# Piedmont Realty Trust, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Piedmont Realty Trust, Inc.](/companies/pdm.md) (CIK 1042776)
- Form: 10-Q
- Filed: 2023-10-30
- Accepted by EDGAR: Oct 30, 2023, 16:22 ET
- Period: 2023-09-30
- Accession: 0001042776-23-000161
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1042776/000104277623000161/pdm-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1042776/000104277623000161/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $147.0m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $432.4m | us-gaap:Revenues |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $27.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $72.8m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$17.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$20.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.14 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.14 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 123,696,475 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 123,639,797 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $160.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $92.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-09-30 | $5.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $4.07bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $2.31bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $2.05bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $1.77bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 54,129 characters.

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto of Piedmont Office Realty Trust, Inc. (“Piedmont,” "we," "our," or "us"). See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Liquidity and Capital Resources

We intend to use cash on hand, cash flows generated from the operation of our properties, net proceeds from the potential disposition of select properties, and borrowings under our $600 Million Unsecured 2022 Line of Credit as our primary sources of immediate liquidity. Our next scheduled debt maturity is our $215 Million Unsecured 2023 Term Loan in January of 2024; however, we currently anticipate exercising the one year extension option on that facility (see Note 3 to our accompanying consolidated financial statements) to extend the maturity date to January of 2025. Our only other debt maturity over the next twelve months is the remaining $50.2 million of our $400 Million Unsecured Senior Notes due 2024, which we anticipate repaying upon maturity in March of 2024 using cash on hand and borrowings under our $600 Million Unsecured 2022 Line of Credit. Our $600 Million Unsecured 2022 Line of Credit had $443 million of availability as of September 30, 2023. We believe that we have sufficient liquidity to meet our obligations for the foreseeable future.

Our most consistent use of capital has historically been, and we believe will continue to be, to fund capital expenditures for our existing portfolio of properties. During the nine months ended September 30, 2023 and 2022 we incurred the following types of capital expenditures (in thousands):

|  | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Capital expenditures for redevelopment/renovations | **$40,634** | $47,172 |
| Other capital expenditures, including building and tenant improvements | **72,758** | 48,335 |
| Total capital expenditures (1) | **$113,392** | $95,507 |

(1) Of the total amounts paid, approximately $7.1 million and $5.2 million relates to soft costs such as capitalized interest, payroll, and other property operating costs for the nine months ended September 30, 2023 and 2022, respectively.

"Capital expenditures for redevelopment/renovations" during both the nine months ended September 30, 2023 and 2022 related to building upgrades, primarily to the lobbies and the addition of tenant amenities at our 60 Broad Street building in New York City, our Galleria Tower buildings in Dallas, Texas, as well as our Galleria buildings, 1155 Perimeter Center West, and 999 Peachtree Street in Atlanta, Georgia, among others.

"Other capital expenditures, including building and tenant improvements" includes all other capital expenditures during the period and is typically comprised of tenant and building improvements necessary to lease, maintain, or provide enhancements, including energy efficient equipment, to our existing portfolio of office properties.

We currently do not anticipate incurring any unusually large or material capital expenditures within any given year in order to meet recognized sustainable development standards, and achieve our environmental impact goals.

Given that our operating model frequently results in leases for multiple blocks of space to credit-worthy tenants, our leasing success can result in capital outlays which vary from one reporting period to another based upon the specific leases executed. For leases executed during the nine months ended September 30, 2023, we committed to spend approximately $6.20 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expired lease commitments) as compared to $4.93 (net of expired lease commitments) for the nine months ended September 30, 2022.

In addition to the amounts that we have already committed to as a part of executed leases, we also anticipate continuing to incur similar market-based tenant improvement allowances and leasing commissions in conjunction with procuring future leases for our existing portfolio of properties. Both the timing and magnitude of expenditures related to future leasing activity can vary due to a number of factors and are highly dependent on the size of the leased square footage and the competitive market conditions of the particular office market at the time a lease is being negotiated.

Although repayment of debt is currently our priority, there are other uses of capital that may arise from time to time as part of our operations. Subject to the identification and availability of attractive investment opportunities and our ability to consummate such acquisitions on satisfactory terms, acquiring new assets consistent with our investment strategy could also be a significant use of capital. Additionally, we have approximately $150.5 million of board-authorized share repurchase capacity remaining under our share repurchase program which could be used for share repurchases through February 2024.

We may also use capital resources to pay dividends to our stockholders. Given the significant increase in interest expense during the nine months ended September 30, 2023 (see *Results of Operations* below), we reduced our annual dividend from $0.84 per share to $0.50 per share beginning with the third quarter of 2023. This reduction will reduce the cash used to pay the dividend by approximately $40 million on an annual basis. The amount and form of payment (cash or stock issuance) of future dividends to be paid to our stockholders will continue to be largely dependent upon (i) the amount of cash generated from our operating activities; (ii) our expectations of future cash flows; (iii) our determination of near-term cash needs for debt repayments, development projects, and selective acquisitions of new properties; (iv) the timing of significant expenditures for tenant improvements, leasing commissions, building redevelopment projects, and general property capital improvements; (v) long-term dividend payout ratios for comparable companies; (vi) our ability to continue to access additional sources of capital, including potential sales of our properties; and (vii) the amount required to be distributed to maintain our status as a REIT. With the fluctuating nature of cash flows and expenditures, we may periodically borrow funds on a short-term basis to cover timing differences in cash receipts and cash disbursements, including to pay dividends to our stockholders.

