What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-04-30 · 120 added, 108 removed, 304 unchanged (43% of the section changed)

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We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income.

As of March 31, 2020, approximately 7.8 million square feet, or approximately 78% of our total owned portfolio, was located in Atlanta, Dallas, Denver, Houston and Minneapolis.

As of June 30, 2020, approximately 7.8 million square feet, or approximately 78% of our total owned portfolio, was located in Atlanta, Dallas, Denver, Houston and Minneapolis.

From time-to-time we may dispose of our smaller, suburban office assets and replace them with larger infill and central business district office assets.

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and supply chains, adversely impacted global commercial activity, and its long-term economic impact remains uncertain.

Considerable uncertainty still surrounds COVID-19 and its potential effects on the population, as well as the effectiveness of any responses taken on a national and local level by government authorities and businesses.

The travel restrictions, limits on hours of operations and/or closures of non-essential businesses and other efforts to curb the spread of COVID-19 have significantly disrupted business activity globally, including in the markets where we own properties, and we expect them to have an adverse impact on our business.

Many of our tenants are subject to shelter in place and other quarantine restrictions, and the restrictions could be in place for an extended period of time.

The outbreak is expected to have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects on the population, as well as the effectiveness of any responses taken on a national and local level by government authorities and businesses.

The travel restrictions, limits on hours of operations and/or closures of various businesses and other efforts to curb the spread of COVID-19 have significantly disrupted business activity globally, including in the markets where we own properties, and we expect them to have an adverse impact on our business.

Many of our tenants are subject to various quarantine restrictions, and the restrictions could be in place for an extended period of time.

The pandemic has had an adverse impact on economic and market conditions and triggered a global economic slowdown.

The reduction in economic activity worldwide has had a significant negative effect on energy prices, which, if sustained, could have an adverse impact on occupancy and rental rates in energy-influenced markets such as Dallas, Denver and Houston, where we have a significant concentration of properties.

However, the rapidly evolving nature of the pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our business.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to leasing efforts and occupancy at our properties, the potential closure of certain of our assets for an extended period, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, a potential downgrade in our credit rating that could lead to increased borrowing costs or reduce our access to funding sources in credit and capital markets, our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, our ability to complete required capital expenditures in a timely manner and on budget, decrease in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

We are unable to estimate the impact COVID-19 will have on our financial results at this time.

However, the evolving nature of the pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our business.

Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to leasing efforts and occupancy at our properties, the potential closure of certain of our assets for an extended period, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, a potential downgrade in our credit rating that could lead to increased borrowing costs or reduce our access to funding sources in credit and capital markets, our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, our ability to complete required capital expenditures in a timely manner and on budget, decrease in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

We are unable to estimate the impact the COVID-19 pandemic will have on our future financial results at this time.

See also Part I, Item 1A.

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We have implemented working from home policies for our employees .

During the three months ended March 31, 2020 and as of April 30, 2020, all of our properties remained open for business.

Although some of our tenants have requested rent concessions, and more tenants may request rent concessions or may not pay rent in the future, as of April 28, 2020, we had collected approximately 98% of rental receipts due in April 2020.

Future rent concession requests or nonpayment of rent could lead to increased customer delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, and/or capital expenditures, or reduced rental rates to maintain occupancies.

During the three months ended June 30, 2020 and as of August 4, 2020, all of our properties remained open for business.

Although some of our tenants have requested rent concessions, and more tenants may request rent concessions or may not pay rent in the future, as of July 31, 2020, we had collected approximately 97% of rental receipts due in July 2020.

Future rent concession requests or nonpayment of rent could lead to increased customer delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions and, may in some instances, seek extended lease terms, or lower occupancy, and/or capital expenditures, or reduced rental rates to maintain occupancies.

We review each rent concession request on a case by case basis and may or may not provide rent concessions, depending on the specific circumstances involved.

