What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-03 compared with 2020-08-04 · 125 added, 117 removed, 307 unchanged (44% of the section changed)

16 unchanged sentences

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

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.

As of September 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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We have implemented working from home policies for our employees .

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.

During the three months ended September 30, 2020 and as of November 3, 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 October 31, 2020, we had collected approximately 98% of rental receipts due in October 2020.

Future rent concession requests or nonpayment of rent could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, extended lease terms, increased tenant improvement 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 $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.

Cash, cash equivalents and restricted cash were $4.8 million as of September 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 September 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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Real Estate Operations

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.

As of September 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 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.

Our 32 operating properties were approximately 85.6% leased as of September 30, 2020, a decrease from 87.6% leased as of December 31, 2019.

The 2.0% decrease in leased space was a result of the impact of lease expirations and terminations, which exceeded leasing completed during the nine months ended September 30, 2020.

As of September 30, 2020, we had approximately 1,376,000 square feet of vacancy in our operating properties compared to approximately 1,175,000 square feet of vacancy at December 31, 2019.

During the nine months ended September 30, 2020, we leased approximately 606,000 square feet of office space, of which approximately 259,000 square feet were with existing tenants, at a weighted average term of 7.8 years.

On average, tenant improvements for such leases were $33.80 per square foot, lease commissions were $10.71 per square foot and rent concessions were approximately six months of free rent.

Average GAAP base rents under such leases were $29.61 per square foot, or 11.8% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2019.

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.

As of September 30, 2020, our three redevelopment properties included an approximately 111,000 square foot property known as Stonecroft in Chantilly, Virginia, 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 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.

Our property known as 801 Marquette in Minneapolis, Minnesota, which was substantially completed at the end of the second quarter of 2017, had been previously classified as a redevelopment property.

As of June 30, 2020, the property had leases signed and tenants occupying approximately 37% of the rentable square feet of the property.

On September 14, 2020, we entered into a lease agreement with a new tenant with an initial term of 16 years for approximately 71,000 square feet, or 54.8% of the property’s rentable square feet.

As a result, as of September 30, 2020, 801 Marquette was approximately 91.8% leased, which we consider stabilized, and has been reclassified as an operating property.

The redevelopment of Stonecroft commenced in August 2020.

We expect to incur total redevelopment and lease-up costs of $18.5 million, which includes significant interior work to make the space suitable for multiple tenants, or to accommodate a tenant with accredited security requirements.

As of September 30, 2020, we had incurred approximately $1.4 million in redevelopment costs.

We anticipate completing the redevelopment by June 30, 2021.

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

On September 13, 2019, we entered into a lease agreement with a new tenant with an initial term of 16 years for approximately 156,000 square feet, or 73.1% of the property’s rentable square feet.

We expect to incur total restoration, redevelopment and lease-up costs of $39.9 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 June 30, 2020, we had incurred approximately $13.3 million in total redevelopment costs.

As of September 30, 2020, we had incurred approximately $16.5 million in total redevelopment costs.

We anticipate completing the redevelopment by the end of 2020.

The redevelopment of Forest Park commenced in January 2019 following the maturity of a lease with a tenant that occupied 100% of the property through December 31, 2018.

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

The redevelopment of Forest Park commenced in January 2019 following the maturity of a lease with a tenant that had occupied 100% of the property through December 31, 2018.

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 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.

On July 20, 2020, a tenant lease commenced and occupies approximately 22,000 square feet, or approximately 34.5% of the total rentable square feet, with an initial term of 11 years.

On September 24, 2020, we entered into a lease agreement with a new tenant for approximately 28,200 square feet, or 43.9% of the rentable square feet at the property, with an initial term of 7 years.

As a result, as of September 30, 2020, Forest Park was approximately 78.4% leased.

As of September 30, 2020, leases for approximately 0.8% and 8.2% of the square footage in our owned portfolio are scheduled to expire during 2020 and 2021, respectively.

As the fourth 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 fourth 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.

Also, we believe the potential for any of our tenants to default on its lease or to seek the protection of

bankruptcy exists.

Also, we believe the potential for any of our tenants to default on its lease or to seek the protection of bankruptcy exists.

If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment.

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

ASU 2018-13 will be effective for the Company as of January 1, 2020, and earlier adoption is permitted.

The Company adopted this standard on January 1, 2020.

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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.

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Results of Operations

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

Three months ended June 30,

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

Three months ended September 30,

(in thousands)

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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.

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

Total revenues decreased by $6.3 million to $62.2 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The decrease was primarily a result of:

● 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 $2.3 million to $62.8 million for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019.

● A decrease in rental revenue of approximately $6.3 million arising primarily from the loss of rental income from leases that expired after September 30, 2019 and during the three months ended September 30, 2020, compared to the same period in 2019.

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

Our leased space in our operating properties was 85.6% at September 30, 2020 and 89.7% at September 30, 2019.

Total expenses decreased by $2.2 million to $63.9 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $1.5 million.

● A decrease to depreciation and amortization of approximately $0.5 million.

● A decrease in general and administrative expenses of $0.1 million, which was primarily from lower personnel costs.

● A decrease in interest expense of approximately $0.1 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.

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

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,

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $42,000 during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Net loss for the three months ended September 30, 2020 was $1.7 million compared to a net income of $2.4 million for the three months ended September 30, 2019, for the reasons described above.

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

Nine months ended September 30,

(in thousands)

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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.

