What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 70 added, 61 removed, 384 unchanged (25% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share and par value amounts)

38 unchanged sentences

Consolidated Statements of Operations

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(in thousands, except per share amounts)

16 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

3 unchanged sentences

Total other comprehensive income (loss)

Comprehensive loss

Comprehensive income (loss)

The accompanying notes are an integral part of these consolidated financial statements.

15 unchanged sentences

Balance, June 30, 2019

Comprehensive income (loss)

Distributions $ 0.09 per

share of common stock

Balance, September 30, 2019

Balance, December 31, 2019

8 unchanged sentences

Balance, June 30, 2020

Comprehensive income (loss)

Distributions $ 0.09 per

share of common stock

Balance, September 30, 2020

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in thousands)

45 unchanged sentences

Collectively, the two REITs are referred to as the “Sponsored REITs”.

As of June 30, 2020, the Company owned and operated a portfolio of real estate consisting of 32 operating properties, three redevelopment properties and two managed Sponsored REITs and held one promissory note secured by a mortgage on real estate owned by a Sponsored REIT.

As of September 30, 2020, the Company owned and operated a portfolio of real estate consisting of 32 operating properties, three redevelopment properties and two managed Sponsored REITs and held one promissory note secured by a mortgage on real estate owned by a Sponsored REIT.

From time-to-time, the Company may acquire real estate or make additional secured loans.

1 unchanged sentence

The following table summarizes the Company’s number of operating properties and rentable square feet of real estate.

As of June 30, 2020 and June 30, 2019, the Company had three redevelopment properties, respectively, which are excluded from the table.

As of June 30,

As of September 30, 2020 and September 30, 2019, the Company had three redevelopment properties, respectively, which are excluded from the table.

As of September 30,

Operating Properties:

9 unchanged sentences

In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any other period.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any other period.

Financial Instruments

4 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows.

September 30,

(in thousands)

18 unchanged sentences

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

ASU 2018-13 is effective for the Company as of January 1, 2020.

The Company adopted this standard on January 1, 2020.

3 unchanged sentences

The ASU clarifies areas of guidance related to the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825).

The new guidance is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted.

The Company adopted this standard on January 1, 2020.

8 unchanged sentences

Investment in Sponsored REITs:

At each of June 30, 2020 and December 31, 2019, the Company held a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk.

At each of September 30, 2020 and December 31, 2019, the Company held a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk.

Management fees and interest income from loans:

Asset management fees range from 1 % to 5 % of collected rents and the applicable contracts are cancellable with 30 days notice.

Asset management fee income from non-consolidated entities amounted to approximately $ 45,000 and $ 121,000 for the six months ended June 30, 2020 and 2019, respectively.

Asset management fee income from non-consolidated entities amounted to approximately $ 59,000 and $ 152,000 for the nine months ended September 30, 2020 and 2019, respectively.

From time to time the Company 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.

8 unchanged sentences

The mortgage loan bears interest at a fixed rate.

The following is a summary of the Sponsored REIT Loans outstanding as of June 30, 2020:

The following is a summary of the Sponsored REIT Loans outstanding as of September 30, 2020:

(dollars in thousands, except footnotes)

4 unchanged sentences

(1) The interest rate is a fixed rate and this mortgage loan includes an origination fee of $ 164,000 and an exit fee of $ 38,000 when repaid by the borrower.

The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $ 763,000 and $ 2,553,000 for the six months ended June 30, 2020 and 2019, respectively.

The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $ 1,149,000 and $ 2,948,000 for the nine months ended September 30, 2020 and 2019, respectively.

Bank Note Payable, Term Loans Payable and Senior Notes

2 unchanged sentences

The JPM Term Loan matures on November 30, 2021.

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 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).

The Company has the right to extend the maturity date of the JPM Term Loan by two additional six month periods, or until November 30, 2022, upon payment of a fee and satisfaction of certain customary conditions.

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 September 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 September 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.

1 unchanged sentence

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 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.

Accordingly, based upon the Company’s credit rating, as of September 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 September 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 nine months ended September 30, 2020 was approximately 2.05 % 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.

4 unchanged sentences

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 June 30, 2020.

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

BMO Term Loan

5 unchanged sentences

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 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).

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 September 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 September 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.

On August 26, 2013, the Company entered into an ISDA

Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32 % per annum until August 26, 2020.