Cash, cash equivalents and restricted cash were $17.3 million and approximately $43.0 million at March 31, 2020 and April 28, 2020, respectively.

Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BAML Revolver ($570 million at March 31, 2020 and approximately $545 million at April 30, 2020) will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

Cash, cash equivalents and restricted cash were $2.9 million as of June 30, 2020.

Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BAML Revolver ($570 million as of June 30, 2020) will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations.

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Economic Conditions

The economy in the United States is currently in an economic downturn with recessionary concerns as a result of COVID-19.

The economy in the United States is currently in an economic downturn with recessionary concerns as a result of the COVID-19 pandemic.

Economic conditions directly affect the demand for office space, our primary income producing asset.

The broad economic market conditions in the United States are typically affected by numerous factors, including but not limited to, inflation and employment levels, energy prices, the pace of economic growth and/or recessionary concerns, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, geopolitical events, the regulatory environment, the availability of credit, and interest rates.

As of the date of this report, the impact of the COVID-19 pandemic and related fallout from containment and mitigation measures, such as stay at home orders and the closing of non-essential business, is disproportionately affecting current economic conditions in the United States.

As of the date of this report, the impact of the COVID-19 pandemic and related fallout from containment and mitigation measures, such as work from home arrangements and the closing of various businesses, is disproportionately affecting current economic conditions in the United States.

Real Estate Operations

As of March 31, 2020, our real estate portfolio was comprised of 32 operating properties, which we refer to as our operating properties, and 3 redevelopment properties, which we refer to as our redevelopment properties, that are in the process of being redeveloped, or are completed but not yet stabilized.

As of June 30, 2020, our real estate portfolio was comprised of 32 operating properties, which we refer to as our operating properties, and 3 redevelopment properties, which we refer to as our redevelopment properties, that are in the process of being redeveloped, or are completed but not yet stabilized.

We collectively refer to our operating and our redevelopment properties as our owned portfolio.

Our 32 operating properties were approximately 85.4% leased as of March 31, 2020, a decrease from 87.6% leased as of December 31, 2019.

The 2.2% decrease in leased space was a result of the impact of lease expirations and terminations, which exceeded leasing completed during the three months ended March 31, 2020.

As of March 31, 2020, we had approximately 1,385,000 of vacancy in our operating properties compared to approximately 1,175,000 square feet of vacancy at December 31, 2019.

During the three months ended March 31, 2020, we leased approximately 280,000 square feet of office space, of which approximately 136,000 square feet were with existing tenants, at a weighted average term of 6.3 years.

Our 32 operating properties were approximately 84.5% leased as of June 30, 2020, a decrease from 87.6% leased as of December 31, 2019.

The 3.1% decrease in leased space was a result of the impact of lease expirations and terminations, which exceeded leasing completed during the six months ended June 30, 2020.

As of June 30, 2020, we had approximately 1,476,000 square feet of vacancy in our operating properties compared to approximately 1,175,000 square feet of vacancy at December 31, 2019.

During the six months ended June 30, 2020, we leased approximately 324,000 square feet of office space, of which approximately 158,000 square feet were with existing tenants, at a weighted average term of 6.1 years.

On average, tenant improvements for such leases were $22.91 per square foot, lease commissions were $7.85 per square foot and rent concessions were approximately four months of free rent.

Average GAAP base rents under such leases were $31.28 per square foot, or 10.3% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2019.

As of March 31, 2020, our three redevelopment properties included an approximately 130,000 square foot redevelopment property known as 801 Marquette in Minneapolis, Minnesota, an approximately 213,000 square foot property known as Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property known as Forest Park in Charlotte, North Carolina.

Given the length of the redevelopment and lease-up process, these properties are not placed in service until, in some cases, years after we commence the project.

As of June 30, 2020, our three redevelopment properties included an approximately 130,000 square foot redevelopment property known as 801 Marquette in Minneapolis, Minnesota, an approximately 213,000 square foot property known as Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property known as Forest Park in Charlotte, North Carolina.

