ITEM 1A. RISK FACTORS
The following section sets forth material factors that may adversely affect our business and operations. If any of the risks discussed herein were to occur, our business, financial condition, liquidity, results of operations, and our ability to service our debt and pay dividends, and make distributions to our security holders could be materially and adversely affected (which we refer to collectively as “adversely affecting us” or having “an adverse effect on us” and comparable phrases), and the market price of our common stock could decline significantly. The following factors, as well as the factors discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations” and other information contained in this report, should be considered in evaluating us and our business.
Risks Related to our Business and Operations
Global market, economic, and geopolitical conditions may adversely affect us and our tenants. Our business may be adversely affected by global market, economic, and geopolitical conditions, including general global economic and political uncertainty and dislocations in the credit markets. If these conditions become more volatile or worsen, we and our tenants may be adversely affected as a result of the following consequences, among others:
• our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities, and increase our future interest expense;
• the financial condition of our tenants, many of which are in the technology; life science and healthcare; finance, insurance and real estate; media, professional business and other service firm industries, may be adversely affected, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures, or for other reasons;
• significant job losses in the technology; life science and healthcare; finance, insurance and real estate; media and professional business and other service firm industries may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;
• reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and
• one or more lenders under the Operating Partnership’s unsecured revolving credit facility could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.
Many of our costs, such as operating and general and administrative expenses, interest expense, and real estate construction costs, as well as the value of our assets, could be adversely impacted by periods of heightened inflation. In recent years, the consumer price index has increased substantially and remains elevated. A sustained or further increase in inflation could have an adverse impact on our operating expenses, including increases in our operating expenses, general and administrative expenses, borrowing costs and construction costs.
During inflationary periods, we expect to recover some increases in operating expenses from our tenants through our existing lease structures. In general, the office and life science properties are leased to tenants on a triple net, modified net, full service gross, or modified gross basis. Under a triple net lease, the tenants pay their proportionate share of real estate taxes, operating costs, and utility costs. A modified net lease is similar to a triple net lease, except the tenants are obligated to pay their proportionate share of certain operating expenses directly to the service provider. Under a full service gross lease, we are obligated to pay the tenant’s proportionate share of real estate taxes, insurance, and operating expenses up to the amount incurred during the “base year,” which is typically the tenant’s first year of occupancy. The tenant pays its proportionate share of increases in expenses above the base year. A modified gross lease is similar to a full service gross lease, except tenants are obligated to pay their proportionate share of certain operating expenses, usually electricity, directly to the service provider. At December 31, 2025, 46% of our properties were leased to tenants on a triple net basis, 26% were leased to tenants on a modified gross basis, 22% of our properties were leased to tenants on a full service gross basis, and 6% of our properties were leased to tenants on a modified net basis, in each case as a percentage of our annualized base rental revenue. As a result, we do not believe that inflation would result in a material adverse effect on our net operating
income and operating cash flows at the property level. However, there can be no assurance that our tenants would be able to absorb these expense increases and be able to continue to pay us their portion of operating expenses, capital expenditures, and rent.
Also, due to rising costs, our tenants may be unable to continue operating their businesses altogether or may decide to relocate to areas with lower rent and operating expenses, and our tenants may cease to lease properties from us. If we are unable to retain our tenants or withstand increases in operating expenses, capital expenditures, and leasing costs, we may be unable to meet our financial expectations, which may adversely affect us.
We have long-term lease agreements with our tenants, and we believe that annual rent escalations within our long-term leases are generally sufficient to offset the effect of inflation on non-recoverable costs, such as general and administrative expenses and interest expense. However, the impact of the current elevated rate of inflation may not be adequately offset by some of our annual rent escalations, and it is possible that the resetting of rents from our renewal and re-leasing activities would not fully offset the impact of the current inflation rate. As a result, during inflationary periods in which the inflation rate exceeds the annual rent escalation percentages within our lease contracts, we may not adequately mitigate the impact of inflation, which may adversely affect us.
In addition, inflation is often accompanied by higher interest rates. Increases in interest rates increase our interest costs, which reduce our cash flows and impact our ability to make distributions to stockholders. For more information, see “Item 1A. Risk Factors—Risks Related to our Indebtedness—An increase in interest rates would increase our interest costs on variable rate debt and new debt and could adversely affect our ability to refinance existing debt, conduct development, redevelopment and acquisition activity and recycle capital.”
In addition, historically, during periods of increasing interest rates, real estate valuations have generally decreased as a result of rising capitalization rates, which tend to be positively correlated with interest rates. Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our portfolio and result in the decline of the quoted trading price of our securities and market capitalization, as well as lower sales proceeds from future dispositions. Although the extent of any prolonged periods of higher interest rates remains unknown at this time, negative impacts to our cost of capital may adversely affect our future business plans and growth, including our development and redevelopment activities, at least in the near term.
Additionally, inflation may have a negative effect on the construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor, and services from third-party contractors and suppliers. These increased construction costs could in turn adversely impact our investments in real estate assets and expected yields on our development and redevelopment projects, which may make otherwise lucrative investment opportunities less profitable to us.
All of our properties are located in California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area and we may therefore be susceptible to adverse economic conditions and regulations, as well as natural disasters, in those areas. Because all of our properties are concentrated in California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area, we may be exposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within California, our properties are concentrated in Los Angeles, San Diego County, and the San Francisco Bay Area, exposing us to risks associated with those specific areas. We are susceptible to adverse developments in the economic and regulatory environments of California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area (such as periods of economic slowdown or recession, business layoffs or , industry , relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation, and other factors), as well as weather conditions and natural that occur in those areas (such as earthquakes, wind, landslides, , fires, floods, and other events). For example, many of our assets are in zones that have been impacted by and, as such, face the risk of increased water costs and potential and/or for high consumption. In addition, California is also regarded as more litigious and more highly regulated and taxed than many other states, which may reduce demand for office space in California.
Any adverse developments in the economy or real estate market in California and the surrounding region, or in the Seattle, Washington Metropolitan Area, or the Austin, Texas Metropolitan Area or any decrease in demand for office space resulting from the California or Seattle, Washington, or Austin, Texas regulatory or business
environment could impact our ability to generate revenues sufficient to meet our operating expenses or other obligations, which would adversely impact us.
Potential casualty losses, such as earthquake losses, may adversely affect us. We carry comprehensive liability, fire, extended coverage, rental loss, and terrorism insurance covering all of our properties. Management believes the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance for generally uninsurable losses such as loss from riots or acts of God. In addition, all of our West Coast properties are located in earthquake-prone areas. We carry earthquake insurance on our properties in an amount and with deductibles that management believes are commercially reasonable. However, the amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. We may also discontinue earthquake insurance on some or all of our properties in the future if the cost of premiums for earthquake insurance exceeds the value of the coverage discounted for the risk of . If we experience a that is or which exceeds policy limits, we could the capital invested in the properties as well as the anticipated future cash flows from those properties. Further, if the properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if the properties were . Any such could have a material effect on us.
