Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based on, and should be read in conjunction with, the condensed consolidated financial statements and the related notes thereto of the City Office REIT, Inc. contained in this Quarterly Report on Form 10-Q (this "Report").

As used in this section, unless the context otherwise requires, references to "we," "our," "us," and "our company" refer to City Office REIT, Inc., a Maryland corporation, together with our consolidated subsidiaries, including City Office REIT Operating Partnership L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership, except where it is clear from the context that the term only means City Office REIT, Inc.

Cautionary Statement Regarding Forward-Looking Statements

This Report, including "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have used the words "approximately," "anticipate," "assume," "believe," "budget," "contemplate," "continue," "could," "estimate," "expect," "future," "hypothetical," "intend," "may," "outlook," "plan," "potential," "predict," "project," "seek," "should," "target," "will" and similar terms and phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:

The forward-looking statements contained in this Report are based on historical performance and management's current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to the factors, risks and uncertainties described above, changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading "Risk Factors" and elsewhere in this Form 10-Q and any updates to those factors set forth in our subsequent Quarterly Reports on Form 10-Q or other public filings with the SEC, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date of this Report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

Overview

Company

We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our IPO of shares of common stock. We contributed the net proceeds of the IPO to our Operating Partnership in exchange for common units in our Operating Partnership. Both we and our Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.

On July 23, 2025, the Company entered into a Merger Agreement with MCME Carell under which, subject to the satisfaction of the conditions set forth in the Merger Agreement, MCME Carell will acquire (other than shares owned by the Buyer, the Company or their respective affiliates) all of the issued and outstanding shares of the Company for $7.00 per share of common stock in cash. The Merger is subject to the satisfaction of a number of customary closing conditions more thoroughly described in the Merger Agreement. On October 16, 2025, the Company's common stockholders approved the Merger.

Revenue Base

As of September 30, 2025, we owned 16 properties comprised of 33 office buildings with a total of approximately 4.2 million square feet of net rentable area ("NRA"). As of September 30, 2025, our properties were approximately 84.5% leased.

Office Leases

Historically, most leases for our properties have been on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense "stop," whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant's proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries within rental and other revenues on our condensed consolidated statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected as tenant recoveries. We are also a lessor for a fee simple ground lease at the AmberGlen property.

Factors That May Influence Our Operating Results and Financial Condition

Business and Strategy

We focus on owning office properties in our footprint of growth markets predominantly in the Sun Belt. Our markets generally possess growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, generally lower-cost centers for business operations and a high quality of life. We believe these characteristics have made our markets desirable, as evidenced by domestic net migration generally towards our geographic footprint. A majority of our properties are well located, have good access and functionality to our markets, are new or in new condition, attract high-quality tenants and are professionally managed. We utilize our management's market-specific knowledge and relationships as well as the expertise of local real estate property and leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation.

Rental Revenue and Tenant Recoveries

The amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. As of September 30, 2025, the operating properties in our portfolio were 84.5% leased, with 0.7% of our leases scheduled to expire over the remainder of the calendar year, without regard to renewal options. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. Our leases typically include rent escalation provisions designed to provide annual growth in our rental income as well as an ability to pass through cost escalations to our tenants, and in the normal course of business we do not typically waive these rent escalation provisions. Certain leases contain termination provisions which permit the tenant to terminate the arrangement generally upon payment of a termination fee, which we believe acts as a deterrent to cancelling the lease. These early termination provisions applied to approximately 20.1% of the NRA in our portfolio as of September 30, 2025. In 2025, no tenant has exercised an early termination provision. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. We continually monitor our tenants' ability to meet their lease obligations to pay us rent to determine if any adjustments should be reflected currently. General Services Administration ("GSA") tenants represent approximately 5.1% of the base rental revenue from our properties as of September 30, 2025, with all federal or state governmental agencies representing 7.7%. Future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants' industries, including as a result of high interest rates and the fluctuating likelihood of a U.S. recession, that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.