Given the length of the redevelopment and lease-up process, these properties are not classified as an operating property until, in some cases, years after we commence the project.

The redevelopment at 801 Marquette was substantially completed at the end of the second quarter of 2017 and is in the process of being leased up;

however, it is not stabilized.

As of March 31, 2020, we had leases signed and tenants occupying approximately 37.0% of the rentable square feet of the property.

We expect to incur redevelopment and lease-up costs of $29.6 million, of which we had incurred approximately $23.0 million as of March 31, 2020.

As of June 30, 2020, we had leases signed and tenants occupying approximately 37.0% of the rentable square feet of the property.

We expect to incur redevelopment and lease-up costs of $29.6 million, of which we had incurred approximately $23.1 million as of June 30, 2020.

The redevelopment of Blue Lagoon commenced in December 2018 following the maturity of a lease with a major tenant that occupied 100% of the property.

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We expect to incur total restoration, redevelopment and lease-up costs of $39.6 million, which include work on the roof of the building, costs to make the space suitable for multiple tenants and to increase parking at the property.

As of March 31, 2020, we had incurred approximately $11.0 million in total redevelopment costs.

As of June 30, 2020, we had incurred approximately $13.3 million in total redevelopment costs.

We anticipate completing the redevelopment by the end of 2020.

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We expect to incur total redevelopment and lease-up costs of $5.7 million, which include interior work to make the space suitable for multiple tenants.

As of March 31, 2020, we had incurred approximately $1.0 million in redevelopment costs.

We anticipate completing the redevelopment by June 30, 2020.

As of June 30, 2020, we had incurred approximately $1.1 million in redevelopment costs.

We completed the redevelopment during the three months ended June 30, 2020.

We have a lease with one tenant for approximately 22,000 square feet or approximately 35.6% of the total rentable square feet, for an initial term of 11 years.

As of March 31, 2020, leases for approximately 3.6% and 8.5% of the square footage in our owned portfolio are scheduled to expire during 2020 and 2021, respectively.

As the second quarter of 2020 begins, we believe that our operating properties are well stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants.

While leasing activity at our properties has continued, we believe that the COVID-19 pandemic and related containment and mitigation measures may limit or delay new tenant leasing during at least the second quarter of 2020 and potentially in future periods.

As of June 30, 2020, leases for approximately 1.8% and 9.0% of the square footage in our owned portfolio are scheduled to expire during 2020 and 2021, respectively.

As the third quarter of 2020 begins, we believe that our operating properties are well stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants.

While leasing activity at our properties has continued, we believe that the COVID-19 pandemic and related containment and mitigation measures may limit or delay new tenant leasing during at least the third quarter of 2020 and potentially in future periods.

While we cannot generally predict when an existing vacancy in our owned portfolio will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates.

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Recent Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-02, Leases (“ASU 2016-02”);

in July 2018, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases and ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements (“ASU 2018-11”);

and in December 2018, the FASB issued ASU No.

2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors.

ASU 2016-02 requires lessees to establish a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term on their balance sheets.

Lessees will continue to recognize lease expenses on their income statements in a manner similar to previous accounting.

The guidance also eliminates current real estate-specific provisions for all entities.

For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases.

This new standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter with early adoption permitted.

The Company adopted this standard on January 1, 2019 and applied the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases.

Additionally, the Company’s leases met the criteria in ASU 2018-11 to not separate non-lease components from the related lease component, therefore the accounting for these leases remained largely unchanged from the previous standard.

The Company applied the optional transition method in ASU 2018-11, which allows entities to initially apply the new lease standard at the adoption date.

The Company recorded a right-of-use asset of $2.1 million and a lease liability of $2.2 million upon adoption of this standard.

In June 2016, the FASB issued ASU No.

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In August 2018, the FASB issued ASU No.

2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements.

The amendment also eases the application of hedge accounting in certain situations, including eliminating the requirement to

separately measure and report hedge ineffectiveness for cash flow hedges.

ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, and earlier adoption is permitted.

The Company adopted this new standard in the first quarter of 2019 using the modified retrospective method, which requires the Company to account for ASU 2017-12 as of the date of adoption with any retrospective adjustments applicable to prior periods included as a cumulative-effect adjustment to accumulated other comprehensive loss and retained earnings.

No adjustment was necessary to account for the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption because there was no cumulative ineffectiveness that had been recorded on the Company’s existing interest rate swaps as of December 31, 2018, and all trades were highly effective.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

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The ASU is intended to improve the effectiveness of fair value measurement disclosures.

ASU 2018-13 is effective for all entities for annual periods beginning after December 15, 2019, and interim periods within those fiscal years.

ASU 2018-13 is effective for all entities for annual periods beginning after December 15, 2019.

This ASU amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures.

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Results of Operations

The following table shows financial results for the three months ended March 31, 2020 and 2019:

Three months ended March 31,

The following table shows financial results for the three months ended June 30, 2020 and 2019:

Three months ended June 30,

(in thousands)

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Total expenses

Loss before taxes

Tax expense (benefit) on income

Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019:

Total revenues decreased by $1.7 million to $63.0 million for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019.

Income (loss) before taxes

Tax expense on income

Net income (loss)

Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019:

Total revenues decreased by $6.0 million to $60.8 million for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019.

The decrease was primarily a result of:

● A decrease in rental revenue of approximately $0.8 million arising primarily from the loss of rental income from leases that expired after March 31, 2019, which was partially offset by rental income earned from leases commencing after March 31, 2019.

Our leased space in our operating properties was 85.4% at March 31, 2020 and 88.5% at March 31, 2019.

● A decrease in rental revenue of approximately $5.1 million arising primarily from the loss of rental income from leases that expired after June 30, 2019 during the three months ended June 30, 2020 compared to the same period in 2019.

These decreases were partially offset by rental income earned from leases commencing after June 30, 2019.

Our leased space in our operating properties was 84.5% at June 30, 2020 and 88.1% at June 30, 2019.

● A decrease of approximately $0.9 million in interest income from Sponsored REIT Loans primarily as a result of repayment of approximately $51 million of these loans in June 2019.

Total expenses decreased by $2.0 million to $64.0 million for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019.

Total expenses decreased by $2.3 million to $62.8 million for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $2.1 million.

● A decrease in interest expense of approximately $0.4 million.

The decrease was primarily attributable to lower interest rates during the three months ended June 30, 2020 compared to the same period in 2019.

These increases were partially offset by:

● An increase to depreciation and amortization of approximately $0.1 million.

● An increase in general and administrative expenses of $0.1 million, which was primarily from personnel costs.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $17,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Net loss for the three months ended June 30, 2020 was $2.1 million compared to a net income of $1.6 million for the three months ended June 30, 2019, for the reasons described above.

The following table shows financial results for the six months ended June 30, 2020 and 2019:

Six months ended June 30,

(in thousands)

Related party revenue:

Management fees and interest income from loans

Total revenues

Real estate operating expenses

Real estate taxes and insurance

Depreciation and amortization

General and administrative

Total expenses

Income (loss) before taxes on income

Tax expense on income

Net income (loss)

Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019:

Total revenues decreased by $7.7 million to $123.8 million for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019.

The decrease was primarily a result of:

● A decrease in rental revenue of approximately $5.9 million arising primarily from the loss of rental income from leases that expired after June 30, 2019 during the six months ended June 30, 2020 compared the same period in 2019.

These decreases were partially offset by rental income earned from leases commencing after June 30, 2019.

Our leased space in our operating properties was 84.5% at June 30, 2020 and 88.1% at June 30, 2019.

● A decrease of approximately $1.8 million in interest income from Sponsored REIT Loans primarily as a result of repayment of approximately $51 million of these loans in June 2019.

