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What changed in Peakstone Realty Trust's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Peakstone Realty Trust's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+453 added−523 removedSource: 10-K (2024-02-22) vs 10-K (2023-03-24)

Top changes in Peakstone Realty Trust's 2023 10-K

453 paragraphs added · 523 removed · 254 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

13 edited+15 added−30 removed13 unchanged
Biggest changeIf we are unable to meet the required emissions reductions, we may be subject to material fines that will continue to be assessed each year we fail to comply. Other Regulations The properties we own and operate generally are subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements.
Biggest changeIf we are unable to meet the required emissions reductions or provide the required disclosure, we may be subject to material fines that will continue to be assessed each year we fail to comply.
Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov. Further, copies of our Code of Ethics and Business Conduct and the charters for the Audit, Compensation, and Nominating and Corporate Governance Committees of our Board are also available on the “Governance Documents” subpage of the “Investors” section of our website.
Our electronically filed reports can also be obtained on the SEC’s internet site at http://www.sec.gov. Further, copies of our Code of Business Conduct and Ethics and the charters for the Audit, Compensation, and Nominating and Corporate Governance Committees of our Board are also available on the “Governance - Governance Documents” subpage of the “Investors” section of our website.
Although we diligence compliance with laws, including the ADA, when we acquire properties, we may incur additional costs to comply with the ADA or other regulations related to access by disabled persons.
Although we perform diligence compliance with laws, including the ADA, when we acquire properties, we may incur additional costs to comply with the ADA or other regulations related to access by disabled persons.
Although we believe that these costs will not have a material adverse effect on us, if required changes involve a greater amount of expenditures than we currently anticipate, our ability to make expected distributions could be adversely affected.
Although we believe that these costs will not have a material adverse effect on us, if required changes involve a greater amount of expenditures than we currently anticipate, our ability to pay expected dividends could be adversely affected.
We maintain a pollution insurance policy for all of our properties to insure against the potential liability of remediation and exposure risk. Also, numerous states and municipalities have adopted laws and policies on climate change and emission reduction targets.
We maintain liability insurance (including pollution coverage) for all of our properties to insure against the potential liability of remediation and exposure risk. Also, numerous states and municipalities have adopted laws and policies on climate change and emission reduction targets.
Overview Peakstone Realty Trust is an internally managed, publicly registered real estate investment trust (“REIT”) that owns and operates a high-quality, newer-vintage portfolio of predominantly single-tenant industrial and office properties. These assets are generally leased to creditworthy tenants under long-term net lease agreements with contractual rent escalations.
Overview Peakstone Realty Trust is an internally managed, publicly traded real estate investment trust (“REIT”) that owns and operates a high-quality, newer-vintage portfolio of predominantly single-tenant industrial and office properties located in diverse, strategic growth markets. These assets are generally leased to creditworthy tenants under long-term net lease agreements with contractual rent escalations.
We believe that a wide range of opinions and experiences are key to our continued success, and we therefore value racial, gender, and generational diversity throughout our organization. As of December 31, 2022, approximately 49% of our employees were people of color/minorities and approximately 46% were women.
We believe that a wide range of opinions and experiences are key to our continued success, and we therefore value racial, gender, and generational diversity throughout our organization. As of December 31, 2023, approximately 56% of our employees were people of color/minorities and approximately 47% were women.
Human Capital Management We are internally managed by an experienced and proven team that specializes in industrial and office properties. As of December 31, 2022, we employed 36 people. We believe our employees are our greatest asset. Because of this perspective, we have implemented a number of programs to foster their professional growth and their growth as global citizens.
Human Capital Management We are internally managed by an experienced team that specializes in industrial and office properties. As of December 31, 2023, we employed 35 people. We believe our employees are our greatest asset. Because of this perspective, we have implemented several programs to foster their professional growth and their growth as global citizens.
We offer all of our employees a comprehensive benefits and wellness package, which includes paid time off and parental leave, high-quality medical, dental and vision insurance, disability, pet and life insurance, fitness programs, 401(k) and long-term incentive plans. We also encourage internal mobility in our organization and provide career enhancement and education opportunities, as well as educational grants.
We offer all our full time employees a comprehensive benefits and wellness package, which includes paid time off and parental leave, high-quality medical, dental and vision insurance, disability and life insurance, wellness allowance, 401(k) and long-term incentive plans. We also encourage internal mobility in our organization and provide career enhancement and education opportunities, as well as professional development grants.
In addition, as of December 31, 2022, half of our eight-member Board was composed of women and/or minorities. Our social policy extends beyond the individuals within our organization and encourages our employees to have a positive impact on the community around us.
In addition, as of December 31, 2023, the majority of our five-member Board of Trustees (the “Board”) was composed of women and/or minorities. Our cultural values extend beyond the individuals within our organization and encourages our employees to have a positive impact on the community around us.
Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. Through our due diligence process and protections in our leases, we aim to own and operate properties that are in material compliance with all such regulatory requirements.
Through our due diligence process and protections in our leases, we aim to own and operate properties that are in material compliance with all such regulatory requirements.
The tax treatment of us, our Operating Partnership, any of our operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from our U.S. federal income tax treatment.
The tax treatment of us, our Operating Partnership, any of our operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from our U.S. federal income tax treatment. 7 Table of Contents Tax We have elected to be taxed as a REIT under the Internal Revenue Code (the “Code”), commencing with our tax year ended December 31, 2015.
As of December 31, 2022, our portfolio was approximately 95.5% leased (based on square footage), with a weighted average remaining lease term of 7.1 years and weighted average annual rent increases of approximately 2.0%.
As of December 31, 2023, the Company’s wholly-owned portfolio (i) consisted of 71 properties located in 24 states, (ii) was 96.4% leased with a weighted average remaining lease term (“WALT”) of approximately 6.5 years, and (iii) generated approximately $196.7 million Annualized Base Rent (“ABR”).
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The Company’s wholly-owned portfolio contains properties with key characteristics, including difficult-to-replicate locations and significant tenant investment in the building, which the Company believes make these properties more essential to the tenants.
Added
PKST OP, L.P., our operating partnership (the “Operating Partnership”), owns, directly and indirectly all of the Company’s assets. As of December 31, 2023, the Company owned approximately 91.8% of the outstanding common units of limited partnership interest in the Operating Partnership (“OP Units”).
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Nearly 75% of the Annualized Base Rent (as defined below) from our wholly-owned portfolio is generated from properties located in coastal and sun belt markets, areas where we believe demographic drivers such as strong median household income and educational attainment create a more favorable economic backdrop.
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The Company reports the results of its wholly-owned portfolio in three segments which had the following characteristics as of December 31, 2023: • Industrial: This segment (i) comprised 19 industrial properties and (ii) was 100% leased with a WALT of approximately 6.7 years. • Office: This segment (i) comprised 35 office properties and (ii) was 98.8% leased with a WALT of approximately 7.6 years. • Other: This segment (i) comprised 17 properties and (ii) was 82.4% leased with a WALT of approximately 2.6 years.
Removed
The Company, founded in 2009 and headquartered in El Segundo, California, is led by an experienced, cycle-tested management team that, through equity ownership, is financially aligned with shareholders. Our executive management team has an average of approximately 34 years of commercial real estate experience and decades of experience operating public companies.
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Our Business Strategy The Company’s long-term objective is to maximize shareholder value through the ownership and operation of industrial and select office assets located in strategic growth markets. We are focused on maintaining a strong balance sheet that enables us to execute multi-channel investments across the risk and capital spectrum as they arise.
Removed
In addition to the executive team, the Company’s nine senior real estate professionals average approximately 23 years of experience, and the entire senior real estate team has averaged nine years of experience working together.
Added
It is our intention to continue to maximize our balance sheet flexibility through free cash flow generation and the execution of our strategic disposition plan. We seek to generate internal and external growth by increasing the cash flow from our properties and expanding our portfolio by making industrial-focused investments.
Removed
The team has extensive knowledge of the Company’s existing portfolio and has nurtured a broad network of long-standing industry relationships, especially in the markets where the Company’s properties are located. As of December 31, 2022, we owned 81 properties in 24 states.
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To accomplish our objectives, we will leverage our experienced, operationally-minded and cycle-tested management team. Competition The commercial real estate markets in which we operate are highly competitive. We compete against owners and managers of competing properties in leasing space to prospective tenants and in re-leasing space to existing tenants.
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Our contractual base rent before abatements and deducting base year operating expenses for gross and modified gross leases multiplied by 12 months (“Annualized Base Rent”) as of December 31, 2022 is approximately $223.9 million.
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There are numerous public and private real estate investors, developers, and financial institutions, some of which have greater financial or other resources than we do, that compete with us for acquisition, disposition, and investment opportunities. Regulatory Matters Overview Our business is subject to many laws and governmental regulations.
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Approximately 61.5% of our Annualized Base Rent as of December 31, 2022 was generated by properties leased and/or guaranteed, directly or indirectly, by companies that have investment grade credit ratings or what management believes are generally equivalent ratings. History and Structure Our platform was founded in 2009 with the launch of our predecessor, Griffin Capital Essential Asset REIT, Inc.
Added
To qualify as a REIT, the Company must meet certain organizational and operational requirements. The Company intends to adhere to these requirements and maintain its REIT status for the current year and subsequent years. As a REIT, the Company generally will not be subject to federal income taxes on taxable income that is distributed to shareholders.
Removed
(our “Predecessor”), a publicly-registered, non-traded REIT that acquired a geographically diversified portfolio of strategically located, high-quality corporate industrial and office properties primarily leased to single tenants. Our Predecessor’s business plan was focused on the acquisition of assets that, in Predecessor management’s opinion, were more essential to the tenant.
Added
However, the Company may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed taxable income, if any.
Removed
In 2013, our Predecessor completed its primary offering, and we (then named Griffin Capital Essential Asset REIT II, Inc.) were launched with the same business plan as our Predecessor.
Added
If the Company fails to qualify as a REIT in any taxable year, the Company will then be subject to federal income taxes on the taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service (“IRS”) grants the Company relief under certain statutory provisions.
Removed
On December 14, 2018, our Predecessor further aligned management with investors by internalizing management in a transaction whereby the former sponsor of our Predecessor and us, Griffin Capital Company, LLC (“GCC”), and Griffin Capital, LLC sold the advisory, asset management and property management business of Griffin Capital Real Estate Company, LLC to us in exchange for limited partnership units of our Operating Partnership.
Added
Such an event could materially adversely affect net income and net cash available for the payment of dividends to shareholders. As of December 31, 2023, the Company satisfied the REIT requirements and distributed all of its taxable income. Pursuant to the Code, the Company has elected to treat its corporate subsidiary as a taxable REIT subsidiary (“TRS”).
Removed
On that date, we also announced a proposed combination of operations with our Predecessor and certain other related entities (the “Predecessor Merger”). The Predecessor Merger closed on April 30, 2019 and the surviving company was renamed Griffin Capital Essential Asset REIT, Inc.
Added
In general, the TRS may perform non-customary services for the Company’s tenants and may engage in any real estate or non-real estate-related business. The TRS will be subject to corporate federal and state income tax.
Removed
On March 1, 2021, we completed our acquisition of Cole Office & Industrial REIT (CCIT II), Inc. for approximately $1.3 billion, including transaction costs, in a stock-for-stock transaction (the “CCIT II Merger”).
Added
For example, in October 2023, California passed two bills that require certain companies that do business in California to disclose their green house emissions and climate-related financial risks starting in 2026.
Removed
On July 1, 2021, we changed our name from Griffin Capital Essential Asset REIT, Inc. to Griffin Realty Trust, Inc. and our operating partnership changed its name from Griffin Capital Essential Asset Operating Partnership L.P. to GRT OP, L.P. 6 Table of Contents On August 26, 2022, we completed the sale of a 41-property office portfolio (the “Office Portfolio Sale”) to a joint venture (the “Office Joint Venture”) in which we hold a 49% interest and are a member.
Added
Other Regulations The properties we own and operate generally are subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants.
Removed
On December 27, 2022, we completed a companion sale of a five-property portfolio (the “Companion Office Portfolio Sale”) to the Office Joint Venture. On February 21, 2023, we announced our intention to list our common shares on the New York Stock Exchange (the “Listing”).
Added
We use our website (www.pkst.com) as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, and as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings, and public conference calls and webcasts.
Removed
We expect the Listing to occur on or about April 13, 2023, subject to, among other things, obtaining approval from the NYSE to list our common shares.
Added
Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
Removed
Structure Like many other REITs, we utilize a structure known as an umbrella partnership REIT (“UPREIT”), pursuant to which we conduct all of our business through our Operating Partnership, with our Operating Partnership, directly and indirectly through subsidiaries, owning all of our assets and liabilities.
Removed
As of December 31, 2022, the Company, as the general partner, controlled our Operating Partnership and owned approximately 91.0% of the OP Units. The remaining 9.0% of OP Units are owned by GCC and other affiliates of the Company, as well as unaffiliated, third-party members.
Removed
On January 19, 2023, we converted our form of organization from a Maryland corporation to a Maryland real estate investment trust and changed our name from Griffin Realty Trust, Inc. to Griffin Realty Trust.
Removed
On March 10, 2023, in anticipation of our Listing, we changed our name from Griffin Realty Trust to Peakstone Realty Trust and our Operating Partnership changed its name to PKST OP, L.P. Our Business Strategy The Company’s primary long-term objective is to maximize shareholder value over time.
Removed
Operating through three distinct business segments – Industrial, Office and Other (for more details on segmentation see “Results of Operations – Segment Information” below) – the Company is focused on improving per share metrics through internal and external growth, pursuing multi-channel investments across the risk and capital spectrum, and maximizing strategic flexibility by targeting an investment grade credit rating.
Removed
The Company seeks to achieve this objective by leveraging the Company’s experienced, real estate-focused, cycle-tested management team to pursue the following three-part strategy: • Own and operate a stabilized portfolio of wholly-owned, high-quality, newer-vintage single-tenant industrial and office properties located in diverse, strategic growth markets : The Company intends to prudently and proactively manage the cash flow generated from its portfolio.
Removed
With a weighted average remaining lease duration exceeding seven years as of December 31, 2022, our wholly-owned portfolio’s stability enables management to thoughtfully and without undue pressure execute the Company’s self-funded business plan. • Operate a self-funded business plan through capital recycling and free cash flow : Cash generated from the Company’s portfolio provides management with a range of allocation options, none of which rely upon near term outside capital.
Removed
These options include (i) sale of properties, most likely certain office assets, (ii) selective reinvestment in the portfolio where return on capital warrants such investment, (iii) further repayment of the Company’s outstanding debt, (iv) return of capital to shareholders, and (v) selective acquisition of industrial properties. • Selectively acquire high-quality, Class A industrial properties : We intend to acquire additional well-located, high-quality industrial properties over time to benefit from secular tailwinds expected in this sector.