Leasing Activity

The following table presents our leasing activity for the three months ended September 30, 2025.

Our Properties

As of September 30, 2025, we owned 16 properties comprised of 33 office buildings with a total of approximately 4.2 million square feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle and Tampa. The following table presents an overview of our portfolio as of September 30, 2025.

Operating Expenses

Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants' base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.

Conditions in Our Markets

Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance. While we generally expect the trend of positive population and economic growth in our Sun Belt cities to continue, there is no way for us to predict whether these trends will continue, especially in light of inflation and elevated interest rates as well as potential changes in tax policy, trade policy,

immigration policy, fiscal policy and monetary policy. It is uncertain and impossible to estimate the potential impact that the work-from-home trend or the effects of widespread use of artificial intelligence will have on the short- and long-term demand for office space in our markets.

Critical Accounting Policies and Estimates

The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2024 included in our Annual Report on Form 10-K for the year ended December 31, 2024.

Results of Operations

Comparison of Three Months Ended September 30, 2025 to Three Months Ended September 30, 2024

Rental and Other Revenues.Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues decreased $5.1 million, or 12%, to $37.3 million for the three months ended September 30, 2025 compared to $42.4 million for the three months ended September 30, 2024. Revenue decreased due to the disposition of six Phoenix properties in August 2025 and the Superior Pointe property in January 2025 which reduced revenue by $4.2 million and $0.8 million, respectively. Block 23, 5090 N 40th St, SanTan, Papago Tech, The Quad and Camelback Square comprised the six Phoenix properties which were sold in August 2025. Revenue also decreased at AmberGlen by $0.6 million due to lower occupancy at the property compared to the prior year. Offsetting these decreases, revenue increased at Bloc 83 by $0.4 million due to higher occupancy at the property compared to the prior year. The remaining properties' rental and other revenues were relatively unchanged.

Operating Expenses

Property Operating Expenses.Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and re-leasing costs. Property operating expenses decreased $2.2 million, or 12%, to $15.6 million for the three months ended September 30, 2025, from $17.8 million for the three months ended September 30, 2024. The disposition of six Phoenix properties in August 2025 and the Superior Pointe property in January 2025 decreased property operating expenses by $1.8 million and $0.5 million, respectively. The remaining property operating expenses were relatively unchanged in comparison to the prior year period.

General and Administrative.General and administrative expenses are comprised of public company reporting costs and the compensation of our employees and Board of Directors, as well as non-cash stock-based compensation expenses. General and administrative expenses were unchanged at $3.8 million for the three months ended September 30, 2025 and 2024.

Depreciation and Amortization.Depreciation and amortization decreased $4.0 million, or 28%, to $10.6 million for the three months ended September 30, 2025, from $14.6 million reported in the prior year period. The disposition of six Phoenix properties in August 2025 and the Superior Pointe property in January 2025 decreased depreciation and amortization expense by $3.3 million and $0.2 million, respectively. The remaining properties' depreciation expenses were $0.5 million lower in comparison to the prior year period.

Merger and Transaction-related costs. The Company incurred $3.1 million in merger and transaction-related costs during the third quarter of 2025.

Other Expense (Income)

Interest Expense.Interest expense decreased $1.0 million, or 12%, to $7.6 million for the three months ended September 30, 2025, from $8.6 million for the three months ended September 30, 2024. The proceeds from the disposition of the six Phoenix properties in August 2025 were used to repay property-level debt for the disposed properties and partially repay the credit facility which resulted in decreased interest expense of $0.9 million. The remaining properties' interest expenses were relatively unchanged in comparison to the prior year period.

Net Loss on Disposition of Real Estate Property. The disposition of six Phoenix properties in August 2025 resulted in a net loss on disposition of real estate properties of $0.4 million for the three months ended September 30, 2025.