Total expenses decreased by $4.2 million to $126.8 million for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019.

The increase was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $2.9 million.

● A decrease in depreciation and amortization of approximately $0.7 million.

● A decrease in interest expense of approximately $0.7 million.

The decrease was primarily attributable to lower interest rates and lower debt outstanding during the three months ended March 31, 2020 compared to the same period in 2019.

The decrease was primarily attributable to lower interest rates during the six months ended June 30, 2020 compared to the same period in 2019.

These decreases were partially offset by:

● An increase in general and administrative expenses of $0.1 million, which was primarily from personnel costs.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $15,000, and benefits from federal and other income taxes, which decreased by $112,000, during the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily as a result of a refund arising due to the provisions of the Tax Cuts and Jobs Act of 2017 during the three months ended March 31, 2019.

Net loss for the three months ended March 31, 2020 was $1.1 million compared to a net loss of $1.2 million for the three months ended March 31, 2019, for the reasons described above.

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $32,000, and benefits from federal and other income taxes, which decreased by $112,000, during the six months ended June 30, 2019 compared to the six months ended June 30, 2020, primarily as a result of a refund arising due to the provisions of the Tax Cuts and Jobs Act of 2017 during the six months ended June 30, 2019.

Net loss for the six months ended June 30, 2020 was $3.1 million compared to a net income of $0.4 million for the six months ended June 30, 2019, for the reasons described above.

Non-GAAP Financial Measures

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The calculations of FFO are shown in the following table:

For the Three Months Ended

Three Months Ended

Six Months Ended

(in thousands):

Net income (loss)

Depreciation and amortization

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*Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.

The information presented below provides the weighted average GAAP rent per square foot for the three months ended March 31, 2020 for our properties and weighted occupancy square feet and percentages.

The information presented below provides the weighted average GAAP rent per square foot for the six months ended June 30, 2020 for our properties and weighted occupancy square feet and percentages.

GAAP rent includes the impact of tenant concessions and reimbursements.

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One Legacy Circle

The information presented below provides the weighted average GAAP rent per square foot for the six months ended June 30, 2020 for our properties and weighted occupancy square feet and percentages.

GAAP rent includes the impact of tenant concessions and reimbursements.

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Total Redevelopment Properties

(a) Based on weighted occupied square feet for the three months ended March 31, 2020, including month-to-month tenants, divided by the Property’s net rentable square footage.

(b) Represents annualized GAAP rental revenue for the three months ended March 31, 2020, per weighted occupied square foot.

(a) Based on weighted occupied square feet for the six months ended June 30, 2020, including month-to-month tenants, divided by the Property’s net rentable square footage.

(b) Represents annualized GAAP rental revenue for the six months ended June 30, 2020, per weighted occupied square foot.

(c) Redevelopment Properties include properties in the process of being redeveloped, or are completed but not yet stabilized.

Liquidity and Capital Resources

Cash, cash equivalents and restricted cash were $17.3 million and $9.8 million at March 31, 2020 and December 31, 2019, respectively.

The increase of $7.5 million is attributable to $7.2 million provided by operating activities, less $20.0 million used for investing activities plus $20.3 million provided by financing activities.

Cash, cash equivalents and restricted cash were $2.9 million and $9.8 million at June 30, 2020 and December 31, 2019, respectively.

The decrease of $6.9 million is attributable to $25.6 million provided by operating activities, less $43.2 million used for investing activities plus $10.7 million provided by financing activities.

Management believes that existing cash, cash anticipated to be generated internally by operations and our existing debt financing will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

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Operating Activities

Cash provided by operating activities for the three months ended March 31, 2020 of $7.2 million is primarily attributable to a net loss of $1.1 million plus the add-back of $22.0 million of non-cash expenses, an increase in tenant rent receivables of $0.3 million and an increase in tenant security deposits of $0.3 million.

