Piedmont Realty Trust, Inc.: Form 10-Q for the period ended Sep 30, 2026

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto of Piedmont 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, 2025.

Liquidity and Capital Resources

We intend to use cash on hand, cash flows generated from the operation of our properties, net proceeds from the disposition of select properties, and borrowings under our $600 Million Unsecured 2022 Line of Credit as our primary sources of immediate liquidity. As of September 30, 2026, we had approximately $448 million of borrowing capacity available under our $600 Million Unsecured 2022 Line of Credit and no required debt maturities until 2028. Consequently, we believe we have sufficient liquidity to meet our obligations for the foreseeable future; however, as part of our overall debt management strategy, we may seek other new secured or unsecured borrowings from third-party lenders or issue other debt or equity securities as additional sources of capital. The nature and timing of these additional sources of capital will be highly dependent upon market conditions.

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 projects. During the nine months ended September 30, 2026 and 2025, we incurred the following types of capital expenditures (in thousands):

(1) Of the total amounts paid, approximately $6.5 million and $15.2 million relates to soft costs such as capitalized interest, payroll, and other property operating costs for the nine months ended September 30, 2026 and 2025, respectively.

"Capital expenditures for redevelopment/renovations" during the nine months ended September 30, 2026 and 2025 related to building upgrades, primarily to the lobbies and the addition of tenant amenities at certain of our buildings and assets under redevelopment.

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

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, 2026, we committed to spend approximately $5.44 per square foot per year of lease term for tenant improvement allowances and lease commissions (net of expired lease commitments) as compared to $6.73 (net of expired lease commitments) for the nine months ended September 30, 2025. As of September 30, 2026, we had no individually significant unrecorded tenant allowance commitment greater than $10 million.

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, length of the lease term, and the competitive market conditions of the particular office market at the time a lease is being negotiated, in addition to the impact of inflation and rising costs of construction.

Although reducing outstanding debt remains our priority, subject to the identification and availability of select 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 may use capital to repay debt when we deem it prudent to refinance or repay various obligations.

Finally, although we did not declare or pay dividends on our common stock during the nine months ended September 30, 2026, we may also use capital resources to pay dividends to our stockholders. The amount and form of payment (cash or stock issuance) of future dividends, if any, 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 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; (vii) our desire to reduce overall leverage; and (viii) 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, 2026 was approximately $21.0 million, or $0.17 per diluted share, as compared with net loss applicable to common stockholders of $13.5 million, or $0.11 per diluted share, for the three months ended September 30, 2025. The primary driver of the increase in net loss was an approximately $20.2 million loss on early extinguishment of debt recognized during the third quarter of 2026 related to the redemption of our remaining $600 Million Unsecured Senior Notes due 2028, partially offset by a $8.9 million gain recognized on the sale of a land parcel during the same period.

Comparison of the three months ended September 30, 2026 versus the three months ended September 30, 2025

Income from Continuing Operations

The following table sets forth selected data from our consolidated statements of operations for the three months ended September 30, 2026 and 2025, respectively, as well as each balance as a percentage of total revenues for each period presented (dollars in millions):

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Revenue

Rental and tenant reimbursement revenue increased approximately $11.2 million for the three months ended September 30, 2026, as compared to the same period in the prior year. The increase was primarily due to the roll-up of rental rates and new leases commencing during the twelve months ended September 30, 2026, contributing approximately $10.8 million, as well as the addition of the 4075 Wilson Boulevard building purchased in September 2026.

Other property related income increased approximately $0.9 million for the three months ended September 30, 2026 as compared to the same period in the prior year primarily due to increased parking income associated with increased utilization and higher transient parking at our office projects during the current period, as compared to the prior period.

Expense

Property operating costs increased approximately $4.1 million for the three months ended September 30, 2026 as compared to the same period in the prior year. The increase was primarily due to higher recoverable property taxes, repairs and maintenance, janitorial expenses, and tenant-specific services during the current period, as compared to the prior period.