Comparison of Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024

Rental and Other Revenues.Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues decreased $7.3 million, or 6%, to $121.9 million for the nine months ended September 30, 2025 compared to $129.2 million for the nine months ended September 30, 2024. Revenue decreased year over year due to the dispositions of six Phoenix properties in August 2025, the Superior Pointe property in January 2025 and the Cascade Station property in June 2024 which reduced revenue by $4.7 million, $2.4 million and $1.0 million, respectively. Revenue also decreased at 2525 McKinnon and AmberGlen by $1.4 million and $0.9 million, respectively, due to lower occupancy at the properties compared to the prior year. Revenue also decreased at The Terraces by $0.7 million, largely due to the downsize of WeWork in the prior period resulting in lower income in the current period. Offsetting these decreases, revenue increased year over year at Bloc 83, Mission City and Florida Research Park's Ingenuity Drive by $1.5 million, $1.0 million and $0.9 million, respectively, due to higher occupancy. The remaining properties' rental and other revenues were marginally higher in comparison to the prior year period.

Operating Expenses

Property Operating Expenses.Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and re-leasing costs. Property operating expenses decreased $4.8 million, or 9%, to $48.2 million for the nine months ended September 30, 2025, from $53.0 million for the nine months ended September 30, 2024. The dispositions of six Phoenix properties in August 2025, the Superior Pointe property in January 2025 and the Cascade Station property in June 2024 decreased property operating expenses by $1.5 million, $1.6 million and $0.5 million, respectively. Property taxes decreased across the portfolio by $1.6 million, excluding the dispositions noted above, in comparison to the prior year as property tax accruals were lower in the first three quarters of 2025 as compared to the first three quarters of 2024. In 2024, the final property tax assessments received at year end were lower than accrued in the first three quarters of 2024. The remaining property operating expenses were marginally higher in comparison to the prior period.

General and Administrative.General and administrative expenses are comprised of public company reporting costs and the compensation of our employees and Board of Directors, as well as non-cash stock-based compensation expenses. General and administrative expenses increased $0.5 million, or 5%, to $11.8 million for the nine months ended September 30, 2025, from $11.3 million reported in the prior year period primarily due to higher legal expenses.

Depreciation and Amortization.Depreciation and amortization decreased $2.6 million, or 6%, to $41.8 million for the nine months ended September 30, 2025, from $44.4 million reported in the prior year period. The dispositions of six Phoenix properties in August 2025, the Superior Pointe property in January 2025 and the Cascade Station property in June 2024 decreased depreciation and amortization expense by $3.3 million, $0.9 million and $0.4 million, respectively. Offsetting these decreases, Greenwood Blvd and Florida Research Park's Ingenuity Drive increased by $0.9 million and $0.4 million, respectively, due to higher amortization of tenant-related assets. The increase at Greenwood Blvd was due to accelerated amortization of tenant-related assets recorded in the current year associated with an early lease termination at the property. The remaining properties' depreciation expenses were $0.7 million higher in comparison to the prior year period.

Impairment of Real Estate.Impairment of real estate was $102.2 million for the nine months ended September 30, 2025 compared to nil in the prior year period. The impairment was related to the write down of the carrying amount of the Phoenix Portfolio, which was classified as held for sale in the second quarter of 2025, to estimated fair value less cost to sell.

Merger and Transaction-related costs.The Company incurred $3.1 million in merger and transaction-related costs during the third quarter of 2025.

Other Expense (Income)

Interest Expense.Interest expense decreased $0.5 million, or 2%, to $25.0 million for the nine months ended September 30, 2025, from $25.5 million for the nine months ended September 30, 2024. The proceeds from the disposition of the six Phoenix properties in August 2025 were used to repay property-level debt for the disposed properties and partially repay the credit facility

which resulted in decreased interest expense of $0.9 million. Further, the disposition of the Cascade Station property in June 2024 decreased interest expense by $0.4 million. Offsetting these decreases, higher interest rates on the refinance of the Greenwood Blvd property in May 2025 and the Central Fairwinds property in May 2024 resulted in higher interest expense of $0.2 million and $0.2 million, respectively. The remaining properties' interest expenses were $0.4 million higher in comparison to the prior year period.