### Results of Operations

#### Overview

Net loss applicable to common stockholders for the three months ended September 30, 2023 was approximately $17.0 million, or $0.14 per diluted share, as compared with net income applicable to common stockholders of $3.3 million, or $0.03 per diluted share, for the three months ended September 30, 2022. The decrease in net income reflects: (i) a $10.1 million increase in interest expense driven by increased interest rates on our debt during the third quarter of 2023 as compared to 2022; (ii) an $11.0 million non-cash impairment charge related to the reduction in our carrying value of goodwill during the third quarter of 2023; and (iii) a $0.8 million loss on early extinguishment of debt related to refinancing activity completed during the quarter (see Note 3 to our accompanying consolidated financial statements). These decreases were partially offset by continued growth in Property Net Operating Income as compared to the third quarter of 2022.

#### Comparison of the three months ended September 30, 2023 versus the three months ended September 30, 2022

### Income from Continuing Operations

The following table sets forth selected data from our consolidated statements of operations for the three months ended September 30, 2023 and 2022, respectively, as well as each balance as a percentage of total revenues for the same periods presented (dollars in millions):

| Revenue: | September 30, 2023 | % of Revenues | September 30, 2022 | % of Revenues | Variance |
| --- | ---: | ---: | ---: | ---: | ---: |
| Rental and tenant reimbursement revenue | **$141.5** |  | $139.5 |  | $2.0 |
| Property management fee revenue | **0.4** |  | 0.3 |  | 0.1 |
| Other property related income | **5.0** |  | 4.2 |  | 0.8 |
| Total revenues | **146.9** | 100% | 144.0 | 100% | 2.9 |
| **Expense:** |  |  |  |  |  |
| Property operating costs | **59.8** | 41% | 59.0 | 41% | 0.8 |
| Depreciation | **38.1** | 26% | 34.9 | 24% | 3.2 |
| Amortization | **20.2** | 14% | 23.3 | 16% | (3.1) |
| Goodwill impairment charge | **11.0** | 7% | — | —% | 11.0 |
| General and administrative | **7.0** | 4% | 6.6 | 5% | 0.4 |
|  | **136.1** |  | 123.8 |  | 12.3 |
| **Other income (expense):** |  |  |  |  |  |
| Interest expense | **(27.4)** | 19% | (17.2) | 12% | (10.2) |
| Other income | **0.4** | —% | 0.3 | —% | 0.1 |
| Loss on early extinguishment of debt | **(0.8)** | 1% | — | —% | (0.8) |
| **Net income/(loss)** | **$(17.0)** | (12)% | $3.3 | 2% | $(20.3) |

### Revenue

Rental and tenant reimbursement revenue increased approximately $2.0 million for the three months ended September 30, 2023, as compared to the same period in the prior year. The increase was primarily due to capital recycling activity completed during 2022 and higher tenant reimbursements as a result of higher recoverable operating expenses during the current period as tenant utilization of our buildings continued to increase during 2023 as compared to the prior period.

Other property related income increased approximately $0.8 million for the three months ended September 30, 2023 as compared to the same period in the prior year primarily due to higher transient parking at our buildings during the current period, as compared to the prior period. Additionally, parking revenue associated with the acquisition of 1180 Peachtree Street during the third quarter of 2022 also contributed to the increase.

### Expense

Property operating costs increased approximately $0.8 million for the three months ended September 30, 2023, as compared to the same period in the prior year. The variance was primarily due to higher recoverable operating expenses such as janitorial, security, and utilities resulting from higher tenant utilization during the current period, as well as capital recycling activity completed during 2022. Lower real estate taxes in certain jurisdictions, including favorable tax appeals at certain assets, partially offset these increases.

Depreciation expense increased approximately $3.2 million for the three months ended September 30, 2023 as compared to the same period in the prior year. The increase was primarily due to additional building and tenant improvements acquired and/or placed in service during the twelve months ended September 30, 2023.

Amortization expense decreased approximately $3.1 million for the three months ended September 30, 2023 as compared to the same period in the prior year. The decrease was primarily due to amortization expense associated with certain lease intangible assets at our existing properties becoming fully amortized during the twelve months ended September 30, 2023. The decrease was partially offset by additional amortization associated with the acquisition of 1180 Peachtree Street, purchased in August 2022.

During the three months ended September 30, 2023, we reduced the carrying amount of goodwill resulting in the recognition of a non-cash impairment charge of approximately $11.0 million. See Note 6 to our accompanying consolidated financial statements for further details.

### Other Income (Expense)

Interest expense increased approximately $10.2 million for the three months ended September 30, 2023, as compared to the same period in the prior year, primarily driven by increased interest rates during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The increase was partially offset by a $0.8 million increase in capitalized interest associated with various redevelopment projects in progress during the three months ended September 30, 2023.

The $0.8 million loss on early extinguishment of debt for the three months ended September 30, 2023 is comprised of the pro-rata write-off of unamortized debt issuance costs and discounts associated with the early repurchase of approximately $350 million aggregate principal amount of the $400 Million Unsecured Senior Notes due 2024, as well as fees paid, during the quarter ended September 30, 2023 (see Note 3 to our accompanying consolidated financial statements).