Continuing uncertainty in the office leasing market could adversely affect us . Office tenants are still active in the leasing markets but are more selective in making rental decisions, and both relocating and renewing tenants are pursuing space efficiencies, which may be accompanied by reductions in the amount of space they are leasing due to the impact of hybrid work and/or a desire to manage real estate expenses. As a result, we are experiencing longer lease negotiation periods prior to signing deals. Our office tenants may elect to not renew their leases, or to renew them for less space than they currently occupy or for shorter terms, which could increase vacancy, place downward pressure on occupancy, rental rates and income, and property valuations. The need to reconfigure leased office space, either in response to evolving tenant needs or for other reasons, may impact space requirements and also may require us to spend increased amounts for tenant improvements. If substantial reconfiguration of the tenant’s space is required, the tenant may find it more advantageous to relocate than to renew its lease and renovate the existing space. For more information, see “ —We may be unable to renew leases or re-lease available space, ” below. All of these factors could have a material effect us.
Our performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trends in the real estate industry . Our economic performance and the value of our real estate assets and, consequently the market value of the Company’s securities, are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this nature would adversely impact us.
Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economic performance and the value of our real estate assets may include:
• local oversupply or reduction in demand for office, mixed-use, or other commercial space, which may result in decreasing rental rates and greater concessions to tenants;
• inability to collect rent from tenants;
• vacancies or inability to rent space on favorable terms or at all;
• inability to finance property development and acquisitions on favorable terms or at all;
• increased operating costs, including insurance premiums, utilities, and real estate taxes;
• costs of complying with changes in governmental regulations;
• the relative illiquidity of real estate investments;
• declines in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing;
• changing submarket demographics;
• changes in space utilization by our tenants due to technology, economic conditions, and business culture, including a shift away from in-person work environments to flexible work arrangements and remote work;
• the development of harmful mold or other airborne toxins or contaminants that could damage our properties or expose us to third-party liabilities; and
• property damage resulting from seismic activity or other natural disasters.
We depend upon significant tenants, and the loss of a significant tenant could adversely affect us. As of December 31, 2025, our 20 largest tenants represented approximately 53.7% of total annualized base rental revenues. See further discussion on the composition of our tenants by industry and our largest tenants under “Item 2. Properties —Significant Tenants.”
We would be adversely affected if any of our significant tenants fails to renew its lease(s), renew its lease(s) on terms less favorable to us, becomes bankrupt or insolvent, or is otherwise unable to satisfy its lease obligations.
Downturns in tenants’ businesses may reduce our revenues and cash flows . For the year ended December 31, 2025, we derived approximately 98.3% of our revenues from rental income. A tenant may experience a downturn in its business, which may weaken its financial condition and result in its failure to make timely rental payments or result in defaults under our leases. In the event of default by a tenant, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.
The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenant becomes a debtor in a case under federal bankruptcy law, we cannot evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might permit the tenant to reject and terminate its lease with us. Our claim against the tenant for unpaid and future rent could be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. Therefore, our claim for unpaid rent would likely not be paid in full. Any losses resulting from the bankruptcy of any of our existing tenants could impact us.
A large percentage of our tenants operate in a concentrated group of industries and downturns in these industries could adversely affect us. As of December 31, 2025, as a percentage of our annualized base rental revenue for the stabilized portfolio, 51% of our tenants operated in the technology industry, 19% in the life science and health care industries, 9% in the professional, business, and other services industries, 7% in the finance, insurance, and real estate industries, 6% in the media industry, and 8% in other industries. As we continue our development and potential acquisition activities in markets populated by knowledge and creative-based tenants in the technology and media industries, our tenant mix could become more concentrated, further exposing us to risks associated with those industries. For a further discussion of the composition of our tenants by industry, see “Item 2. Properties —Significant Tenants.” An economic downturn in any of these industries, or in any industry in which a significant number of our tenants currently or may in the future operate, could negatively impact the financial condition of such tenants and cause them to fail to make timely rental payments or on lease obligations, to renew their leases or renew their leases on terms less to us, become or , or otherwise become to their obligations to us. As a result, a in an industry in which a significant number of our tenants operate could affect us.
We may be unable to renew leases or re-lease available space. Most of our income is derived from the rent earned from our tenants. We had office space representing approximately 18.4% of the total square footage of our stabilized office properties that was not occupied as of December 31, 2025. In addition, leases representing approximately 8.0% and 7.7% of the leased rentable square footage of our properties are scheduled to expire in 2026 and 2027, respectively. Above market in-place rental rates on some of our properties may force us to renew or re-lease expiring leases at rates below current lease rates. We cannot provide any assurance that leases will be renewed, available space will be re-leased, or that our rental rates will be equal to or above the current rental rates. If the average rental rates for our properties decrease, existing tenants do not renew their leases, or available space is not re-leased, we could be adversely affected. For additional information on our scheduled lease expirations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations.”
We are subject to governmental regulations that may affect the development, redevelopment, and use of our properties . Our properties are subject to regulation under federal laws, such as the Americans with Disabilities Act
of 1990 (the “ADA”), pursuant to which all public accommodations must meet federal requirements related to access and use by disabled persons, and state and local laws addressing earthquake, fire and life safety requirements. Although we believe that our properties substantially comply with requirements under applicable governmental regulations, none of our properties have been audited or investigated for compliance by any regulatory agency. If we were not in compliance with material provisions of the ADA or other regulations affecting our properties, we might be required to take remedial action, which could include making modifications or renovations to our properties. Federal, state, or local governments may also enact future laws and regulations that could require us to make significant modifications or renovations to our properties. If we were to incur substantial costs to comply with the ADA or any other regulations, we could be adversely affected.
Our properties are subject to land use rules and regulations that govern our development, redevelopment, and use of our properties, such as Title 24 of the California Code of Regulations (“Title 24”), which prescribes building energy efficiency standards for residential and nonresidential buildings in the State of California. If we were not in compliance with material provisions of Title 24 or other regulations affecting our properties, we might be required to take remedial action, which could include making modifications or renovations to our properties. Changes in the existing land use rules and regulations and approval process that restrict or delay our ability to develop, redevelop, or use our properties (such as potential restrictions on the use and/or density of new developments, water use, and other uses and activities) or that prescribe additional standards could have a material adverse effect on us.
Epidemics, pandemics or other outbreaks, and restrictions intended to prevent their spread, could adversely impact us. Epidemics, pandemics, or other outbreaks of an illness, disease, or virus that affect the markets in which we conduct our business and where our tenants are located, and actions taken to contain or prevent their further spread, could have significant adverse impacts on us in a variety of ways that are difficult to predict. Epidemics, pandemics, or other outbreaks of an illness, disease, or virus could result in significant governmental measures being implemented to control the spread of such illness, disease, or virus, including quarantines, restrictions on travel, “shelter in place” rules, stay-at-home orders, density limitations, social distancing measures, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue, which could adversely affect our ability and their respective abilities to adequately manage our respective businesses. If any such restrictions remain in place for an extended period of time, we may experience reductions in rents from our tenants. Although we will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who request rent deferrals (particularly those occupying retail space), we can provide no assurance that such efforts or our efforts in future periods will be . Moreover, to the extent any of these risks and uncertainties impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in this “Risk Factors” section.