Net Loss on Disposition of Real Estate Property.The disposition of six Phoenix properties in August 2025 resulted in a net loss on disposition of real estate properties of $0.4 million for the nine months ended September 30, 2025. During the second quarter of 2024, the Company entered into an assignment in lieu of foreclosure agreement to transfer possession and control of the Cascade Station property to the lender as a result of an event of default as defined in the property's loan agreement. Given the terms of the assignment in lieu of foreclosure agreement, the Company deconsolidated the entity holding the property and related assets and liabilities during the second quarter of 2024. For the nine months ended September 30, 2024, the Company recognized a loss on deconsolidation of $1.5 million.

Cash Flows

Comparison of Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024

Cash, cash equivalents and restricted cash were $39.3 million and $43.0 million as of September 30, 2025 and September 30, 2024, respectively.

Cash flow from operating activities. Net cash provided by operating activities decreased by $11.3 million to $38.7 million for the nine months ended September 30, 2025 compared to $50.0 million for the nine months ended September 30, 2024. The decrease was primarily attributable to changes in working capital and a decrease in net income related to the First Phoenix Closing.

Cash flow from investing activities.Net cash provided by investing activities increased by $265.6 million to $235.8 million for the nine months ended September 30, 2025 compared to $29.8 million of net cash used in investing activities for the nine months ended September 30, 2024. The increase in net cash provided by investing activities was primarily attributable to the sale of Superior Pointe and the First Phoenix Closing in the current year for proceeds of $268.0 million. This increase was partially offset by an increase in additions to real estate properties for the nine months ended September 30, 2025.

Cash flow to financing activities. Net cash used in financing activities increased by $248.5 million to $269.1 million for the nine months ended September 30, 2025 compared to $20.6 million for the nine months ended September 30, 2024. The increase in net cash used in financing activities was primarily attributable to increased repayment of borrowings and decreased proceeds from borrowings for the nine months ended September 30, 2025.

Non-GAAP Supplemental Measures: NOI

NOI is a non-GAAP measure which includes the revenue and expense directly attributable to our office properties. NOI is calculated as rental and other revenues less property operating expenses.

We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs' NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.

Refer to Note 11 to our condensed consolidated financial statements for the revenue and expense items comprising NOI. Presented below is a reconciliation of the reportable segment NOI to the consolidated net loss (in thousands):

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $21.3 million of cash and cash equivalents and $17.9 million of restricted cash as of September 30, 2025.

On March 15, 2018, the Company entered into a credit agreementfor the Credit Facility that provided for commitments of up to $250 million. On September 27, 2019, the Company entered into a five-year $50 million term loan, increasing its authorized borrowings under the Company's Credit Facility from $250 million to $300 million. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreementthat increased the total authorized borrowings from $300 million to $350 million. On January 5, 2023, the Company entered into a second amendment to the Amended and Restated Credit Agreementfor the Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. On September 27, 2024, the $50 million term loan matured and was repaid with proceeds from the Credit Facility, reducing total authorized borrowings from $375 million to $325 million. On August 15, 2025, the Company repaid the $25 million term loan and entered into a third amendmentto the Amended and Restated Credit Agreementto, among other things, decrease the total authorized borrowing from $325 million to $150 million and provide for the pledge of certain of the Company's assets as security. Subsequent to quarter-end, on October 3, 2025, the Company entered into a fourth amendment to the Amended and Restated Credit Agreementto extend the maturity date from November 2025 to January 2026, with a further option to extend to November 2026, provided the Company meets certain conditions. As of September 30, 2025, of the $150 million total authorized borrowings, we had approximately $115.0 million outstanding under our Credit Facility and a $2.5 million letter of credit to satisfy escrow requirements for a mortgage lender.