#### Comparison of the nine months ended September 30, 2023 versus the nine months ended September 30, 2022

The following table sets forth selected data from our consolidated statements of operations for the nine months ended September 30, 2023 and 2022, respectively, as well as each balance as a percentage of total revenues for the same period presented (dollars in millions):

| Revenue: | September 30, 2023 | % of Revenues | September 30, 2022 | % of Revenues | Variance |
| --- | ---: | ---: | ---: | ---: | ---: |
| Rental and tenant reimbursement revenue | **$415.8** |  | $403.6 |  | $12.2 |
| Property management fee revenue | **1.3** |  | 1.3 |  | — |
| Other property related income | **15.2** |  | 11.6 |  | 3.6 |
| Total revenues | **432.3** | 100% | 416.5 | 100% | 15.8 |
| **Expense:** |  |  |  |  |  |
| Property operating costs | **176.0** | 41% | 166.3 | 40% | 9.7 |
| Depreciation | **110.4** | 25% | 98.8 | 24% | 11.6 |
| Amortization | **63.5** | 15% | 67.0 | 16% | (3.5) |
| Goodwill impairment charge | **11.0** | 3% | — | —% | 11.0 |
| General and administrative | **22.0** | 5% | 21.2 | 5% | 0.8 |
|  | **382.9** |  | 353.3 |  | 29.6 |
| **Other income (expense):** |  |  |  |  |  |
| Interest expense | **(72.8)** | 16% | (44.9) | 11% | (27.9) |
| Other income | **3.8** | —% | 2.3 | 1% | 1.5 |
| Loss on early extinguishment of debt | **(0.8)** | —% | — | —% | (0.8) |
| Gain on sale of real estate assets | **—** | —% | 50.7 | 12% | (50.7) |
| **Net income/(loss)** | **$(20.4)** | (5)% | $71.3 | 17% | $(91.7) |

### Revenue

Rental and tenant reimbursement revenue increased approximately $12.2 million for the nine months ended September 30, 2023 as compared to the same period in the prior year. The increase was primarily due to capital recycling activity completed during 2022 and higher tenant reimbursements as a result of higher recoverable operating expenses during the current period as tenant utilization of our buildings continued to increase during 2023 as compared to the prior period.

Other property related income increased approximately $3.6 million for the nine months ended September 30, 2023 as compared to the same period in the prior year primarily due to higher transient parking at our buildings during the current period, as compared to the prior period. Additionally, parking revenue associated with the 1180 Peachtree Street building acquired during the third quarter of 2022 also contributed to the increase.

### Expense

Property operating costs increased approximately $9.7 million for the nine months ended September 30, 2023 as compared to the same period in the prior year. The variance was primarily due to higher recoverable operating expenses such as janitorial, security, and utilities resulting from higher tenant utilization during the current period, and capital recycling activity completed during 2022.

Depreciation expense increased approximately $11.6 million for the nine months ended September 30, 2023 as compared to the same period in the prior year. The increase was primarily due to additional building and tenant improvements acquired and/or placed in service subsequent to January 1, 2022, as well as the acquisition of 1180 Peachtree Street mentioned above.

Amortization expense decreased approximately $3.5 million for the nine months ended September 30, 2023 as compared to the same period in the prior year. The decrease in amortization expense associated with certain lease intangible assets at our existing properties becoming fully amortized subsequent to January 1, 2022 was largely offset by additional amortization associated with the acquisition of 1180 Peachtree Street mentioned above.

During the nine months ended September 30, 2023, we reduced the carrying amount of goodwill resulting in the recognition of a non-cash impairment charge of approximately $11.0 million. See Note 6 to our accompanying consolidated financial statements for further details.

### Other Income (Expense)

Interest expense increased approximately $27.9 million for the nine months ended September 30, 2023 as compared to the same period in the prior year primarily driven by increased interest rates during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, as well as a higher average debt balance outstanding during the current period. This increase was partially offset by a $1.3 million increase in capitalized interest associated with various redevelopment projects in progress during the nine months ended September 30, 2023.

Other income increased approximately $1.5 million for the nine months ended September 30, 2023 as compared to the same period in the prior year due to interest income earned on cash invested prior to the repayment of the $350 Million Unsecured Senior Notes in June 2023; consequently, we do not expect such interest income to recur in future periods.

The loss on early extinguishment of debt for the nine months ended September 30, 2023 is comprised of the pro-rata write-off of unamortized debt issuance costs and discounts associated with the early repurchase of approximately $350 million aggregate principal amount of the $400 Million Unsecured Senior Notes due 2024, as well as fees paid, during the quarter ended September 30, 2023 (see Note 3 to our accompanying consolidated financial statements).

The $50.7 million gain on sale of real estate assets during the nine months ended September 30, 2022 primarily consisted of the gain recognized on the sale of the 225 & 235 Presidential Way buildings, which closed in January of 2022.

### Issuer and Guarantor Financial Information

As of September 30, 2023, Piedmont, through its wholly-owned subsidiary Piedmont OP, had four separate issuances totaling approximately $1.1 billion of senior unsecured notes payable outstanding that mature in 2024, 2028, 2030 and 2032 (see Note 3 to our accompanying consolidated financial statements for additional details regarding each of these issuances) (collectively, the "Notes"). The Notes are senior unsecured obligations of Piedmont OP, rank equally in right of payment with all of Piedmont OP's other existing and future senior unsecured indebtedness, and would be effectively subordinated in right of payment to any of Piedmont OP’s future mortgage or other secured indebtedness (to the extent of the value of the collateral securing such indebtedness) and to all existing and future indebtedness and other liabilities of Piedmont OP’s subsidiaries, whether secured or unsecured.