Removed
Management has identified specific markets where access to key transportation arteries including trade ports, intermodal (rail to truck) hubs and interstate highway systems make these locations more desirable to tenants.
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The Company believes that acquiring properties primarily in these areas provides the potential for rent rate growth, lower capital expenditure requirements and higher returns. 7 Table of Contents Competition The commercial real estate markets in which we operate are highly competitive.
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The leasing of real estate is also often highly competitive, and we may experience competition for tenants from owners and managers of competing projects.
Removed
As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we might not be able to timely lease the space, all of which may have material adverse effect on us.
Removed
Competition may also lead to an increase in tenants electing to not renew their lease, seeking to reduce the amount of space they lease with us and/or seeking shorter lease terms, which may also have a material effect on us.
Removed
At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for our properties which could have a material adverse impact on us. Regulatory Matters Overview Our business is subject to many laws and governmental regulations.
Removed
The Company also will routinely post important information to its website about its business, operating results and financial condition and prospects, including, for example, information about material acquisitions and dispositions, earnings releases and copies of investor presentations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

161 edited+108 added−95 removed74 unchanged
Biggest changeIn addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the share price of our common shares or result in fluctuations in the price or trading volume of our common shares, including: • the annual yield from distributions on our common shares as compared to yields on other financial instruments; • equity issuances by us, or future sales of substantial amounts of our common shares by our existing or future shareholders, or the perception that such issuances or future sales may occur; • increases in market interest rates or a decrease in our distributions to shareholders that lead purchasers of our common shares to demand a higher yield; • changes in market valuations of similar companies; • fluctuations in stock market prices and volumes from time to time due to a variety of factors, including from sales of our common shares sold by our shareholders; • additions or departures of key management personnel; • our operating performance and the performance of other similar companies; • actual or anticipated differences in our quarterly operating results; 10 Table of Contents • changes in expectations of future financial performance or changes in estimates of securities analysts; • publication of research reports about us or our industry by securities analysts; • failure to qualify as a REIT; • adverse market reaction to any indebtedness we incur in the future, or our failure to establish debt levels that investors believe are appropriate; • strategic decisions by us or our competitors, such as acquisitions, divestments, spin offs, joint ventures, strategic investments or changes in business strategy; • the passage of legislation or other regulatory developments that adversely affect us or our industry; • speculation in the press or investment community; • changes in our earnings; • changes in the underlying value of real estate; • failure to satisfy the listing requirements of the NYSE; • failure to comply with the requirements of the Sarbanes-Oxley Act; • actions by institutional shareholders; • changes in accounting principles; and • general market conditions, including factors unrelated to our performance.
Biggest changeThe market price of our common shares could be subject to wide fluctuations in response to: • our financial performance, cash flows, financial condition, results of operations and prospects, • actual or anticipated differences in our quarterly or annual operating results from those expected; • our dependence on key personnel whose continued services are not guaranteed; • whether we will be successful in renewing leases as they expire; • failure to qualify as a REIT; • failure to comply with the rules of the NYSE, the requirements of the Sarbanes-Oxley Act or other applicable laws; • the annual yield from dividends on our common shares as compared to yields on other financial instruments; • actual or anticipated changes in our and our tenants’ business or prospects; • the current state of the credit and capital markets, and our ability and the ability of our tenants to obtain financing on favorable terms; • whether work-from-home trends or other factors will impact the attractiveness of industrial and/or office assets; • changes in market valuations of similar companies; • strategic decisions by us or our competitors, such as acquisitions or investments, divestments, spin offs, joint ventures, strategic investments or changes in business strategy; • further increases in (or prolonged periods of high) market interest rates, which could result in increased interest expense on our debt; 24 Table of Contents • equity issuances by us (including the issuance of OP Units or other securities convertible into, or exchangeable for, our common shares) or the conversion of a large number of OP Units into common shares as opposed to cash; • future sales of substantial amounts of our common shares by our existing or future shareholders, or the perception that such issuances or future sales may occur; • adverse market reaction to any indebtedness we incur in the future, inability to refinance our existing indebtedness, the inclusion of restrictive covenants in our future indebtedness, or our failure to establish debt levels that investors believe are appropriate; • changes in expectations of future financial performance or changes in estimates of securities analysts; • publication of research reports about us or our industry by securities analysts; • government regulatory action or inaction and legislative changes that could adversely affect our industry; • changes in tax laws; • adverse speculation in the press or investment community; • changes in the underlying value of real estate; • climate change and natural disasters, such as earthquakes, wildfires, rising sea levels, flooding, and extreme weather; • impacts of the outbreak of a highly infectious or contagious disease or declaration of a pandemic, epidemic or other health crises; • terrorist acts, natural or man-made disasters or threatened or actual armed conflicts; and • general market conditions.
These requirements could cause us to distribute amounts that otherwise would be spent on the acquisition, maintenance or development of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities, or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of U.S. federal income and excise taxes.
These requirements could cause us to distribute amounts that otherwise would be spent on the acquisition of, investment in, and/or maintenance or development of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities, or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of U.S. federal income and excise taxes.
As we complete property dispositions, the overall size of our post-closing indemnification and retained liability obligations to purchasers may increase, and no assurance can be given that such the extent of such indemnification obligations and retained liabilities will not, individually or in the aggregate, be material to our financial condition or results of operations.
As we complete property dispositions, the overall size of our post-closing indemnification and retained liability obligations to purchasers may increase, and no assurance can be given that the extent of such indemnification obligations and retained liabilities will not, individually or in the aggregate, be material to our business, financial condition or results of operations.
We may finance properties with lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties. Lock-out provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan.
We may finance properties with prepayment lock-out provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties. Lock-out provisions are provisions that generally prohibit repayment of a loan balance for a certain number of years following the origination date of a loan.
We have placed, and may continue to place, permanent financing on our properties or increase our credit facility or other similar financing arrangement in order to acquire properties. We may also decide to later further leverage our properties or to rely on securitization vehicles. We may borrow funds for any purposes related to our business.
We have placed, and may continue to place, permanent financing on our properties or increase our credit facility or other similar financing arrangement in order to acquire and/or invest in properties. We may also decide to later further leverage our properties or to rely on securitization vehicles. We may borrow funds for any purposes related to our business.
Our future success also depends upon the service of our executive management team, who we believe have extensive market knowledge and business relationships and will exercise substantial influence over the Company’s operating, financing, acquisition and disposition activity.
Our future success also depends upon the service of our executive management team, who we believe have extensive market knowledge and business relationships and will exercise substantial influence over the Company’s operating, financing, acquisition, disposition and investment activity.
One of the factors that may influence the price of our common shares will be the dividend distribution rate on our common shares (as a percentage of the price of our common shares) relative to market interest rates. If market interest rates rise, prospective purchasers of our common shares may expect a higher distribution rate.
One of the factors that may influence the price of our common shares will be the dividend rate on our common shares (as a percentage of the price of our common shares) relative to market interest rates. If market interest rates rise, prospective purchasers of our common shares may expect a higher dividend rate.
By entering into longer term leases, we are subject to the risk during the initial term that we would not be able to increase our rental rates to market rental rates if prevailing rental rates have increased.
By entering into longer term leases, we are subject to the risk during the initial term that we would not be able to increase our rental rates to market rental rates if market rental rates have increased.
To qualify as a REIT, and to avoid the payment of U.S. federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities, or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations, which could have a material adverse effect on us.
To qualify as a REIT, and to avoid the payment of U.S. federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities, or sell assets to pay dividends, which may result in our distributing amounts that may otherwise be used for our operations, which could have a material adverse effect on us.
District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach by any trustee, officer or other employee of the Company of a duty owed to the Company or our shareholders or of any standard of conduct set forth in the Maryland General Corporation Law (“MGCL”), (iii) any action asserting a claim arising pursuant to any provision of the MGCL including, but not limited to, the meaning, interpretation, effect, validity, performance or enforcement of our charter or our bylaws, (iv) any action asserting a claim governed by the internal affairs doctrine , or (v), upon the Listing, any Internal Corporate Claim (as defined the MGCL).
District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach by any trustee, officer, other employee or agent of the Company of a duty owed to the Company or our shareholders or of any standard of conduct set forth in the Maryland General Corporation Law (“MGCL”), (iii) any action asserting a claim arising pursuant to any provision of the MGCL including, but not limited to, the meaning, interpretation, effect, validity, performance or enforcement of our charter or our bylaws, (iv) any action asserting a claim governed by the internal affairs doctrine, or (v) any Internal Corporate Claim (as defined the MGCL).
Furthermore, changes in federal and state legislation and regulations on climate change, including the increasing number of state and municipality laws and policies on climate change and emission reduction targets, could result in increased utility expenses and/or increased capital expenditures to improve the energy efficiency and reduce carbon emissions of our properties in order to comply with such regulations or result in fines for non-compliance.
Furthermore, changes in federal and state legislation and regulations on climate change, including the increasing number of state and municipality laws and policies on climate change, emission reduction targets and required disclosures, could result in increased utility expenses and/or increased capital expenditures to improve the energy efficiency and reduce carbon emissions of our properties in order to comply with such regulations or result in fines for non-compliance.
In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the maximum return on such investments. Any of the foregoing risks could have a material adverse effect on us.
In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to sell one or more of our investments in properties at times that may not permit realization of the maximum return on such investments. Any of the foregoing risks could have a material adverse effect on us.
It is possible that the Bipartisan Budget Act of 2015 rules could result in partnerships in which we directly or indirectly invest (including our Operating Partnership) being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we may have not been a partner in the partnership during the year to which the audit relates and we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment.
It is possible that the Bipartisan Budget Act of 2015 rules could result in partnerships in which we directly or indirectly invest (including our Operating Partnership) being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we may have not been a partner in the partnership during the year to which the audit relates and we, as a REIT, may not otherwise have been required to pay additional corporate- 23 Table of Contents level taxes as a result of the related audit adjustment.
Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. To the extent our distributions represent a return of capital for tax purposes, a shareholder could recognize an increased capital gain upon a subsequent sale of the shareholder’s common shares.
Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. To the extent our dividends represent a return of capital for tax purposes, a shareholder could recognize an increased capital gain upon a subsequent sale of the shareholder’s common shares.
Unauthorized parties, whether within or outside the Company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering.
For example, unauthorized parties, whether within or outside the Company, may disrupt or gain access to our IT Systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering.
If any of the following risks were to occur, our business, prospects, financial condition, liquidity, results of operations, cash flow, ability to satisfy our debt obligations, returns to our shareholders, the value of our shareholders’ investment in us and/or our ability to make distributions to our shareholders could be materially and adversely affected, which we refer herein collectively as a “material adverse effect on us.” Some statements in this Annual Report on Form 10-K, including statements in the following risk factors, constitute forward-looking statements.
If any of the following risks were to occur, our business, prospects, financial condition, liquidity, results of operations, cash flow, ability to satisfy our debt obligations, returns to our shareholders, the value of our shareholders’ investment in us and/or our ability to pay dividends to our shareholders could be materially and adversely affected, which we refer herein collectively as a “material adverse effect on us.” Some statements in this Annual Report on Form 10-K, including statements in the following risk factors, constitute forward-looking statements.
Special use properties may be relatively illiquid compared to other types of real estate and financial assets. Upon expiration or early termination of a lease, this illiquidity could limit our ability to quickly change our portfolio in response to changes in economic, market or other conditions to an even greater extent than the typically illiquid nature of real estate assets.
Special use properties may be relatively illiquid compared to other types of real estate and financial assets. Upon expiration or early termination of a lease, this illiquidity could limit our ability to quickly pivot in response to changes in economic, market or other conditions to an even greater extent than the typically illiquid nature of real estate assets.
To the extent that we and our affiliates are required to pay U.S. federal, state and local taxes, we will have less cash available for distributions to our shareholders. Complying with the REIT requirements may cause us to forgo otherwise attractive opportunities, which could have a material adverse effect on us.
To the extent that we and our affiliates are required to pay U.S. federal, state and local taxes, we will have less cash available to pay dividends to our shareholders. Complying with the REIT requirements may cause us to forgo otherwise attractive opportunities, which could have a material adverse effect on us.
Furthermore, our properties may be subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants.
Furthermore, our properties may be subject to various federal, state and local regulatory requirements, such as zoning and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or an award of damages to private litigants.
In addition, while such agreements would be intended to lessen the impact of rising interest rates on us, they 25 Table of Contents could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.
In addition, while such agreements would be intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the other parties to the agreements would not perform, and that the hedging arrangements may not be effective in reducing our exposure to interest rate changes.
If we were to default under our credit agreement, the lenders would have the ability to immediately declare the loans due and payable in whole or in part.
If we were to default under our unsecured credit agreement, the facility lenders would have the ability to immediately declare the loans due and payable in whole or in part.
We generally lease our properties to tenants pursuant to triple-net leases that require the tenant to pay 17 Table of Contents their proportionate share of substantially all such property operating expenses. However, on a limited basis we lease our properties to tenants pursuant to leases that do not pass along all such property operating expenses.
We generally lease our properties to tenants pursuant to triple-net leases that require the tenant to pay their proportionate share of substantially all such property operating expenses. However, on a limited basis we lease our properties to tenants pursuant to leases that do not pass along all such property operating expenses.
As the expiration date of a lease for a single-tenant building approaches, the value of the property generally declines because of the risk that the building may not be re-leased upon expiration of the existing lease or may not be re-leased on terms as favorable as those of the current lease(s).
As the expiration date of a lease for a building solely or primarily leased to a single tenant approaches, the value of the property generally declines because of the risk that the building may not be re-leased upon expiration of the existing lease or may not be re-leased on terms as favorable as those of the current lease(s).
The seller of a property will often seek to sell such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose.
The seller of real property will typically seek to sell such real property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose.
Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligation under the hedging agreement.
Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligation under the hedging agreement. U.S.
Our charter prohibits the 13 Table of Contents ownership by any Person (as defined in our charter) of more than 9.8% (in value or in number, whichever is more restrictive, as determined in good faith by our Board) of the aggregate of our common shares or more than 9.8% of the value (as determined in good faith by our Board) of the aggregate of our outstanding Shares (as defined in our charter), unless waived by our Board.
Our charter prohibits the ownership by any Person (as defined in our charter) of more than 9.8% (in value or in number, whichever is more restrictive, as determined in good faith by our Board) of the aggregate of our common shares or more than 9.8% of the value (as determined in good faith by our Board) of the aggregate of our outstanding Shares (as defined in our charter), unless waived by our Board.