On May 28, 2025, the Company entered into an amended and restated loan agreement for Greenwood Blvd, extending the term for an additional three years and amending the interest rate from fixed to floating. The loan bears interest at a rate equal to the daily-simple SOFR rate plus a margin of 250 basis points. The Company also entered into a three-year interest rate swap agreement, effectively fixing the SOFR component of the borrowing rate of the loan at 3.84%.

On February 26, 2020, the Company and the Operating Partnership entered into equity distribution agreements(collectively, the "Agreements") with certain investment banks acting as sales agents (the "Sales Agents"), pursuant to which the Company may issue and sell from time to time up to 15,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or principals (the "ATM Program"). In the event that the Company elects to make sales under the ATM Program, the Company will file a prospectus supplement to the prospectus included in the Company's Registration Statement on Form S-3. The Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program during the nine months ended September 30, 2025.

Following changes in property-level occupancy rates, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. For mortgages with financial covenants, the lenders' remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations. As of September 30, 2025, the lender for our mortgage borrowings at the Intellicenter property have elected their right to direct property cash flows into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. On October 1, 2025, the non-recourse property loan at the Intellicenter property matured, and an event of default occurred under the terms of the Intellicenter loan, following

non-payment of the principal amount outstanding at loan maturity. The Company is in discussions with the lender to extend the maturity of the loan. Further, under the terms of the loan modification and extension agreement at the FRP Ingenuity Drive property, signed in the second quarter of 2024, property cash flows from this property will be directed into lender-controlled restricted cash accounts through the maturity of the loan. For these two properties, the total restricted cash as of September 30, 2025 was $3.8 million.

Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations and reserves established from existing cash. We have further sources such as proceeds from our public offerings, including under our ATM Program, and borrowings under our mortgage loans and our Credit Facility.

Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured indebtedness and the issuance of equity and debt securities. We also may fund property acquisitions and non-recurring capital improvements using our Credit Facility pending longer term financing.

We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, we cannot provide assurance that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, interest rates, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.

In addition to the incurrence of debt and the offering of equity securities, dispositions of properties may serve as additional capital resources and sources of liquidity. We may recycle capital from stabilized assets or from sales of properties. Capital from these types of transactions is intended to be redeployed into property acquisitions, capital improvements, or to pay down existing debt.

Contractual Obligations and Other Long-Term Liabilities

The following table provides information with respect to our commitments as of September 30, 2025, including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options.

Inflation

Substantially all of our office leases include expense reimbursement provisions that provide for property operating expense escalations. In addition, most of the leases provide for fixed rent increases. We believe that expense increases due to inflation may be at least partially offset by these contractual rent increases and expense escalations. However, a longer period of inflation could affect our cash flows or earnings, or impact our borrowings, as discussed elsewhere in this Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use derivative financial instruments to manage or hedge interest rate risks related to borrowings. We do not use derivatives for trading or speculative purposes. We have entered, and we will only enter into, contracts with major financial institutions based on their credit rating and other factors. See Note 6 to our condensed consolidated financial statements in Item 1 of this Report for more information regarding our derivatives.

We currently consider our interest rate exposure to be moderate because as of September 30, 2025, approximately $285.0 million, or 71.2%, of our debt had fixed interest rates, or effectively fixed rates when factoring in interest rate swaps, and $115.0 million, or 28.8%, had variable interest rates. The interest rate swaps effectively fix the SOFR component of the borrowing rates until maturity of the debt. A 1% increase in SOFR would result in a $1.2 million increase to our annual interest costs on debt outstanding as of September 30, 2025 and would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Credit Facility. A 1% decrease in SOFR would result in a $1.2 million decrease to our annual interest costs on debt outstanding as of September 30, 2025 and would increase the fair value of our outstanding debt, as well as decrease interest costs associated with future debt issuances or borrowings under our Credit Facility.

Interest rate risk amounts are our management's estimates based on our Company's capital structure and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. We may take actions to further mitigate our exposure to changes in interest rates. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our Company's financial structure.