The Notes are fully and unconditionally guaranteed by Piedmont, the parent entity that consolidates Piedmont OP and all other subsidiaries. In particular, Piedmont guarantees to each holder of the Notes that the principal and interest on the Notes will be paid in full when due, whether at the maturity dates of the respective loans, or upon acceleration, upon redemption, or otherwise; interest on overdue principal and interest on any overdue interest, if any, on the Notes will also be paid in full when due; and all other obligations of the Issuer to the holders of the Notes will be promptly paid in full. Piedmont's guarantee of the Notes is its senior unsecured obligation and ranks equally in right of payment with all of Piedmont's other existing and future senior unsecured indebtedness and guarantees. Piedmont’s guarantee of the Notes is effectively subordinated in right of payment to any future mortgage or other secured indebtedness or secured guarantees of Piedmont (to the extent of the value of the collateral securing such indebtedness and guarantees); and all existing and future indebtedness and other liabilities, whether secured or unsecured, of Piedmont’s subsidiaries.

In the event of the bankruptcy, liquidation, reorganization or other winding up of Piedmont OP or Piedmont, assets that secure any of their respective secured indebtedness and other secured obligations will be available to pay their respective obligations under the Notes or the guarantee, as applicable, and their other respective unsecured indebtedness and other unsecured obligations only after all of their respective indebtedness and other obligations secured by those assets have been repaid in full.

All non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes, or to make any funds available therefore, whether by dividends, loans, distributions or other payments.

Pursuant to Rule 13-01 of Regulation S-X, *Guarantors and Issuers of Guaranteed Securities Registered or Being Registered*, the following tables present summarized financial information for Piedmont OP as issuer and Piedmont as guarantor on a combined basis after elimination of (i) intercompany transactions and balances among Piedmont OP and Piedmont and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor (in thousands):

| Combined Balances of Piedmont OP and Piedmont, Inc. as Issuer and Guarantor, respectively | As of September 30, 2023 | As of December 31, 2022 |
| --- | ---: | ---: |
| Due from non-guarantor subsidiary | **$900** | $900 |
| Total assets | **$312,479** | $325,884 |
| Total liabilities | **$1,890,513** | $1,845,551 |
|  |  | **For the Nine Months Ended September 30, 2023** |
| Total revenues |  | **$36,842** |
| Net loss |  | **$(72,634)** |

30

### Net Operating Income by Geographic Segment

Our chief operating decision maker ("CODM"), who is our President and Chief Executive Officer, evaluates our portfolio and assesses the ongoing operations and performance of our properties utilizing the following geographic segments: Atlanta, Dallas, Orlando, Washington, D.C./Northern Virginia, Minneapolis, New York, and Boston. These operating segments are also our reportable segments. Additionally, as of September 30, 2023, we owned two properties in Houston that did not meet the definition of an operating or reportable segment as the CODM does not regularly review these properties for purposes of allocating resources or assessing performance, and Piedmont does not maintain a significant presence or anticipate further investment in these markets. These two properties are included in "Other" below. See Note 11 to the accompanying consolidated financial statements for additional information and a reconciliation of Net income/(loss) applicable to Piedmont to accrual-based net operating income ("NOI").

The following table presents accrual-basis NOI by geographic segment (in thousands):

|  | Three Months Ended September 30, 2023 | September 30, 2022 | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Atlanta | **$25,965** | $21,627 | **$77,247** | $58,354 |
| Dallas | **16,334** | 15,325 | **47,313** | 47,189 |
| Orlando | **8,895** | 8,865 | **27,446** | 26,206 |
| Washington, D.C./Northern Virginia | **9,183** | 9,712 | **27,156** | 29,851 |
| Minneapolis | **9,166** | 8,072 | **25,622** | 23,950 |
| New York | **7,565** | 7,959 | **22,286** | 23,901 |
| Boston | **6,422** | 9,646 | **19,213** | 29,922 |
| Total reportable segments | **83,530** | 81,206 | **246,283** | 239,373 |
| Other | **3,544** | 3,893 | **9,956** | 10,794 |
| **Total NOI** | **$87,074** | $85,099 | **$256,239** | $250,167 |

#### Comparison of the Nine Months Ended September 30, 2023 Versus the Nine Months Ended September 30, 2022

#### Atlanta

NOI increased primarily due to the acquisition of 1180 Peachtree Street during the third quarter of 2022.

#### Washington, D.C.

NOI decreased due to the early termination of certain leases at Arlington Gateway in late 2022.

#### Boston

NOI decreased primarily due to the disposition of the 225 and 235 Presidential Way assets in January 2022 and the disposition of the One Brattle Square and 1414 Massachusetts assets (the Cambridge Portfolio) in December 2022.

### Funds From Operations ("FFO"), Core Funds From Operations ("Core FFO"), and Adjusted Funds From Operations

### (“AFFO”)

Net income/(loss) calculated in accordance with GAAP is the starting point for calculating FFO, Core FFO, and AFFO. These metrics are non-GAAP financial measures and should not be viewed as an alternative measurement of our operating performance to net income/(loss). Management believes that accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, we believe that the additive use of FFO, Core FFO, and AFFO, together with the required GAAP presentation, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition. NAREIT currently defines FFO as Net income/(loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investment in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, along with appropriate adjustments to those reconciling items for joint ventures, if any. Other REITs may not define FFO in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than we do; therefore, our computation of FFO may not be comparable to the computation made by other REITs.

We calculate Core FFO by starting with FFO, as defined by NAREIT, and adjusting for gains or losses on the extinguishment of swaps and/or debt and any significant non-recurring or infrequent items. Core FFO is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain infrequent or non-recurring items which can create significant earnings volatility, but which do not directly relate to our core recurring business operations. As a result, we believe that Core FFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. Other REITs may not define Core FFO in the same manner as us; therefore, our computation of Core FFO may not be comparable to the computation made by other REITs.