Depreciation expense increased approximately $4.0 million for the three months ended September 30, 2026 as compared to the same period in the prior year. The increase was primarily due to additional building improvements placed in service subsequent to July 1, 2025.

Amortization expense decreased approximately $1.1 million for the three months ended September 30, 2026 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 projects becoming fully amortized subsequent to July 1, 2025. The decrease was partially offset by an increase in amortization expense associated with deferred lease acquisition costs due to increased new leasing activity during the twelve months ended September 30, 2026.

General and administrative expense increased approximately $1.5 million for the three months ended September 30, 2026 as compared to the same period in the prior year, primarily due to increased accruals for potential performance-based compensation during the three months ended September 30, 2026.

Other Income (Expense)

During the three months ended September 30, 2026, we redeemed our remaining $600 Million Unsecured Senior Notes due 2028. The premium paid to redeem the debt, as well as the write-off of the pro-rata share of unamortized debt issuance costs, resulted in the recognition of a $20.2 million loss on early extinguishment of debt.

Gain on sale of real estate assets during the three months ended September 30, 2026 primarily consists of the gain recognized on the sale of the Royal Lane land parcel in Dallas, Texas, which closed in August 2026.

Comparison of the Nine Months Ended September 30, 2026 Versus the Nine Months Ended September 30, 2025

The following table sets forth selected data from our consolidated statements of operations for the nine months ended September 30, 2026 and 2025, respectively, as well as each balance as a percentage of total revenues for each period presented (dollars in millions):

Revenue

Rental and tenant reimbursement revenue increased approximately $14.9 million for the nine months ended September 30, 2026 as compared to the same period in the prior year. The increase was primarily due to the roll-up of rental rates and new leases commencing during the twelve months ended September 30, 2026, contributing approximately $18.0 million. The impact of this increase was partially offset by the disposition of two projects subsequent to January 1, 2025.

Other property related income increased approximately $1.5 million for the nine months ended September 30, 2026 as compared to the same period in the prior year primarily due to increased parking income associated with increased utilization and higher transient parking at our office projects during the current period, as compared to the prior period.

Expense

Property operating costs increased approximately $3.9 million for the nine months ended September 30, 2026 as compared to the same period in the prior year. The increase was primarily due to higher recoverable property taxes, repairs and maintenance, janitorial expenses, and utilities during the current period, as compared to the prior period. These increases were partially offset by project dispositions subsequent to January 1, 2025 (as discussed above).

Depreciation expense increased approximately $11.3 million for the nine months ended September 30, 2026 as compared to the same period in the prior year. The increase was primarily due to additional building and tenant improvements placed in service subsequent to January 1, 2025, which were partially offset by project dispositions during 2025.

Amortization expense decreased approximately $1.6 million for the nine months ended September 30, 2026 as compared to the same period in the prior year. The decrease in amortization expense is associated with certain lease intangible assets at our existing projects becoming fully amortized subsequent to January 1, 2025. The decrease was largely offset by an increase in amortization expense associated with deferred lease acquisition costs due to increased new leasing activity during the twelve months ended September 30, 2026.

General and administrative expense increased approximately $2.1 million for the nine months ended September 30, 2026 compared to the prior year due to increased accruals for potential performance-based compensation during the nine months ended September 30, 2026.

Other Income (Expense)

During the nine months ended September 30, 2026, we redeemed our remaining $600 Million Unsecured Senior Notes due 2028. The premium paid to redeem the debt, as well as the write-off of the pro-rata share of unamortized debt issuance costs, resulted in the recognition of a $20.2 million loss on early extinguishment of debt. Loss on early extinguishment of debt during the nine months ended September 30, 2025 primarily related to the repurchase of approximately $67.5 million of the aggregate principal amount of the $600 Million Unsecured Senior Notes due 2028. The premium paid to repurchase the debt, as well as the write-off of the pro-rata share of unamortized debt issuance costs, resulted in the recognition of a $7.5 million loss on early extinguishment of debt.

