$0.2 million and$0.4 million , respectively. In addition, total operating expenses fromPark Tower , FRP Collection andCircle Point increased$0.4 million ,$0.3 million and$0.2 million , respectively, due to higher operating costs associated with higher occupancy over the prior year. General and administrative expenses increased by$0.3 million over the prior period due primarily to higher payroll and stock-based compensation expense. Offsetting these increases, total operating expenses decreased at SanTan by$0.6 million due to lower occupancy at the property in comparison to the prior year. In addition, the disposition of Lake Vista Pointe decreased total operating expenses by$0.5 million and lower depreciation and amortization at Mission City decreased total operating expenses by$0.3 million . The remaining properties' expenses increased a combined$0.2 million . 20
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Property Operating Expenses. Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and re-leasing costs. Property operating expenses increased by$1.2 million , or 7%, to$17.7 million for the three months endedMarch 31, 2023 , from$16.5 million for the three months endedMarch 31, 2022 . Of this increase, theDecember 2021 acquisitions of Block 23, The Terraces and Bloc 83, which were undergoing first generation lease-up in 2022, contributed$0.3 million ,$0.1 million and$0.2 million , respectively. In addition, property operating expenses from FRP Collection andPark Tower increased$0.3 million and$0.3 million , respectively, due to higher operating costs associated with higher occupancy over the prior year. Offsetting these increases, the disposition of Lake Vista Pointe resulted in a$0.3 million decrease. The remaining properties' expenses increased a combined$0.3 million . General and Administrative. General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and Board of Directors, as well as non-cash stock-based compensation expenses. General and administrative expenses increased$0.3 million , or 9%, to$3.8 million for the three months endedMarch 31, 2023 , from$3.5 million reported in the prior period. General and administrative expenses increased primarily due to higher payroll and stock-based compensation expense. Depreciation and Amortization. Depreciation and amortization decreased by$0.5 million , or 3%, to$15.3 million for the three months endedMarch 31, 2023 , from$15.8 million reported for the same period in 2022. Of this decrease, our SanTan property contributed$0.5 million to the decrease mainly due to accelerated amortization of tenant-related assets recorded in the prior year associated with an early lease termination at the property. The disposition of Lake Vista Pointe also contributed$0.2 million to the decrease. Depreciation and amortization for Mission City decreased by$0.4 million as the amortization expense associated with acquired lease intangible assets were fully amortized in 2022. Offsetting these decreases, Block 23, Bloc 83 andCircle Point incurred higher depreciation and amortization expense of$0.2 million ,$0.2 million and$0.1 million , respectively, related to tenanting costs. The remaining properties' depreciation expenses were marginally lower in comparison to the prior year.
Other Expense (Income)
Interest Expense. Interest expense increased$2.2 million , or 37%, to$8.3 million for the three months endedMarch 31, 2023 , from$6.1 million for the three months endedMarch 31, 2022 . The increase was primarily attributable to higher amounts drawn and higher interest rates on our floating rate debt.
Cash Flows
Comparison of Three Months Ended
Cash, cash equivalents and restricted cash were
Cash flow from operating activities.
Net cash provided by operating activities decreased by
Cash flow to investing activities. Net cash used in investing activities increased by$5.5 million to$12.4 million for the three months endedMarch 31, 2023 compared to$6.9 million for the same period in 2022. The increase in cash used in investing activities was primarily due to an increase in additions to real estate properties for the three months endedMarch 31, 2023 . 21
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Cash flow from financing activities. Net cash provided by financing activities increased by$8.9 million to$6.5 million for the three months endedMarch 31, 2023 compared to$2.4 million used in financing activities for the same period in 2022. The increase in cash provided by financing activities was primarily due to higher net proceeds from borrowings partially offset by higher withholding taxes on restricted stock units vesting for the three months endedMarch 31, 2023 .
Liquidity and Capital Resources
Analysis of Liquidity and Capital Resources
We had approximately
On March 15, 2018, the Company entered into a credit agreement for the Unsecured Credit Facility that provided for commitments of up to$250 million , which included an accordion feature that allowed the Company to borrow up to$500 million , subject to customary terms and conditions. OnSeptember 27, 2019 , the Company entered into a five-year$50 million term loan, increasing its authorized borrowings under the Company's Unsecured Credit Facility from$250 million to$300 million . OnNovember 16, 2021 , the Company entered into an Amended and Restated Credit Agreement that increased the total authorized borrowings from$300 million to$350 million . OnJanuary 5, 2023 , the Company entered into a second amendment to the Amended and Restated Credit Agreement for the Unsecured Credit Facility and entered into a three-year$25 million term loan, increasing its total authorized borrowings from$350 million to$375 million . The Unsecured Credit Facility matures inNovember 2025 and may be extended 12 months at the Company's option upon meeting certain conditions. As ofMarch 31, 2023 , we had approximately$195.7 million outstanding under our Unsecured Credit Facility and a$4.2 million letter of credit to satisfy escrow requirements for a mortgage lender.
On
equity distribution agreements (collectively, the "Agreements") with each ofKeyBanc Capital Markets Inc. ,Raymond James & Associates, Inc. ,BMO Capital Markets Corp. ,RBC Capital Markets, LLC ,B. Riley FBR, Inc. ,D.A. Davidson & Co. andJanney Montgomery Scott LLC (the "Sales Agents") pursuant to which the Company may issue and sell from time to time up to 15,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or principals (the "ATM Program"). OnMay 7, 2021 the Company delivered toD.A. Davidson & Co. a notice of termination of the Agreement, effectiveMay 7, 2021 . The Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program during the three months endedMarch 31, 2023 . After considering the effect of the COVID-19 pandemic on our consolidated operations, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. For mortgages with financial covenants, the lenders' remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations. As ofMarch 31, 2023 , the lenders for three of our mortgage borrowings have elected their right to direct property cash flows into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. For these three properties, the total restricted cash as ofMarch 31, 2023 was$6.9 million . Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations and reserves established from existing cash. We have further sources such as proceeds from our public offerings, including under our ATM Program, and borrowings under our mortgage loans and our Unsecured Credit Facility. Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness and the issuance of equity and debt securities. We also may fund property acquisitions and non-recurring capital improvements using our Unsecured Credit Facility pending longer term financing. 22
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We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, we cannot assure you that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, interest rates, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as ofMarch 31, 2023 , including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options. Payments Due by Period (in thousands) More than Contractual Obligations Total 2023 2024-2025 2026-2027 5 years Principal payments on mortgage loans$ 712,113 $ 46,084 $ 396,190 $ 205,719 $ 64,120 Interest payments (1) 96,359 23,857 54,540 15,880 2,082 Tenant-related commitments 14,723 14,723 - - - Lease obligations 36,847 464 1,555 1,327 33,501 Total$ 860,042 $ 85,128 $ 452,285 $ 222,926 $ 99,703
(1) Contracted interest on the floating rate borrowings under our Unsecured
Credit Facility was calculated based on the balance and interest rate at
Unsecured Credit Facility were calculated based on the interest rate swap
rates fixing the SOFR component of the borrowing rates.
Inflation
Substantially all of our office leases provide for real estate tax and operating expense escalations. In addition, most of the leases provide for fixed annual rent increases. We believe that inflationary increases may be at least partially offset by these contractual rent increases and expense escalations. However, a longer period of inflation could affect our cash flows or earnings, or impact our borrowings, as discussed elsewhere in this Report.
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