We calculate AFFO by starting with Core FFO and adjusting for non-incremental capital expenditures and then adding back non-cash items including: non-real estate depreciation, straight-lined rents and fair value lease adjustments, non-cash components of interest expense and compensation expense, and by making similar adjustments for joint ventures, if any. AFFO is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance. We believe that AFFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in new properties or enhancements to existing properties that improve revenue growth potential. Other REITs may not define AFFO in the same manner as us; therefore, our computation of AFFO may not be comparable to the computation of other REITs.

Reconciliations of net income/(loss) applicable to common stock to FFO, Core FFO, and AFFO are presented below (in thousands except per share amounts):

|  | Three Months Ended September 30, 2023 | Per Share(1) | September 30, 2022 | Per Share(1) | Nine Months Ended September 30, 2023 | Per Share(1) | September 30, 2022 | Per Share(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| **GAAP net income/(loss) applicable to common stock** | **$(17,002)** | **$(0.14)** | $3,331 | $0.03 | **$(20,357)** | **$(0.16)** | $71,261 | $0.58 |
| Depreciation of real estate assets | **37,790** | **0.31** | 34,743 | 0.28 | **109,680** | **0.88** | 98,262 | 0.79 |
| Amortization of lease-related costs | **20,151** | **0.16** | 23,278 | 0.19 | **63,495** | **0.51** | 66,986 | 0.54 |
| Goodwill impairment charge | **10,957** | **0.09** | — | — | **10,957** | **0.09** | — | — |
| Gain on sale of real estate assets | **—** | **—** | — | — | **—** | **—** | (50,674) | (0.41) |
| **NAREIT Funds From Operations applicable to common stock** | **$51,896** | **$0.42** | $61,352 | $0.50 | **$163,775** | **$1.32** | $185,835 | $1.50 |
| Adjustments: |  |  |  |  |  |  |  |  |
| Loss on early extinguishment of debt | **820** | **0.01** | — | — | **820** | **0.01** | — | — |
| **Core Funds From Operations applicable to common stock** | **52,716** | **$0.43** | 61,352 | $0.50 | **164,595** | **$1.33** | 185,835 | $1.50 |
| Adjustments: |  |  |  |  |  |  |  |  |
| Amortization of debt issuance costs and discounts on debt | **1,410** |  | 922 |  | **3,961** |  | 2,463 |  |
| Depreciation of non real estate assets | **350** |  | 189 |  | **711** |  | 537 |  |
| Straight-line effects of lease revenue | **(418)** |  | (3,268) |  | **(6,360)** |  | (8,874) |  |
| Stock-based compensation adjustments | **2,070** |  | 1,950 |  | **4,348** |  | 3,116 |  |
| Amortization of lease-related intangibles | **(4,479)** |  | (3,542) |  | **(11,010)** |  | (9,713) |  |
| Non-incremental capital expenditures (2) | **(11,710)** |  | (14,121) |  | **(35,070)** |  | (42,406) |  |
| **Adjusted Funds From Operations applicable to common stock** | **$39,939** |  | $43,482 |  | **$121,175** |  | $130,958 |  |
| Weighted-average shares outstanding – diluted | **123,781** | (3) | 123,697 |  | **123,689** | (3) | 123,631 |  |

(1) Based on weighted average shares outstanding – diluted.

(2) We define non-incremental capital expenditures as capital expenditures of a recurring nature related to tenant improvements, leasing commissions, and building capital that do not incrementally enhance the underlying assets' income generating capacity. Tenant improvements, leasing commissions, building capital and deferred lease incentives incurred to lease space that was vacant at acquisition, leasing costs for spaces vacant for greater than one year, leasing costs for spaces at newly acquired properties for which in-place leases expire shortly after acquisition, improvements associated with the expansion of a building, and renovations that either enhance the rental rates of a building or change the property's underlying classification, such as from a Class B to a Class A property, are excluded from this measure.

(3) Includes potential dilution under the treasury stock method that would occur if our remaining unvested and potential stock awards vested and resulted in additional common shares outstanding. Such shares are not included when calculating net loss per diluted share applicable to Piedmont for the three and nine months ended September 30, 2023 as they would reduce the loss per share presented.

### Property and Same Store Net Operating Income

Property Net Operating Income ("Property NOI") is a non-GAAP measure which we use to assess our operating results. We calculate Property NOI beginning with Net income/(loss) (calculated in accordance with GAAP) before adjusting for interest, depreciation and amortization and removing any impairments and gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Furthermore, we remove general and administrative expenses, income associated with property management performed by us for other organizations, and other income or expense items, such as interest income from loan investments. For Property NOI (cash basis), the effects of non-cash general reserve for uncollectible accounts, straight-lined rents and fair value lease revenue are also eliminated; while such effects are not adjusted in calculating Property NOI (accrual basis). Property NOI is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance. We believe that Property NOI, on either a cash or accrual basis, is helpful to investors as a supplemental comparative performance measure of income generated by our properties alone without our administrative overhead. Other REITs may not define Property NOI in the same manner as we do; therefore, our computation of Property NOI may not be comparable to that of other REITs.

We calculate Same Store Net Operating Income ("Same Store NOI") as Property NOI attributable to the properties (excluding undeveloped land parcels) that were (i) owned by us during the entire span of the current and prior year reporting periods; and (ii) that were not out of service for development or redevelopment during those periods. Same Store NOI, on either a cash or accrual basis, is a non-GAAP financial measure and should not be viewed as an alternative to net income/(loss) calculated in accordance with GAAP as a measurement of our operating performance. We believe that Same Store NOI is helpful to investors as a supplemental comparative performance measure of the income generated from the same group of properties from one period to the next. Other REITs may not define Same Store NOI in the same manner as we do; therefore, our computation of Same Store NOI may not be comparable to that of other REITs.