We face significant competition, which may decrease the occupancy and rental rates of our properties . We compete with several developers, owners and operators of office, sublease space available from our tenants, undeveloped land and other commercial real estate, including mixed-use and residential real estate, many of which own properties similar to ours in the same submarkets in which our properties are located but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates until their available space is leased. If our competitors offer space at rental rates below the rates currently charged by us for comparable space, we may be pressured to reduce our rental rates below those currently charged in order to retain tenants when our tenant leases expire. As a result, we may be adversely affected.
In order to maintain the quality of our properties and successfully compete against other properties, we must periodically spend money to maintain, repair, and renovate our properties, which reduces our cash flows. If our properties are not as attractive to current and prospective tenants in terms of rent, services, condition, or location as properties owned by our competitors, we could lose tenants or suffer lower rental rates. As a result, we may from time to time be required to make significant capital expenditures to maintain the competitiveness of our properties. There can be no assurances that any such expenditure would result in higher occupancy or higher rental rates or deter existing tenants from relocating to properties owned by our competitors.
We may not be able to rebuild our existing properties to their existing specifications if we experience a substantial or comprehensive loss of such properties. In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing
specifications. Further, reconstruction or improvement of such property could potentially require significant upgrades to meet zoning and building code requirements or be subject to environmental and other legal restrictions.
Our business is subject to both physical and regulatory risks associated with climate change. Climate change could trigger changes in precipitation, temperature, and air quality, and cause increases in both the frequency and severity of extreme weather events and natural disasters (including, but not limited to, storms, flooding, drought, wildfires, and extreme temperatures), all of which may result in physical damage to, or a decrease in demand for, our properties located in the areas affected by these conditions. As our properties are concentrated in West Coast markets of the United States and in Austin, Texas, should the impact of climate change be severe or occur for lengthy periods of time in such markets, we could be adversely affected. Climate change may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable or at all, or by increasing the cost of energy or water. Many of the markets in which we operate are in the process of developing policies which are aimed at improving the energy efficiency of and/or reducing carbon emissions from the built environment. Regulations, such as Building Emissions Performance Standards, could result in increased operating costs at our properties (for example, capital required to upgrade HVAC equipment to energy ) or in our to operate the buildings as currently intended or at all. We work to mitigate both the physical and regulatory risks associated with climate change in a number of ways, which are further explained in the Sustainability Strategies section. There can be no assurance that our strategies to mitigate the risks associated with climate change will be and/or that climate change will not have a material effect on our properties, operations, or business.
We are subject to environmental and health and safety laws and regulations, and any costs to comply with, or liabilities arising under, such laws and regulations could be material. As an owner, operator, manager, acquirer, and developer of real properties, we are subject to environmental and health and safety laws and regulations. Certain of these laws and regulations impose joint and several liability, without regard to fault, for investigation and clean-up costs on current and former owners and operators of real property and persons who have disposed of or released hazardous substances into the environment. At some of our properties, there are asbestos-containing materials, or tenants routinely handle hazardous substances as part of their operations. In addition, historical operations and conditions, including the presence of underground storage tanks, various site uses that involved hazardous substances, the landfilling of hazardous substances and solid waste, and migration of contamination from other sites, have caused soil or groundwater contamination at or near some of our properties. Although we believe that the prior owners of the affected properties or other persons may have conducted remediation of known contamination at many of these properties, not all such contamination has been remediated, further clean-up or environmental activities at certain of these properties is or may be required, and residual contamination could pose environmental, health, and safety risks if not appropriately addressed. We may need to or remediate contaminated soil, soil gas, landfill gas, and groundwater, and we may also need to conduct landfill and post- activities, including, for example, the implementation of groundwater and methane monitoring systems and impervious cover, and the costs of such work could exceed projected or budgeted amounts. To protect the health and safety of site occupants and others, we may be required to implement and operate safeguards, including, for example, vapor mitigation systems and building protection systems to address methane. We may need to modify our methods of construction or face increased construction costs as a result of environmental conditions, and we may face obligations under agreements with governmental authorities with respect to the management of such environmental conditions. If releases from our sites migrate offsite, or if our site redevelopment activities cause or contribute to a migration of substances, neighbors or others could make us, such as for property , personal , cost recovery, or natural resources . As of December 31, 2025, we had accrued environmental remediation liabilities of approximately $70.0 million on our consolidated balance sheets in connection with certain of our in-process and future development projects. The accrued environmental remediation liabilities represent the costs we estimate we will incur when we commence development at various development acquisition sites. These estimates, which we developed with the assistance of third-party experts, consist primarily of the removal of contaminated soil, performing environmental activities, construction remedial systems, and other related costs since we are required to of any existing contaminated soil, and sometimes perform other environmental or remedial activities, when we develop new office properties at these sites. It is possible that we could incur additional environmental remediation costs in connection with future development projects. However, potential additional environmental costs cannot be reasonably estimated at this time and certain changes in estimates could occur as the site conditions, final project timing, design elements, actual soil conditions, and other aspects of the projects, which may depend upon municipal and other approvals beyond the control of the Company, are determined. Unknown or unremediated contamination or compliance with existing or new environmental or
health and safety laws and regulations could require us to incur costs or liabilities that could be material. See “Item 1. Business —Environmental Regulations and Potential Liabilities” and Note 17 “Commitments and Contingencies” to our consolidated financial statements included in this report.
Real estate assets are illiquid, and we may not be able to sell our properties when we desire. Our investments in our properties are relatively illiquid, limiting our ability to sell our properties quickly in response to changes in economic or other conditions. In addition, the Code generally imposes a 100% prohibited transaction tax on the Company on profits derived from sales of properties held primarily for sale to customers in the ordinary course of business, which effectively limits our ability to sell properties other than on a selected basis. These restrictions on our ability to sell our properties could have a material adverse effect on us.
We may be unable to complete acquisitions and successfully operate acquired properties . We continually evaluate the market of available properties and may continue to acquire office or mixed-use properties and undeveloped land when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them is subject to various risks, including the following:
• we may potentially be unable to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded and private REITs, institutional investment funds, and other real estate investors;
• even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;
• even if we enter into agreements for the acquisition of a desired property, we may be unable to complete such acquisitions because they remain subject to customary conditions to closing, including the completion of due diligence investigations to management’s satisfaction;
• we may be unable to finance acquisitions on favorable terms or at all;
• we may spend more than budgeted amounts in operating costs or to make necessary improvements or renovations to acquired properties;
• we may lease acquired properties at economic lease terms different than projected;
• we may acquire properties that are subject to liabilities for which we may have limited or no recourse; and
• we may be unable to complete an acquisition after making a nonrefundable deposit and incurring certain other acquisition-related costs.
If we cannot finance property acquisitions on favorable terms or operate acquired properties to meet financial expectations, we could be adversely affected.