A significant and extended disruption could damage our business or reputation, cause a loss of revenue, have an adverse effect on tenant relations, cause an unintended or unauthorized public disclosure, or lead to the misappropriation of proprietary, personally identifying, or confidential information, any of which could result in us incurring significant expenses to resolve these kinds of issues.
A significant or extended disruption could damage our business or reputation, cause a loss of revenue, have an adverse effect on tenant relations, cause an unintended or unauthorized public disclosure, or lead to the misappropriation of Confidential Information, any of which could result in us incurring significant expenses to resolve these kinds of issues.
Office assets may experience a further decrease in leasing and investment demand and such decrease in demand could have a material adverse effect on us. Further, our ability to sell any of our office assets may be limited in the current economic climate.
Office assets may experience a further decrease in demand and value and such decrease in demand could have a material adverse effect on us. Further, our ability to sell any of our office assets may be limited in the current economic climate.
The credit facility also provides the option, subject to obtaining additional commitments from lenders and certain other customary conditions, to increase the commitments under the Revolving Credit Facility, increase the existing term loans and/or incur new term loans by up to an additional $1.0 billion in the aggregate.
The Second Amended and Restated Credit Agreement also provides the option, subject to obtaining additional commitments from lenders and certain other customary conditions, to increase the commitments under the Revolving Credit Facility, increase the existing term loans and/or incur new term loans by up to an additional $1.0 billion in the aggregate.
In certain circumstances, even if we qualify as a REIT, we and our subsidiaries may be subject to certain federal, state, and other income taxes, which would reduce our cash available for distribution to our shareholders and could have a material adverse effect on us.
In certain circumstances, even if we qualify as a REIT, we and our subsidiaries may be subject to certain federal, state, and other income taxes, which would reduce our cash available to pay dividends to our shareholders and could have a material adverse effect on us.
With these properties, we may be required to renovate or demolish a vacant property in order to try to re-lease or sell it, grant rent or other concessions and/or make significant capital expenditures to improve these properties in order to retain existing tenants.
With these properties, we may be required to renovate or demolish a vacant property in order to try to re-lease or sell it, grant rent or other concessions and/or make significant capital expenditures to improve these properties in order to retain existing tenants or attract new tenants following a lease expiration.
If rental revenues, sales proceeds and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness and for distribution to shareholders; • it may be difficult to sell real estate quickly, or potential buyers of our properties may experience difficulty in obtaining financing, which may limit our ability to dispose of properties promptly in response to changes in economic or other conditions.
If rental revenues, sales proceeds and/or occupancy levels decline, we generally would expect to have less cash available to pay indebtedness, to pay dividends to shareholders or otherwise run our business; • it may be difficult to sell real estate quickly, or potential buyers of our properties may experience difficulty in obtaining financing, which may limit our ability to dispose of properties promptly in response to changes in economic or other conditions.
Higher interest rates would not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowing costs and might decrease our funds available for distribution. We therefore may not be able, or we may not choose, to provide a higher distribution rate.
Higher interest rates would not, however, result in more funds being available to pay dividends and, in fact, would likely increase our borrowing costs and might decrease our funds available for dividends. We therefore may not be able, or we may not choose, to provide a higher dividend rate.
In addition, distributions to our shareholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. 26 Table of Contents Qualification as a REIT is subject to the satisfaction of tax requirements and various factual matters and circumstances that are not entirely within our control.
In addition, dividends paid to our shareholders would no longer qualify for the dividends paid deduction, and we would no longer be required to pay dividends. Qualification as a REIT is subject to the 21 Table of Contents satisfaction of tax requirements and various factual matters and circumstances that are not entirely within our control.
Federal Income Tax Risks Failure to continue to qualify as a REIT would adversely affect our operations and our ability to make distributions because we would incur additional tax liabilities, which could have a material adverse effect on us.
Federal Income Tax Risks Failure to continue to qualify as a REIT would adversely affect our operations and our ability to pay dividends because we would incur additional tax liabilities, which could have a material adverse effect on us.
Our properties are located in areas that may be subject to climate change and natural disasters, such as earthquakes and wildfires, and severe weather conditions.
We are subject to risks from climate change and natural disasters such as earthquakes and severe weather conditions. Our properties are located in areas that may be subject to climate change and natural disasters, such as earthquakes and wildfires, and severe weather conditions.
Additionally, we may be unable to identify, negotiate, finance or consummate dispositions of our properties, on favorable terms, or at all; • our properties may be subject to impairment losses, which could have a material adverse effect on us; • changes in tax, real estate, environmental or zoning laws and regulations; • changes in property tax assessments and insurance costs; • changes in interest rates and rising inflation; • the cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, and our inability or the inability of our tenants to timely refinance maturing liabilities to meet liquidity needs could have a material adverse effect on us; and • we may from time to time be subject to litigation, which may significantly divert the attention and resources of the Company’s management and result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance, and any of which could have a material adverse effect on us.
Additionally, we may be unable to identify, negotiate, finance or consummate dispositions of our properties, on favorable terms, or at all; • our properties may be subject to impairment losses; • changes in tax, real estate, environmental or zoning laws and regulations; • changes in property tax assessments and insurance costs; • changes in interest rates and rising inflation; • the cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads, and/or more stringent underwriting standards, which could affect our inability or the inability of our tenants to timely refinance maturing liabilities to meet liquidity needs; and • we may from time to time be subject to litigation, which may significantly divert the attention and resources of the Company’s management and result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance.
As we look to dispose of certain properties, in some circumstances market conditions may impact the terms on which we are able to sell properties, which may require us to provide warranties, representations and covenants, and agree to 21 Table of Contents indemnification obligations or to retain certain liabilities, in order to complete such dispositions.
As we seek to dispose of certain properties, in some circumstances market conditions may impact the terms on which we are able to sell properties, which may require us to provide warranties, representations and covenants, and agree to indemnification obligations or to retain certain liabilities, in order to complete such dispositions.
No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable 28 Table of Contents to us and our shareholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of U.S. federal tax laws could adversely affect an investment in our common shares. ITEM 1B.
No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our shareholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of U.S. federal tax laws could adversely affect an investment in our common shares.
Risks Related to Our Conflicts of Interest Conflicts of interest may exist or could arise in the future between the interests of our shareholders and the interests of holders of OP Units, which may impede business decisions that could benefit our shareholders.
Risks Related to Our Conflicts of Interest Conflicts of interest may exist or could arise in the future between the interests of our shareholders and the interests of holders of OP Units, which may impede business decisions that could otherwise have benefitted our shareholders.
We may be required to make distributions to our shareholders at times it would be more advantageous to reinvest cash in our business or when we do not have cash readily available for distribution, and we may be forced to liquidate assets on terms and at times unfavorable to us, which could have a material adverse effect on us.
We may be required to pay dividends to our shareholders at times it would be more advantageous to reinvest cash in our business or when we do not have cash readily available for distribution, and we may be forced to sell assets on terms and at times unfavorable to us, which could have a material adverse effect on us.
However, we cannot assure our shareholders that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures by us and could have a material adverse effect on us. The occurrence of any of the foregoing could have a material adverse effect on us.
However, we cannot assure our shareholders that these requirements will not be changed or that new requirements will not be imposed which would require significant unanticipated expenditures by us and could have a material adverse effect on us.
Our real estate investments may include special use single tenant properties, and, as such, it may be difficult to re-lease or sell these properties, which could have a material adverse effect on us. We focus our investments on industrial and office properties, a number of which may have special uses.
We may own or invest in special use single tenant properties, and, as such, it may be difficult to re-lease or sell these properties, which could have a material adverse effect on us. We focus our investments on industrial and office properties, a number of which may have special uses.
We own and operate real estate and face risks related to investments in real estate. As of December 31, 2022, our real estate portfolio included 81 properties in 24 states and 74 lessees. Our operating results will be subject to risks generally incident to the ownership of real estate.
We own and operate real estate and face risks related to investments in real estate. As of December 31, 2023, our real estate portfolio included 71 properties in 24 states and 67 lessees. Our operating results will be subject to risks generally incident to the ownership of real estate.
These agreements involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not legally enforceable.
Our hedging transactions include entering into interest rate swap agreements. These agreements involve risks, such as the risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not legally enforceable.
In addition, we may be obligated to fund the defense costs incurred by our trustees, officers, employees and agents in some cases which would decrease the cash otherwise available for distribution to our shareholders. We are uncertain of our sources of funding our future capital needs.
In addition, we may be obligated to fund the defense costs incurred by our trustees, officers, employees and agents in some cases which would decrease the cash otherwise available to pay dividends to shareholders or otherwise operate our business. We are uncertain of our sources of funding our future capital needs.
Our lease expirations by year based on Annualized Base Rent as of December 31, 2022 are as follows (dollars in thousands): 16 Table of Contents Year of Lease Expiration (1) Annualized Base Rent (unaudited) Number of Leases Approx.
Our lease expirations by year based on Annualized Base Rent as of December 31, 2023 are as follows (dollars in thousands): Year of Lease Expiration (1) Annualized Base Rent (unaudited) Number of Leases Approx.
In addition, our leases may contain provisions (including caps, collars, fixed increases, etc.) that may limit our ability to reset rental rates to market rental rates upon expiration of the initial lease term.
In addition, our leases may contain provisions (including caps, collars, fixed increases, etc.) that may limit our ability to reset rental rates to market rental rates upon expiration of the periods of fixed rental rate increases.
If we are unable to refinance our existing debt or obtain new debt to replace such maturing debt, would have to use cash on hand to repay such debt at maturity, and we may not have sufficient cash available to repay such debt at maturity.
Risks Related to Debt Financing If we are unable to refinance our existing debt or obtain new debt to replace such maturing debt on favorable terms or at all, we would have to use cash on hand to repay such debt at maturity, and we may not have sufficient cash available to repay such debt at maturity.
If we are unable to refinance our existing debt or obtain new debt to replace such maturing debt, we would have to use cash on hand to repay such debt at maturity, and we may not have sufficient cash available to repay such debt at maturity.
If we are unable to refinance our existing debt or obtain new debt to replace such maturing debt on favorable terms or at all, we would have to use cash on hand to repay such debt as it matures, and we may not have sufficient cash available to repay such debt at maturity.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to shareholders at our current level or otherwise have a material adverse effect on us. We expect that we will incur indebtedness in the future. Interest we pay on our indebtedness will reduce cash available for distribution.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay dividends to shareholders at our current level or otherwise have a material adverse effect on us. We expect that we will incur indebtedness in the future.
All distributions will be at the sole discretion of our Board and will depend upon our actual and projected financial condition, results of operations, cash flows, liquidity and FFO, AFFO, maintenance of our REIT qualification and such other matters as our Board may deem relevant from time to time.
Future dividends will be declared and paid at the sole discretion of our Board, and the amount and timing of dividends will depend upon our actual and projected financial condition, results of operations, cash flows, liquidity and FFO, AFFO, maintenance of our REIT qualification and such other matters as our Board may deem relevant from time to time.
In addition to customary representations, warranties, covenants, and indemnities, the Second Amended and Restated Credit Agreement contains a number of financial covenants as described in Note 5, Debt, to our consolidated financial statements included in this Annual Report on Form 10-K. Any of the foregoing could have a material adverse effect on us.
In addition to customary representations, warranties, covenants, and indemnities, the Second Amended and Restated Credit Agreement contains a number of financial covenants as described in Note 5, Debt, to our consolidated financial statements included in this Annual Report on Form 10-K.
We cannot assure you that any of our markets will grow, not experience adverse developments or that such markets will not become less desirable to investors. Our operations may also be affected if competing properties are built in our markets.
We cannot assure you that any of our markets will grow, not experience adverse developments or that such markets will not become less desirable to investors. Our business, financial condition and results of operations may also be affected if competing properties are built, redeveloped or become more desirable than our properties in such markets.
In addition, in the event we are forced to sell the property, we may have difficulty selling it to a party other than the company that has leased and/or guaranteed the lease of the property due to the special purpose for which the property may have been designed.
In addition, in the event we determine it is best to sell the property, we may have difficulty selling it to a party other than the company that has leased the property, such company’s parent and/or the company that has guaranteed the lease of the property due to the special purpose for which the property may have been designed.
These and other limitations could have a material adverse effect on us and may affect our ability to re-lease or sell these properties upon expiration or early termination of a lease, which could have a material adverse effect on us.
These and other limitations could have a material adverse effect on us and may affect our ability to re-lease or sell these properties upon expiration or early termination of a lease, which could have a material adverse effect on us. Tenant defaults may have a material adverse effect on our business, financial condition and results of operations.
We depend on current key personnel for our future success, and the loss of such personnel or inability to attract and retain personnel could harm our business and the loss of services of one or more members of our executive management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our business relationships with lenders, business partners, companies that may lease or guarantee our properties and other industry participants, any of which could have a material adverse effect on us.
The loss of services of one or more members of our executive management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business and weaken our business relationships with lenders, business partners, companies that may lease or guarantee our properties and other industry participants, any of which could have a material adverse effect on us.
We have mostly entered into leases pursuant to which we retain responsibility for the costs of structural repairs and maintenance. An increase in property operating expenses that we are unable to pass along to our tenants could negatively impact our financial condition, results of operations and cash flow.
We have mostly entered into leases pursuant to which we retain responsibility for the costs of structural repairs and maintenance. If there is an increase in property operating expenses that we are unable to pass along to our tenants, then our business, financial condition and results of operations could be negatively impacted.
Our portfolio has geographic market concentrations that make us especially susceptible to adverse developments in those geographic markets. In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific geographic markets in which we have concentrations of properties.
Our portfolio has geographic market concentrations that make us especially susceptible to adverse developments in those geographic markets. In addition to general, regional, national and international economic conditions, our business, financial condition, and results of operations are impacted by the economic conditions of the specific geographic markets in which we have concentrations of properties.
In the future, we may experience additional geographic concentrations, which could adversely affect our operating performance if conditions become less favorable in any of the states or markets within such states in which we have a concentration of properties.
In the future, we may experience additional geographic concentrations, which could adversely affect our business, financial condition, and result of operations if conditions become less favorable in any of the states or markets within such states in which we have a concentration of properties.
Lease payment defaults, including those caused by the current economic climate or tenant liquidity limitations resulting from adverse developments affecting the financial services industry, could cause us to reduce the amount of distributions we pay and/or force us to find an alternative source of revenue to meet a debt payment and prevent a foreclosure if the property secures a loan.
Rental payment defaults, including those caused by the current economic climate or tenant liquidity limitations resulting from adverse developments affecting the financial services industry, could cause us to reduce the amount of dividends we pay, force us to find an alternative source of revenue to meet a debt payment and prevent a foreclosure if the property secures a loan, and/or and have a material adverse effect on our business, financial condition and results of operations.