The following table sets forth a reconciliation from net income calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, and Same Store NOI, on both a cash and accrual basis, for the three months ended September 30, 2023 and 2022, respectively (in thousands):

|  | Cash Basis Three Months Ended September 30, 2023 | September 30, 2022 | Accrual Basis Three Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net income/(loss) applicable to Piedmont (GAAP basis)** | **$(17,002)** | $3,331 | **$(17,002)** | $3,331 |
| Net income/(loss) applicable to noncontrolling interest | **1** | — | **1** | — |
| Interest expense | **27,361** | 17,244 | **27,361** | 17,244 |
| Depreciation | **38,140** | 34,931 | **38,140** | 34,931 |
| Amortization | **20,151** | 23,278 | **20,151** | 23,278 |
| Depreciation and amortization attributable to noncontrolling interests | **20** | 21 | **20** | 21 |
| Goodwill impairment charge | **10,957** | — | **10,957** | — |
| **EBITDAre(1)** | **$79,628** | $78,805 | **$79,628** | $78,805 |
| Loss on early extinguishment of debt | **820** | — | **820** | — |
| **Core EBITDA(2)** | **80,448** | 78,805 | **80,448** | 78,805 |
| General & administrative expenses | **7,043** | 6,590 | **7,043** | 6,590 |
| Management fee revenue (3) | **(210)** | (177) | **(210)** | (177) |
| Other income | **(207)** | (119) | **(207)** | (119) |
| Reversal of non-cash general reserve for uncollectible accounts | **(600)** | (1,000) |  |  |
| Straight-line rent effects of lease revenue | **(418)** | (3,268) |  |  |
| Straight line effects of lease revenue attributable to noncontrolling interests | **(2)** | (4) |  |  |
| Amortization of lease-related intangibles | **(4,479)** | (3,542) |  |  |
| **Property NOI** | **81,575** | 77,285 | **87,074** | 85,099 |
| Net operating income from: |  |  |  |  |
| Acquisitions (4) | **(5,941)** | (2,867) | **(7,404)** | (4,164) |
| Dispositions (5) | **28** | (2,587) | **28** | (2,579) |
| Other investments (6) | **212** | 211 | **111** | 150 |
| **Same Store NOI** | **$75,874** | $72,042 | **$79,809** | $78,506 |
| Change period over period in Same Store NOI | **5.3%** | N/A | **1.7%** | N/A |

35

(1) We calculate Earnings Before Interest, Taxes, Depreciation, and Amortization- Real Estate ("EBITDAre") in accordance with the current NAREIT definition. NAREIT currently defines EBITDAre as net income (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than us; therefore, our computation of EBITDAre may not be comparable to that of such other REITs.

(2) We calculate Core Earnings Before Interest, Taxes, Depreciation, and Amortization ("Core EBITDA") as net income (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and incrementally removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of our business. Other REITs may not define Core EBITDA in the same manner as us; therefore, our computation of Core EBITDA may not be comparable to that of other REITs.

(3) Presented net of related operating expenses incurred to earn such management fee revenue.

(4) Acquisitions include 1180 Peachtree Street in Atlanta, Georgia purchased during the third quarter of 2022.

(5) Dispositions include One Brattle Square and 1414 Massachusetts Avenue in Cambridge, Massachusetts, sold in the fourth quarter of 2022.

(6) Other investments include active out-of-service redevelopment and development projects, land, and recently completed redevelopment and development projects. The operating results from 222 South Orange Avenue in Orlando, Florida, are included in this line item.

The following table sets forth a reconciliation of net income/(loss) calculated in accordance with GAAP to EBITDAre, Core EBITDA, Property NOI, and Same Store NOI, on both a cash and accrual basis, for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Cash Basis Nine Months Ended September 30, 2023 | September 30, 2022 | Accrual Basis Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net income/(loss) applicable to Piedmont (GAAP)** | **$(20,357)** | $71,261 | **$(20,357)** | $71,261 |
| Net income/(loss) applicable to noncontrolling interest | **7** | (1) | **7** | (1) |
| Interest expense | **72,827** | 44,917 | **72,827** | 44,917 |
| Depreciation | **110,391** | 98,799 | **110,391** | 98,799 |
| Amortization | **63,495** | 66,986 | **63,495** | 66,986 |
| Depreciation and amortization attributable to noncontrolling interests | **60** | 65 | **60** | 65 |
| Goodwill impairment charge | **10,957** | — | **10,957** | — |
| Gain on sale of real estate assets | **—** | (50,674) | **—** | (50,674) |
| **EBITDAre(1)** | **$237,380** | $231,353 | **$237,380** | $231,353 |
| Loss on early extinguishment of debt | **820** | — | **820** | — |
| **Core EBITDA(2)** | **238,200** | 231,353 | **238,200** | 231,353 |
| General & administrative expenses | **22,013** | 21,212 | **22,013** | 21,212 |
| Management fee revenue (3) | **(756)** | (743) | **(756)** | (743) |
| Other income | **(3,218)** | (1,655) | **(3,218)** | (1,655) |
| Reversal of non-cash general reserve for uncollectible accounts | **(1,000)** | (2,000) |  |  |
| Straight-line effects of lease revenue | **(6,360)** | (8,874) |  |  |
| Straight line effects of lease revenue attributable to noncontrolling interests | **(7)** | (6) |  |  |
| Amortization of lease-related intangibles | **(11,010)** | (9,713) |  |  |
| **Property NOI** | **237,862** | 229,574 | **256,239** | 250,167 |
| Net operating (income)/loss from: |  |  |  |  |
| Acquisitions (4) | **(16,784)** | (2,867) | **(22,384)** | (4,164) |
| Dispositions (5) | **102** | (8,372) | **102** | (8,437) |
| Other investments (6) | **548** | 539 | **244** | 528 |
| **Same Store NOI** | **$221,728** | $218,874 | **$234,201** | $238,094 |
| Change period over period in Same Store NOI | **1.3%** | N/A | **(1.6)%** | N/A |