There are significant risks associated with property acquisitions as well as development and redevelopment. We may be unable to successfully complete and operate acquired, developed, and redeveloped properties, and it is possible that:
• we may be unable to lease acquired, developed, or redeveloped properties on lease terms projected at the time of acquisition, development, or redevelopment, or within budgeted timeframes;
• the operating expenses at acquired, developed, or redeveloped properties may be greater than projected at the time of acquisition, development, or redevelopment, resulting in our investment being less profitable than we expected;
• we may not commence or complete development or redevelopment properties on schedule or within budgeted amounts or at all;
• we may not be able to develop or redevelop the estimated square footage and other features of our development and redevelopment properties;
• we may suspend development or redevelopment projects after construction has begun due to changes in economic conditions or other factors, and this may result in the write-off of costs, payment of additional costs, or increases in overall costs when the development or redevelopment project is restarted;
• we may expend funds on and devote management’s time to acquisition, development, or redevelopment properties that we may not complete and as a result we may lose deposits or fail to recover expenses already incurred;
• we may encounter delays or refusals in obtaining all necessary zoning, land use, and other required entitlements, and building, occupancy, and other required governmental permits and authorizations;
• we may encounter delays or unforeseen cost increases associated with building materials or construction services resulting from trade tensions, disruptions, tariffs, duties or restrictions, or an outbreak of an epidemic or pandemic;
• we may encounter delays, refusals, unforeseen cost increases, and other impairments resulting from third-party litigation; and
• we may fail to obtain the financial results expected from properties we acquire, develop, or redevelop.
If one or more of these events were to occur in connection with our acquired properties, undeveloped land, or development or redevelopment properties under construction, we could be required to recognize an impairment loss. These events could also have an adverse impact on us.
While we historically have acquired, developed, and redeveloped office properties in California and Seattle markets, over the past four years we have acquired properties in Austin, Texas, where we currently have one stabilized office property and one future development project. We may in the future acquire, develop, or redevelop properties for other uses and expand our business to other geographic regions where we expect the development or acquisition of property to result in favorable risk-adjusted returns on our investment.
We face risks associated with the development and operation of mixed-use commercial properties . We currently operate, and in the future may develop, properties either alone or through joint ventures that are known as “mixed-use” developments. This means that in addition to the development of office space, the project may also include space for residential, retail or other commercial purposes. Generally, we have less experience developing and managing non-office/life science real estate. As a result, if a development project includes non-office/life science space, we may develop that space ourselves or seek to partner with a third-party developer with more experience. If we do not partner with such a developer, or if we choose to develop the space ourselves, we would be exposed to specific risks associated with the development and ownership of non-office/life science real estate. In addition, if we elect to participate in the development through a joint venture, we may be exposed to the risks associated with the failure of the other party to complete the development as expected, which could require that we identify another joint venture partner and/or complete the project ourselves (including providing any necessary financing). In the case of residential properties, these risks include competition for prospective tenants from other operators whose properties may be perceived to offer a better location or amenities or whose rent may be perceived as a value given the quality, location, and amenities that the tenant seeks. With residential properties, we will also compete apartments, condominiums, and single-family homes that are for sale or rent. Because we have less experience with residential properties, we retain third parties to manage these properties. As such, we are dependent on these third parties and their key personnel to provide services to us, and we may not find a suitable replacement if the management agreement is , or if key personnel leave or otherwise become to us.
The actual density of our undeveloped land holdings and/or any particular land parcel may not be consistent with our potential density estimates . As of December 31, 2025, we estimate that our eight potential future development sites could provide approximately 6.0 million square feet of potential density. We caution you not to place undue reliance on the potential density estimates for our undeveloped land holdings and/or any particular land parcel because they are based solely on our estimates, using data currently available to us, and our business plans as of December 31, 2025. The actual density of our undeveloped land holdings and/or any particular land parcel may differ substantially from our estimates based on numerous factors, including our inability to obtain necessary zoning, land use and other required entitlements, as well as building, occupancy, and other required governmental permits and authorizations, and changes in the entitlement, permitting, and authorization processes that restrict or delay our ability to develop, redevelop, or use undeveloped land holdings at anticipated density levels. Moreover, we may strategically choose not to develop, redevelop, or use our undeveloped land holdings to their maximum potential density or may be unable to do so as a result of factors beyond our control, including our ability to obtain capital on terms that are acceptable to us, or at all, to fund our development and redevelopment activities. We can provide no
assurance that the actual density of our undeveloped land holdings and/or any particular land parcel will be consistent with our potential density estimates. For additional information on our development program, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations.”
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition, and disputes between us and our co-venturers, and could expose us to potential liabilities and losses. In addition to the 100 First Street Member, LLC (“100 First LLC”) and 303 Second Member LLC (“303 Second LLC”) strategic ventures, and the Redwood City Partners, LLC (“Redwood LLC”) venture (together, the “Consolidated Property Partnerships”), we may continue to co-invest in the future with third parties through partnerships, joint ventures, or other entities, or through acquiring non-controlling interests in, or sharing responsibility for, managing the affairs of a property, partnership, joint venture, or other entity, which may subject us to risks that may not be present with other methods of ownership, including the following:
• we would not be able to exercise sole decision-making authority regarding the property, partnership, joint venture, or other entity, which would allow for impasses on decisions that could restrict our ability to sell or transfer our interests in such entity or such entity’s ability to transfer or sell its assets;
• partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions, which could delay construction or development of a property or increase our financial commitment to the partnership or joint venture;
• partners or co-venturers may pursue economic or other business interests, policies or objectives that are competitive or inconsistent with ours;
• if we become a limited partner or non-managing member in any partnership or limited liability company, and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity;
• disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business; and
• we may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers.
We own certain properties subject to ground leases and other restrictive agreements that limit our uses of the properties, restrict our ability to sell or otherwise transfer the properties, and expose us to the loss of the properties if such agreements are breached by us, terminated, or not renewed. As of December 31, 2025, we owned fourteen office buildings located on various land parcels and in various regions, which we lease individually on a long-term basis, and we may in the future invest in additional properties that are subject to ground leases or other similar restrictive arrangements. As of December 31, 2025, we had approximately 2.3 million aggregate rentable square feet, or 14.3% of our total stabilized portfolio located on these leased parcels. Many of these ground leases and other restrictive agreements impose significant limitations on our use of the subject property, restrict our ability to sell or otherwise transfer our interests in the property, or restrict our leasing of the property. These restrictions may limit our ability to timely sell or exchange the properties, impair the properties’ value, or negatively impact our ability to find suitable tenants for the properties. In addition, if we under the terms of any particular lease, we may the ownership rights to the property subject to the lease. Upon expiration of a lease, we may not be to a new lease on terms, if at all. The of the ownership rights to these properties or an increase of rental expense could have a material effect on us.
We may invest in securities related to real estate, which could adversely affect us. We may purchase securities issued by entities that own real estate and may, in the future, also invest in mortgages. In general, investments in mortgages are subject to several risks, including:
• borrowers may fail to make debt service payments or pay the principal when due;
• the value of the mortgaged property may be less than the principal amount of the mortgage note securing the property; and
• interest rates payable on the mortgages may be lower than our cost for the funds used to acquire these mortgages.