On August 26, 2013, the Company entered into an ISDA Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32 % per annum, which expired on August 26, 2020.

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 June 30, 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 September 30, 2020, the effective interest rate on the BMO Term Loan was 3.64 % 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.

3 unchanged sentences

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 June 30, 2020.

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

BAML Credit Facility

6 unchanged sentences

● 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 June 30, 2020, there were $ 30 million of borrowings 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).

As of September 30, 2020, there were $ 30 million of borrowings 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 September 30, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.20 % over the base rate at September 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 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.

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

Based upon the Company’s credit rating, as of September 30, 2020, the interest rate on the BAML Revolver was 1.35 % per annum.

The weighted average interest rate on all amounts outstanding on the BAML Revolver during the nine months ended September 30, 2020 was approximately 1.76 % per annum.

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

5 unchanged sentences

● 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 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).

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 September 30, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.35 % over the base rate at September 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 June 30, 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 September 30, 2020, the effective interest rate on the BAML Term Loan was 2.47 % per annum.

BAML Credit Facility General Information

4 unchanged sentences

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

The Company was in compliance with the BAML Credit Facility financial covenants as of September 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;

1 unchanged sentence

On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes.

amount of $ 116 million (the “Series A Notes”) and (ii) 4.26 % Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $ 84 million (the “Series B Notes” and, together with the Series A Notes, the “Senior Notes”).

Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $ 200 million of senior unsecured notes consisting of (i) 3.99 % Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $ 116 million (the “Series A Notes”) and (ii) 4.26 % Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $ 84 million (the “Series B Notes” and, together with the Series A Notes, the “Senior Notes”).

On December 20, 2017, the Senior Notes were funded and the proceeds were used to reduce the outstanding balance of the BAML Revolver.

7 unchanged sentences

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 June 30, 2020.

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

Financial Instruments:

1 unchanged sentence

On July 22, 2016, the Company fixed the interest rate for the period beginning on September 27, 2017 and ending on September 27, 2021 on the BAML Term Loan (the “2017 Interest Rate Swap”).

On August 26, 2013, the Company fixed the interest rate until August 26, 2020 on the BMO Term Loan (the “2013 BMO Interest Rate Swap”).

On March 7, 2019, the Company fixed the interest rate for the period beginning on March 29, 2019 and ending on November 30, 2021 on a $ 100 million portion of the JPM Term Loan (the “2019 JPM Interest Rate Swap”).

On February 20, 2019, the Company fixed the interest rate for the period beginning August 26, 2020 and ending January 31, 2024 on the BMO Term Loan (the “2019 BMO Interest Rate Swap”).

The variable rates that were fixed under the 2017 Interest Rate Swap, the 2013 BMO Interest Rate Swap, the 2019 JPM Interest Rate Swap and the 2019 BMO Interest Rate Swap (collectively referred to as the “Interest Rate Swaps”) are described in Note 3.

The variable rates that were fixed under the 2017 Interest Rate Swap, the 2019 JPM Interest Rate Swap and the 2019 BMO Interest Rate Swap (collectively referred to as the “Interest Rate Swaps”) are described in Note 3.

The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance sheets at fair value.

1 unchanged sentence

The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.

The following table summarizes the notional and fair value of the Company’s derivative financial instruments at June 30, 2020.

The following table summarizes the notional and fair value of the Company’s derivative financial instruments at September 30, 2020.

The notional value is an indication of the extent of the Company’s involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.

1 unchanged sentence

2017 Interest Rate Swap

2013 BMO Interest Rate Swap

2019 JPM Interest Rate Swap

1 unchanged sentence

(1) The Notional Value will decrease to $ 165 million on November 30, 2021.

On June 30, 2020, the 2017 Interest Rate Swap, 2013 BMO Interest Rate Swap, 2019 JPM Interest Rate Swap and 2019 BMO Interest Rate Swap were reported as liabilities with an aggregate fair value of approximately $ 23.0 million and are included in other liabilities:

derivative liabilities in the consolidated balance sheet at June 30, 2020.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the six months ended June 30, 2020 and 2019, respectively, was as follows:

On September 30, 2020, the 2017 Interest Rate Swap, 2019 JPM Interest Rate Swap and 2019 BMO Interest Rate Swap were reported as liabilities with an aggregate fair value of approximately $ 20.2 million and are included in other liabilities:

derivative liabilities in the consolidated balance sheet at September 30, 2020.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2020 and 2019, respectively, was as follows:

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Interest Rate Swaps in Cash Flow Hedging Relationships:

18 unchanged sentences

Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares.