Gain on sale of real estate assets during the nine months ended September 30, 2026 primarily consists of the gain recognized on the sale of the Royal Lane land parcel in Dallas, Texas, which closed in August 2026. Gain on sale of real estate assets during the nine months ended September 30, 2025 primarily consists of the gain recognized on the sale of the 80 and 90 Central project in Boston, Massachusetts, which closed in May of 2025, as well as recognition of the return of amounts held in escrow for the 750 West John Carpenter building sold in July 2024.

Issuer and Guarantor Financial Information

As of September 30, 2026, Piedmont, through its wholly-owned subsidiary Piedmont OP, had four separate issuances of senior unsecured notes payable outstanding that mature in 2029, 2030, 2032 and 2033 in an aggregate principal amount of approximately $1.4 billion, and one issuance of Exchangeable Senior Notes payable outstanding that matures in 2031 in an aggregate principal amount of $230 million (collectively, the "Notes") (see Note 4 to our accompanying consolidated financial statements for additional details regarding each of these issuances). 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 existing or 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 Piedmont OP 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 therefor, 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):

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Net Operating Income by Geographic Segment

Our President and Chief Executive Officer is our CODM, who evaluates our portfolio and assesses the ongoing operations and performance of our projects utilizing the following geographic segments: Atlanta, Dallas, Orlando, Northern Virginia/Washington, D.C., Minneapolis, New York, and Boston. These operating segments are also our reportable segments. Additionally, as of September 30, 2026, 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 we do not maintain a significant presence or anticipate further investment in this market. These two properties are included in "Other" below. See Note 13 to the accompanying consolidated financial statements for additional information and a reconciliation of Net loss applicable to Piedmont to NOI.

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

Comparison of the Nine Months Ended September 30, 2026 Versus the Nine Months Ended September 30, 2025

Atlanta

NOI increased due to new leases commencing and/or current tenants expanding at our 1155 Perimeter Center West and Galleria on the Park projects during the nine months ended September 30, 2026 as compared to the same period in the prior year.

Orlando

NOI increased primarily due to several leases commencing at 501 West Church and 200 South Orange at The Exchange projects.

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

(“AFFO”)

Net 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 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 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, goodwill, 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 early extinguishment of 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 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 we do; 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 certain 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 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 loss applicable to common stock to FFO, Core FFO, and AFFO for the three and nine months ended September 30, 2026 and 2025 are presented below (in thousands except per share amounts):

(1) 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.

(2) 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 share applicable to Piedmont for the three and nine months ended September 30, 2026 and 2025, respectively, 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 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. For Property NOI (cash basis), 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 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 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 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 three months ended September 30, 2026 and 2025, respectively (in thousands):

(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 charges, 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 incrementally removing any impairment charges, gains or losses from sales of property, loss on early extinguishment of debt, 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 we do; 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) Dispositions include the Royal Lane land parcel, sold in the third quarter of 2026, 80 and 90 Central, sold in the second quarter of 2025, and 161 Corporate Center, sold in the first quarter of 2025.

(5) Other investments include active or recently completed out of service redevelopment projects and unsold land parcels. The operating results from a portion of The Exchange in Orlando, Florida, as well as Meridian and 9320 Excelsior Boulevard in suburban Minneapolis, Minnesota are included in this line item.