Owning these securities may not entitle us to control the ownership, operation, and management of the underlying real estate. In addition, we may have no control over the distributions with respect to these securities, which could adversely affect our ability to pay dividends and distributions to our security holders.
We face risks associated with short-term liquid investments. From time to time, we have significant cash balances that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. These investments may include (either directly or indirectly):
• direct obligations issued by the U.S. Treasury;
• obligations issued or guaranteed by the U.S. government or its agencies;
• taxable municipal securities;
• obligations (including certificates of deposit) of banks and thrifts;
• commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks;
• repurchase agreements collateralized by corporate and asset-backed obligations;
• both registered and unregistered money market funds; and
• other highly rated short-term securities.
Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended. In addition, there is no guarantee that our investments in these securities or funds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on us.
Our property taxes could increase due to reassessment or property tax rate changes. We are required to pay state and local taxes on our properties. In addition, the real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. For example, under a current California law commonly referred to as “Proposition 13,” property tax reassessment generally occurs as a result of a “change in ownership” of a property, as specifically defined for purposes of those rules. Because the property taxing authorities may not determine whether there has been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction or construction of a new property. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial property and/or introduce split tax roll legislation. Such initiatives, if successful, would increase the assessed value and/or tax rates applicable to commercial property in California, including our properties. An increase in the assessed value of our properties or our property tax rates could impact us.
Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting. The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements, or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, or otherwise adversely impact us.
We face risks associated with perceived or actual security breaches, cyberattacks, cyber intrusions, and other significant disruptions of our information technology ("IT") systems, operational technology ("OT") systems, networks and related systems, including those of our third‑party service providers. Our business depends on the availability, integrity and confidentiality of our IT and OT systems and related data, including systems supporting accounting, financial reporting, operations, leasing, communications, and building operations. Our OT environment includes building management and automation systems, access control, HVAC, energy management and other systems that support the operation of our properties and, in some cases, are critical to the operations of certain of our tenants.
We are vulnerable to security breaches and disruptions caused by, among other things, cyberattacks or cyber intrusions over the internet, malware (including ransomware and data‑extortion schemes), computer viruses, software defects, IT bugs or malfunctions, inadvertent or intentional acts by employees or other insiders, and persons with authorized access to our or our service providers’ systems. The risk of a security breach or disruption has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, including due to the use of advanced tools and techniques and artificial intelligence that can improve social engineering, accelerate attack timelines, evade detection and, in certain cases, reduce available forensic evidence.
We also rely on numerous third‑party service providers and cloud‑based platforms for accounting, financial, operational, management, and other operational and data-related. Many of these third‑party systems and services are essential to our operations, but we do not control them, and certain third parties have access to systems that we use. As a result, we are exposed to risks arising from third‑party failures, security breaches and disruptions, including supply‑chain vulnerabilities (such as compromises of software, cloud platforms, managed services or other vendors), as well as misconfigurations, outages or other events that may occur in environments outside of our control.
The liabilities and costs associated with security breaches are significant and, depending on the incident, may include litigation and governmental investigations, as well as damages, fines, penalties or injunctive relief that requires us to make changes to our business practices. In addition, cybersecurity incidents may trigger disclosure obligations, breach notification requirements or other regulatory reporting, and compliance with numerous and evolving laws, regulations and industry standards relating to data privacy, cybersecurity and the protection of information is challenging and expensive. Failure to comply with these requirements could subject us to regulatory scrutiny and additional liability and could increase our operating costs.
There can be no assurance that our controls and procedures, or those of our service providers, will be effective at preventing, identifying, detecting, investigating, containing or remediating future cyber incidents. For example, we cannot guarantee that our or third‑party systems do not contain exploitable vulnerabilities, defects or misconfigurations that could result in a breach of, or disruption to, our systems. Like other businesses, we and our third‑party service providers have been and expect to continue to be subject to cybersecurity incidents and other events of varying degrees.
To date, such events have not materially impacted our operations or business and were not individually or in the aggregate material. However, we cannot guarantee that material incidents will not occur in the future. A successful attack or other disruption involving our or third‑party IT or OT systems could, among other things:
• result in unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information;
• compromise the integrity, accuracy or availability of data, including data used in our financial accounting and reporting systems;
• disrupt or degrade business operations, including our ability to operate, monitor or maintain building systems relied on by our tenants;
• result in business email compromise, fraudulent payment instructions or other financial fraud;
• require significant management attention and resources to investigate and remediate;
• subject us to regulatory actions, penalties or private litigation;
• increase our costs of operations; and/or
• harm our reputation among tenants, investors, employees and other stakeholders.
Any of these events could have a material adverse impact on our business
We face risks associated with compliance with ever evolving federal and state laws relating to the handling of information about individuals, which involves significant expenditure and resources, and any failure by us or our vendors to comply may result in significant liability, negative publicity, and/or an erosion of trust, which could materially adversely affect us. As part of our normal business activities, we collect, use, store, and otherwise process certain personal information, including personal information specific to business and residential tenants, investors, service providers, and our employees. We and our service providers are subject to a variety of federal and state data privacy laws, rules, regulations, industry standards, and other requirements, including those that apply generally to the handling of information about individuals, and those that are specific to certain industries, sectors, contexts, or locations. These requirements, and their application, interpretation, and amendment are constantly evolving and developing.
For example, in the United States, the Federal Trade Commission, and state regulators enforce a variety of data privacy issues, such as promises made in privacy policies or failures to appropriately protect information about individuals, as unfair or deceptive acts or practices in or affecting commerce in violation of the Federal Trade Commission Act or similar state laws.
In addition, many states have adopted new or modified privacy and security laws and regulations that apply to our business. The California Consumer Privacy Act (“CCPA”), as amended by the California Privacy Rights Act, imposes obligations on businesses that process personal information of California residents. Among other things, the CCPA requires disclosures to such residents about the data collection, use, and disclosure practices of covered businesses, provides such individuals expanded rights to access, delete, and correct their personal information, and opt-out of certain sales or transfers of personal information, and provides such individuals with a private right of action and statutory damages for certain data breaches.
The enactment of the CCPA is prompting a wave of similar legislative developments in other states in the United States, which creates the potential for a patchwork of overlapping but different state laws. Other states have passed laws that will subject us to additional compliance and operational costs that will go into effect in 2026 and beyond, and other states are considering similar legislation regarding the collection, sharing, use, and other processing of information related to individuals for marketing purposes or otherwise. Further, in order to comply with the varying state laws around data breaches, we must maintain adequate security measures, which require significant investments in resources and ongoing attention.
Our business is also gradually seeing the use of artificial intelligence to complement our decision making in order to improve our services and tailor our interactions. In recent years, the use of these methods has come under increased regulatory scrutiny. New laws, guidance, and/or decisions in this area may limit our ability to use our artificial intelligence models, or require us to make changes to our operations that may decrease our operational efficiency, result in an increase to operating costs, and/or hinder our ability to improve our services. For example, in October 2023, the President of the United States issued an executive order on the Safe, Secure and Trustworthy Development and Use of AI, emphasizing the need for transparency, accountability, and fairness in the development and use of AI. Any actual or perceived failure to comply with evolving regulatory frameworks around the development and use of AI, machine learning, and automated decision making could adversely affect us.