There were no potential dilutive shares outstanding at each of June 30, 2020 and 2019.

There were no potential dilutive shares outstanding at each of September 30, 2020 and 2019.

Stockholders’ Equity

As of June 30, 2020, the Company had 107,328,199 shares of common stock outstanding.

As of September 30, 2020, the Company had 107,328,199 shares of common stock outstanding.

The Company declared and paid dividends as follows (in thousands, except per share amounts):

2 unchanged sentences

Second quarter of 2020

Third quarter of 2020

First quarter of 2019

Second quarter of 2019

Third quarter of 2019

Equity-Based Compensation

5 unchanged sentences

The Company granted 55,572 shares under the Plan between 2002 and 2005, made no grants between 2006 and 2018 and granted 38,046 shares under the Plan in 2019.

On June 4, 2020, the Company granted 58,998 shares under the Plan to non-employee directors at a compensation cost of approximately $ 337,000 , which was recognized during the three months ended June 30, 2020 and is included in general and administrative expenses.

On June 4, 2020, the Company granted 58,998 shares under the Plan to non-employee directors at a compensation cost of approximately $ 337,000 , which was recognized during the nine months ended September 30, 2020 and is included in general and administrative expenses.

Such shares were fully vested on the date of issuance.

6 unchanged sentences

Shares granted 2020

Balance June 30, 2020

Balance September 30, 2020

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).

22 unchanged sentences

A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured.

The gross amount of NOLs available to the Company was $ 13.0 million as of each of June 30, 2020 and December 31, 2019.

The gross amount of NOLs available to the Company was $ 13.0 million as of each of September 30, 2020 and December 31, 2019.

Income Tax Expense

2 unchanged sentences

Because the tax base on the Revised Texas Franchise Tax is derived from an income based measure, it is considered an income tax.

The Company recorded a provision for the Revised Texas Franchise Tax of $ 132,000 and $ 164,000 for the six months ended June 30, 2020 and 2019, respectively.

The Company recorded a provision for the Revised Texas Franchise Tax of $ 203,000 and $ 277,000 for the nine months ended September 30, 2020 and 2019, respectively.

The income tax expense reflected in the consolidated statements of operations relates primarily to a franchise tax on the Company’s Texas properties.

FSP Protective TRS Corp.

provides taxable services to tenants at some of the Company’s properties, and the tax expenses associated with these activities and a refund receivable of $ 0.1 million recorded during the six months ended June 30, 2019 are reported as Other Taxes in the table below:

For the Six Months Ended June 30,

provides taxable services to tenants at some of the Company’s properties, and the tax expenses associated with these activities and a refund receivable of $ 0.1 million recorded during the nine months ended September 30, 2019 are reported as Other Taxes in the table below:

For the Nine Months Ended September 30,

(Dollars in thousands)

12 unchanged sentences

Although increases in the CPI are not estimated as part of the Company’s measurement of straight-line rent revenue, to the extent that the actual CPI is greater or less than the CPI at lease commencement, there could be changes to realized income or loss.

For the six months ended June 30, 2020 and 2019, the Company recognized the following amounts of income relating to lease payments:

For the nine months ended September 30, 2020 and 2019, the Company recognized the following amounts of income relating to lease payments:

Income relating to lease payments:

Six Months Ended

Nine Months Ended

(in thousands)

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Income from leases (1)

(1) Amount from variable lease payments $ 29,945 and $ 32,085 for the six months ended June 30, 2020 and 2019, respectively.

(1) Amounts recognized from variable lease payments were variable lease payments $ 45,281 and $ 48,259 for the nine months ended September 30, 2020 and 2019, respectively.

Subsequent Events

On July 6, 2020, the Board of Directors of the Company declared a cash distribution of $ 0.09 per share of common stock payable on August 6, 2020 to stockholders of record on July 17, 2020.

On October 9, 2020, the Board of Directors of the Company declared a cash distribution of $ 0.09 per share of common stock payable on November 12, 2020 to stockholders of record on October 23, 2020.

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 1. Financial Statements