These amounts were partially offset by a decrease in accounts payable and accrued compensation of $10.3 million, an increase in payment of deferred leasing commissions of $2.9 million, a decrease in prepaid expenses and other assets of $0.6 million and an increase in lease acquisition costs of $0.5 million.

Cash provided by operating activities for the six months ended June 30, 2020 of $25.6 million is primarily attributable to a net loss of $3.1 million plus the add-back of $44.8 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $11.1 million, an increase in payment of deferred leasing commissions of $3.7 million, an increase in lease acquisition costs of $0.8 million, an increase in tenant rent receivables of $0.3 million and a decrease in tenant security deposits of $0.2 million.

Investing Activities

Cash used for investing activities for the three months ended March 31, 2020 of $20.0 million is primarily attributable to purchases of other real estate assets and office equipment investments of approximately $20.0 million.

Cash used for investing activities for the six months ended June 30, 2020 of $43.2 million is primarily attributable to purchases of other real estate assets and office equipment investments of approximately $43.2 million.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2020 of $20.3 million is primarily attributable to net borrowings on the BAML Revolver (as defined below) of $30.0 million and was partially offset by distributions paid to stockholders of $9.7 million.

Cash provided by financing activities for the six months ended June 30, 2020 of $10.7 million is primarily attributable to net borrowings on the BAML Revolver (as defined below) of $30.0 million and was partially offset by distributions paid to stockholders of $19.3 million.

JPM Term Loan

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The JPM Term Loan was previously evidenced by a Credit Agreement, dated November 30, 2016, among the Company, JPMorgan, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated October 18, 2017.

The JPM Term Loan bears interest at either (i) a number of basis points over a LIBOR-based rate depending on the Company’s credit rating (125.0 basis points over the LIBOR-based rate at March 31, 2020) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25.0 basis points over the base rate at March 31, 2020).

The JPM Term Loan bears interest at either (i) a number of basis points over a LIBOR-based rate depending on the Company’s credit rating (125.0 basis points over the LIBOR-based rate at June 30, 2020) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25.0 basis points over the base rate at June 30, 2020).

Although the interest rate on the JPM Term Loan is variable under the JPM Credit Agreement, the Company fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions.

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Effective March 29, 2019, the Company fixed the LIBOR-based rate at 2.44% per annum on a $100 million portion of the JPM Term Loan until November 30, 2021.

Accordingly, based upon the Company’s credit rating, as of March 31, 2020, the effective interest rate on a $100 million portion of the JPM Term Loan was 3.69% per annum.

Based upon the Company’s credit rating, as of March 31, 2020, the effective interest rate on the unhedged $50 million portion of the JPM Term Loan was 2.25% per annum.

The weighted average interest rate on the unhedged $50 million portion of the JPM Term Loan during the three months ended March 31, 2020 was approximately 2.95% per annum.

Accordingly, based upon the Company’s credit rating, as of June 30, 2020, the effective interest rate on a $100 million portion of the JPM Term Loan was 3.69% per annum.

Based upon the Company’s credit rating, as of June 30, 2020, the effective interest rate on the unhedged $50 million portion of the JPM Term Loan was 1.44% per annum.

The weighted average interest rate on the unhedged $50 million portion of the JPM Term Loan during the six months ended June 30, 2020 was approximately 2.36% per annum.

The weighted average interest rate on the JPM Term Loan during the year ended December 31, 2019 was approximately 3.54% per annum.

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For certain events of default related to bankruptcy, insolvency, and receivership, all outstanding obligations of the Company will become immediately due and payable.

The Company was in compliance with the JPM Term Loan financial covenants as of March 31, 2020.

The Company was in compliance with the JPM Term Loan financial covenants as of June 30, 2020.

BMO Term Loan

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The BMO Term Loan was previously evidenced by an Amended and Restated Credit Agreement, dated October 29, 2014, among the Company, BMO, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated July 21, 2016, and a Second Amendment, dated October 18, 2017.

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (125 basis points over LIBOR at March 31, 2020) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25 basis points over the base rate at March 31, 2020).