While we have taken commercially reasonable steps to comply with applicable data privacy and security laws, these laws are in some cases relatively new, and the interpretation and application of these laws are uncertain. Any failure or perceived failure by us to comply with applicable data privacy and security laws could result in proceedings or actions against us by governmental entities or others, subject us to fines, penalties, judgments, and negative publicity, require us to change our business practices, increase our costs of operations, and adversely affect us.
Loss of key executive officers or our inability to successfully transition key executive officers could harm our operations and financial performance, and adversely affect the quoted trading price of our securities. Many of our key executive personnel have extensive experience and strong reputations in the real estate industry and have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, and arranging necessary financing. In particular, the extent and nature of the relationships that these individuals have developed with financial institutions and existing and prospective tenants is critically important to the success of our business. The loss of services of one or more members of our executive or senior management team, our inability to attract and retain highly qualified personnel, or our inability to smoothly implement any transition of new members of our executive team, could affect our business, the attention of other members of our senior team, our investment , and our relationships with investors, lenders, tenants and industry personnel, which could impact our results of operations.
We could be adversely affected by labor disputes, strikes, or other union job actions. If workers providing services at our properties were to engage in a strike or other work stoppage or interruption, we could be materially adversely affected. Although we believe that our relations with our service providers are good, if disputes with our service providers arise or if workers providing services at our properties engage in a strike or other work stoppage or interruption, we could experience a significant disruption of, or inefficiencies in, our operations or at our properties or incur higher labor costs, which could have a material adverse effect on us.
Some of our tenants employ the services of writers, directors, actors, and other talent as well as trade employees and others who are subject to collective bargaining agreements in the entertainment industry. If expiring collective bargaining agreements cannot be renewed, then it is possible that the affected unions could take action in the form of strikes or work stoppages. Such actions, including episodic strikes in the entertainment industry, as well as higher costs or operating complexities in connection with these collective bargaining agreements or a significant labor dispute, could have an adverse effect on our tenants’ businesses by causing delays in production, added costs or by reducing profit margins, which in turn could adversely affect our ability to collect rent from those tenants and potentially the markets in which our properties are located.
Risks Related to Our Indebtedness
We may not be able to meet our debt service obligations. As of December 31, 2025, we had approximately $4.6 billion aggregate principal amount of indebtedness, of which $601.3 million in principal payments, before the consideration of extension options, is expected to be paid during the year ending December 31, 2026. Our total debt at December 31, 2025 represented 50.8% of our total market capitalization (which we define as the aggregate of our long-term debt and the market value of the Company’s common stock and the Operating Partnership’s common units of limited partnership interest, or common units, based on the closing price per share of the Company’s common stock as of that date). For the calculation of our market capitalization and additional information on debt maturities, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership —Liquidity Uses.”
Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital, and capital expenditures, depends on our ability to generate cash flows in the future. Our cash flows are subject to general economic, industry, financial, competitive, operating, legislative, regulatory, environmental, and other factors, many of which are beyond our control.
The instruments and agreements governing some of our outstanding indebtedness (including borrowings under the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility, and note purchase agreements) contain provisions that require us to repurchase for cash or repay that indebtedness under specified circumstances or upon the occurrence of specified events (including upon the acquisition by any person or group of more than a specified percentage of the aggregate voting power of all the Company’s issued and outstanding voting stock, upon certain changes in the composition of a majority of the members of the Company’s Board of Directors, if the Company or one of its wholly-owned subsidiaries ceases to be the sole general partner of the Operating Partnership, or if the Company ceases to own, directly or indirectly, at least 60% of the voting equity interests in the Operating Partnership), and our future debt agreements and debt securities may contain similar provisions or may
require that we repay or repurchase or offer to repurchase for cash the applicable indebtedness under specified circumstances or upon the occurrence of specified changes of control of the Company or the Operating Partnership or other events. We may not have sufficient funds to pay our indebtedness when due (including upon any such required repurchase, repayment, or offer to repurchase), and we may not be able to arrange for the financing necessary to make those payments or repurchases on favorable terms or at all. In addition, our ability to make required payments on our indebtedness when due (including upon any such required repurchase, repayment, or offer to repurchase) may be limited by the terms of other debt instruments or agreements. Our failure to pay amounts due in respect of any of our indebtedness when due would generally constitute an event of default under the instrument governing that indebtedness, which could permit the holders of that indebtedness to require the immediate repayment of that indebtedness in full and, in the case of secured indebtedness, could allow them to sell the collateral securing that indebtedness and use the proceeds to repay that indebtedness. Moreover, any acceleration of or default in respect of any of our indebtedness could, in turn, constitute an event of under other debt instruments or agreements, thereby resulting in the acceleration and required repayment of that other indebtedness. Any of these events could materially affect our ability to make payments of principal and interest on our indebtedness when due and could prevent us from making those payments altogether.
We cannot assure you that our business will generate sufficient cash flows from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs, including cash distributions to stockholders necessary to maintain the Company’s REIT qualification. Additionally, if we incur additional indebtedness in connection with future acquisitions or for any other purpose, our debt service obligations could increase.
We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:
• our financial condition, results of operations, and market conditions at the time; and
• restrictions in the agreements governing our indebtedness.
As a result, we may not be able to refinance our indebtedness on commercially reasonable terms or at all. If we do not generate sufficient cash flows from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additional equity financing, delaying capital expenditures, or entering into strategic acquisitions and alliances. Any of these events or circumstances could have a material adverse effect on us. In addition, foreclosures could create taxable income without accompanying cash proceeds, which could require us to borrow or sell assets to raise the funds necessary to pay amounts due on our indebtedness and to meet the REIT distribution requirements discussed below, even if such actions are not on favorable terms.
The covenants in the agreements governing the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility, and note purchase agreements may limit our ability to make distributions to the holders of our common stock. The Operating Partnership’s $1.1 billion unsecured revolving credit facility, $200.0 million unsecured term loan facility, and note purchase agreements contain financial covenants that could limit the amount of distributions payable by us on our common stock and any preferred stock we may issue in the future. We rely on cash distributions we receive from the Operating Partnership to pay distributions on our common stock and any preferred stock we may issue in the future and to satisfy our other cash needs. The agreements governing the unsecured revolving credit facility and the note purchase agreements provide that, if the Operating Partnership fails to pay any principal of, or interest on, any borrowings or other amounts payable under such agreement when due or during any other event of default under such revolving credit facility and the unsecured private placement notes, the Operating Partnership may make only those partnership distributions that result in distributions to us in an amount sufficient to permit us to make distributions to our stockholders that we reasonably believe are necessary to (i) maintain our qualification as a REIT for federal and state income tax purposes and (ii) avoid the payment of federal or state income or excise tax. Any on our ability to make distributions to our stockholders, whether as a result of these provisions in the unsecured revolving credit facility, the unsecured term loan facility, the note purchase agreements or otherwise, could have a material effect on the market value of our common stock.