These include risks described elsewhere in this "Risk Factors" section and other risks, including the following: • the value of real estate fluctuates depending on conditions in the general economy and the real estate business.
These include risks described elsewhere in this “Risk Factors” section and other risks, including the following: 16 Table of Contents • the value of real estate fluctuates depending on conditions in the general economy and the real estate business.
The costs of investigating, removing or remediating these substances may be substantial, and the presence of these substances may adversely affect our ability to lease or sell the property or to borrow using the property as collateral and may expose us to liability resulting from any release of or exposure to these substances, any of which could have a material adverse effect on us.
The presence of these substances may adversely affect our ability to lease or sell the property or to borrow using the property as collateral and may expose us to 17 Table of Contents liability resulting from any release of or exposure to these substances, any of which could result in expenditures and could have a material adverse effect on us.
In that event, we could default under the associated loan agreement, which could have a material adverse effect on us. Under the terms of our existing debt instruments, we have $37.1 million of debt scheduled to mature in 2023.
In that event, we could default under the associated loan agreement, including our unsecured corporate credit agreement, which could have a material adverse effect on us. Under the terms of our existing secured and unsecured debt instruments, we have $29.1 million of debt scheduled to mature in 2024.
Our Board may change our investment objectives, targeted investments, borrowing policies or other corporate policies without shareholder approval. Increases in market interest rates may result in a decrease in the value of our common shares.
Our shareholders are subject to the risk that our business and operating plans may change. Our Board may change our investment objectives, targeted investments, borrowing policies or other corporate policies without shareholder approval. Increases in market interest rates may result in a decrease in the value of our common shares.
We have broad authority to incur debt, and our indebtedness could have a material adverse effect on us. We have broad authority to incur debt. High debt levels would cause us to incur higher interest charges, which would result in higher debt service payments, and could be accompanied by restrictive covenants.
We have broad authority to incur debt, and our indebtedness could have a material adverse effect on us. We have broad authority to incur debt, subject to the approval of our Board. High debt levels would cause us to incur higher interest charges, which would result in higher debt service payments.
We have significant property concentrations based on Annualized Base Rent as of December 31, 2022 in Arizona (9.9%), New Jersey (8.4%), Texas (8.1%), Massachusetts (7.4%), and California (7.3%).
We have significant property concentrations based on Annualized Base Rent as of December 31, 2023 in Arizona (11.9%), New Jersey (9.9%), Colorado (8.4%), Ohio (6.7%), and Massachusetts (6.3%).
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to make distributions to our shareholders. The REIT provisions of the Code impose certain restrictions on our ability to utilize hedges, swaps and other types of derivatives to hedge our liabilities.
Failure to hedge effectively against interest rate changes may adversely affect our business, financial condition, results of operations and ability to pay dividends to our shareholders. The REIT provisions of the Code impose certain restrictions on our ability to utilize hedges, swaps and other types of derivatives to hedge our liabilities.
Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.
We maintain pollution liability insurance for all of our properties to insure against the potential liability of remediation and exposure risk. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.
An oversupply of properties in the industries and geographies in which we concentrate could further increase competition. As a result, we may have to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights, below-market renewal options or other lease incentive payments or we might not be able to timely lease the space.
As a result, we may have to reduce our rental rates or to offer more substantial rent abatements, tenant improvements, early termination rights, below-market renewal options or other lease incentive payments or we might not be able to timely lease the space.
As a result, prospective purchasers may decide to purchase other securities rather than our common shares, which would reduce the demand for, and result in a decline in the market price of, our common shares.
As a result, prospective purchasers may decide to purchase other securities rather than our common shares, which would reduce the demand for, and result in a decline in the market price of, our common shares. 25 Table of Contents The future issuance of common shares or the resale of outstanding common shares could adversely affect the market price of our common shares.
The importance of sustainability evaluations is becoming more broadly accepted by investors and shareholders. Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies and investment funds based upon ESG or “sustainability” metrics.
Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies and investment funds based upon ESG or “sustainability” metrics.
Our indebtedness could have a material adverse effect on us, as well as: • increasing our vulnerability to general adverse economic and industry conditions; • limiting our ability to obtain additional financing to fund future working capital, acquisitions, capital expenditures and other general corporate requirements; • requiring the use of an increased portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements; • limiting our flexibility in planning for, or reacting to, changes in our business and our industry; • putting us at a disadvantage compared to our competitors with less indebtedness; and • limiting our ability to access capital markets or limiting the possibility of a listing on a national securities exchange.
Our indebtedness could have a material adverse effect on us, as well as: • increase our vulnerability to general adverse economic and industry conditions; • decrease the market price of our common shares as a result of market aversion to higher debt levels; • limit our ability to obtain additional financing to fund future working capital, acquisitions, investments, capital expenditures and other general corporate requirements; • require the use of an increased portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, investments, capital expenditures and general corporate requirements; • limit our flexibility in planning for, or reacting to, changes in our business and our industry and accomplishing our business plan; • put us at a disadvantage compared to our competitors with less indebtedness; and • limit our ability to access capital markets.
These provisions would affect our ability to turn our investments into cash and thus affect cash available for distribution to our shareholders and may prohibit us from reducing the outstanding indebtedness with respect to any such properties by repaying or refinancing such indebtedness. Any mortgage debt that we place on our properties may also impose prepayment penalties.
These provisions would affect our ability to turn our investments into cash and thus affect cash available for the payment of dividends to our shareholders and may prohibit us from reducing the outstanding indebtedness with respect to any such properties by repaying or refinancing such indebtedness.
In addition, some of our properties contain mortgage financing. If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan or vehicle, which could have a material adverse effect on us.
Some of our assets are and will be secured by mortgages on our properties, and we may in the future rely on securitization vehicles. If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan or vehicle, which could have a material adverse effect on us.
Based on Annualized Base Rent, as of December 31, 2022, our weighted average lease term was approximately 7.1 years and approximately 98.5% of our leases contained fixed rental rate increases during the initial lease term.
Based on Annualized Base Rent, as of December 31, 2023, our weighted average lease term was approximately 6.5 years and approximately 98.2% of our leases contain fixed rental rate increases.
In addition, interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates, which could reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes could materially adversely affect our financial condition, results of operations, cash flow and ability to make distributions to our shareholders.
In addition, interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates and a failure to hedge effectively against interest rate changes could materially adversely affect our business, financial condition, results of operations and ability to pay dividends to our shareholders.
Moreover, we can provide no assurance that our strategy of owning and operating industrial and office properties that are primarily leased to single tenants will be successful or that we will attain our investment and portfolio management objectives.
Additionally, in certain instances, we may enter into leases that do not include a credit party guaranty. Moreover, we can provide no assurance that our strategy of owning and operating industrial and office properties that are primarily leased to single tenants will be successful or that we will attain our investment and portfolio management objectives.
Pursuant to the Second Amended and Restated Credit Agreement dated as of April 30, 2019 (as amended, the “Second Amended and Restated Credit Agreement”), with KeyBank, National Association (“KeyBank”), as administrative agent, and a syndicate of lenders, we, through our Operating Partnership, as the borrower, have a $1.3 billion credit facility consisting of a revolving credit facility (the “Revolving Credit Facility”) maturing in September 2023 with (subject to the satisfaction of certain customary conditions) a series of three-month extension options, and if the Subsequent Extension (as defined below) is exercised, an additional extension to January 2026, a delayed draw $400 million senior unsecured term loan maturing in December 2025 (the “$400M 5-Year Term Loan 2025”), and a $150 million senior unsecured term loan maturing in April 2026 (the “$150M 7-Year Term Loan”) (collectively, the “KeyBank Loans”).
Pursuant to the Second Amended and Restated Credit Agreement dated as of April 30, 2019 (as amended, the “Second Amended and Restated Credit Agreement”), with KeyBank, National Association (“KeyBank”), as administrative agent, and a syndicate of lenders, our Operating Partnership, as the borrower, has a $1.3 billion credit facility consisting of a (i) $750.0 million unsecured revolving credit facility (the “Revolving Credit Facility”), under which the Company has drawn $400 million (the “Revolving Loan”), currently maturing in March 2024 (with a series of extension options to January 31, 2026, subject to the satisfaction of certain customary conditions), (ii) a $400.0 million senior unsecured term loan maturing in December 2025 (the “$400M 2025 5-Year Term Loan”), and (iii) a $150.0 million senior unsecured term loan maturing in April 2026 (the “$150M 2026 7-Year Term Loan” and together with the Revolving Credit Facility and the $400M 2025 5-Year Term Loan, the “KeyBank Loans”).
Our primary risks that could directly result from the occurrence of a cyber incident are theft of assets; operational interruption; regulatory enforcement, lawsuits and other legal proceedings; damage to our relationships with our tenants; and private data exposure.
As our reliance on technology increases, so do the risks posed to our systems - both internal and external. Our primary risks that could directly result from the occurrence of a cyber incident are theft of assets; operational interruption; regulatory enforcement, lawsuits and other legal proceedings; damage to our relationships with our tenants; and exposure of Confidential Information.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe percentage of Annualized Base Rent as of December 31, 2022, by industry, based on the respective in-place leases, is as follows (dollars in thousands): Industry (1)(3) Annualized Base Rent (unaudited) Number of Lessees Percentage of Annualized Base Rent Capital Goods $ 34,218 15 15.3 % Consumer Services 21,199 5 9.5 Materials 19,816 5 8.8 Food, Beverage & Tobacco 16,455 3 7.3 E-Commerce 16,312 1 7.3 Energy 15,895 3 7.1 Health Care Equipment & Services 13,825 6 6.2 Commercial & Professional Services 12,401 7 5.5 Consumer Durables & Apparel 11,751 4 5.2 Utilities 11,085 2 4.9 All others (2) 50,985 23 22.9 Total $ 223,942 74 100.0 % (1) Industry classification based on the Global Industry Classification Standard. 29 Table of Contents (2) All others account for 4.3% or less of total Annualized Base Rent on an individual industry basis.
Biggest change(2) Includes properties held for sale and sold subsequent to year-end. 32 Table of Contents By Industry: The percentage of Annualized Base Rent as of December 31, 2023, by industry, based on the respective in-place leases, is as follows (dollars in thousands): Industry (1)(3) Annualized Base Rent (unaudited) Number of Lessees Percentage of Annualized Base Rent Capital Goods $ 32,436 15 16.5 % Consumer Services 21,597 5 11.0 Materials 19,980 5 10.2 Food, Beverage & Tobacco 16,677 3 8.5 Commercial & Professional Services 11,701 7 5.9 Utilities 11,297 2 5.7 Retailing 9,727 2 4.9 Technology Hardware & Equipment 9,179 3 4.7 Diversified Financials 9,127 3 4.6 Health Care Equipment & Services 9,032 3 4.6 Subtotal 150,753 48 76.6 All others (2) 45,978 19 23.4 Total $ 196,731 67 100.0 % (1) Industry classification based on the Global Industry Classification Standard.
ITEM 2. PROPERTIES As of December 31, 2022, we owned a fee simple interest and a leasehold interest in 75 and 6 properties, respectively, encompassing approximately 19.9 million rentable square feet. See Part IV, Item 15.
ITEM 2. PROPERTIES As of December 31, 2023, we owned a fee simple interest in 66 and a ground leasehold interest in 5 properties, encompassing approximately 17.9 million rentable square feet. See Part IV, Item 15.
(2) Includes properties held for sale and sold subsequent to year-end; excludes properties in the Office Joint Venture.
(2) Includes properties held for sale and sold subsequent to year-end.
The percentage of Annualized Base Rent as of December 31, 2022, by state, based on the respective in-place leases, is as follows (dollars in thousands): State Annualized Base Rent (unaudited) Number of Properties (2) Percentage of Annualized Base Rent Arizona $ 22,069 7 9.9 % New Jersey 18,862 5 8.4 Texas 18,212 6 8.1 Massachusetts 16,673 5 7.4 California 16,450 4 7.3 Colorado 16,060 6 7.2 Ohio 13,023 5 5.8 South Carolina 11,843 4 5.3 Alabama 11,153 2 5.0 Virginia 10,374 3 4.6 All Others (1) 69,223 34 31.0 Total $ 223,942 81 100.0 % (1) All others account for 4.0% or less of total Annualized Base Rent on an individual state basis.
Revenue Concentration By State: The percentage of Annualized Base Rent as of December 31, 2023, by state, based on the respective in-place leases, is as follows (dollars in thousands): State Annualized Base Rent (unaudited) Number of Properties (2) Percentage of Annualized Base Rent Arizona $ 23,336 7 11.9 % New Jersey 19,532 5 9.9 Colorado 16,471 4 8.4 Ohio 13,261 5 6.7 Massachusetts 12,449 3 6.3 California 12,271 2 6.2 Alabama 10,307 2 5.2 South Carolina 9,853 3 5.0 North Carolina 9,079 6 4.6 Illinois 8,865 3 4.5 Subtotal 135,424 40 68.7 All Others (1) 61,307 31 31.3 Total $ 196,731 71 100.0 % (1) All others account for 3.9% or less of total Annualized Base Rent on an individual state basis.
The percentage of Annualized Base Rent as of December 31, 2022, for the top 10 tenants, based on the respective in-place leases, is as follows (dollars in thousands): Tenant (1) Annualized Base Rent (unaudited) Percentage of Annualized Base Rent Amazon $ 16,312 7.3 % Keurig Dr.
As of December 31, 2023, our top 10 tenants are as follows (dollars in thousands): Tenant Annualized Base Rent (unaudited) Percentage of Annualized Base Rent Keurig Dr.
Square Feet Percentage of Annualized Base Rent 2023 $ 6,583 3 746,600 2.9 % 2024 24,003 11 2,357,400 10.7 2025 9,242 7 869,400 4.1 2026 12,567 4 1,449,100 5.6 2027 14,179 7 570,700 6.3 2028 20,990 14 2,233,700 9.4 >2028 136,378 41 10,763,600 61.0 Vacant — — 896,600 — Total $ 223,942 87 19,887,100 100.0 % (1) Expirations that occur on the last day of the month are shown as expiring in the subsequent month.
Square Feet Percentage of Annualized Base Rent 2024 $ 17,045 9 1,398,500 8.7 % 2025 8,090 7 788,700 4.1 2026 13,308 4 1,449,100 6.8 2027 14,349 7 570,700 7.3 2028 18,726 11 2,027,200 9.5 2029 38,756 10 2,394,100 19.7 >2029 86,457 31 8,595,800 43.9 Leased Amenity Space — — 2,000 — Vacant — — 642,800 — Total $ 196,731 79 17,868,900 100.0 % (1) Expirations that occur on the last day of the year are shown as expiring in the subsequent year.
Revenue Concentration No lessee or property, based on Annualized Base Rent as of December 31, 2022, pursuant to the respective in-place leases, was greater than 7.3% as of December 31, 2022.
(2) No individual industry included within “all others” accounts for more than 4.4% of total Annualized Base Rent. (3) Includes properties held for sale and sold subsequent to year-end. Top Ten Tenants: Pursuant to the respective in-place leases, no lessee or property generated more than 5.9% of our total Annualized Base Rent as of December 31, 2023.
Removed
(3) Includes properties held for sale and sold subsequent to year-end; excludes properties in the Office Joint Venture.
Added
Pepper $ 11,532 5.9 % Southern Company 9,224 4.7 % LPL 8,701 4.4 % Amazon 8,590 4.4 % Freeport McMoRan 7,867 4.0 % Maxar Technologies 7,723 3.9 % RH 7,487 3.8 % Wyndham Hotels & Resorts 7,392 3.8 % McKesson 6,123 3.1 % Travel & Leisure, Co. 5,826 3.0 % Subtotal 80,465 41.0 % All Others (1) 116,266 59.0 % Total $ 196,731 100.0 % (1) No individual tenant included within “All others” account for more than 2.8% of Annualized Base Rent. 33 Table of Contents Lease Expirations: As of December 31, 2023, our lease expirations by year are as follows (dollars in thousands): Year of Lease Expiration (1)(2) Annualized Base Rent (unaudited) Number of Leases Approx.
Removed
Pepper 11,419 5.1 % Wood Group 10,050 4.5 % Southern Company Services 9,043 4.0 % LPL 8,552 3.8 % Freeport McMoRan 7,867 3.5 % Maxar Technologies 7,535 3.4 % RH 7,340 3.3 % Wyndham Hotels & Resorts 7,265 3.2 % McKesson 5,973 2.7 % (1) Excludes properties in the Office Joint Venture.
Removed
The tenant lease expirations by year based on Annualized Base Rent as of December 31, 2022 are as follows (dollars in thousands): Year of Lease Expiration (1)(2) Annualized Base Rent (unaudited) Number of Leases Approx.
Removed
(2) Includes properties held for sale and sold subsequent to year-end; excludes properties in the Office Joint Venture.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of our business.
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, the Company may become subject to legal and regulatory proceedings, claims and litigation arising in the ordinary course of business. The Company is not a party to, nor is the Company aware of any material pending legal proceedings nor is any property of the Company subject to any material pending legal proceedings.
Removed
We are not a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation be resolved unfavorably. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 30 PART II
Added
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 34 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring the quarter ended December 31, 2022, we redeemed shares under the SRP as follows : For the Month Ended Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs October 31, 2022 — $ — — — November 30, 2022 8,633 $ 66.60 — — December 31, 2022 66,247 $ 66.78 — (1) (1) For a description of the maximum number of shares that may be purchased under our SRP, see Note 9, Equity , to our consolidated financial statements included in this Annual Report on Form 10-K.
Biggest changeThe historical information set forth on the following performance graph is not necessarily indicative of future performance. 35 Forfeitures During the quarter ended December 31, 2023, the Company repurchased shares as follows: For the Month Ended Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs October 31, 2023 — $ — — — November 30, 2023 — $ — — — December 31, 2023 58,982 (1) $ 19.92 — — (1) Consists of shares withheld (i.e. forfeited) pursuant to provisions of employee benefit plans that permit the repurchase of shares to satisfy statutory tax withholding obligations.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers Prior to its suspension in February 2023 in anticipation of the proposed Listing, the Company had adopted the SRP that enabled shareholders to sell their shares to the Company in limited circumstances.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers Prior to the listing of the Company’s shares on the New York Stock Exchange (the “Listing”), the Company had adopted the share redemption program (as amended and restated, the “SRP”) that enabled shareholders to sell their shares to the Company in limited circumstances.
In addition, during any calendar year, with respect to each share class, the Company was permitted to redeem no more than 5% of the weighted-average number of shares of such class outstanding during the prior calendar year.
Pursuant to the terms of the SRP, during any calendar year, with respect to each share class, the Company was permitted to redeem no more than 5% of the weighted average number of shares of such class outstanding during the prior calendar year, and the Company would redeem shares as of the last business day of each quarter (with quarterly redemptions capped at $5 million) at a price equal to the most recently published net asset value (“NAV”) per share for the applicable class prior to quarter end.
Removed
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information As of March 24, 2023 , we had approximately 62,124 Class T common shares, 200 Class S common shares, 4,668 Class D common shares, 212,424 Class I common shares, 2,714,120 Class A common shares, 5,272,834 Class AA common shares, 102,993 Class AAA common shares and 27,629,649 Class E common shares outstanding, including common shares issued pursuant to our DRP and share distributions held by a total of approximately 58,000 shareholders of record.
Added
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NYSE under the ticker symbol “PKST”. As of February 20, 2024, there were 11,616 holders of record of our common stock.
Removed
There is currently no established public trading market for our common shares. Therefore, if the proposed Listing is not completed, there is a risk that a shareholder may not be able to sell our shares at a time or price acceptable to the shareholder, or at all.
Added
Certain shares of our Company are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing numbers.
Removed
Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares. As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we expect to pay distributions regularly unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so.
Added
Dividends We intend to pay dividends on a quarterly basis at the discretion of our Board, unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Recent Sales of Unregistered Securities During the year ended December 31, 2023, there were no sales of unregistered securities.
Removed
Distributions will be authorized at the discretion of our Board, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Code. Recent Sales of Unregistered Securities During the year ended December 31, 2022, there were no sales of unregistered securities.
Added
The SRP was suspended during certain periods prior to Listing and terminated in connection with the Listing. During the year ended December 31, 2023, the Company redeemed 941 shares.
Removed
The SRP was suspended on October 1, 2021 but resumed on a limited basis on August 5, 2022 (i.e., limited to redemptions in connection with a holder’s death, disability or incompetence) with the cap on quarterly redemptions tied to a dollar amount to be set by the Board and disclosed by the Company.
Added
Issuances Under Equity Compensation Plans Our equity compensation plan information required by this item are incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.
Removed
Quarterly redemptions were capped at $5 million (or some other quarterly or annual amount determined by the Board and announced at least 10 business days before the applicable redemption date).
Added
Share Performance The information below shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.
Added
The following performance graph is a comparison of the cumulative return of our common shares for the period from our Listing through December 31, 2023. The graph also shows the cumulative total returns of the Standard and Poor’s 500 Index (“S&P 500”), and industry peer groups during the same period.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOur calculation of each of NOI, Cash NOI and Same-Store Cash NOI is presented in the following table for the year ended December 31, 2022, 2021 and 2020 (dollars in thousands): Year Ended December 31, 2022 2021 2020 Reconciliation of Net Income to Total NOI Net (loss) income $ (441,382) $ 11,570 $ (5,774) General and administrative expenses 39,893 40,479 38,633 Corporate operating expenses to affiliates 1,349 2,520 2,500 Impairment provision, real estate 127,577 4,242 23,472 Impairment provision, goodwill 135,270 — — Depreciation and amortization 190,745 209,638 161,056 Interest expense 84,816 85,087 79,646 Debt breakage costs 13,249 — — Other loss (income), net 45 (1,521) (3,228) Loss (income) from investment in unconsolidated entities 9,993 (8) 6,523 Loss (gain) from disposition of assets 139,280 326 (4,083) Transaction expense 22,386 966 — Total NOI $ 323,221 $ 353,299 $ 298,745 Year Ended December 31, 2022 2021 2020 Cash NOI Adjustments Industrial: Industrial NOI $ 53,477 $ 52,125 $ 59,837 Straight-line rents (1,018) (1,700) (1,684) Amortization of acquired lease intangibles (369) (345) (297) Deferred termination income (39) — — Industrial cash NOI 52,051 50,080 57,856 Office: 48 Office NOI 230,967 260,255 198,113 Straight-line rents (12,207) (12,171) (22,618) Amortization of acquired lease intangibles (1,346) (231) (1,515) Deferred termination income — — (1) Deferred ground lease 1,945 2,066 2,067 Other intangible amortization 1,495 1,252 — Inducement amortization 537 278 — Financed termination fee — — 7,557 Office Cash NOI 221,391 251,449 183,603 Other NOI 38,777 40,919 40,795 Straight-line rents 634 313 (1,384) Amortization of acquired lease intangibles — (749) (480) Deferred termination income (2,779) 2,779 — Deferred ground lease 5 (3) — Other intangible amortization (489) — — Inducement amortization — — — Other Cash NOI 36,148 43,259 38,931 Total Cash NOI $ 309,590 $ 344,788 $ 280,390 Same Store Cash NOI Adjustments Industrial: Industrial cash NOI $ 52,051 $ 50,080 $ 57,856 Cash NOI for recently acquired properties (3,311) (4,545) (18,311) Cash net operating (income) loss for recently disposed properties (6) 272 — Industrial Same Store cash NOI 48,734 45,807 39,545 Office: Office cash NOI 221,391 251,449 183,603 Cash NOI for recently acquired properties (50,369) (55,756) (49,019) Cash net operating (income) loss for recently disposed properties (93,290) 159 (4,192) Office Same Store cash NOI 77,732 195,852 130,392 Other: Other cash NOI 36,148 43,259 38,931 Cash NOI for recently acquired properties (2,364) (1,751) (9,796) Cash net operating (income) loss for recently disposed properties — — — Other Same Store cash NOI 33,784 41,508 29,135 Cash NOI from the operating partnership 32 30 20 Total Same Store cash NOI $ 160,282 $ 283,197 $ 199,092 49 Liquidity and Capital Resources Property rental income is our primary source of operating cash flow and is dependent on a number of factors including occupancy levels and rental rates, as well as the ability and willingness of our tenants’ to pay rent.
Biggest changeOur calculation of each of NOI and Cash NOI is presented in the following table for the year ended December 31, 2023, 2022 and 2021 (dollars in thousands): Year Ended December 31, 2023 2022 2021 Reconciliation of Net (Loss) Income to Total NOI Net (loss) income $ (605,102) $ (441,382) $ 11,570 General and administrative expenses 42,962 38,995 39,051 Corporate operating expenses to affiliates 1,154 1,349 2,520 Impairment provision, real estate 409,512 127,577 4,242 Impairment provision, goodwill 16,031 135,270 — Depreciation and amortization 112,204 190,745 209,638 Interest expense 65,623 84,816 85,087 Debt breakage costs — 13,249 — Other expense (income), net (13,111) 943 (93) Loss (income) from investment in unconsolidated entities 176,767 9,993 (8) Loss (gain) from disposition of assets (29,164) 139,280 326 Transaction expense 24,982 22,386 966 Total NOI $ 201,858 $ 323,221 $ 353,299 47 Year Ended December 31, 2023 2022 2021 Cash NOI Adjustments Industrial: Industrial NOI $ 49,649 $ 53,477 $ 52,125 Straight-line rents (344) (1,018) (1,700) Amortization of acquired lease intangibles (384) (369) (345) Deferred termination income (24) (39) — Industrial Cash NOI 48,897 52,051 50,080 Office: Office NOI 118,439 230,967 260,255 Straight-line rents (9,046) (12,207) (12,171) Amortization of acquired lease intangibles (306) (1,346) (231) Deferred ground lease 1,739 1,945 2,066 Other intangible amortization 1,494 1,495 1,252 Inducement amortization 150 537 278 Office Cash NOI 112,470 221,391 251,449 Other NOI 33,770 38,777 40,919 Straight-line rents 1,461 634 313 Amortization of acquired lease intangibles (549) (489) (749) Deferred termination income — (2,779) 2,779 Deferred ground lease (15) 5 (3) Other Cash NOI 34,667 36,148 43,259 Total Cash NOI $ 196,034 $ 309,590 $ 344,788 48 Liquidity and Capital Resources Overview Property rental income is our primary source of operating cash flow and is dependent on a number of factors including occupancy levels and rental rates, as well as the ability and willingness of our tenants’ to pay rent.
AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, amortization of share-based compensation net, deferred rent, amortization of in-place lease valuation, acquisition-related costs, financed termination fee, net of payments received, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, write-off transaction costs and other one-time transactions.
AFFO excludes non-routine and certain non-cash items such as revenues in excess of cash received, amortization of share-based compensation net, deferred rent, amortization of in-place lease valuation, acquisition or investment-related costs, financed termination fee, net of payments received, gain or loss from the extinguishment of debt, unrealized gains (losses) on derivative instruments, write-off transaction costs and other one-time transactions.
We believe these two non-GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. 45 We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”).
We believe these two non-GAAP financial measures are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs. We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”).
It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do, making comparisons less meaningful. Additionally, we use AFFO as a non-GAAP financial measure to evaluate our operating performance.
It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do, making comparisons less meaningful. 44 Additionally, we use AFFO as a non-GAAP financial measure to evaluate our operating performance.
FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable real estate assets, adding back impairment write-downs of depreciable real estate assets, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures and preferred distributions.
FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable real estate assets, adding back impairment write-downs of depreciable real estate assets, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships, joint ventures and preferred dividends.
If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. To the extent we are not able to secure additional financing in the form of a credit facility, securitization vehicle or other third party source of liquidity, we will be heavily dependent upon our current financing and income from operations.
If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. To the extent we are not able to secure additional financing in the form of a credit facility or other third party source of liquidity, we will be heavily dependent upon our current financing and income from operations.
Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies. Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current distribution level. More specifically, AFFO isolates the financial results of our operations.
Further, we believe AFFO is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies. Management believes that AFFO is a beneficial indicator of our ongoing portfolio performance and ability to sustain our current dividend level. More specifically, AFFO isolates the financial results of our operations.
We believe that NOI, Cash NOI and Same-Store Cash NOI are helpful to investors as additional measures of operating performance because we believe they help both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization.
We believe that NOI and Cash NOI are helpful to investors as additional measures of operating performance because we believe they help both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization.
NOI, Cash NOI and Same-Store Cash NOI are unlevered operating performance metrics of our properties and allow for a useful comparison of the operating performance of individual assets or groups of assets. These measures thereby provide an operating perspective not immediately apparent from GAAP income from operations or net income.
NOI and Cash NOI are unlevered operating performance metrics of our properties and allow for a useful comparison of the operating performance of individual assets or groups of assets. These measures thereby provide an operating perspective not immediately apparent from GAAP income from operations or net income.
The payments on our mortgage debt do not include the premium/discount or debt financing costs. (2) Projected interest payments are based on the outstanding principal amounts at December 31, 2022. Projected interest payments on the Credit Facility and Term Loan are based on the contractual interest rates in effect at December 31, 2022.
The payments on our mortgage debt do not include the premium/discount or debt financing costs. (2) Projected interest payments are based on the outstanding principal amounts at December 31, 2023. Projected interest payments on the Credit Facility and Term Loan are based on the contractual interest rates in effect at December 31, 2023.
The following critical accounting estimates discussion reflects what we believe are the most significant estimates, assumptions, and judgments that have had or are reasonably likely to have a material impact on our financial condition or our results of operations.
As such, the following critical accounting estimates discussion reflects what we believe are the most significant estimates, assumptions, and judgments that have had or are reasonably likely to have a material impact on our financial condition or our results of operations.
For further discussion on our significant accounting policies, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our consolidated financial statements included in this Annual Report on Form 10-K.
For further discussion on our significant accounting policies and discussion of new accounting pronouncements, see Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our consolidated financial statements included in this Annual Report on Form 10-K.
In addition, NOI, Cash NOI and Same-Store Cash NOI are considered by many in the real estate industry to be useful starting points for determining the value of a real estate asset or group of assets.
In addition, NOI and Cash NOI are considered by many in the real estate industry to be useful starting points for determining the value of a real estate asset or group of assets.
AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to make or sustain distributions.
AFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, AFFO for the period presented may not be indicative of future results or our future ability to pay or sustain dividends.
However, a material limitation associated with FFO and AFFO is that they are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO.
However, a material limitation associated with FFO and AFFO is that they are not indicative of our cash available to fund the payment of dividends since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and AFFO.
Derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in the fair value of the derivatives is recognized directly in earnings.
The Interest Rate Swaps were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in the fair value of the Interest Rate Swaps is recognized directly in earnings.
The credit facility also provides the option, subject to obtaining additional commitments from lenders and certain other customary conditions, to increase the commitments under the Revolving Credit Facility, increase the existing term loans and/or incur new term loans by up to an additional $1.0 billion in the aggregate.
The Second Amended and Restated Credit Agreement also provides the option, subject to obtaining additional commitments from lenders and certain other customary conditions, to increase the commitments under the Revolving Credit Facility, to increase the existing term loans and/or incur new term loans by up to an additional $1.0 billion in the aggregate.
Other Potential Future Sources of Capital Other potential future sources of capital include proceeds from potential private or public offerings of our shares or OP Units, proceeds from secured or unsecured financings from banks or other lenders, including debt assumed in a real estate acquisition transaction, proceeds from the sale of properties and undistributed funds from operations, and entering into joint venture arrangements to acquire or develop facilities.
Other Potential Future Sources of Capital Other potential future sources of capital include proceeds from potential private or public offerings of our shares or OP Units, proceeds from secured or unsecured financings from banks or other lenders, including debt assumed in a real estate transaction, proceeds from the sale of properties and undistributed funds from operations, and entering into joint venture arrangements to invest in assets.
Overview Peakstone Realty Trust is an internally managed, publicly registered real estate investment trust (“REIT”) that owns and operates a high-quality, newer-vintage portfolio of predominantly single-tenant industrial and office properties. These assets are generally leased to creditworthy tenants under long-term net lease agreements with contractual rent escalations.
Overview Peakstone Realty Trust is an internally managed, publicly traded real estate investment trust (“REIT”) that owns and operates a high-quality, newer-vintage portfolio of predominantly single-tenant industrial and office properties located in diverse, strategic growth markets. These assets are generally leased to creditworthy tenants under long-term net lease agreements with contractual rent escalations.
Cash flows provided by operating activities are primarily dependent on the occupancy level, the rental rates of our leases, the collectability of rent and recovery of operating expenses from our tenants, and the timing of acquisitions.
Operating Activities. Cash flows provided by operating activities are primarily dependent on the occupancy level, the rental rates of our leases, the collectability of rent and recovery of operating expenses from our tenants, and the timing of acquisitions of and/or other investments in properties.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The effective portion of changes in the fair value of the Interest Rate Swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table sets forth a summary of the interest rate swaps at December 31, 2022 and December 31, 2021 (dollars in thousands): Fair Value (1) Current Notional Amount December 31, December 31, Derivative Instrument Effective Date Maturity Date Interest Strike Rate 2022 2021 2022 2021 Assets/(Liabilities) Interest Rate Swap 3/10/2020 7/1/2025 0.83% $ 12,391 $ 1,648 $ 150,000 $ 150,000 Interest Rate Swap 3/10/2020 7/1/2025 0.84% 8,244 1,059 100,000 100,000 Interest Rate Swap 3/10/2020 7/1/2025 0.86% 6,145 749 75,000 75,000 Interest Rate Swap 7/1/2020 7/1/2025 2.82% 4,331 (7,342) 125,000 125,000 Interest Rate Swap 7/1/2020 7/1/2025 2.82% 3,444 (5,909) 100,000 100,000 Interest Rate Swap 7/1/2020 7/1/2025 2.83% 3,441 (5,899) 100,000 100,000 Interest Rate Swap 7/1/2020 7/1/2025 2.84% 3,408 (5,958) 100,000 100,000 Total $ 41,404 $ (21,652) $ 750,000 $ 750,000 (1) We record all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities.
The following table sets forth a summary of the Interest Rate Swaps at December 31, 2023 and December 31, 2022 (dollars in thousands): Fair Value (1) Current Notional Amount December 31, December 31, Derivative Instrument Effective Date Maturity Date Interest Strike Rate 2023 2022 2023 2022 Assets/(Liabilities) Interest Rate Swap 3/10/2020 7/1/2025 0.83% $ 7,891 $ 12,391 $ 150,000 $ 150,000 Interest Rate Swap 3/10/2020 7/1/2025 0.84% 5,250 8,244 100,000 100,000 Interest Rate Swap 3/10/2020 7/1/2025 0.86% 3,915 6,145 75,000 75,000 Interest Rate Swap 7/1/2020 7/1/2025 2.82% 2,924 4,331 125,000 125,000 Interest Rate Swap 7/1/2020 7/1/2025 2.82% 2,331 3,444 100,000 100,000 Interest Rate Swap 7/1/2020 7/1/2025 2.83% 2,327 3,441 100,000 100,000 Interest Rate Swap 7/1/2020 7/1/2025 2.84% 2,304 3,408 100,000 100,000 Total $ 26,942 $ 41,404 $ 750,000 $ 750,000 (1) We record all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that net assets against liabilities.
The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.
Critical Accounting Estimates We have established accounting estimates which conform to GAAP. The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.
We expect to pay distributions regularly unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so.
We expect to pay dividends on a quarterly basis unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so.
To qualify as a REIT, we must meet a number of organizational and operational requirements on a continuing basis, including the requirement that we annually distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gain, to our shareholders.
The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources. 52 To qualify as a REIT, we must meet a number of organizational and operational requirements on a continuing basis, including the requirement that we annually distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gain, to our shareholders.
In the future, NAREIT may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure. 46 Our calculation of FFO and AFFO is presented in the following table for the years ended December 31, 2022, 2021 and 2020 (in thousands, except per share amounts): Year Ended December 31, 2022 2021 2020 Net (loss) income $ (441,382) $ 11,570 $ (5,774) Adjustments: Depreciation of building and improvements 113,191 125,388 93,979 Amortization of leasing costs and intangibles 77,926 84,598 67,366 Impairment provision, real estate 127,577 4,242 23,472 Equity interest of depreciation of building and improvements - unconsolidated entities 4,643 — 1,438 Equity interest of amortization of intangible assets - unconsolidated entities — — 1,751 Loss from disposition of assets, net 139,280 326 (4,083) Company's share of loss on sale of unconsolidated entity 3,558 (8) — Impairment of unconsolidated entities — — 1,906 FFO $ 24,793 $ 226,116 $ 180,055 Distributions to redeemable preferred shareholders (10,063) (9,698) (8,708) FFO attributable to common shareholders and partners $ 14,730 $ 216,418 $ 171,347 Reconciliation of FFO to AFFO: FFO attributable to common shareholders and partners $ 14,730 $ 216,418 $ 171,347 Adjustments: Non-cash earn-out adjustment — — (2,581) Revenues in excess of cash received, net (15,407) (10,780) (25,686) Amortization of share-based compensation 9,573 7,470 4,108 Deferred rent - ground lease 1,951 2,064 2,065 Amortization of above/(below) market rent, net (2,205) (1,323) (2,292) Amortization of debt premium/(discount), net 409 409 412 Amortization of below tax benefit amortization 1,494 1,252 — Amortization of deferred financing costs 3,544 3,184 2,195 Amortization of lease inducements 537 278 — Company's share of amortization of deferred financing costs- unconsolidated entity 3,740 — 82 Amortization of ground leasehold interests (372) (350) (290) Financed termination fee payments received — — 7,557 Loss on debt breakage costs — write-off of deferred financing costs 1,771 — — Company's share of revenues in excess of cash received (straight-line rents) - unconsolidated entity (257) — 505 Unrealized loss (gain) on investments 195 (15) 31 Company's share of amortization of above market rent - unconsolidated entity (58) — 1,419 Unconsolidated joint venture valuation adjustment — — 4,452 Employee separation expense 72 777 2,666 Write-off of reserve liability — (1,166) — Write-off of transaction costs 28 65 4,427 Transaction expenses 22,386 966 — Impairment provision, goodwill 135,270 — — Debt breakage costs 13,249 — — AFFO available to common shareholders and partners $ 190,650 $ 219,249 $ 170,417 FFO per share, basic and diluted $ 0.37 $ 5.71 $ 5.89 AFFO per share, basic and diluted $ 4.81 $ 5.79 $ 5.85 Weighted-average common shares outstanding - basic EPS 36,057,825 34,361,208 25,560,283 Weighted-average OP Units 3,537,654 3,537,654 3,546,614 Weighted-average common shares and OP Units outstanding - basic FFO/AFFO 39,595,479 37,898,862 29,106,897 47 NOI, Cash NOI and Same-Store Cash NOI Net operating income is a non-GAAP financial measure calculated as net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding equity in the earnings of our unconsolidated real estate joint ventures, general and administrative expenses, interest expense, depreciation and amortization, impairment of real estate, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, investment income or loss and termination income.
In the future, NAREIT may decide to standardize the allowable exclusions across the REIT industry, and we may have to adjust the calculation and characterization of this non-GAAP measure. 45 Our calculation of FFO and AFFO is presented in the following table for the years ended December 31, 2023, 2022 and 2021 (in thousands, except per share amounts): Year Ended December 31, 2023 2022 2021 Net (loss) income $ (605,102) $ (441,382) $ 11,570 Adjustments: Depreciation of building and improvements 72,273 113,191 125,388 Amortization of leasing costs and intangibles 40,318 77,926 84,598 Impairment provision, real estate 409,511 127,577 4,242 Equity interest of depreciation of building and improvements - unconsolidated entities 24,623 4,643 — (Gain) Loss from disposition of assets, net (29,164) 139,280 326 Company's share of loss on sale of unconsolidated entity — 3,558 (8) FFO $ (87,541) $ 24,793 $ 226,116 Dividends to redeemable preferred shareholders (2,375) (10,063) (9,698) Preferred units redemption charge (4,970) — — FFO attributable to common shareholders and partners $ (94,886) $ 14,730 $ 216,418 Reconciliation of FFO to AFFO: FFO attributable to common shareholders and partners $ (94,886) $ 14,730 $ 216,418 Adjustments: Revenues in excess of cash received, net (7,953) (15,407) (10,780) Amortization of share-based compensation 10,063 9,573 7,470 Deferred rent - ground lease 1,724 1,951 2,064 Amortization of above/(below) market rent, net (1,240) (2,205) (1,323) Amortization of debt premium/(discount), net 419 409 409 Amortization of below tax benefit amortization 1,494 1,494 1,252 Amortization of deferred financing costs 3,632 3,544 3,184 Amortization of lease inducements 150 537 278 Company's share of amortization of deferred financing costs- unconsolidated entity 31,061 3,740 — Amortization of ground leasehold interests (389) (372) (350) Loss on debt breakage costs — write-off of deferred financing costs — 1,771 — Company's share of revenues in excess of cash received (straight-line rents) - unconsolidated entity (2,207) (257) — Unrealized loss (gain) on investments 17 195 (15) Company's share of amortization of above/(below) market rent - unconsolidated entity (532) (58) — Employee separation expense 4,096 72 777 Write-off of reserve liability — — (1,166) Write-off of transaction costs 115 28 65 Transaction expenses 24,982 22,386 966 Impairment provision, goodwill 16,031 135,270 — Debt breakage costs — 13,249 — Preferred unit redemption charge 4,970 — — Other income - proration adjustments for dispositions (1,587) — — Impairment provision, investment in unconsolidated entity 129,334 — — Write off of Company’s proportionate share of other comprehensive income - unconsolidated entity (1,226) — — AFFO available to common shareholders and partners $ 118,068 $ 190,650 $ 219,249 FFO per share, basic and diluted $ (2.40) $ 0.37 $ 5.71 AFFO per share, basic and diluted $ 2.99 $ 4.81 $ 5.79 Weighted-average common shares outstanding - basic and diluted EPS 35,988,231 36,057,825 34,361,208 Weighted-average OP Units 3,472,770 3,537,654 3,537,654 Weighted-average common shares and OP Units outstanding - basic and diluted FFO/AFFO 39,461,001 39,595,479 37,898,862 46 NOI and Cash NOI Net operating income is a non-GAAP financial measure calculated as net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding equity in the earnings of our unconsolidated real estate joint ventures, general and administrative expenses, interest expense, depreciation and amortization, impairment of real estate, gains or losses on early extinguishment of debt, gains or losses on sales of real estate, investment income or loss and termination income.
In addition, during any calendar year, with respect to each share class, the Company was permitted to redeem no more than 5% of the weighted-average number of shares of such class outstanding during the prior calendar year. Under the SRP, when the SRP is not suspended, the Company will redeem shares as of the last business day of each quarter.
In addition, pursuant to the terms of the SRP, during any calendar year, with respect to each share class, the Company was permitted to redeem no more than 5% of the weighted average number of shares of such class outstanding during the prior calendar year.
Our assets provide a relatively consistent level of cash flow that enables us to pay operating expenses, distributions, including preferred equity distribution, redemptions, and for the payment of debt service on our outstanding indebtedness, including repayment of our Second Amended and Restated Credit Agreement, and property secured mortgage loans.
Our assets provide a relatively consistent level of cash flow that enables us to pay operating expenses, dividends to shareholders, and for the payment of debt service on our outstanding indebtedness, including repayment of our KeyBank Loans (as defined below) and property-secured mortgage loans.
The SRP was suspended on October 1, 2021 but resumed on a limited basis on August 5, 2022 (i.e., limited to redemptions in connection with a holder’s death, disability or incompetence) with the cap on quarterly redemptions was tied to a dollar amount to be set by the Board and disclosed by the Company.
The SRP was suspended on October 1, 2021 but resumed on a limited basis (i.e., limited to redemptions in connection with a holder’s death, disability or incompetence) on August 5, 2022 with quarterly redemptions capped at $5.0 million.
Funds from Operations and Adjusted Funds from Operations Our reported results are presented in accordance with GAAP. We also disclose Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”) both of which are non-GAAP financial measures.
Refer to Note 14, Segment Reporting , for allocation of goodwill for each of the Company’s segments. Funds from Operations and Adjusted Funds from Operations Our reported results are presented in accordance with GAAP. We also disclose Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”) both of which are non-GAAP financial measures.
The Company’s goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis for each reporting unit, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired.
We test goodwill for impairment on an annual basis for each reporting unit as of October 1st of each period, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired.
Share Redemption Program Prior to its suspension in February 2023 in anticipation of the proposed Listing, the Company had adopted the SRP that enables shareholders to sell their shares to the Company in limited circumstances.
Share Redemption Program Prior to the Listing, the Company had adopted a share redemption program (“SRP”) that enabled shareholders to sell their shares to the Company in limited circumstances.
Cash used in financing activities for the years ended December 31, 2022 and 2021 consisted of the following (in thousands): Year Ended December 31, 2022 2021 Increase (decrease) Sources of cash provided by financing activities: Proceeds from borrowings - Term Loan $ — $ 400,000 $ (400,000) Total sources of cash provided by financing activities $ — $ 400,000 $ (400,000) Uses of cash (used in) provided by financing activities: Principal payoff of indebtedness - CCIT II Credit Facility $ — $ (415,500) $ 415,500 Principal payoff of secured indebtedness - Mortgage Debt (469,777) (1,292) (468,485) Principal pay down of indebtedness - Revolving Credit Facility (373,500) — (373,500) Principal payoff of indebtedness - Term Loan (200,000) — (200,000) Principal amortization payments on secured indebtedness (8,736) (9,786) 1,050 Repurchase of common shares to satisfy employee tax withholding requirements (3,189) (2,874) (315) Repurchase of common shares (5,617) (25,517) 19,900 Distributions to common shareholders (114,110) (82,976) (31,134) Dividends paid on preferred units subject to redemption (10,063) (9,542) (521) Distributions to noncontrolling interests (11,136) (11,134) (2) Deferred financing costs (2,724) (567) (2,157) Offering costs (43) (47) 4 Financing lease payment (320) (100) (220) Total sources of cash (used in) provided by financing activities $ (1,199,215) $ (559,335) $ (639,880) Net cash (used in) provided by financing activities $ (1,199,215) $ (159,335) $ (1,039,880) Distributions will be paid to our shareholders as of the record date selected by our Board.
Cash used in financing activities for the years ended December 31, 2023 and 2022 consisted of the following (in thousands): Year Ended December 31, 2023 2022 Increase (decrease) Sources of cash provided by financing activities: Proceeds from borrowings - Revolving Loan $ 400,000 $ — $ 400,000 Total sources of cash provided by financing activities $ 400,000 $ — $ 400,000 Uses of cash (used in) provided by financing activities: Principal payoff of secured indebtedness - Mortgage Debt $ (41,283) $ (469,777) $ 428,494 Principal pay down of indebtedness - Revolving Loan — (373,500) 373,500 Principal payoff of indebtedness - Term Loan (400,000) (200,000) (200,000) Principal amortization payments on secured indebtedness (6,973) (8,736) 1,763 Repurchase of common shares to satisfy employee tax withholding requirements (2,625) (3,189) 564 Redemption of preferred units (125,000) — (125,000) Repurchase of common shares (4,443) (5,617) 1,174 Dividends to common shareholders (40,807) (114,110) 73,303 Dividends paid on preferred units subject to redemption (4,891) (10,063) 5,172 Dividends to noncontrolling interests (3,974) (11,136) 7,162 Deferred financing costs (3,530) (2,724) (806) Offering costs (796) (43) (753) Financing lease payment (319) (320) 1 Total sources of cash (used in) provided by financing activities $ (634,641) $ (1,199,215) $ 564,574 Net cash (used in) provided by financing activities $ (234,641) $ (1,199,215) $ 964,574 Dividends Dividends will be authorized at the discretion of our Board and be paid to our shareholders as of the record date selected by our Board.
Debt Breakage Costs 40 Debt breakage costs increased approximately $13.2 million for the year ended December 31, 2022 compared to the same period a year ago due to breakage costs for the early payoff of the Midland Mortgage Loan of $0.9 million and the Bank of America Loan of $12.3 million made in connection with the Office Portfolio Sale.
Debt Breakage Costs Debt breakage costs decreased approximately $13.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, which is entirely attributable to the prior year breakage costs for the early payoff of the Midland Mortgage Loan of $0.9 million and the Bank of America Loan of $12.3 million made in connection with the Office Portfolio Sale in 2022. 42 Net Loss from Investment in Unconsolidated Entity Net loss from investment in unconsolidated entity increased approximately $166.8 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 due to the Company’s investment in the Office Joint Venture, which was formed in August 2022.
Generally, we anticipate that cash needs will be met from funds from operations and our Credit Facility. We anticipate that cash flows from continuing operations and proceeds from financings, together with existing cash balances, will be adequate to fund our business operations, debt amortization, capital expenditures, distributions and other requirements over the next 12 months and beyond.
Generally, we anticipate that cash needs will be met from cash on hand, funds from operations, our existing Credit Facility, or other financings. We anticipate these funds will be adequate to fund our business operations, debt amortization, capital expenditures, dividends and other requirements both in the short-term and long-term.
Impairment Provision, Real Estate Impairment provision, real estate increased approximately $123.3 million for the year ended December 31, 2022 compared to the same period a year ago primarily due to the Company’s assessment that eleven properties were impaired in 2022.
Impairment Provision, Real Estate Impairment provision, real estate increased approximately $281.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to the impairment of seventeen properties in 2023 compared to the impairment of eleven properties in 2022.
We assumed the purchase agreement (the "Purchase Agreement") that our Predecessor entered into on August 8, 2018 with SHBNPP Global Professional Investment Type Private Real Estate Trust No. 13(H) (acting through Kookmin Bank as trustee) (the "Purchaser") and Shinhan BNP Paribas Asset Management Corporation, as an asset manager of the Purchaser, pursuant to which the Purchaser agreed to purchase an aggregate of 10,000,000 shares of Series A Cumulative Perpetual Convertible Preferred Shares at a price of $25.00 per share (the "Series A Preferred Shares") in two tranches, each comprising 5,000,000 Series A Preferred Shares.
The Preferred Holder initially purchased the 5,000,000 Series A Preferred Shares at a price of $25.00 per share pursuant to that certain purchase agreement (the “Purchase Agreement”) that our Predecessor entered into on August 8, 2018 with the Preferred Holder (acting through Kookmin Bank as trustee) and Shinhan BNP Paribas Asset Management Corporation, as an asset manager of the Preferred Holder.
Impairment of Real Estate and Related Intangible Assets and Liabilities We continually monitor events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable.
Impairment of Real Estate and Related Intangible Assets and Liabilities In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC 360, we assess the carrying values of real estate assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.
During the year ended December 31, 2022, we generated $152.7 million in cash from operating activities compared to $205.0 million for the year ended December 31, 2021. The decrease in cash from operating activities for the year ended December 31, 2022 was primarily due to the property dispositions that occurred in the years ended December 31, 2022 and 2021.
During the year ended December 31, 2023, we generated $89.2 million in cash from operating activities compared to $152.7 million for the year ended December 31, 2022.
As a result of the quantitative assessment as of December 31, 2022, the Company concluded that it was more likely than not that the fair value of the office reporting unit was less than the carrying amount, especially given the general decline in overall demand for office assets.
As a result of the qualitative and quantitative assessment as of October 1, 2023, the Company concluded that it was more likely than not that the fair value of the Other reporting unit was less than the carrying amount.
Derivative Instruments As discussed in Note 6, Interest Rate Contracts, to the consolidated financial statements, we entered into interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted, LIBOR-based variable-rate debt, including our Second Amended and Restated Credit Agreement.
On February 12, 2024, the Company exercised an option to extend the Revolving Loan Maturity Date, which upon satisfaction or waiver of certain customary conditions, will extend to June 30, 2024. 50 Derivative Instruments As discussed in Note 6, Interest Rate Contracts, to the consolidated financial statements, we entered into interest rate swap agreements (collectively, “Interest Rate Swaps”) to hedge the variable cash flows associated with variable-rate debt, including our Second Amended and Restated Credit Agreement.
Cash provided by investing activities for the years ended December 31, 2022 and 2021 consisted of the following (in thousands): Year Ended December 31, 2022 2021 Increase (decrease) Net cash (used in) provided by investing activities: Distributions of capital from investment in unconsolidated entities $ — $ 42 $ (42) Proceeds from disposition of properties 1,120,803 22,408 1,098,395 Restricted reserves — 1,078 (1,078) Sale of investment in unconsolidated entities 31,000 — 31,000 Total sources of cash provided by investing activities $ 1,151,803 $ 23,528 $ 1,097,275 Uses of cash for investing activities: Cash acquired in connection with the Company Merger, net of acquisition costs $ — $ (36,746) $ 36,746 Restricted reserves (266) — (266) Payments for construction in progress (17,494) (49,260) 31,766 Purchase of investment in unconsolidated entities (34,558) — (34,558) Purchase of investments (1,142) (332) (810) Total sources of cash (used in) provided by investing activities $ (53,460) $ (86,338) $ 32,878 Net cash (used in) provided by investing activities $ 1,098,343 $ (62,810) $ 1,130,153 55 Financing Activities.
Cash provided by investing activities for the years ended December 31, 2023 and 2022 consisted of the following (in thousands): 53 Year Ended December 31, 2023 2022 Increase (decrease) Net cash provided by investing activities: Proceeds from disposition of properties $ 325,160 $ 1,120,803 $ (795,643) Sale of investment in unconsolidated entities — 31,000 (31,000) Total sources of cash provided by investing activities $ 325,160 $ 1,151,803 $ (826,643) Uses of cash for investing activities: Restricted reserves $ — $ (266) $ 266 Payments for construction in progress (16,323) (17,494) 1,171 Purchase of investment in unconsolidated entities — (34,558) 34,558 Purchase of investments (282) (1,142) 860 Total sources of cash (used in) provided by investing activities $ (16,605) $ (53,460) $ 36,855 Net cash (used in) provided by investing activities $ 308,555 $ 1,098,343 $ (789,788) Financing Activities.
The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following: • our operating and interest expenses; • the amount of distributions or dividends received by us from our indirect real estate investments; • our ability to keep our properties occupied; • our ability to maintain or increase rental rates; • tenant improvements, capital expenditures and reserves for such expenditures; • the issuance of additional shares; and • financings, refinancings, and debt repayment. 56 Distributions may be funded with operating cash flow from our properties To the extent that we do not have taxable income, distributions paid will be considered a return of capital to shareholders.
The funds we receive from operations that are available to pay dividends may be affected by a number of factors, including the following: • our operating and interest expenses; • our ability to sell properties; • our ability to keep our properties occupied; • our ability to maintain or increase rental rates; 54 • tenant improvements and capital expenditures; • the issuance of additional shares; and • financings, refinancings, debt repayment and limitations on dividends under our KeyBank Loans, property secured mortgages, or other debt. 55
Corporate Operating Expenses to Affiliates Corporate operating expenses to affiliates decreased approximately $1.2 million for the year ended December 31, 2022 compared to the same period a year ago primarily due to the amendment to the Administrative Services Agreement in the year ended December 31, 2022, which reduces the services provided.
Corporate Operating Expense to Related Parties Corporate operating expenses to related parties decreased approximately $0.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the amendments and subsequent termination of the Administrative Services Agreement in 2023, which reduced the total services provided.
Thus, the Company recorded a $135.3 million goodwill impairment, which represents the entire amount of goodwill allocated to the office segment. Recently Issued Accounting Pronouncements See Note 2, Basis of Presentation and Summary of Significant Accounting Policies , to our consolidated financial statements included in this Annual Report on Form 10-K.
Refer to Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our consolidated financial statements included in this Annual Report on Form 10-K for details. As of December 31, 2023, the Company’s goodwill balance was $78.6 million, of which $68.4 million was allocated to the Industrial segment and $10.3 million was allocated to the Other segment.
As of December 31, 2022, derivatives where in an asset or/liability position are included in the line item "Other assets or Interest rate swap liability," respectively, in the consolidated balance sheets at fair value. 51 Common Equity Distribution Reinvestment Plan On July 17, 2020, we filed a registration statement on Form S-3 for the registration of up to $100 million in shares pursuant to our DRP (the “DRP Offering”).
As of December 31, 2023, derivatives that were in an asset or/liability position are included in the line item “Other assets or Interest rate swap liability,” respectively, in the consolidated balance sheets at fair value. Common Equity Distribution Reinvestment Plan Prior to the Listing, the Company had adopted a distribution reinvestment plan (the “DRP”).
Impairment Provision, Goodwill Impairment provision, goodwill increased approximately $135.3 million for year ended December 31, 2022 compared to the same period a year ago primarily due to the assignment of goodwill to new reporting units in 2022.
Impairment Provision, Goodwill The Company recorded a $16.0 million goodwill impairment related to its Other reporting unit as of December 31, 2023, compared to a $135.3 million goodwill impairment related to its Office reporting unit in the year ended December 31, 2022.
Interest Expense The increase of approximately $5.4 million in interest expense for the year ended December 31, 2021 is primarily due to (1) $6.6 million of interest and financing expenses related to the $400M 5-Year Term Loan 2025; offset by (2) a $0.9 million decrease as a result of lower interest rates compared to the prior year.
A decrease in Office segment Same Store NOI by $6.3 million, or 5%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease is primarily due to a $7.4 million decrease in termination income compared to prior year offset by approximately $1.2 million related to net leasing activity in 2023.
Loss from Disposition of Assets The increase in loss from disposition of assets of approximately $4.4 million for the year ended December 31, 2021 is primarily the result of the gain on the sale of one property in 2020.
Net Gain (Loss) from Disposition of Assets Gain from disposition of assets increased approximately $168.4 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Cash Requirements The Company’s material cash requirements as of as of December 31, 2022 include the following contractual obligations (in thousands): Payments Due During the Years Ending December 31, 2023 Thereafter Total Outstanding debt obligations (1) $ 43,101 $ 1,446,702 $ 1,489,803 Interest on outstanding debt obligations (2) 77,015 169,682 246,697 Ground lease obligations 2,300 262,890 265,190 Total (3) $ 122,416 $ 1,879,274 $ 2,001,690 (1) Amounts only include principal payments.