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (125 basis points over LIBOR at June 30, 2020) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25 basis points over the base rate at June 30, 2020).

Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate by entering into interest rate swap transactions.

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On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024.

Accordingly, based upon the Company’s credit rating, as of March 31, 2020, the effective interest rate on the BMO Term Loan was 3.57% per annum.

Accordingly, based upon the Company’s credit rating, as of June 30, 2020, the effective interest rate on the BMO Term Loan was 3.57% per annum.

The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates.

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For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable.

The Company was in compliance with the BMO Term Loan financial covenants as of March 31, 2020.

The Company was in compliance with the BMO Term Loan financial covenants as of June 30, 2020.

BAML Credit Facility

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● The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $500 million of additional borrowing capacity applicable to the BAML Revolver and/or the BAML Term Loan, subject to receipt of lender commitments and satisfaction of certain customary conditions.

As of March 31, 2020, there were borrowings of $30 million outstanding under the BAML Revolver.

The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.20% over LIBOR at March 31, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.20% over the base rate at March 31, 2020).

As of June 30, 2020, there were borrowings of $30 million outstanding under the BAML Revolver.

The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.20% over LIBOR at June 30, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.20% over the base rate at June 30, 2020).

The BAML Credit Facility also obligates the Company to pay an annual facility fee in an amount that is also based on the Company’s credit rating.

The facility fee is assessed against the total amount of the BAML Revolver, or $600 million (0.25% at March 31, 2020).

Based upon the Company’s credit rating, as of March 31, 2020, the interest rate on the BAML Revolver was 2.19% per annum.

The weighted average interest rate on all amounts outstanding on the BAML Revolver during the three months ended March 31, 2020 was approximately 2.75% per annum.

The facility fee is assessed against the total amount of the BAML Revolver, or $600 million (0.25% at June 30, 2020).

Based upon the Company’s credit rating, as of June 30, 2020, the interest rate on the BAML Revolver was 1.36% per annum.

The weighted average interest rate on all amounts outstanding on the BAML Revolver during the six months ended June 30, 2020 was approximately 2.01% per annum.

As of December 31, 2019, there were no borrowings outstanding under the BAML Revolver.

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● On September 27, 2012, the Company drew down the entire $400 million under the BAML Term Loan and such amount remains fully advanced and outstanding under the BAML Term Loan.

The BAML Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.35% over LIBOR at March 31, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.35% over the base rate at March 31, 2020).

The BAML Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.35% over LIBOR at June 30, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.35% over the base rate at June 30, 2020).

Although the interest rate on the BAML Credit Facility is variable, the Company fixed the base LIBOR interest rate on the BAML Term Loan by entering into interest rate swap transactions.

On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BAML Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ending on September 27, 2021.

Accordingly, based upon the Company’s credit rating, as of March 31, 2020, the effective interest rate on the BAML Term Loan was 2.47% per annum.

Accordingly, based upon the Company’s credit rating, as of June 30, 2020, the effective interest rate on the BAML Term Loan was 2.47% per annum.

BAML Credit Facility General Information

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The Company was in compliance with the BAML Credit Facility financial covenants as of March 31, 2020.

The Company was in compliance with the BAML Credit Facility financial covenants as of June 30, 2020.

The Company may use the proceeds of the loans under the BAML Credit Facility to finance the acquisition of real properties and for other permitted investments;

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In the case of an event of default, the Purchasers may, among other remedies, accelerate the payment of all obligations.

The Company was in compliance with the Senior Notes financial covenants as of March 31, 2020.

The Company was in compliance with the Senior Notes financial covenants as of June 30, 2020.

Equity Securities

As of March 31, 2020, we had an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission relating to the offer and sale, from time to time, of an indeterminate amount of our debt securities, common stock, preferred stock or depository shares.

As of June 30, 2020, we had an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission relating to the offer and sale, from time to time, of an indeterminate amount of our debt securities, common stock, preferred stock or depository shares.