A downgrade in our credit ratings could materially adversely affect us. The credit ratings assigned to the Operating Partnership’s debt securities and any preferred stock we may issue in the future could change based upon, among other things, our results of operations, and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot make assurances that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common stock and are not recommendations to buy, sell, or hold our common stock or any other securities. If any of the credit rating agencies that have rated the Operating Partnership’s debt securities or any preferred stock we may issue in the future downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on us.
We are not limited in our ability to incur debt. Our financing policies and objectives are determined by the Board of Directors. Our goal is to limit our dependence on leverage and maintain a conservative ratio of debt to total market capitalization. However, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. As of December 31, 2025, we had approximately $4.6 billion aggregate principal amount of indebtedness outstanding, which represented 50.8% of our total market capitalization. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” for a calculation of our market capitalization. These ratios may be increased or decreased without the consent of our unitholders or stockholders. Increases in the amount of debt outstanding would result in an increase in our debt service costs, which could adversely affect us. Higher leverage also increases the risk of default on our obligations and limits our ability to obtain additional financing in the future.
An increase in interest rates would increase our interest costs on variable rate debt and new debt, and could adversely affect our ability to refinance existing debt, conduct development, redevelopment, and acquisition activity, and recycle capital. As of December 31, 2025, we had a $1.1 billion unsecured revolving credit facility and a $200.0 million unsecured term loan facility, each bearing interest at a variable rate on any amount drawn and outstanding. As of December 31, 2025, there was no amount outstanding under our unsecured revolving credit facility and $200.0 million was outstanding under our unsecured term loan facility. However, we may borrow on the unsecured revolving credit facility, borrow additional amounts under the accordion feature of the unsecured term loan facility, or incur additional variable rate debt in the future. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Further interest rate increases would increase our interest costs for any variable rate debt and for new debt, which could in turn make the financing of any development, redevelopment, and acquisition activity costlier. Rising interest rates could also limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. In addition, an increase in interest rates could decrease the amount third parties are willing to pay for our assets, thereby limiting our ability to recycle capital and our portfolio promptly in response to changes in economic or other conditions.
We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities, and we may in the future mitigate this risk through the use of derivative instruments, including interest rate swap agreements or other interest rate hedging agreements, including swaps, caps, and floors. While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risks that counter parties may fail to honor their obligations, that we could incur significant costs associated with the settlement of these agreements, that the amount of income we earn from hedging transactions may be limited by federal tax provisions governing REITs, that these agreements may cause us to pay higher interest rates on our debt obligations than would otherwise be the case and that underlying transactions could fail to qualify as highly-effective cash flow hedges under the accounting guidance. As a result, failure to hedge effectively against interest rate risk, if we choose to engage in such activities, could adversely affect us.
Risks Related to Our Organizational Structure
Our growth depends on external sources of capital that are outside of our control and the inability to obtain capital on terms that are acceptable to us, or at all, could adversely affect us. The Company is required under the Code to distribute at least 90% of its taxable income (subject to certain adjustments and excluding any net capital gain), and the Operating Partnership is required to make distributions to the Company to allow the Company to
satisfy these REIT distribution requirements. Because of these distribution requirements, the Operating Partnership is required to make distributions to the Company, and we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flows. Consequently, management relies on third-party sources of capital to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Access to third-party sources of capital depends, in part, on general market conditions and the availability of credit, the market’s perception of our growth potential, our current and expected future earnings, our cash flows and cash distributions, the quoted trading price of our securities, and our credit rating. If we cannot obtain capital from third-party sources, we may be adversely affected.
Our common limited partners have limited approval rights, which may prevent us from completing a change of control transaction that may be in the best interests of all our security holders. The Company may not withdraw as the Operating Partnership’s general partner or transfer its general partnership interest in the Operating Partnership without the approval of the holders of at least 60% of the units representing common partnership interests, including the common units held by the Company in its capacity as the Operating Partnership’s general partner. In addition, the Company may not engage in a merger, consolidation, or other combination or the sale of substantially all of its assets or such similar transaction, without the approval of the holders of 60% of the common units, including the common units held by the Company in its capacity as the Operating Partnership’s general partner. The right of our common limited partners to vote on these transactions could limit our ability to complete a change of control transaction that might otherwise be in the best interest of all our security holders.
There are restrictions on the ownership of the Company’s capital stock that limit the opportunities for a change of control at a premium to existing security holders. Provisions of the Maryland General Corporation Law, the Company’s charter and bylaws and the Operating Partnership’s partnership agreement may delay, deter, or prevent a change of control of the Company, or the removal of existing management. Any of these actions might prevent our security holders from receiving a premium for their shares of common stock or common units over the then-prevailing market price of the shares of our common stock.
In order for the Company to qualify as a REIT under the Code, its stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of the Company’s stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). The Company’s charter contains restrictions on the ownership and transfer of its capital stock that are intended to assist the Company in complying with these requirements and continuing to qualify as a REIT. No single stockholder may own, either actually or constructively, absent a waiver from the Board of Directors, more than 7.0% (by value or by number of shares, whichever is more restrictive) of the Company’s outstanding common stock.
The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than the applicable ownership limit of a particular class of the Company’s capital stock could, nevertheless, cause that individual or entity, or another individual or entity, to constructively own stock in excess of, and thereby subject such stock to, the applicable ownership limit.
The Board of Directors may waive the ownership limits if it is satisfied that the excess ownership would not jeopardize the Company’s REIT status and if it believes that the waiver would be in our best interests. The Board of Directors has waived the ownership limits with respect to our former CEO, John Kilroy, members of his family and some of their affiliated entities. These named individuals and entities may own either actually or constructively, in the aggregate, up to 19.6% of our outstanding common stock, excluding common units that are exchangeable into shares of common stock.
If anyone acquires shares in excess of any ownership limits without a waiver, the transfer to the transferee will be void with respect to the excess shares, the excess shares will be automatically transferred to a trust for the benefit of a qualified charitable organization, and the purported transferee or owner will have no rights with respect to those excess shares.
The Company’s charter contains provisions that may delay, deter, or prevent a change of control transaction. The following provisions of the Company’s charter may delay or prevent a change of control over us, even if a change of control might be beneficial to our security holders, deter tender offers that may be beneficial to our security holders, or limit security holders’ opportunity to receive a potential premium for their shares and/or units if an investor attempted to gain shares beyond the Company’s ownership limits or otherwise to effect a change of control:
• the Company’s charter authorizes the Board of Directors to issue up to 30,000,000 shares of the Company’s preferred stock, including convertible preferred stock, without stockholder approval. The Board of Directors may establish the preferences, rights, and other terms, including the right to vote and the right to convert into common stock any shares issued. The issuance of preferred stock could delay or prevent a tender offer or a change of control even if a tender offer or a change of control was in our security holders’ interest; and
• the Company’s charter states that any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least two thirds of the votes of the Company’s capital stock entitled to be cast in the election of directors.