Cash Requirements The Company’s material cash requirements as of December 31, 2023 including the following contractual obligations are as follows (in thousands): Payments Due During the Years Ending December 31, 2024 Thereafter Total Outstanding debt obligations (1) $ 34,181 $ 1,407,364 $ 1,441,545 Interest on outstanding debt obligations (2) 85,882 143,702 229,584 Ground lease obligations 2,294 260,822 263,116 Total (3) $ 122,357 $ 1,811,888 $ 1,934,245 (1) Amounts only include principal payments.
To the extent we are not able to secure additional financing in the form of a credit facility or other third party source of liquidity, we will be heavily dependent upon our current financing and income from operations. 53 Liquidity Requirements Our principal liquidity needs for the next 12 months and beyond are to fund: • normal recurring expenses; • debt service and principal repayment obligations; including any maturing debt that we may be unable to refinance on attractive terms or at all; • satisfaction of the Redemption Right held by the holder of the Series A Preferred Shares, in the event that a listing has not occurred prior to or August 1, 2023; • capital expenditures, including tenant improvements and leasing costs; • redemptions; • distributions to shareholders, including preferred equity distribution and distributions to holders of OP Units; • possible acquisitions of properties.
Liquidity Requirements Our principal liquidity needs for the next 12 months and in the longer term are to fund: • normal operating expenses; • payment of debt service on outstanding indebtedness; including any maturing debt that we may be unable to refinance on attractive terms or at all; • capital expenditures, including tenant improvements and leasing costs; • dividends to common shareholders, and distributions to holders of OP Units; and • possible acquisition of, or investment in, assets.
The DRP Offering may be terminated at any time upon 10 days prior written notice to shareholders. As of December 31, 2022, we had sold 3,946,642 shares for approximately $341.1 million in our DRP Offering.
As of December 31, 2023, we had sold 3,946,642 common shares for approximately $341.1 million under our DRP Offering. On April 26, 2023, the Board approved a termination of the DRP, effective May 15, 2023.
For the year ended December 31, 2022, in connection with the preparation and review of the Company's financial statements, we recorded an impairment provision related to the building and land on eleven office properties. See Note 3, Real Estate, to our consolidated financial statements included in this Annual Report on Form 10-K for details.
Refer to Note 3, Real Estate , to our consolidated financial statements included in this Annual Report on Form 10-K for details. Impairment of Goodwill We recorded goodwill as a result of the transaction that resulted in the internalization of PKST management in December 2018 (“Self-Administration Transaction”).
Summary of Cash Flows We expect to meet our short-term operating liquidity requirements with operating cash flows generated from our properties and draws from our KeyBank loans.
Capital Expenditures and Tenant Improvement Commitments As of December 31, 2023, we had aggregate remaining contractual commitments for repositioning, capital expenditure projects, leasing commitments and tenant improvements of approximately $15.7 million. Summary of Cash Flows We expect to meet our short-term operating liquidity requirements with operating cash flows generated from our properties and draws from our Revolving Credit Facility.
On October 1st of each period, the Company performs a qualitative analysis to determine whether an impairment of goodwill exists prior to quantitatively determining the fair value of the reporting units in step one of the impairment test.
We perform a qualitative analysis to determine whether a potential impairment of goodwill exists prior to quantitatively estimating the fair value of each reporting unit. If an impairment exists, we recognize an impairment of goodwill based on the excess of the reporting unit’s carrying value compared to its fair value, up to the amount of goodwill for that reporting unit.
Our cash, cash equivalents and restricted cash activity increased by approximately $69.0 million during the year ended December 31, 2022 compared to the same period a year ago and were primarily used in or provided by the following (in thousands): Year Ended December 31, 2022 2021 Change Net cash provided by operating activities $ 152,676 $ 204,979 $ (52,303) Net cash used in investing activities $ 1,098,343 $ (62,810) $ 1,161,153 Net cash used in financing activities $ (1,199,215) $ (159,335) $ (1,039,880) Operating Activities.
Comparison of the cash flow activity for the year ended December 31, 2023 to December 31, 2022 is as follows (in thousands): Year Ended December 31, 2023 2022 Change Net cash provided by operating activities $ 89,152 $ 152,676 $ (63,524) Net cash provided by investing activities $ 308,555 $ 1,098,343 $ (789,788) Net cash used in financing activities $ (234,641) $ (1,199,215) $ 964,574 Cash and cash equivalents and restricted cash were $401.0 million and $237.9 million, respectively.
The redemption price is equal to the most recently published NAV per share for the applicable class prior to quarter end. Redemption requests must be received by 3:00 p.m. (Central time) one business day before on the last business day of the applicable quarter.
Under the SRP the Company would redeem shares as of the last business day of each quarter at a price equal to the most recently published NAV per share for the applicable class prior to quarter end. During the year ended December 31, 2023, the Company redeemed 941 shares.
Net Loss from Disposition of Assets Loss from disposition of assets increased approximately $139.0 million for the year ended December 31, 2022 as compared to the same period a year ago primarily due to (1) the loss of $105.9 million related to the Office Portfolio Sale in August 2022; (2) the loss of $43.0 million related to the Companion Office Portfolio Sale in December 2022; (3) the loss of $0.8 million related the sale of one property in December 2022; offset by the (4) gain on sale of $10.4 million due to the sale of one property in September 2022.
The increase is primarily due to the net gain of $29.2 million on the disposition of two Industrial segment properties, five Office segment properties, and four Other segment properties in 2023 compared to the net loss of $139.3 million on the sale of the 48 Office segment properties during the year ended December 31, 2022.
Goodwill is now allocated across all three of the Company’s Office, Industrial, and Other reporting units on a relative fair value basis, which is determined as the fair value of assets less liabilities for each reporting unit.
The Company’s goodwill is assigned to each of the Company’s three reporting units, which are aligned with its three operating segments: Industrial, Office, and Other.
The Company estimated the fair value of real estate assets using a discounted cash flow model, including forecasted future cash flows based on significant assumptions such as market rent, and the determination of appropriate discount and terminal capitalization rates.
Under the quantitative assessment, we focus on the fair value of real estate assets and mortgage loans, as those comprise the significant components of fair value within each reporting unit. The analysis involves estimates around significant assumptions such as market rent, discount rates, terminal capitalization rates, and borrowing rates.
Transaction Expense Transaction expense increased approximately $21.4 million for the year ended December 31, 2022 compared to the same period a year ago due to the timing of costs incurred related to strategic transactions.
Interest Expense Interest expense decreased approximately $19.2 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Property Operating Expense The following table provides summary information for our Same Store portfolio operating expense, by reportable segment, for the years ended December 31, 2022 and December 31, 2021 (dollars in thousands): Year Ended December 31, Increase/(Decrease) Percentage Change 2022 2021 Property operating expense Industrial $ 3,305 $ 2,559 $ 746 29 % Office 7,937 7,416 521 7 % Other 10,551 10,855 (304) (3) % Total property operating expense $ 21,793 $ 20,830 $ 963 5 % Same Store property operating expense increased by approximately $1.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to the Industrial segment.
A decrease in Other segment Same Store NOI by $0.5 million, or 2%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease is primarily due to an increase of non-recoverable operating expenses at one property. Portfolio Analysis Comparison of the Years Ended December 31, 2023 and 2022.
Removed
The Company’s wholly-owned portfolio contains properties with key characteristics, including difficult-to-replicate locations and significant tenant investment in the building, which the Company believes make these properties more essential to the tenants.
Added
PKST OP, L.P., our operating partnership (the “Operating Partnership”), owns, directly and indirectly all of the Company’s assets. As of December 31, 2023, the Company owned approximately 91.8% of the outstanding common units of limited partnership interest in the Operating Partnership (“OP Units”).
Removed
Nearly 75% of the Annualized Base Rent (as defined below) from our wholly-owned portfolio is generated from properties located in coastal and sun belt markets, areas where we believe demographic drivers such as strong median household income and educational attainment create a more favorable economic backdrop.
Added
As of December 31, 2023, the Company’s wholly-owned portfolio (i) consisted of 71 properties located in 24 states, (ii) was 96.4% leased with a weighted average remaining lease term (“WALT”) of approximately 6.5 years, and (iii) generated approximately $196.7 million Annualized Base Rent (“ABR”).
Removed
The Company, founded in 2009 and headquartered in Los Angeles, California, is led by an experienced, cycle-tested management team that, through equity ownership, is financially aligned with shareholders. Our executive management team has an average of approximately 34 years of commercial real estate experience and decades of experience operating public companies.
Added
The Company reports the results of its wholly-owned portfolio in three segments which had the following characteristics as of December 31, 2023: • Industrial: This segment (i) comprised 19 industrial properties and (ii) was 100% leased with a WALT of approximately 6.7 years. • Office: This segment (i) comprised 35 office properties and (ii) was 98.8% leased with a WALT of approximately 7.6 years. • Other: This segment (i) comprised 17 properties and (ii) was 82.4% leased with a WALT of approximately 2.6 years.
Removed
In addition to the executive team, the Company’s nine senior real estate professionals average approximately 23 years of experience, and the entire senior real estate team has averaged nine years of experience working together.
Added
Results of Operations The Company’s results of operations are primarily impacted by the Company’s ability to re-lease space, dispose of and acquire and/or invest in select properties, all of which impact period-to-period comparisons. Due to current remote and hybrid work practices, demand for office space nationwide has declined and may continue to decline.
Removed
The team has extensive knowledge of the Company’s existing portfolio and has nurtured a broad network of long-standing industry relationships, especially in the markets where the Company’s properties are located. On March 1, 2021, we completed our acquisition of Cole Office & Industrial REIT (CCIT II), Inc. for approximately $1.3 billion, including transaction costs, in a stock-for-stock transaction.
Added
While we have seen some positive trends recently, office utilization remains down materially relative to pre-pandemic levels. Brand new office buildings (urban and suburban), with high walk-scores, immediate access to retail amenities and transportation hubs continue to attract tenants and market rental rates.
Removed
On July 1, 2021, we changed our name from Griffin Capital Essential Asset REIT, Inc. to Griffin Realty Trust, Inc. and our operating partnership changed its name from Griffin Capital Essential Asset Operating Partnership L.P. to GRT OP, L.P. On August 26, 2022, we completed the Office Portfolio Sale for a sale price of approximately $1.1 billion.
Added
In addition, challenging economic conditions and volatility in the capital markets (including bank failures) throughout 2023 adversely impacted commercial real estate overall and, in particular, the office sector.
Removed
On December 27, 2022, we completed the Companion Office Portfolio Sale, for a sale price of approximately $170.4 million. On February 21, 2023, we announced our intention to list our common shares on the New York Stock Exchange (the “Listing”).
Added
These market conditions and the potential for increased capital costs and availability of debt financing, among other things, have driven many companies to be more reticent in making office or other real estate related investments.
Removed
We expect the Listing to occur on or about April 13, 2023, subject to, among other things, obtaining approval from the NYSE to list our common shares. In connection with the Office Portfolio Sale, we invested $159.9 million for a 49% interest in the Office Joint Venture in which we are a member.
Added
The potential for a reversal of interest rates by the Fed has brought some relief to investor sentiment, however, we are still seeing a negative investment psychology at this moment, especially for office product. All of these trends and uncertainties may adversely impact the Company’s business, financial condition, results of operations and cash flows.
Removed
In connection with the Companion Office Portfolio Sale, we invested an additional $24.3 million in the Office Joint Venture. Our obligation to the Office Joint Venture is generally limited to such investments, and we are not obligated to make any capital contributions.
Added
The Company’s long-term objective is to maximize shareholder value through the ownership and operation of industrial and select office assets located in strategic growth markets. We are focused on maintaining a strong balance sheet that enables us to execute multi-channel investments across the risk and capital spectrum as they arise.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA change in interest rates on variable rate debt could affect the interest incurred and cash flows and its fair value. 57 Our future earnings and fair values relating to variable rate financial instruments are primarily dependent upon prevalent market rates of interest, such as LIBOR.
Biggest changeOur future earnings and fair values relating to variable rate financial instruments are primarily dependent upon prevalent market rates of interest, such as SOFR. However, our interest rate swap agreements are intended to reduce the effects of interest rate changes.
We may also utilize a variety of financial instruments, including interest rate swap agreements, caps, floors, and other interest rate exchange contracts. We will not enter into these financial instruments for speculative purposes.
We may utilize a variety of financial instruments, including interest rate swap agreements, caps, floors, and other interest rate exchange contracts. We will not enter into these financial instruments for speculative purposes.
The effect of an increase of 100 basis points in interest rates, assuming a LIBOR floor of 0%, on our variable-rate debt, including our KeyBank loans, after considerin g the effect of our interest rate swap agreements, would decrease our future earnings and cash flows by approx imately $2.0 million annually.
The effect of an increase of 100 basis points in interest rates, assuming a SOFR floor of 0%, on our variable-rate debt, including our KeyBank loans, after considerin g the effect of our interest rate swap agreements, would decrease our future earnings and cash flows by approx imately $2.0 million annually.
As of December 31, 2022, our debt consisted of approximately $1.3 billion in fixed rate debt (including the interest rate swaps) and approximately $200.0 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $4.4 million).
As of December 31, 2022, our debt consisted of approximately $1.3 billion in fixed rate debt (including the effect of interest rate swaps) and approximately $200.0 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $4.4 million). Changes in interest rates have different impacts on the fixed and variable rate debt.
A change in interest rates on fixed rate debt impacts its fair value but has no effect on interest incurred or cash flows.
A change in interest rates on fixed rate debt impacts its fair value but has no effect on interest incurred or cash flows. A change in interest rates on variable rate debt could affect the interest incurred and cash flows and its fair value.
As of December 31, 2021, our debt consisted of approximately $1.8 billion in fixed rate debt (including the effect of interest rate swaps) and approximately $773.5 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $9.1 million). Changes in interest rates have different impacts on the fixed and variable rate debt.
As of December 31, 2023, our debt consisted of approximately $1.2 billion in fixed rate debt (including the effect of interest rate swaps) and approximately $200.0 million in variable rate debt (excluding unamortized deferred financing cost and discounts, net, of approximately $5.6 million).
We expect that the primary market risk to which we will be exposed is interest rate risk, including the risk of changes in the underlying rates on our variable rate debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary market risk to which we believe we may be exposed is interest rate risk, including the risk of changes in the underlying rates on our variable rate debt, which may result from factors that are beyond our control.
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks include risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments.
Removed
Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve our objectives, we may borrow at fixed rates or variable rates.
Removed
However, our interest rate swap agreements are intended to reduce the effects of interest rate changes.

Other PKST 10-K year-over-year comparisons