The following table sets forth a reconciliation of net 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, 2026 and 2025 (in thousands):

Overview

Our portfolio consists of office projects located within identified growth submarkets of 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, 2026, our average lease was approximately 13,000 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 in-service portfolio was 87.7% leased as of September 30, 2026, as compared to 89.6% leased as of December 31, 2025. The decrease is attributable to net expiring square footage outweighing newly leased square footage related to previously vacant space, as well as the acquisition of 83% leased 4075 Wilson Boulevard during the three months ended September 30, 2026. As of September 30, 2026, scheduled lease expirations for the remainder of 2026 and 2027 represented approximately 6% and 8% of our ALR, respectively. To the extent that square footage from new leases for currently vacant space in our in-service portfolio exceeds or falls short of the square footage associated with non-renewing expirations, such leases would increase or decrease our in-service leased percentage, respectively. As of September 30, 2026, two projects, 9320 Excelsior Boulevard and Meridian, both in suburban Minneapolis, Minnesota, were classified as out of service as they have recently undergone redevelopment to convert from single tenant occupancy to multi-tenant occupancy. Collectively, these out of service projects were approximately 84.7% leased as of September 30, 2026, with the majority of those leases anticipated to commence by the end of 2026 or early 2027.

Impact of Downtime, Abatement Periods, and Rental Rate Changes

Commencement of a lease associated with a new tenant 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 may 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, 2026, we had approximately 0.7 million square feet of executed leases for vacant space that are yet to commence representing approximately $29.3 million of future additional annual cash rents, and approximately 1.2 million square feet of executed leases currently under rental abatement, representing approximately $32.0 million of future additional annual cash rents.

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 discussed 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 project-by-project and a quarter-to-quarter basis. During the three months ended September 30, 2026, we experienced a 26.2% and 34.6% roll-up on a cash and accrual basis, respectively, on executed leases related to space vacant one year or less.

During the three months ended September 30, 2026, Same Store NOI increased by 7.5% and 6.9% on a cash and accrual basis, respectively, as rental rates increased and the commencement or burn off of abatements on new leases outweighed expiring leases. 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 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, 2025 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, 2026.

Commitments and Contingencies

We are subject to certain commitments and contingencies with regard to certain transactions. Refer to Note 8 to our consolidated financial statements for further explanation.

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, 2026, our primary market risk is our exposure to interest rate fluctuations in connection with any future borrowings under our $600 Million Unsecured 2022 Line of Credit and $200 million of our $400 Million Unsecured 2026 Term Loan. 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 portion of our outstanding debt that is subject to interest rate fluctuations. As such, all of our debt as of September 30, 2026, other than our line of credit facility and a portion of the term loan mentioned above, is currently based on fixed, or effectively fixed, interest rates to hedge against volatility in the credit markets. We may periodically enter into additional interest rate hedging arrangements to manage our interest rate exposure associated with variable-rate borrowings. The timing and amount of any future hedging activity will depend on several factors, including market conditions, our view of interest rate risk, and our overall financing strategy. We do not enter into derivative or interest rate transactions for speculative purposes.

The estimated fair value of our debt was approximately $2.3 billion as of September 30, 2026 and December 31, 2025. Our interest rate swap agreements in place as of September 30, 2026 and December 31, 2025 carried a notional amount totaling $200 million and $325 million, respectively, with a weighted-average fixed interest rate of 4.94% and 5.38%, respectively.

As of September 30, 2026, our total outstanding debt subject to fixed, or effectively fixed, interest rates totaled approximately $2.0 billion and had an average effective interest rate of approximately 4.74% per annum with contractual expirations, not including extension options, ranging from 2028 to 2033. A change in the market interest rate would impact the relative fair value of our fixed-rate debt portfolio but has no impact on interest incurred or cash flows for that portfolio.

As of September 30, 2026, $152 million was outstanding under our $600 Million Unsecured 2022 Line of Credit which has a stated variable rate of SOFR plus 1.05% per annum (based on our current credit rating as defined in the credit agreement). Additionally, the unhedged portion of our $400 Million Unsecured 2026 Term Loan currently has a stated variable rate of SOFR plus 1.15% per annum (based on our current credit rating as defined in the term loan agreement). These two facilities currently comprise our exposure to increases in interest rates, which would potentially increase our cost of debt. A 1.0% increase in variable interest rates on our existing outstanding borrowings as of September 30, 2026 would increase interest expense approximately $3.5 million on a per annum basis.

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, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no known material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.