The Board of Directors may change investment and financing policies without stockholder or unitholder approval. Our Board of Directors determines our major policies, including policies and guidelines relating to our acquisition, development and redevelopment activities, leverage, financing, growth, operations, indebtedness, capitalization, and distributions to our security holders. Our Board of Directors may amend or revise these and other policies and guidelines from time to time without stockholder or unitholder approval. Accordingly, our stockholders and unitholders will have limited control over changes in our policies and those changes could adversely impact us.
We may issue additional common units and shares of capital stock without unitholder or stockholder approval, as applicable, which may dilute unitholder or stockholder investment. The Company may issue shares of our common stock, preferred stock, or other equity or debt securities without stockholder approval, including the issuance of shares to satisfy REIT dividend distribution requirements. Similarly, the Operating Partnership may offer its common or preferred units for contributions of cash or property without approval by our stockholders or the Operating Partnership’s unitholders. Existing security holders have no preemptive rights to acquire any of these securities, and any issuance of equity securities under these circumstances may dilute a unitholder’s or stockholder’s investment.
Sales of a substantial number of shares of the Company’s securities, or the perception that this could occur, could result in decreasing the quoted trading price per share of the Company’s common stock and of the Operating Partnership’s publicly-traded notes. Management cannot predict whether future issuances of shares of the Company’s common stock, or the availability of shares for resale in the open market will result in decreasing the market price per share of the Company’s common stock. As of December 31, 2025, 118,372,451 shares of the Company’s common stock were issued and outstanding.
As of December 31, 2025, the Company had reserved for future issuance the following shares of common stock: 1,133,562 shares issuable upon the exchange, at the Company’s option, of the Operating Partnership’s common units; approximately 1.8 million shares remained available for grant under our 2006 Incentive Award Plan (see Note 14 “Share-Based and Other Compensation” to our consolidated financial statements included in this report); approximately 0.7 million shares issuable upon settlement of time-based RSUs; and a maximum of 2.0 million shares contingently issuable upon settlement of RSUs subject to the achievement of market and/or performance conditions.
Risks Related to Taxes and the Company’s Status as a REIT
Loss of the Company’s REIT status would have significant adverse consequences to us and the value of the Company’s common stock. The Company currently operates in a manner that is intended to allow it to qualify as a REIT for federal income tax purposes under the Code. If the Company were to lose its REIT status, the Company would face adverse tax consequences that would substantially reduce the funds available for distribution to its stockholders for each of the years involved because:
• the Company would not be allowed a deduction for dividends paid to its stockholders in computing the Company’s taxable income and would be subject to regular U.S. federal corporate income tax;
• the Company could be subject to increased state and local taxes;
• the Company could be subject to the one percent excise tax on stock repurchases imposed by the 2022 Inflation Reduction Act; and
• unless entitled to relief under statutory provisions, the Company could not elect to be taxed as a REIT for four taxable years following the year during which the Company was disqualified.
In addition, if the Company failed to qualify as a REIT, it would not be required to make distributions to its stockholders. As a result of all these factors, the Company’s failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could adversely affect the value and the quoted trading price of the Company’s common stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code is greater in the case of a REIT that, like the Company, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect the Company’s ability to continue to qualify as a REIT. For example, to qualify as a REIT, at least 95% of the Company’s gross income in any year must be derived from qualifying sources. Also, the Company must make distributions to its stockholders aggregating annually at least 90% of the Company’s net taxable income (subject to certain adjustments and excluding any net capital gains). Furthermore, we own a direct or indirect interest in certain subsidiaries that have elected to be taxed as REITs for U.S. federal income tax purposes under the Code. Provided that each subsidiary REIT qualifies as a REIT, our interest in such subsidiary REIT will be treated as a qualifying real estate asset for purposes of the REIT asset tests. To qualify as a REIT, the subsidiary REIT must independently satisfy all of the REIT qualification requirements. The failure of a subsidiary REIT to qualify as a REIT could have an effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify as a REIT. In addition, legislation, new regulations, administrative interpretations, or court decisions may affect the Company’s security holders or the Company’s ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments. Although management believes that we are organized and operate in a manner to permit the Company to continue to qualify as a REIT, we cannot provide assurances that the Company has qualified or will continue to qualify as a REIT for tax purposes. We have not requested and do not plan to request a ruling from the Internal Revenue Service (“IRS”) regarding the Company’s qualification as a REIT.
To maintain the Company’s REIT status, we may be forced to borrow funds during unfavorable market conditions. To qualify as a REIT, the Company generally must distribute to its stockholders at least 90% of the Company’s net taxable income each year (subject to certain adjustments and excluding any net capital gains), and the Company will be subject to regular corporate income taxes to the extent that it distributes less than 100% of its net capital gains or distributes at least 90%, but less than 100%, of its net taxable income each year. In addition, the Company will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions it pays in any calendar year are less than the sum of 85% of its ordinary income, 95% of its net capital gains, and 100% of its undistributed income from prior years. To maintain the Company’s REIT status and avoid the payment of federal income and excise taxes, the Operating Partnership may need to borrow funds and distribute or loan the proceeds to the Company so it can meet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from differences in timing between the actual receipt of income and inclusion of income for federal income tax purposes, or the effect of nondeductible capital expenditures, the creation of reserves, or required debt or amortization payments.
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis. When possible and appropriate, we enter into Section 1031 Exchanges. It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable or that we may be unable to identify and
complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange. In such case, our taxable income and the Company’s earnings and profits could increase. This could increase the dividend income to the Company’s stockholders by reducing any return of capital they received. In some circumstances, the Company may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. As a result, we may be required to borrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to the Company’s stockholders. In addition, if a Section 1031 Exchange was later determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent the Company’s stockholders. Moreover, Section 1031 of the Code permits exchanges of real property only. It is possible that additional legislation could be enacted that could further modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferred basis.
Dividends payable by REITs, including the Company, generally do not qualify for the reduced tax rates available for some dividends. “Qualified dividends” payable to U.S. stockholders that are individuals, trusts, and estates generally are subject to tax at preferential rates. Subject to limited exceptions, dividends payable by REITs are not eligible for these reduced rates and are taxable at ordinary income tax rates. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts, and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the shares of our capital stock. However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes. A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. To qualify as a REIT for federal income tax purposes, the Company must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts it distributes to its stockholders and the ownership of its capital stock. If the Company fails to comply with one or more of the asset tests at the end of any calendar quarter, the Company must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification and suffering adverse tax consequences. In order to meet these tests, we may be required to forego investments we might otherwise make or to otherwise investments. Thus, compliance with the REIT requirements may our performance and reduce amounts available for distribution to the Company’s stockholders.
Legislative or regulatory action could adversely affect our stockholders or us. In recent years, numerous legislative, judicial, and administrative changes have been made to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future, and any such changes may adversely impact the Company’s ability to qualify as a REIT, its tax treatment as a REIT, our ability to comply with contractual obligations or the tax treatment of our stockholders and limited partners. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.