Comparison of the nine months ended September 30, 2020 to the nine months ended Septmber 30, 2019:

Total revenues decreased by $14.0 million to $186.0 million for the nine months ended September 30, 2020, as compared to the nine months ended September 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 in rental revenue of approximately $12.2 million arising primarily from the loss of rental income from leases that expired after September 30, 2019 and during the nine months ended September 30, 2020 compared the same period in 2019.

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

Our leased space in our operating properties was 85.6% at September 30, 2020 and 89.7% at September 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:

Total expenses decreased by $6.4 million to $190.6 million for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $4.4 million.

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● A decrease in interest expense of approximately $0.8 million.

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.

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

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 $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.

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $74,000, and benefits from federal and other income taxes, which decreased by $112,000, during the nine months ended September 30, 2019 compared to the nine months ended September 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 nine months ended September 30, 2019.

Net loss for the nine months ended September 30, 2020 was $4.8 million compared to a net income of $2.8 million for the nine months ended September 30, 2019, for the reasons described above.

Non-GAAP Financial Measures

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands):

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The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Same Store.

The comparative Same Store results include properties held for the periods presented and exclude properties that are non-operating, being developed or redeveloped, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees.

The comparative Same Store results include properties held for the periods presented and exclude properties that are redevelopment properties.

We also exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees.

NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently.

NOI should not be considered an alternative to

net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions.

NOI should not be considered an alternative to net income or loss as an

indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions.

The calculations of NOI are shown in the following table:

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Property NOI* from Operating Properties

Dispositions and Redevelopment Properties

Dispositions and Redevelopment Properties (a)

Property NOI*

Less Nonrecurring

Items in NOI* (a)

Items in NOI* (b)

Three Months Ended

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Property NOI*

(a) Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.

(a) We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized.

We also include properties that have been placed in service, but that do not have operating activity for all periods presented .

(b) Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.

*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 six months ended June 30, 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 nine months ended September 30, 2020 for our properties and weighted occupancy square feet and percentages.

GAAP rent includes the impact of tenant concessions and reimbursements.

1 unchanged sentence

Percentage as of

September 30,

Rent per Occupied

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Square Feet (b)

Forest Park (c)

Loudoun Tech Center

Stonecroft (c)

Emperor Boulevard

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121 South 8th Street

801 Marquette Ave

Midwest total

Blue Lagoon Drive (c)

One Overton Park

Addison Circle

Collins Crossing

Eldridge Green

Park Ten Phase II

Liberty Plaza

Legacy Tennyson Center

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.

1 unchanged sentence

Percentage as of

September 30,

Rent per Occupied

1 unchanged sentence

Square Feet (b)

Collins Crossing

Eldridge Green

Park Ten Phase II

Liberty Plaza

Legacy Tennyson Center

One Legacy Circle

One Ravinia Drive

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390 Interlocken

Total Operating Properties

Redevelopment Properties (c)

Blue Lagoon Drive

801 Marquette Ave

Total Redevelopment Properties

(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.

Total Owned Properties

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

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

(c) We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized.

Liquidity and Capital Resources

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

Cash, cash equivalents and restricted cash were $4.8 million and $9.8 million at September 30, 2020 and December 31, 2019, respectively.

The decrease of $5.0 million is attributable to $56.0 million provided by operating activities, less $62.0 million used for investing activities plus $1.0 million provided by financing activities.

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Operating Activities

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.

Cash provided by operating activities for the nine months ended September 30, 2020 of $56.0 million is primarily attributable to a net loss of $4.8 million plus the add-back of $66.3 million of non-cash expenses, plus an increase in accounts payable and accrued compensation of $2.8 million.

These increases were partially offset by an increase in payment of deferred leasing commissions of $6.2 million, an increase in lease acquisition costs of $1.5 million, an increase in prepaid expenses and other assets or $0.5 million and an increase in tenant rent receivables of $0.1 million.

Investing Activities

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.

Cash used for investing activities for the nine months ended September 30, 2020 of $62.0 million is primarily attributable to purchases of other real estate assets and office equipment investments of approximately $62.0 million.

Financing Activities

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.

Cash provided by financing activities for the nine months ended September 30, 2020 of $1.0 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 $29.0 million.

JPM Term Loan

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The JPM Term Loan matures on November 30, 2021.

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 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 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

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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 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).

As of September 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 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.

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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 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

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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;

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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 June 30, 2020.

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

Equity Securities

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.

As of September 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 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.

As of September 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.

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 capital event.

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 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.

Additional information about our Sponsored REIT Loans outstanding as of September 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 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 $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.

For the three and nine months ended September 30, 2020 and 2019, respectively, the rental income exceeded the expenses for each individual property, with the exception of Stonecroft for each of the three and nine months ended September 30, 2020 and 801 Marquette for each of the three and nine months ended September 30, 2019.

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 $69,000 during the three months ended September 30, 2020.

We had no rental income and operating expenses of $514,000 during the nine months ended September 30, 2020.

801 Marquette had approximately 170,000 square feet of rentable space and became vacant in January 2016.

On June 30, 2016, we commenced a redevelopment plan for the property and substantially completed the redevelopment in the second quarter of 2017.

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

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.

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

As of September 30, 2020, we have signed leases with three tenants for 119,000 square feet, or 91.8% of the rentable square feet of the property, for which two tenants leases have commenced and 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 nine months ended September 30, 2020.

We had rental income of $259,000 and operating expenses of $277,000 during the three months ended September 30, 2019 and rental income of $472,000 and operating expenses of $839,000 during the nine months ended September 30, 2019.

Off-Balance Sheet Arrangements and Contractual Obligations

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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