37

(1) We calculate Earnings Before Interest, Taxes, Depreciation, and Amortization- Real Estate ("EBITDAre") in accordance with the current NAREIT definition. NAREIT currently defines EBITDAre as net income/(loss) (computed in accordance with GAAP) adjusted for gains or losses from sales of property, impairment losses, depreciation on real estate assets, amortization on real estate assets, interest expense and taxes, along with the same adjustments for joint ventures. Some of the adjustments mentioned can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates. EBITDAre is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that EBITDAre is helpful to investors as a supplemental performance measure because it provides a metric for understanding our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization) and capitalization and capital structure expenses (such as interest expense and taxes). We also believe that EBITDAre can help facilitate comparisons of operating performance between periods and with other REITs. However, other REITs may not define EBITDAre in accordance with the NAREIT definition, or may interpret the current NAREIT definition differently than us; therefore, our computation of EBITDAre may not be comparable to that of such other REITs.

(2) We calculate Core Earnings Before Interest, Taxes, Depreciation, and Amortization ("Core EBITDA") as net income/(loss) (computed in accordance with GAAP) before interest, taxes, depreciation and amortization and removing any impairment losses, gains or losses from sales of property and other significant infrequent items that create volatility within our earnings and make it difficult to determine the earnings generated by our core ongoing business. Core EBITDA is a non-GAAP financial measure and should not be viewed as an alternative to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that Core EBITDA is helpful to investors as a supplemental performance measure because it provides a metric for understanding the performance of our results from ongoing operations without taking into account the effects of non-cash expenses (such as depreciation and amortization), as well as items that are not part of normal day-to-day operations of our business. Other REITs may not define Core EBITDA in the same manner as us; therefore, our computation of Core EBITDA may not be comparable to that of other REITs.

(3) Presented net of related operating expenses incurred to earn such management fee revenue.

(4) Acquisitions include 1180 Peachtree Street in Atlanta, Georgia purchased during the third quarter of 2022.

(5) Dispositions include Two Pierce Place in Itasca, Illinois and 225 and 235 Presidential Way in Woburn, Massachusetts, sold during the first quarter of 2022, and One Brattle Square and 1414 Massachusetts Avenue in Cambridge, Massachusetts, sold in the fourth quarter of 2022.

(6) Other investments include properties out of service for redevelopment or development projects, land, and recently completed redevelopment and development projects for which some portion of operating expenses were capitalized during the current and/or prior year reporting periods. The operating results from 222 South Orange Avenue in Orlando, Florida, are included in this line item.

#### Overview

Our portfolio consists of office properties located within identified growth submarkets in large metropolitan cities concentrated primarily in the Sunbelt. We typically lease space to creditworthy corporate or governmental tenants on a long-term basis. As of September 30, 2023, our average lease was approximately 15,000 square feet with approximately six years of lease term remaining. Leased percentage, as well as rent roll ups and roll downs, which we experience as a result of re-leasing, can fluctuate widely between buildings and between tenants, depending on when a particular lease is scheduled to commence or expire.

#### Leased Percentage

Our portfolio occupancy increased to 86.7% leased as of September 30, 2023, as compared to 86.2% leased as of June 30, 2023. During the three months ended September 30, 2023, we completed approximately 302,000 square feet of leasing, including approximately 170,000 of new tenant leases which increased our leased percentage. Additionally, scheduled lease expirations for the portfolio as a whole for the rest of 2023 represent approximately 2% of our ALR, some portion of which may renew. To the extent the square footage from new leases for currently vacant space exceeds or falls short of the square footage associated with non-renewing expirations, such leases would increase or decrease our overall leased percentage, respectively.

#### Impact of Downtime, Abatement Periods, and Rental Rate Changes

Commencement of a lease associated with a new tenant in the property typically occurs 6-18 months after the lease execution date, after refurbishment of the space is completed. The downtime between a lease expiration and the new lease's commencement can negatively impact Property NOI and Same Store NOI comparisons (both accrual and cash basis). In addition, office leases for both new and renewing tenants often contain upfront rental and/or operating expense abatement periods which delay the cash flow benefits of the lease even after the new or renewed lease has commenced, negatively impacting Property NOI and Same Store NOI on a cash basis until such abatements expire. As of September 30, 2023, we had approximately 1.1 million square feet of executed leases for vacant space yet to commence or under rental abatement, representing approximately $36 million of additional annual cash revenue.

If we are unable to replace expiring leases with new or renewal leases at rental rates equal to or greater than the expiring rates, rental rate roll downs could occur and negatively impact Property NOI and Same Store NOI comparisons. As mentioned above, our diverse portfolio and the magnitude of some of our tenants' leased spaces can result in rent roll ups and roll downs that can fluctuate widely on a building-by-building and a quarter-to-quarter basis. During the three months ended September 30, 2023, we experienced a 11.7% and 10.3% roll up in cash and accrual rents, respectively, on executed leases related to space vacant one year or less. During the nine months ended September 30, 2023, we experienced a 9.8% and 13.5% roll up in cash and accrual rents, respectively, on executed leases related to space vacant one year or less.

During the three months ended September 30, 2023, Same Store NOI increased by 5.3% and 1.7% on a cash and accrual basis, respectively, as compared to the same period in the prior year primarily due to rental rate roll-ups, as well as new leases commencing or leases with expiring rental or operating expense abatements beginning to outweigh leases that expired during the first nine months of 2023. Same Store NOI comparisons for any given period fluctuate as a result of the mix of net leasing activity in individual properties during the respective period.

### Election as a REIT

We have elected to be taxed as a REIT under the Code and have operated as such beginning with our taxable year ended December 31, 1998. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted REIT taxable income, computed without regard to the dividends-paid deduction and by excluding net capital gains attributable to our stockholders, as defined by the Code. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we may be subject to federal income taxes on our taxable income for that year and for the four years following the year during which qualification is lost and/or penalties, unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income/(loss) and net cash available for distribution to our stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and intend to continue to operate in the foreseeable future in such a manner that we will remain qualified as a REIT for federal income tax purposes. We have elected to treat one of our wholly owned subsidiaries as a taxable REIT subsidiary ("TRS"). Our TRS performs non-customary services for tenants of buildings that we own, including real estate and non-real estate related-services. Any earnings related to such services performed by our TRS are subject to federal and state income taxes. In addition, for us to continue to qualify as a REIT, our investments in TRS cannot exceed 20% of the value of our total assets.

### Inflation

We are exposed to inflation risk, as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that are intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax, and insurance on a per square-foot basis, or in some cases, annual reimbursement of operating expenses above certain per square-foot allowances. However, due to the long-term nature of the leases, the leases may not readjust their reimbursement rates frequently enough to fully cover inflation.

### Application of Critical Accounting Estimates

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting policies and estimates. There have been no material changes to these policies during the nine months ended September 30, 2023.

### Commitments and Contingencies

We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 7 to our consolidated financial statements for further explanation.

## Market risk

As filed, 3,618 characters.

Our future income, cash flows, and estimated fair values of our financial instruments depend in part upon prevailing market interest rates. Market risk is the exposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and equity prices. As of September 30, 2023, our potential for exposure to market risk includes interest rate fluctuations in connection with borrowings under our $600 Million Unsecured 2022 Line of Credit, the $200 Million 2022 Unsecured Term Loan Facility, and the $215 Million Unsecured 2023 Term Loan. As a result, the primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk, including changes in the method pursuant to which SOFR rates are determined.

Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low-to-moderate level of overall borrowings, as well as managing the variability in rate fluctuations on our outstanding debt. As such, all of our debt as of September 30, 2023, other than those variable rate facilities mentioned above, is currently based on fixed or effectively-fixed interest rates to hedge against volatility in the credit markets. We do not enter into derivative or interest rate transactions for speculative purposes, as such all of our debt and derivative instruments were entered into for purposes other than trading purposes.

The estimated fair value of our debt was approximately $1.9 billion and $1.8 billion as of September 30, 2023 and December 31, 2022, respectively. Our interest rate swap agreements in place as of September 30, 2023 and December 31, 2022 carried a notional amount totaling $250 million with a weighted-average fixed interest rate of 4.54%.

As of September 30, 2023, our total outstanding debt subject to fixed, or effectively fixed, interest rates totaling approximately $1.5 billion has an average effective interest rate of approximately 5.10% per annum with expirations ranging from 2024 to 2032. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio but has no impact on interest incurred or cash flows for that portfolio.

As of September 30, 2023, we had $157 million outstanding on our $600 Million Unsecured 2022 Line of Credit. Our $600 Million Unsecured 2022 Line of Credit currently has a stated rate of Adjusted SOFR plus 0.84% per annum (based on our current corporate credit rating), resulting in a total interest rate of 6.24%. Our $200 Million Unsecured 2022 Term Loan Facility has a stated rate of Adjusted SOFR plus 1.00% per annum (based on our current corporate credit rating), resulting in a total interest rate of 6.43%. Our $215 Million Unsecured 2023 Term Loan has a stated rate of Adjusted SOFR plus 1.05% per annum (based on our current corporate credit rating), resulting in a total interest rate of 6.45%. To the extent that we borrow additional funds in the future under the $600 Million Unsecured 2022 Line of Credit or potential future variable-rate debt facilities, we would have exposure to increases in interest rates, which would potentially increase our cost of debt. Additionally, a 1.0% increase in variable interest rates on our existing outstanding borrowings as of September 30, 2023 would increase interest expense approximately $5.7 million on a per annum basis.

## Controls and procedures

As filed, 1,659 characters.

### Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the quarterly period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,159 characters.

*The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.*

The Federal Deposit Insurance Corporation only insures amounts up to $250,000 per depositor. We have cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels. Recently, we have seen the abrupt failure of more than one regional bank. Although we hold cash primarily in the top ten banks in the United States and we did not experience any loss related to the recent bank failures, if any of the banking institutions in which we deposit funds ultimately fails, we may lose amounts of our deposits over federally insured levels. The loss of our deposits could reduce the amount of cash we have available to distribute, to pay down maturing debt, or to invest, and could result in a decline in the value of our stockholders' investment.

There have been no other known material changes, other than as described above, from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Oct 30, 2023.
Source: SEC EDGAR, the filing index for accession 0001042776-23-000161. Last ingested by Listed: Oct 26, 2026, 16:38 ET. No prices; not investment advice.