From time to time, we expect to issue debt securities, common stock, preferred stock or depository shares under our existing automatic shelf registration statements or a different registration statement to fund the acquisition of additional properties, to pay down any existing debt financing and for other corporate purposes.

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From time to time, we may provide financing to Sponsored REITs in the form of a construction loan and/or a revolving line of credit secured by a mortgage.

As of March 31, 2020, we had one loan outstanding for $21 million principal amount with one Sponsored REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes.

As of June 30, 2020, we had one loan outstanding for $21 million principal amount with one Sponsored REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes.

We anticipate that advances made under these facilities will be repaid at their maturity date or earlier from refinancing, long term financings of the underlying properties, cash flows from the underlying properties or another other capital event.

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From time to time we may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes.

Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two to three years.

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Instead, we make a subjective determination after considering such factors collectively.

Additional information about our Sponsored REIT Loans outstanding as of March 31, 2020, including a summary table of our Sponsored REIT Loans, is incorporated herein by reference to Part 1, Item 1, Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Additional information about our Sponsored REIT Loans outstanding as of June 30, 2020, including a summary table of our Sponsored REIT Loans, is incorporated herein by reference to Part 1, Item 1, Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Other Consideration s

We generally pay the ordinary annual operating expenses of our properties from the rental revenue generated by the properties.

For the three months ended March 31, 2020 and 2019, respectively, the rental income exceeded the expenses for each individual property, with the exception of one property located in Chantilly, Virginia for the three months ended March 31, 2020, one property located in Minneapolis, Minnesota for the three months ended March 31, 2020 and 2019 and one property located in Houston, Texas for the three months ended March 31, 2019.

For the three and six months ended June 30, 2020 and 2019, respectively, the rental income exceeded the expenses for each individual property, with the exception of one property located in Chantilly, Virginia for each of the three and six months ended June 30, 2020 and one property located in Minneapolis, Minnesota for each of the three and six months ended June 30, 2019.

Our property located in Chantilly, Virginia (“Stonecroft”) had approximately 111,000 square feet of rentable space and became vacant in December 2019.

We had no rental income and operating expenses of $172,000 during the three months ended March 31, 2020.

We had no rental income and operating expenses of $274,000 during the three months ended June 30, 2020.

We had no rental income and operating expenses of $446,000 during the six months ended June 30, 2020.

Our property located at 801 Marquette Avenue in Minneapolis, Minnesota (“801 Marquette Avenue”) had approximately 170,000 square feet of rentable space and became vacant in January 2016.

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Redevelopment of 801 Marquette Avenue resulted in approximately 129,800 of net rentable square feet for the property.

As of March 31, 2020, we have signed leases with two tenants that now occupy 48,000 square feet, or 37% of rentable square feet at the property.

As a result, we had rental income of $313,000 and operating expenses of $329,000 during the three months ended March 31, 2020.

We had rental income of $84,000 and operating expenses of $286,000 during the three months ended March 31, 2019.

The property located in Houston, Texas has approximately 157,000 square feet of rentable space and became substantially vacant on April 30, 2017 when two tenants vacated 155,000 square feet of space.

The property signed leases that commenced in 2019 for approximately 105,000 square feet, or 66.9% of the square feet of the property.

We had rental income of $262,000 and had operating expenses of $375,000 during the three months ended March 31, 2019.

As of June 30, 2020, we have signed leases with two tenants that now occupy 48,000 square feet, or 37% of rentable square feet at the property.

As a result, rental income exceeded operating expenses during the three and six months ended June 30, 2020.

We had rental income of $129,000 and operating expenses of $277,000 during the three months ended June 30, 2019 and rental income of $214,000 and operating expenses of $563,000 during the six months ended June 30, 2019.

Off-Balance Sheet Arrangements and Contractual Obligations

There have been no material changes to our contractual obligations and off-balance-sheet arrangements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis