Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow
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timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework, 2013 framework.
Based on our assessment, management concluded that, as of December 31, 2020, the Company’s internal control over financial reporting is effective based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included elsewhere in this annual report on Form 10-K, has issued an attestation report on our internal control over financial reporting as of December 31, 2020. Please see page F-3.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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PART III
Certain information required by Part III of this Form 10-K will be contained in our definitive proxy statement pursuant to Regulation 14A (the “Proxy Statement”) which we plan to file not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The response to this item is contained under the caption “Information about our Executive Officers” in Part I hereof and in the Proxy Statement under the captions “CORPORATE GOVERNANCE”, “PROPOSAL 1 - ELECTION OF DIRECTORS” and, if applicable, “DELINQUENT SECTION 16(a) REPORTS” and is incorporated herein by reference.
Our board of directors has adopted a code of business conduct and ethics that applies to all of our executive officers, directors and employees. The code was approved by the nominating and corporate governance committee of our board of directors and by the full board of directors. We have posted a current copy of our code under “Corporate Governance” in the “Investor Relations” section of our website at http://www.fspreit.com. To the extent permitted by applicable rules of the NYSE American, we intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the code of business conduct and ethics with respect to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website.
Item 11. Executive Compensation
The response to this item is contained in the Proxy Statement under the captions “COMPENSATION DISCUSSION AND ANALYSIS” and “DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES” and is incorporated herein by reference.
The “Compensation Committee Report” contained in the Proxy Statement shall not be deemed “soliciting material” or “filed” with the SEC or otherwise subject to the liabilities of Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate such information by reference into a document filed under the Securities Act or the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The response to this item is contained in the Proxy Statement under the captions “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and “SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The response to this item is contained in the Proxy Statement under the captions “PROPOSAL 1 - ELECTION OF DIRECTORS”, “CORPORATE GOVERNANCE” and “TRANSACTIONS WITH RELATED PERSONS” and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The response to this item is contained in the Proxy Statement under the caption “INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FEES AND SERVICES” and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1. Financial Statements:
The Financial Statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules:
The Financial Statement Schedules listed on the accompanying Index to Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K.
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto.
3. Exhibits:
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EXHIBIT INDEX
Exhibit No.
Description
3.1 (1)
Articles of Incorporation, as amended.
3.2 (2)
Amended and Restated By-laws.
4.1 (3)
Description of Securities Registered Under Section 12 of the Exchange Act .
10.1+ (4)
2002 Stock Incentive Plan of FSP Corp .
10.2 (5)
Second Amended and Restated Credit Agreement, dated September 27, 2018, among FSP Corp., Bank of Montreal and the other parties thereto.
10.3 (6)
Second Amended and Restated Credit Agreement, dated October 29, 2014, among FSP Corp., Bank of America, N.A. and the other parties thereto.
10.4 (7)
First Amendment to Second Amended and Restated Credit Agreement, dated July 21, 2016, among FSP Corp., Bank of America, N.A. and the other parties thereto.
10.5 (8)
Second Amendment to Second Amended and Restated Credit Agreement, dated October 18, 2017, among FSP Corp., Bank of America, N.A., and the other parties thereto.
10.6 (9)
Amended and Restated Credit Agreement, dated August 2, 2018, among FSP Corp., JPMorgan Chase Bank, N.A. and the other parties thereto.
10.7 (10)
Note Purchase Agreement, dated October 24, 2017, among FSP Corp. and the other parties named therein as purchasers.
10.8+(11)
Form of Retention Agreement.
10.9+(12)
Change in Control Discretionary Plan.
21.1*
Subsidiaries of the Registrant.
23.1*
Consent of Ernst & Young LLP.
31.1*
Certification of FSP Corp.’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of FSP Corp.’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of FSP Corp.’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of FSP Corp.’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following materials from FSP Corp.’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Other Comprehensive Income; and (v) the Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
55
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(1)
Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Quarterly Report on Form 10-Q filed on July 30, 2019 (File No. 001-32470).
(2)
Incorporated by reference to Exhibit 3.2 to FSP Corp.’s Current Report on Form 10-Q, filed on August 4, 2020 (File No. 001-32470).
(3)
Incorporated by reference to Exhibit 4.1 to FSP Corp.’s Annual Report on Form 10-K, filed on February 11, 2020 (File No. 000-32470).
(4)
Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Annual Report on Form 10-K, filed on March 29, 2002 (File No. 000-32615).
(5)
Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on September 27, 2018 (File No. 001-32470).
(6)
Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on October 29, 2014 (File No. 001-32470).
(7)
Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on July 27, 2016 (File No. 001-32470).
(8)
Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on October 24, 2017 (File No. 001-32470)
(9)
Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on August 2, 2018 (File No. 001-32470).
(10)
Incorporated by reference to Exhibit 10.4 to FSP Corp.’s Current Report on Form 8-K, filed on October 24, 2017 (File No. 001-32470)
(11)
Incorporated by reference to Exhibit 10.5 to FSP Corp.’s Annual Report on Form 10-K, filed on February 24, 2006 (File No. 001-32470).
(12)
Incorporated by reference to Exhibit 99.2 to FSP Corp.’s Current Report on Form 8-K, filed on February 8, 2006 (File No. 001-32470).
+
Management contract or compensatory plan or arrangement filed as an Exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.
*
Filed herewith.
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Item 16. Form 10-K Summary
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf as of February 16, 2021 by the undersigned, thereunto duly authorized.
FRANKLIN STREET PROPERTIES CORP.
By:
/s/ George J. Carter
George J. Carter
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ George J. Carter
Chief Executive Officer and Director (Principal Executive Officer)
February 16, 2021
George J. Carter
/s/ John G. Demeritt
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
February 16, 2021
John G. Demeritt
/s/ John N. Burke
Director
February 16, 2021
John Burke
/s/ Brian N. Hansen
Director
February 16, 2021
Brian N. Hansen
/s/ Kenneth A. Hoxsie
Director
February 16, 2021
Kenneth Hoxsie
/s/ Dennis J. McGillicuddy
Director
February 16, 2021
Dennis J. McGillicuddy
/s/ Georgia Murray
Director
February 16, 2021
Georgia Murray
/s/ Kathryn P. O’Neil
Director
February 16, 2021
Kathryn P. O’Neil
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Franklin Street Properties Corp.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019
F-6
Consolidated Statements of Income for each of the three years in the period ended December 31, 2020
F-8
Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 31, 2020
F-9
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2020
F-10
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2020
F-11
Notes to the Consolidated Financial Statements
F-13
Financial Statement Schedules — Schedule II and III
F-35
All other schedules for which a provision is made in the applicable accounting resolutions of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
F-1
Table of Contents
(This page has been left blank intentionally)
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Franklin Street Properties Corp.:
Opinion on Internal Control over Financial Reporting
We have audited Franklin Street Properties Corp.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Franklin Street Properties Corp. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and financial statement schedules listed in the index at Item 15(a)(2) and our report dated February 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in Item 9A of Franklin Street Properties Corp.’s Annual Report on Form 10-K under the heading Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 16, 2021
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Franklin Street Properties Corp.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Franklin Street Properties Corp. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-4
Table of Contents
Measurement of related party mortgage loan receivable
Description of the Matter
The Company’s related party mortgage loan portfolio consisted of a loan totaling $21 million as of December 31, 2020. The Company determined that no allowance for loan loss was required for this loan. As discussed in Note 2 to the consolidated financial statements, management evaluates whether a loss has been incurred based on expected performance, cash flow and the value of underlying real estate for secured lending.
Auditing the Company’s estimate of the allowance for loan losses for mortgage loans involved a high degree of subjectivity in evaluating management’s assumptions of the valuation of underlying real estate for secured lending.
How We Addressed the Matter in Our Audit
We tested the design and operating effectiveness of the Company’s controls over the allowance for loan loss process. This included controls over the expected performance of the loan and the valuation of real estate collateral for secured lending.
Our testing of the measurement of the related party mortgage loan receivable included, among other procedures, testing the completeness and accuracy of data used in the valuation of real estate collateral and, with the assistance of our valuation specialists, evaluating management’s assumptions used in the valuation of the underlying real estate. For example, we compared the assumptions of expected performance of the underlying real estate to market data, performed a sensitivity analysis to evaluate the assumptions that were most significant to the estimate of value and recalculated management’s estimate.
Impairment assessment of real estate assets
Description of the Matter
The Company’s real estate assets, net totaled $1.6 billion as of December 31, 2020. As described in Note 2 to the consolidated financial statements, the Company reviews its properties to determine if their carrying amounts will be recovered from future operating cash flows if certain indicators of impairment are identified.
Auditing the Company's impairment assessment involved a high degree of subjectivity as estimates underlying the determination of recoverability were based on assumptions affected by expected future market conditions and leasing activity. Assumptions included in the Company’s recoverability assessment included the rental rates and future occupancy of the Company’s real estate properties.
How We Addressed the Matter in Our Audit
We tested the design and operating effectiveness of controls over the Company’s impairment process. For example, we tested controls over management’s review of important assumptions underlying projections used in the Company’s recoverability assessment.
Our testing of the Company’s impairment assessment included, among other procedures, evaluating the significant assumptions used to estimate future undiscounted cash flows used in the recoverability assessment. For example, we compared assumptions of future market conditions to current market data and performed a sensitivity analysis to evaluate the assumptions that were most significant to the estimate of undiscounted cash flows and recalculated management’s estimate.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2003.
Boston, Massachusetts
February 16, 2021
F-5
Table of Contents
Franklin Street Properties Corp.
Consolidated Balance Sheets
December 31,
(in thousands)
2020
2019
Assets:
Real estate assets:
Land
$
189,155
$
191,578
Buildings and improvements
1,938,629
1,924,664
Fixtures and equipment
12,949
11,665
2,140,733
2,127,907
Less accumulated depreciation
538,717
490,697
Real estate assets, net
1,602,016
1,637,210
Acquired real estate leases, less accumulated amortization of $ 55,447 and $ 60,749 , respectively
28,206
40,704
Cash, cash equivalents and restricted cash
4,150
9,790
Tenant rent receivables
7,656
3,851
Straight-line rent receivable
67,789
66,881
Prepaid expenses and other assets
5,752
7,246
Other assets: derivative asset
—
3,022
Related party mortgage loan receivable
21,000
21,000
Office computers and furniture, net of accumulated depreciation of $ 1,443 and $ 1,362 , respectively
163
183
Deferred leasing commissions, net of accumulated amortization of $ 30,411 and $ 28,114 , respectively
56,452
52,767
Total assets
$
1,793,184
$
1,842,654
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
Franklin Street Properties Corp.
Consolidated Balance Sheets
December 31,
(in thousands, except share and par value amounts)
2020
2019
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable
$
3,500
$
—
Term loans payable, less unamortized financing costs of $ 2,677 and $ 4,267 , respectively
717,323
765,733
Series A & Series B Senior Notes, less unamortized financing costs of $ 822 and $ 985 , respectively
199,178
199,015
Accounts payable and accrued expenses
72,058
66,658
Accrued compensation
3,918
3,400
Tenant security deposits
8,677
9,346
Lease liability
1,536
1,890
Other liabilities: derivative liabilities
17,311
7,704
Acquired unfavorable real estate leases, less accumulated amortization of $ 4,031 and $ 4,676 , respectively
1,592
2,512
Total liabilities
1,025,093
1,056,258
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $ .0001 par value, 20,000,000 shares authorized, none issued or outstanding
—
—
Common stock, $ .0001 par value, 180,000,000 shares authorized, 107,328,199 and 107,269,201 shares issued and outstanding , respectively
11
11
Additional paid-in capital
1,357,131
1,356,794
Accumulated other comprehensive income (loss)
( 17,311 )
( 4,682 )
Distributions in excess of accumulated earnings
( 571,740 )
( 565,727 )
Total stockholders’ equity
768,091
786,396
Total liabilities and stockholders’ equity
$
1,793,184
$
1,842,654
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
Franklin Street Properties Corp.
Consolidated Statements of Income
For the Year Ended
December 31,
(in thousands, except per share amounts)
2020
2019
2018
Revenues:
Rental
$
244,207
$
265,527
$
263,777
Related party revenue:
Management fees and interest income from loans
1,610
3,517
5,061
Other
31
21
32
Total revenues
245,848
269,065
268,870
Expenses:
Real estate operating expenses
66,940
72,311
70,703
Real estate taxes and insurance
48,390
47,871
45,857
Depreciation and amortization
88,558
90,909
94,230
General and administrative
14,997
14,473
13,070
Interest
36,026
36,757
38,374
Total expenses
254,911
262,321
262,234
Gain on sale of property
41,928
—
—
Income before taxes on income and equity in income of non-consolidated REITs
32,865
6,744
6,636
Tax expense on income
250
269
360
Equity in income of non-consolidated REITs
—
—
6,793
Net income
$
32,615
$
6,475
$
13,069
Weighted average number of shares outstanding, basic and diluted
107,303
107,233
107,231
Net income per share, basic and diluted
$
0.30
$
0.06
$
0.12
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
Franklin Street Properties Corp.
Consolidated Statements of Comprehensive Income (Loss)
For the
Year Ended
December 31,
(in thousands)
2020
2019
2018
Net income
$
32,615
$
6,475
$
13,069
Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments
( 12,629 )
( 19,447 )
2,599
Total other comprehensive income (loss)
( 12,629 )
( 19,447 )
2,599
Comprehensive income (loss)
$
19,986
$
( 12,972 )
$
15,668
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Table of Contents
Franklin Street Properties Corp.
Consolidated Statements of Stockholders’ Equity
Accumulated
Distributions
Additional
other
in excess of
Total
Common Stock
Paid-In
comprehensive
accumulated
Stockholders’
(in thousands)
Shares
Amount
Capital
income (loss)
earnings
Equity
Balance, December 31, 2017
107,231
$
11
$
1,356,457
$
12,166
$
( 497,342 )
$
871,292
Comprehensive income (loss)
—
—
—
2,599
13,069
15,668
Distributions
—
—
—
—
( 49,326 )
( 49,326 )
Balance, December 31, 2018
107,231
11
1,356,457
14,765
( 533,599 )
837,634
Comprehensive income
—
—
—
( 19,447 )
6,475
( 12,972 )
Shares issued for:
Equity-based compensation
38
—
337
—
—
337
Distributions
—
—
—
—
( 38,603 )
( 38,603 )
Balance, December 31, 2019
107,269
11
1,356,794
( 4,682 )
( 565,727 )
786,396
Comprehensive income (loss)
—
—
—
( 12,629 )
32,615
19,986
Shares issued for:
Equity-based compensation
59
—
337
—
—
337
Distributions
—
—
—
—
( 38,628 )
( 38,628 )
Balance, December 31, 2020
107,328
$
11
$
1,357,131
$
( 17,311 )
$
( 571,740 )
$
768,091
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Table of Contents
Franklin Street Properties Corp.
Consolidated Statements of Cash Flows
For the Year Ended December 31,
(in thousands)
2020
2019
2018
Cash flows from operating activities:
Net income
$
32,615
$
6,475
$
13,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
91,581
93,787
97,171
Amortization of above and below market leases
( 313 )
( 402 )
( 556 )
Shares issued as compensation
337
337
—
Gain on sale of property
( 41,928 )
—
—
Equity in income of non-consolidated REITs
—
—
( 6,793 )
Decrease in allowance for doubtful accounts
and write-off of accounts receivable
( 13 )
( 71 )
( 50 )
Changes in operating assets and liabilities:
Tenant rent receivables
( 3,792 )
158
( 765 )
Straight-line rents
( 1,685 )
( 8,876 )
381
Lease acquisition costs
( 2,123 )
( 3,999 )
( 1,193 )
Prepaid expenses and other assets
( 129 )
2,313
( 1,940 )
Accounts payable and accrued expenses
7,785
3,910
( 4,077 )
Accrued compensation
518
357
( 598 )
Tenant security deposits
( 669 )
3,027
936
Payment of deferred leasing commissions
( 13,735 )
( 15,101 )
( 15,383 )
Net cash provided by operating activities
68,449
81,915
80,202
Cash flows from investing activities:
Property improvements, fixtures and equipment
( 77,919 )
( 70,746 )
( 51,057 )
Investment in non-consolidated REITs
—
—
74,931
Distributions in excess of earnings from non-consolidated REITs
—
—
710
Investment in related party mortgage loan receivable
—
( 2,400 )
—
Repayment of related party mortgage loan receivable
—
52,060
1,060
Proceeds received on sales of real estate assets
88,958
—
—
Proceeds received from liquidating trust
—
1,470
—
Net cash provided by (used in) investing activities
11,039
( 19,616 )
25,644
Cash flows from financing activities:
Distributions to stockholders
( 38,628 )
( 38,603 )
( 49,326 )
Borrowings under bank note payable
105,000
45,000
38,000
Repayments of bank note payable
( 101,500 )
( 70,000 )
( 91,000 )
Repayment on term loan payable
( 50,000 )
—
—
Deferred financing costs
—
( 83 )
( 2,162 )
Net cash used in financing activities
( 85,128 )
( 63,686 )
( 104,488 )
Net increase (decrease) in cash, cash equivalents and restricted cash
( 5,640 )
( 1,387 )
1,358
Cash, cash equivalents and restricted cash , beginning of year
9,790
11,177
9,819
Cash, cash equivalents and restricted cash , end of period
$
4,150
$
9,790
$
11,177
The accompanying notes are an integral part of these consolidated financial statements.
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Franklin Street Properties Corp.
Consolidated Statements of Cash Flows
For the Year Ended December 31,
(in thousands)
2020
2019
2018
Supplemental disclosure of cash flow information:
Cash paid for:
Interest
$
33,060
$
34,470
$
35,885
Taxes on income
$
477
$
508
$
485
Non-cash investing and financing activities:
Accrued costs for purchase of real estate assets
$
8,625
$
11,012
$
7,361
The accompanying notes are an integral part of these consolidated financial statements.
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Franklin Street Properties Corp.
Notes to the Consolidated Financial Statements
1. Organization
Franklin Street Properties Corp. (“FSP Corp.” or the “Company”), holds, directly and indirectly, 100 % of the interest in FSP Investments LLC, FSP Property Management LLC, FSP Holdings LLC and FSP Protective TRS Corp. FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in two corporations organized to operate as real estate investment trusts (“REIT”). Collectively, the two REITs are referred to as the “Sponsored REITs”.
As of December 31, 2020, the Company owned and operated a portfolio of real estate consisting of 32 operating properties, two 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. The Company may also pursue, on a selective basis, the sale of its properties in order to take advantage of the value creation and demand for its properties, or for geographic or property specific reasons.
2. Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include all of the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Estimates and Assumptions
The Company prepares its financial statements and related notes in conformity with generally accepted accounting principles in the United States of America (“GAAP”). These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, impairment considerations, useful lives of fixed assets and the valuation of derivatives.
Investments in non-consolidated REITs
As of December 31, 2020, the Company has a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk. The Company had a non-controlling common stock interest in another Sponsored REIT and a non-controlling preferred stock interest in two additional Sponsored REITs, each of which were liquidated during 2019 or 2018. The Company exercised influence over, but did not control these entities and investments were accounted for using the equity method. Under the equity method of accounting, the Company's cost basis was adjusted by its share of the Sponsored REITs' earnings or losses.
The equity investments in Sponsored REITS were reviewed for impairment each reporting period. The Company recorded impairment charges when events or circumstances indicated a decline in the fair value below the carrying value of the investment had occurred and such decline was other-than-temporary.
On December 27, 2007, the Company purchased 965.75 preferred shares (approximately 43.7 %) of a Sponsored REIT, FSP 303 East Wacker Drive Corp. (“East Wacker”), for $ 82.8 million. The Company agreed to vote its shares in any matter presented to a vote by the stockholders of East Wacker in the same proportion as shares voted by other stockholders of East Wacker. The investment in East Wacker was accounted for under the equity method. On September 24, 2018, the property owned by East Wacker was sold and, thereafter, East Wacker declared and issued a liquidating distribution to its preferred shareholders.
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On May 29, 2009, the Company purchased 175.5 preferred shares (approximately 27.0 %) of a Sponsored REIT, FSP Grand Boulevard Corp. (“Grand Boulevard”), for $ 15.0 million. The Company agreed to vote its shares in any matter presented to a vote by the stockholders of Grand Boulevard in the same proportion as shares voted by other stockholders of Grand Boulevard. The investment in Grand Boulevard was accounted for under the equity method. On July 19, 2018, the property owned by Grand Boulevard was sold and, thereafter, Grand Boulevard declared and issued a liquidating distribution for its preferred shareholders.
Real Estate and Depreciation
Real estate assets are stated at cost less accumulated depreciation.
The Company allocates the value of real estate acquired among land, buildings and identified intangible assets or liabilities. Costs related to land, building and improvements are capitalized. Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations. Costs incurred in connection with leasing (primarily tenant improvements and leasing commissions) are capitalized and amortized over the lease period. Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred. Depreciation is computed using the straight-line method over the assets’ estimated useful lives as follows:
Category
Years
Commercial buildings
39
Building improvements
15
-
39
Fixtures and equipment
3
-
7
The Company reviews its properties to determine if their carrying amounts will be recovered from future operating cash flows if certain indicators of impairment are identified at those properties. These indicators may include declining tenant occupancy, weak or declining tenant profitability, cash flows or liquidity, the Company’s decision to dispose of an asset before the end of its estimated useful life or legislative, economic, or market changes that permanently reduce the value of the Company’s investment. If indicators of impairment are present, the Company evaluates the carrying value of the property by comparing it to its expected future undiscounted cash flow. If the Company determines that impairment has occurred, the affected assets are reduced to their fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Since cash flows are considered on an undiscounted basis in the analysis that the Company conducts to determine whether an asset has been impaired, the Company’s strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. If the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized. The Company did not recognize any impairment losses for the years ended December 31, 2020, 2019 or 2018.
Acquired Real Estate Leases and Amortization
Acquired real estate leases represent costs associated with acquiring an in-place lease (i.e., the market cost to execute a similar lease, including leasing commission, tenant improvements, legal, vacancy and other related costs) and the value relating to leases with rents above the market rate. Amortization is computed using the straight-line method over the term of the leases, which range from 47 months to 176 months . Amortization of these combined components was approximately $ 12.5 million, $ 18.9 million and $ 26.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
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Amortization related to costs associated with acquiring an in-place lease is included in depreciation and amortization on the consolidated statements of income. Amortization related to leases with rents above the market rate is offset against the rental revenue in the consolidated statements of income. The estimated annual amortization expense for the five years and thereafter following December 31, 2020 is as follows:
(in thousands)
December 31,
2021
$
8,975
2022
5,400
2023
4,268
2024
3,550
2025
2,797
2026 and thereafter
3,216
Acquired Unfavorable Real Estate Leases and Amortization
Acquired unfavorable real estate leases represent the value relating to leases with rents below the market rate. Amortization is computed using the straight-line method over the term of the leases, which range from 50 months to 176 months . Amortization expense was approximately $ 0.9 million, $ 1.3 million and $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Amortization related to leases with rents below the market rate is included with rental revenue in the consolidated statements of income. The estimated annual amortization for the five years and thereafter following December 31, 2020 is as follows:
(in thousands)
December 31,
2021
$
597
2022
323
2023
218
2024
144
2025
92
2026 and thereafter
218
Asset Held For Sale
Classification of a property as held for sale typically occurs upon the execution of a purchase and sale agreement and belief by management that the sale or disposition is probable of occurrence within one year . Upon determining that a property was held for sale, the Company discontinues depreciating the property and reflects the property in its consolidated balance sheet at the lower of its carrying amount or fair value less the cost to sell. The Company presents the property held for sale on its consolidated balance sheet as “Asset held for sale”. The Company reports the results of operations of its properties sold or held for sale in its consolidated statements of income through the date of sale.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. 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.
December 31,
December 31,
(in thousands)
2020
2019
Cash and cash equivalents
$
2,650
$
9,790
Restricted cash
1,500
—
Total cash, cash equivalents and restricted cash
$
4,150
$
9,790
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Restricted Cash
Restricted cash consists of tenant security deposits, which are required by law in some states or by contractual agreement to be kept in a segregated account, and escrows arising from property sales. Tenant security deposits are refunded when tenants vacate, provided that the tenant has not damaged the property.
Cash held in escrow is paid when the related issue is resolved. Restricted cash also may include funds segregated for specific tenant improvements per lease agreements.
Tenant Rent Receivables
Tenant rent receivables are expected to be collected within one year . The Company provided an allowance for doubtful accounts based on collectability. Lessors recognize the effect of a change in their assessment of whether the collectability of operating lease receivables are probable as an adjustment to lease income rather than bad debt expense.
Related Party Mortgage Loan Receivable
Management monitors and evaluates the secured loans compared to the expected performance, cash flow and value of the underlying real estate and has not experienced a loss on these loans to date.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash investments, derivatives, related party mortgage loan receivable and accounts receivable. The Company maintains its cash balances principally in two banks which the Company believes to be creditworthy. The Company periodically assesses the financial condition of the banks and believes that the risk of loss is minimal. Cash balances held with various financial institutions frequently exceed the insurance limit of $ 250,000 provided by the Federal Deposit Insurance Corporation. The derivatives that the Company has are from three interest rate swap agreements that are discussed in Note 5. The related party mortgage loan receivable is held with one Sponsored REIT. The Company performs regular evaluations on the extent and impact of any credit deterioration that could affect the performance and value of the secured property, as well as the financial and operating capability of the borrower. The Company performs ongoing credit evaluations of its tenants and requires certain tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the total value of a tenant’s lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost rent and the costs associated with re-tenanting the space. The Company has no single tenant which accounts for more than 10 % of its annualized rent.
Financial Instruments
The Company estimates that the carrying values of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued expenses, accrued compensation, and tenant security deposits approximate their fair values based on their short-term maturity and the bank note and term loans payable approximate their fair values as they bear interest at variable interest rates.
Straight-line Rent Receivable
Certain leases provide for fixed rent increases over the term of the lease. Rental revenue is recognized on a straight-line basis over the related lease term; however, billings by the Company are based on the lease agreements. Straight-line rent receivable, which is the cumulative revenue recognized in excess of amounts billed by the Company, was $ 67.8 million and $ 66.9 million at December 31, 2020 and 2019, respectively. Prior to 2020, the Company provided an allowance for doubtful accounts based on collectability. Lessors recognized the effect of a change in their assessment of whether the collectability of operating lease receivables are probable as an adjustment to lease income rather than bad debt expense. The reserve was eliminated during 2020 and no changes occurred during 2019 or 2018 based on such assessment.
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Deferred Leasing Commissions
Deferred leasing commissions represent direct and incremental external leasing costs incurred in the leasing of commercial space. These costs are capitalized and are amortized on a straight-line basis over the terms of the related lease agreements. Amortization expense was approximately $ 9.6 million, $ 9.9 million and $ 8.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The estimated annual amortization for the five years and thereafter following December 31, 2020 is as follows:
(in thousands)
December 31,
2021
$
9,957
2022
9,167
2023
8,041
2024
6,797
2025
5,621
2026 and thereafter
16,869
Common Share Repurchases
The Company recognizes the gross cost of the common shares it repurchases as a reduction in stockholders’ equity using the treasury stock method. Maryland law does not recognize a separate treasury stock account but provides that shares repurchased are classified as authorized but unissued shares. Accordingly, the Company reduces common stock for the par value and the excess of the purchase price over the par value is a reduction to additional paid-in capital.
Revenue Recognition
Rental Revenue - The Company has retained substantially all of the risks and benefits of ownership of the Company’s commercial properties and accounts for its leases as operating leases. Rental revenue includes income from leases, certain reimbursable expenses, straight-line rent adjustments and other income associated with renting the property. Rental income from leases, which includes rent concessions (including free rent and other lease inducements) and scheduled increases in rental rates during the lease term, is recognized on a straight-line basis. The Company does not have any significant percentage rent arrangements with its commercial property tenants. Reimbursable expenses are included in rental income in the period earned. A summary of rental revenue is shown in the following table:
Year Ended
December 31,
(in thousands)
2020
2019
2018
Income from leases
$
180,899
$
191,828
$
202,127
Reimbursable expenses
61,310
64,421
61,475
Straight-line rent adjustment
1,685
8,876
( 381 )
Amortization of favorable and unfavorable leases
313
402
556
$
244,207
$
265,527
$
263,777
Related Party and Other Revenue - Property and asset management fees, interest income on loans and other income are recognized when the related services are performed and the earnings process is complete.
Segment Reporting
The Company is a REIT focused on real estate investments primarily in the office market and currently operates in only one segment: real estate operations.
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Income Taxes
Taxes on income for the years ended December 31, 2020, 2019 and 2018 represent taxes incurred by FSP Protective TRS Corp, which is a taxable REIT subsidiary, and the State of Texas franchise tax applicable to FSP Corp., which is classified as an income tax for reporting purposes.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during the period. 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 December 31, 2020, 2019, and 2018. The denominator used for calculating basic and diluted net income per share was 107,303,000 , 107,233,000 , and 107,231,000 for the years ended December 31, 2020, 2019, and 2018, respectively.
Derivative Instruments
The Company recognizes derivatives on the consolidated balance sheets at fair value. Derivatives that do not qualify, or are not designated as hedge relationships, must be adjusted to fair value through income. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the consolidated balance sheets as either an asset or liability. To the extent hedges are effective, a corresponding amount, adjusted for swap payments, is recorded in accumulated other comprehensive income within stockholders’ equity. Amounts are then reclassified from accumulated other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings. Ineffectiveness, if any, is recognized in other comprehensive income (“OCI”) and reclassified into the income statement. The Company reviews the effectiveness of each hedging transaction, which involves estimating future cash flows, at least quarterly. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The Company currently has no fair value hedges outstanding. Fair values of derivatives are subject to significant variability based on changes in interest rates and counterparty credit risk. The results of such variability could be a significant increase or decrease in the Company’s derivative assets, derivative liabilities, equity, and/or earnings.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is also an established fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Financial assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the inputs to the valuation techniques as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity or information. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability including credit risk, which was not significant to the overall value.
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These inputs (See Notes 3 and 5) were considered and applied to the Company’s derivative instruments and Sponsored REIT Loan. Level 2 inputs were used to value the interest rate swaps and Level 3 inputs were used to value the Sponsored REIT Loan.
Subsequent Events
In preparing these consolidated financial statements the Company evaluated events that occurred through the date of issuance of these financial statements for potential recognition or disclosure.
Recent Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13” or “CECL”), which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company’s Sponsored REIT Loan (as defined in Note 3 below) receivables are within the scope of this standard and the Company’s analysis was completed using a Probability of Default / Loss Given Default Model. The Company’s receivables associated with its real estate operating leases are not within the scope of this standard. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). 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. This ASU amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topics 326, Financial Instruments - Credit Losses, Topic 815 Derivatives and Hedging and Topic 825, Financial Instruments (“ASU 2019-04”). 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). ASU 2019-04 is effective for fiscal years beginning after December 15, 2019. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently assessing the potential impact that the adoption of ASU 2020-04 may have on its consolidated financial statements.
3. Related Party Transactions and Investments in Non-Consolidated Entities
Investment in Sponsored REITs
The Company held a common stock interest in 2 , 2 , and 3 Sponsored REITs at December 31, 2020, 2019 and 2018, respectively. The Company held a non-controlling preferred stock investment in two Sponsored REITs, FSP 303 East Wacker Drive Corp. (“East Wacker”) and FSP Grand Boulevard Corp. (“Grand Boulevard”), each of which were liquidated during the three months ended September 30, 2018.
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In December 2007, the Company purchased 965.75 preferred shares or 43.7 % of the outstanding preferred shares of East Wacker. On September 24, 2018, the property owned by East Wacker was sold and, thereafter, East Wacker declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $ 70.0 million. On September 27, 2018, the Company received $ 69.0 million in an initial cash distribution, and on April 3, 2019, the Company received a $ 1 million distribution. As a result of the sale, the Company recognized a gain on liquidation of $ 7.1 million.
In May 2009, the Company purchased 175.5 preferred shares or 27.0 % of the outstanding preferred shares of Grand Boulevard. On July 19, 2018, the property owned by Grand Boulevard was sold and, thereafter, Grand Boulevard declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $ 6.2 million. On August 17, 2018, the Company received $ 5.9 million in an initial cash distribution, and on February 2, 2019, the Company received a $ 0.2 million distribution. As a result of the sale, the Company recognized a loss on liquidation of $ 0.1 million. As of December 31, 2020 and 2019, the Company held a beneficial interest in the Grand Boulevard liquidating trust in the amount of $ 0.1 million, which is included in other assets in the accompanying consolidated balance sheet as of such date.
Equity in income (loss) of investments in non-consolidated REITs were derived from the Company’s share of income or loss in the operations of those entities and includes gain or loss on liquidation. The Company exercised influence over, but did not control these entities, and investments were accounted for using the equity method.
During the year ended December 31, 2019, a property owned by a Sponsored REIT, FSP Energy Tower I Corp. (“Energy Tower”), was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued. The Company held a mortgage loan and secured revolving line of credit with this entity, which were secured by the property owned by Energy Tower. The loans with Energy Tower in the aggregate principal amount of $ 51.0 million were repaid by the proceeds of the sale.
During the year ended December 31, 2018, a property owned by a Sponsored REIT, FSP Centre Pointe V Corp., was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued.
Equity in income (loss) of investment in non-consolidated REITs:
The following table includes equity in income (loss) of investments in non-consolidated REITs:
Year Ended
December 31,
(in thousands)
2018
Equity in income of East Wacker
$
7,209
Equity in loss of Grand Boulevard
( 107 )
Impairment charge
( 309 )
Total
$
6,793
Equity in income of East Wacker was derived from the Company’s preferred stock investment in the entity. In December 2007, the Company purchased 965.75 preferred shares or 43.7 % of the outstanding preferred shares, of East Wacker. On September 24, 2018, the property owned by East Wacker was sold at a gain, which is included in equity in income (loss) of non-consolidated REITs on the consolidated statements of income.
Equity in loss of Grand Boulevard is derived from the Company’s preferred stock investment in the entity. In May 2009, the Company purchased 175.5 preferred shares or 27.0 % of the outstanding preferred shares of Grand Boulevard. On July 19, 2018, the property owned by Grand Boulevard was sold at a loss, which is included in equity in income (loss) of non-consolidated REITs on the consolidated statements of income.
At June 30, 2018, the Company recognized an impairment charge of $ 0.3 million, which represented the other-than-temporary decline in the fair value below the carrying value of one of the Company’s investments in non-consolidated
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REITs. The Company estimated the fair value of its equity investment by estimating the fair value of the property, less estimated costs to sell using a purchase and sale agreement to purchase the property made by third parties (Level 3 inputs, as there is no active market).
The following table includes distributions received from non-consolidated REITs:
Year Ended
December 31,
(in thousands)
2018
Distributions from East Wacker
$
657
Distributions from Grand Boulevard
53
$
710
Non-consolidated REITs
As of December 31, 2020, the Company has a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk. The balance sheet data below for 2018 includes the three Sponsored REITs the Company held an interest in as of December 31, 2018. The operating data below for 2018 includes the operations of the six Sponsored REITs the Company held an interest in during the year ended December 31, 2018.
Summarized financial information for the Sponsored REITs is as follows:
December 31,
(in thousands)
2018
Balance Sheet Data (unaudited):
Real estate, net
$
97,034
Other assets
18,532
Total liabilities
( 75,382 )
Shareholders’ equity
$
40,184
Year Ended
December 31,
(in thousands)
2018
Operating Data (unaudited):
Rental revenues
$
40,382
Other revenues
1
Operating and maintenance expenses
( 20,584 )
Depreciation and amortization
( 13,077 )
Interest expense
( 6,869 )
Gain on sale
17,095
Net income
$
16,948
Management fees and interest income from loans:
Asset management fees range from 1 % to 5 % of collected rents, and the applicable contracts are cancelable with 30 day notice. Asset management fee income from non-consolidated entities amounted to approximately $ 0.1 million, $ 0.2 million and $ 0.5 million for the years ended December 31, 2020, 2019 and 2018, 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. The Company reviews the need for an allowance under CECL for Sponsored REIT loans each reporting period. The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance
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and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s operating results and existing cash balances are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. None of the Sponsored REIT loans have been impaired.
The Company anticipates that each Sponsored REIT Loan will be repaid at maturity or earlier from refinancing, long term financings of the underlying properties, cash flows from the underlying properties or some other capital event. Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately one to three years .
The following is a summary of the Sponsored REIT Loan outstanding as of December 31, 2020:
Maximum
Amount
Interest
(dollars in thousands, except footnotes)
Maturity
Amount
Outstanding
Rate at
Sponsored REIT
Location
Date
of Loan
31-Dec-20
31-Dec-20
Mortgage loan secured by property
FSP Monument Circle LLC (1)
Indianapolis, IN
6-Dec-22
$
21,000
$
21,000
7.51
%
$
21,000
$
21,000
(1) 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 $ 1.5 million, $ 3.3 million and $ 4.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The financial instrument was classified within Level 3 of the fair value hierarchy and had a fair value of approximately $ 20.4 million as of December 31, 2020.
On December 6, 2020, the Company entered into a second amendment to the Sponsored REIT Loan which qualified as a troubled debt restructuring. The amendment extended the maturity date of the loan for two years and increased the interest rate from 7.19 % to 7.51 % . There were no commitments to lend additional funds to the Sponsored REIT and the loan is fully collateralized by the mortgage held on the Sponsored REIT's property.
4. Bank Note Payable, Term Note Payable and Private Placements
JPM Term Loan
On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which provides a single unsecured bridge loan in the aggregate principal amount of $ 150 million (the “JPM Term Loan”). On December 24, 2020 the Company repaid a $ 50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, and $ 100 million remains fully advanced and outstanding under the JPM Term Loan. The JPM Term Loan matures on November 30, 2021, which maturity date may be extended by two additional six-month periods, or until November 30, 2022 (subject to specified exceptions). 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 the LIBOR-based rate depending on the Company’s credit rating ( 125.0 basis points over the LIBOR-based rate at December 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 December 31, 2020).
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The margin over the LIBOR-based rate or base rate is determined based on the Company’s credit rating pursuant to the following grid:
LIBOR-BASED
CREDIT
RATE
BASE RATE
LEVEL
RATING
MARGIN
MARGIN
I
A-
/
A3 (or higher)
85.0
bps
—
bps
II
BBB+
/
Baa1
90.0
bps
—
bps
III
BBB
/
Baa2
100.0
bps
—
bps
IV
BBB-
/
Baa3
125.0
bps
25.0
bps
V
<BBB-
/
Baa3
165.0
bps
65.0
bps
For purposes of the JPM Term Loan, base rate means, for any day, a fluctuating rate per annum equal to the greatest of: (i) JPMorgan Chase Bank, N.A.’s prime rate in effect on such day, (ii) the greater of the Federal Funds Rate or the overnight bank funding rate in effect on such day, plus 0.50 % (but no less than zero), and (iii) the one month Adjusted LIBOR based rate for a such day plus 1.00 % . For purposes of the JPM Term Loan, the LIBOR-based rate means, for any interest period, the LIBOR rate for a period equal in length to the applicable interest period multiplied by the statutory reserve rate. As of December 31, 2020, the Company’s credit rating from Moody’s Investors Service was Baa3.
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. On March 7, 2019, the Company entered into ISDA Master Agreements with various financial institutions to hedge a $ 100 million portion of the future LIBOR-based rate risk under the JPM Credit Agreement. 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 December 31, 2020, the effective interest rate on the remaining $ 100 million portion of the JPM Term Loan was 3.69 % per annum.
The weighted average interest rate on the unhedged $ 50 million portion of the JPM Term Loan during the year ended December 31, 2020 was approximately 1.90 % 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.
The JPM 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. The JPM Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a minimum fixed charge coverage ratio, a maximum secured leverage ratio, a maximum leverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The JPM Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the JPM Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the JPM Credit Agreement immediately due and payable, and enforce any and all rights of the lenders or administrative agent under the JPM Credit Agreement and related documents. 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 December 31, 2020.
BMO Term Loan
On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal (“BMO”), as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the amount of $ 220 million (the “BMO Term Loan”) that remains fully advanced and outstanding. The BMO Term Loan consists of a $ 55 million tranche A term loan and a $ 165 million tranche B term loan. The tranche A term loan matures on November 30, 2021 and the tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that
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allows up to $ 100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions. 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 December 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 December 31, 2020). The margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the following grid:
Credit
LIBOR Rate
Base Rate
Level
Rating
Margin
Margin
I
A-
/
A3
(or higher)
85.0
bps
—
bps
II
BBB+
/
Baa1
90.0
bps
—
bps
III
BBB
/
Baa2
100.0
bps
—
bps
IV
BBB-
/
Baa3
125.0
bps
25.0
bps
V
<BBB-
/
Baa3
165.0
bps
65.0
bps
For purposes of the BMO Term Loan, base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50 %, and (iii) the one month LIBOR based rate for such day plus 1.00 %. As of December 31, 2020, the Company’s credit rating from Moody’s Investors Service was Baa3.
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, which matured 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 December 31, 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. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or administrative agent under the BMO Credit Agreement and related documents. 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 December 31, 2020.
BAML Credit Facility
On July 21, 2016, the Company entered into a First Amendment (the “BAML First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BAML Second Amendment”), to the Second Amended and Restated Credit Agreement dated October 29, 2014 among the Company, the lending institutions party thereto and Bank of America, N.A., as administrative agent, L/C Issuer and Swing Line Lender (as amended by the BAML First
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Amendment and the BAML Second Amendment, the “BAML Credit Facility”) that continued an existing unsecured revolving line of credit (the “BAML Revolver”) and extended the maturity of a term loan (the “BAML Term Loan”).
BAML Revolver Highlights
● The BAML Revolver is for borrowings, at the Company's election, of up to $ 600 million. Borrowings made pursuant to the BAML Revolver may be revolving loans, swing line loans or letters of credit, the combined sum of which may not exceed $ 600 million outstanding at any time.
● Borrowings made pursuant to the BAML Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date of January 12, 2022. The Company has the right to extend the maturity date of the BAML Revolver by two additional six month periods, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions.
● 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 December 31, 2020 and December 31, 2019, there were $ 3.5 million and no borrowings outstanding under the BAML Revolver, respectively. The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.20 % over LIBOR at December 31, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.20 % over the base rate at December 31, 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 December 31, 2020). The amount of any applicable facility fee, and the margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the following grid:
Base
LIBOR Rate
Facility
Rate
Level
Credit Rating
Margin
Fee
Margin
I
A-
/
A3
(or higher)
0.825
%
0.125
%
0.000
%
II
BBB+
/
Baa1
0.875
%
0.150
%
0.000
%
III
BBB
/
Baa2
1.000
%
0.200
%
0.000
%
IV
BBB-
/
Baa3
1.200
%
0.250
%
0.200
%
V
<BBB-
/
Baa3
1.550
%
0.300
%
0.550
%
For purposes of the BAML Credit Facility, base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50 %, and (iii) the one month LIBOR based rate for such day plus 1.00 %. As of December 31, 2020, the Company’s credit rating from Moody’s Investors Service was Baa3.
Based upon the Company’s credit rating, as of December 31, 2020, the interest rate on the BAML Revolver was 1.34 % per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2020 was approximately 1.65 % per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2019 was approximately 3.67 % per annum.
BAML Term Loan Highlights
● The BAML Term Loan is for $ 400 million.
● The BAML Term Loan matures on January 12, 2023.
● 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.
● 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 December 31, 2020) or (ii) a margin over the base rate depending on the Company’s credit rating
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( 0.35 % over the base rate at December 31, 2020). The margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the following grid:
LIBOR Rate
Base Rate
Level
Credit Rating
Margin
Margin
I
A-
/
A3
(or higher)
0.900
%
0.000
%
II
BBB+
/
Baa1
0.950
%
0.000
%
III
BBB
/
Baa2
1.100
%
0.100
%
IV
BBB-
/
Baa3
1.350
%
0.350
%
V
<BBB-
/
Baa3
1.750
%
0.750
%
For purposes of the BAML Credit Facility, base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50 %, and (iii) the one month LIBOR based rate for such day plus 1.00 % . As of December 31, 2020, the Company’s credit rating from Moody’s Investors Service was Baa3.
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 December 31, 2020, the effective interest rate on the BAML Term Loan was 2.47 % per annum.
BAML Credit Facility General Information
The BAML Credit Facility 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. The BAML Credit Facility also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BAML Credit Facility provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BAML Credit Facility). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BAML Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BAML Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BAML Credit Facility and related documents. 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 BAML Credit Facility financial covenants as of December 31, 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; to finance investments associated with Sponsored REITs, to refinance or retire indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the BAML Credit Facility.
Senior Notes
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. Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $ 200,000,000 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,
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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.
The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BAML Credit Facility, the BMO Credit Agreement and the JPM Credit Agreement. The Senior Notes financial covenants require, among other things, the maintenance of a fixed charge coverage ratio of at least 1.50 ; a maximum leverage ratio and an unsecured leverage ratio of no more than 60 % ( 65 % if there were a significant acquisition for a short period of time). In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material indebtedness or certain other private placements of debt of the Company and its subsidiaries. The Note Purchase Agreement contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. 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 December 31, 2020.
5. Financial Instruments: Derivatives and Hedging
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 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 2019 JPM Interest Rate Swap and the 2019 BMO Interest Rate Swap (collectively referred to as the “Interest Rate Swaps”) are described in Note 4.
The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. 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.
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The following table summarizes the notional and fair value of our derivative financial instruments at December 31, 2020. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.
Notional
Strike
Effective
Expiration
Fair Value (2) at December 31,
(in thousands)
Value
Rate
Date
Date
2020
2019
2017 Interest Rate Swap
$
400,000
1.12
%
Sep-17
Sep-21
$
( 2,947 )
$
3,022
2019 JPM Interest Rate Swap
$
100,000
2.44
%
Mar-19
Nov-21
$
( 2,102 )
$
( 1,634 )
2019 BMO Interest Rate Swap (1)
$
220,000
2.39
%
Aug-20
Jan-24
$
( 12,262 )
$
( 5,107 )
2013 BMO Interest Rate Swap
$
220,000
2.32
%
Aug-13
Aug-20
$
—
$
( 963 )
(1) The Notional Value will decrease to $ 165 million on November 30, 2021.
(2) Classified within Level 2 of the fair value hierarchy.
On December 31, 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 $ 17.3 million and are included in other liabilities: derivative liabilities in the consolidated balance sheet at December 31, 2020.
The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in OCI and the accompanying consolidated statements of income as a component of interest expense for the years ended December 31, 2020, 2019 and 2018, respectively, was as follows:
(in thousands)
Year Ended December 31,
Interest Rate Swaps in Cash Flow Hedging Relationships:
2020
2019
2018
Amounts of gain (loss) recognized in OCI
$
( 20,380 )
$
( 15,119 )
$
5,321
Amounts of previously recorded gain/(loss) reclassified from OCI into Interest Expense
$
( 7,751 )
$
4,328
$
2,722
Total amount of Interest Expense presented in the consolidated statements of operations
$
36,026
$
36,757
$
38,374
Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified into earnings as an increase or reduction to interest expense in the same periods in which the hedged interest payments affect earnings. The Company estimates that approximately $ 9.0 million of the current balance held in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.
The Company is hedging the exposure to variability in anticipated future interest payments on existing debt.
The BMO Term Loan, BAML Term Loan and JPM Term Loan hedging transactions used derivative instruments that involve certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in either or both of the contracts. The Company requires its derivatives contracts to be with counterparties that have investment grade ratings. As a result, the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that the Company will be able to adequately protect against the foregoing risks or that it will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.
The fair value of the Company’s derivative instruments are determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve and are adjusted to reflect credit or nonperformance risk. The risk is estimated by the Company using credit spreads and risk premiums that are observable
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in the market. These financial instruments were classified within Level 2 of the fair value hierarchy and were classified as an asset or liability on the consolidated balance sheets.
The Company’s derivatives are recorded at fair value in other assets: derivative asset and other liabilities: derivative liability in the consolidated balance sheets and the effective portion of the derivatives’ fair value is recorded to other comprehensive income in the consolidated statements of other comprehensive income (loss) and prior to January 1, 2019, the ineffective portion of the derivatives’ fair value was recognized directly into earnings as other in the consolidated statements of income.
6. Stockholders’ Equity
Equity-Based Compensation
On May 20, 2002, the stockholders of the Company approved the 2002 Stock Incentive Plan (the “Plan”). The Plan is an equity-based incentive compensation plan, and provides for the grants of up to a maximum of 2,000,000 shares of the Company’s common stock (“Awards”). All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted Awards. Awards under the Plan are made at the discretion of the Company’s Board of Directors, and have no vesting requirements. Upon granting an Award, the Company will recognize compensation cost equal to the fair value of the Company’s common stock, as determined by the Company’s Board of Directors, on the date of the grant. The Company granted 55,572 shares under the Plan between 2002 and 2005 and made no grants between 2006 and 2018.
On June 4, 2020 and December 10, 2019, the Company granted 58,998 and 38,046 shares, respectively, under the Plan to non-employee directors at a compensation cost of approximately $ 337,000 at each grant date, which is included in general and administrative expenses in the consolidated statements of income. Such shares were fully vested on the date of issuance. There are currently 1,847,384 shares available for grant under the Plan.
Shares Available
Compensation
(in thousands)
for Grant
Cost
Balance, December 31, 2016, 2017 and 2018
1,944,428
Shares granted 2019
( 38,046 )
$
337,000
Balance December 31, 2019
1,906,382
337,000
Shares granted 2020
( 58,998 )
337,000
Balance December 31, 2020
1,847,384
$
674,000
7. Federal Income Tax Reporting
General
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, the Company generally is entitled to a tax deduction for distributions paid to its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only. The Company must comply with a variety of restrictions to maintain its status as a REIT. These restrictions include the type of income it can earn, the type of assets it can hold, the number of shareholders it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed annually.
One such restriction is that the Company generally cannot own more than 10 % of the voting power or value of the securities of any one issuer unless the issuer is itself a REIT or a taxable REIT subsidiary (“TRS”). In the case of TRSs, the Company’s ownership of securities in all TRSs generally cannot exceed 20 % ( 25 % of taxable years beginning on or before December 31, 2017) of the value of all of the Company’s assets and, when considered together with other non-real estate assets, cannot exceed 25 % of the value of all of the Company’s assets. FSP Investments LLC and FSP
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Protective TRS Corp. are the Company’s taxable REIT subsidiaries operating as taxable corporations under the Code. The TRSs have gross amounts of net operating losses (“NOLs”) available to those taxable corporations of $ 4.6 million and $ 4.4 million as of each of December 31, 2020 and 2019, respectively. The NOLs created prior to 2018 will expire between 2030 and 2047 and the NOLs generated after 2017 will not expire. 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.
Income taxes are recorded based on the future tax effects of the difference between the tax and financial reporting bases of the Company’s assets and liabilities. In estimating future tax consequences, potential future events are considered except for potential changes in income tax law or in rates.
The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2017 and thereafter.
The Company is subject to a business tax known as the Revised Texas Franchise Tax. Some of the Company’s leases allow reimbursement by tenants for these amounts because the Revised Texas Franchise Tax replaces a portion of the property tax for school districts. 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 $ 0.3 million, $ 0.4 million and $ 0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Net operating losses
Section 382 of the Code restricts a corporation’s ability to use net operating losses (“NOLs”) to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Sponsored REITs available for use by the Company in any particular future taxable year will be limited. To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years. NOLs expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027. 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 December 31, 2020, 2019 and 2018.
Income Tax Expense
The income tax expense reflected in the consolidated statements of income relates primarily the Revised Texas Franchise Tax. FSP Protective TRS Corp. provides taxable services to tenants at some of the Company’s properties and the tax expense associated with these activities are reported as Other Taxes in the table below:
For the Year Ended December 31,
(Dollars in thousands)
2020
2019
2018
Revised Texas Franchise Tax
$
250
$
394
$
319
Other Taxes
—
( 125 )
41
Tax expense
$
250
$
269
$
360
Taxes on income are a current tax expense. No deferred income taxes were provided as there were no material temporary differences between the financial reporting basis and the tax basis of the TRSs.
At December 31, 2020, the Company’s net tax basis of its real estate assets is more than the amount set forth in the Company’s consolidated balance sheets by $ 253.0 million and at December 31, 2019, the Company’s net tax basis of its real estate assets is more than the amount set forth in the Company’s consolidated balance sheets by $ 195.0 million.
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Reconciliation Between GAAP Net Income and Taxable Income
The following reconciles GAAP net income to taxable income for the years ended December 31, 2020, 2019 and 2018.
For the year ended December 31,
(in thousands)
2020
2019
2018
Net income per GAAP
$
32,615
$
6,475
$
13,069
Adjustments to GAAP net income:
GAAP depreciation and amortization
88,244
90,507
93,675
Tax depreciation and amortization
( 79,542 )
( 66,376 )
( 62,657 )
Tax basis more than GAAP basis on assets sold
( 11,450 )
—
—
Straight line rent adjustment, net
( 1,685 )
( 10,462 )
( 1,350 )
Deferred rent, net
1,956
535
210
Non-taxable distributions
—
—
( 710 )
Other, net
390
4,099
( 6,651 )
Taxable income
30,528
24,778
35,586
Less: Capital gains recognized
7,576
—
—
Taxable income subject to distribution requirement
$
22,952
$
24,778
$
35,586
Tax Components
The following summarizes the tax components of the Company’s common distributions paid per share for the years ended December 31, 2020, 2019 and 2018:
2020
2019
2018
Per Share
%
Per Share
%
Per Share
%
Ordinary income (1)
$
0.28
77.51
%
$
0.25
69.96
%
$
0.35
76.39
%
Capital gain
0.06
16.72
%
—
—
%
—
—
%
Return of capital
0.02
5.77
%
0.11
30.04
%
0.11
23.61
%
Total
$
0.36
100
%
$
0.36
100
%
$
0.46
100
%
(1) The 2019 Ordinary income amount includes a qualified distribution, which is a subset of, and included in, the ordinary income amount and is $ 0.009 per share or 2.52 % of total distributions.
8. Leases
Leases as a Lessee:
The Company entered into a noncancelable contract with a third party to obtain office space that commenced on September 1, 2010. The contract was amended on October 25, 2016 to extend the contract through September 30, 2024. As of December 31, 2020, the Company’s right-of-use asset was $ 1.4 million, which is included in prepaid and other assets on the consolidated balance sheet as of December 31, 2020.
The Company has an option to extend the terms of its office space lease with one 5-year extension option. As of December 31, 2020, the exercise of the extension option was not reasonably certain. Therefore, the extension option is not recognized as part of the Company’s right-of-use asset and lease liability.
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A discount rate equal to the Company’s incremental borrowing rate was applied to the future monthly contractual lease payments remaining as of December 31, 2020 to compute the lease liability. The incremental borrowing rate is the rate equal to the closest borrowing under the BAML Revolver at the time of the Company’s adoption of ASU 2016-02.
Lease Costs
Year Ended
(in thousands)
December 31, 2020
December 31, 2019
Operating lease cost
$
419
$
419
$
419
$
419
Other information
Cash paid for amounts included in the measurement of lease liabilities
421
412
Weighted average remaining lease terms in years - operating leases
3.75
4.75
Weighted average discount rate - operating leases
3.86 %
3.86 %
Maturity analysis for liabilities
Total
Undiscounted
(in thousands)
Cash Flows
Discount rate at commencement
3.86 %
2021
$
429
2022
438
2023
447
2024
340
$
1,654
Present value lease liability
$
1,536
Difference between undiscounted cash flows and discounted cash flows
$
118
Leases as a Lessor:
The Company is a lessor of commercial real estate with operations that include the leasing of office and industrial properties. Many of the leases with customers contain options to extend leases at a fair market rate and may also include options to terminate leases. The Company considers several inputs when evaluating the amount it expects to derive from its leased assets at the end of the lease terms, such as the remaining useful life, expected market conditions, fair value of lease payments, expected fair values of underlying assets, and expected deployment of the underlying assets. The Company’s strategy to address its risk for the residual value in its commercial real estate is to re-lease the commercial space.
The Company has elected to apply the practical expedient to not separate non-lease components from the related lease component of real estate leases. This combined component is primarily comprised of fixed lease payments, early termination fees, common area maintenance cost reimbursements, and parking lease payments. The Company applies ASC 842-Leases to the combined lease and non-lease components.
A minority of the Company’s leases are subject to annual changes in the Consumer Price Index (“CPI”). 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.
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For the year ended December 31, 2020 and 2019, the Company recognized the following amounts of income relating to lease payments:
Income relating to lease payments:
Year Ended
(in thousands)
December 31, 2020
December 31, 2019
Income from leases (1)
$
242,209
$
256,250
$
242,209
$
256,250
Undiscounted Cash Flows
Year ending
(in thousands)
December 31,
2021
162,676
2022
146,031
2023
138,363
2024
127,269
2025
107,596
2026 and thereafter
361,423
$
1,043,358
(1) Amounts recognized from variable lease payments were variable lease payments $ 61,310 and $ 64,421 for the years ended December 31, 2020 and 2019, respectively.
9. Retirement Plan
In 2006, the Company established a 401(k) plan to cover eligible employees, which permitted deferral of up to $ 17,000 per year (indexed for inflation) into the 401(k) plan, subject to certain limitations imposed by the Internal Revenue Code. An employee’s elective deferrals are immediately vested upon contribution to the 401(k) plan. The Company matches employee contributions to the 401(k) plan dollar for dollar up to 3 % of each employee’s annual compensation up to $ 200,000 . In addition, we may elect to make an annual discretionary profit-sharing contribution. The Company’s total contribution under the 401(k) plan amounted to $ 0.1 million, $ 0.2 million and $ 0.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.
10. Dispositions of Property
The Company sold an office property located in Durham, North Carolina on December 23, 2020 with a sales price of approximately $ 89.7 million, at a gain of approximately $ 41.9 million.
11. Subsequent Events
On January 15, 2021, the Board of Directors of the Company declared a cash distribution of $ 0.09 per share of common stock payable on February 18, 2021 to stockholders of record on January 29, 2021.
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12. Selected Unaudited Quarterly Information
Selected unaudited quarterly information is shown in the following table:
2020
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
(in thousands, except per share data)
Revenue
$
62,983
$
60,808
$
62,247
$
59,810
Net income (loss)
$
( 1,071 )
$
( 2,075 )
$
( 1,679 )
$
37,440
Basic and diluted net income (loss) per share
$
( 0.01 )
$
( 0.02 )
$
( 0.02 )
$
0.35
Weighted average number of shares outstanding
107,269
107,287
107,328
107,328
2019
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
(in thousands, except per share data)
Revenue
$
64,716
$
66,813
$
68,539
$
68,997
Net income (loss)
$
( 1,205 )
$
1,633
$
2,399
$
3,648
Basic and diluted net income (loss) per share
$
( 0.01 )
$
0.02
$
0.02
$
0.03
Weighted average number of shares outstanding
107,231
107,231
107,231
107,240
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Table of Contents
Schedule II
Franklin Street Properties Corp.
Valuation and qualifying accounts:
Additions
(Decreases)
Balance at
charged to
Balance
(in thousands)
beginning
costs and
at end
Classification
of year
expenses
Deductions
of year
Allowance for doubtful accounts
2018
$
250
$
128
$
( 178 )
$
200
2019
200
213
( 113 )
300
2020
300
340
( 135 )
505
Straight-line rent allowance for doubtful accounts
2018
$
50
$
—
$
—
$
50
2019
50
—
—
50
2020
50
—
( 50 )
—
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Table of Contents
SCHEDULE III
FRANKLIN STREET PROPERTIES CORP.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2020
Initial Cost
Historical Cost
Costs
Capitalized
Buildings
Total Costs,
Buildings
(Disposals)
Improvements
Net of
Depreciable
Date of
Encumbrances
Improvements
Subsequent to
and
Accumulated
Accumulated
Life
Year
Acquisition
Description
(1)
Land
and Equipment
Acquisition
Land
Equipment
Total (2)
Depreciation
Depreciation
Years
Built
(3)
(in thousands)
Commercial Properties:
Forest Park, Charlotte, NC
—
$
1,559
$
5,672
$
843
$
1,559
$
6,515
$
8,074
2,197
$
5,877
5
-
39
1999
1999
Meadow Point, Chantilly, VA
—
2,634
18,911
8,214
2,634
27,125
29,759
14,512
15,247
5
-
39
1999
2001
Timberlake, Chesterfield, MO
—
2,984
38,661
10,549
2,984
49,210
52,194
23,645
28,549
5
-
39
1999
2001
Northwest Point, Elk Grove Village, IL
—
2,914
26,295
12,401
2,914
38,696
41,610
19,497
22,113
5
-
39
1999
2001
Timberlake East, Chesterfield, MO
—
2,626
17,608
5,377
2,626
22,985
25,611
11,052
14,559
5
-
39
2000
2002
Park Ten, Houston, TX
—
1,061
21,303
6,899
567
28,696
29,263
13,225
16,038
5
-
39
1999
2002
Addison, Addison, TX
—
4,325
48,040
12,106
4,325
60,146
64,471
23,625
40,846
5
-
39
1999
2002
Collins, Richardson, TX
—
4,000
42,598
8,497
4,000
51,095
55,095
23,307
31,788
5
-
39
1999
2003
Greenwood, Englewood, CO
—
3,100
30,201
11,770
3,100
41,971
45,071
18,663
26,408
5
-
39
2000
2005
River Crossing, Indianapolis, IN
—
3,000
36,926
6,448
3,000
43,374
46,374
16,740
29,634
5
-
39
1998
2005
Innsbrook, Glenn Allen, VA
—
5,000
40,216
8,945
5,000
49,161
54,161
19,141
35,020
5
-
39
1999
2003
380 Interlocken, Bloomfield, CO
—
8,275
34,462
12,624
8,275
47,086
55,361
17,122
38,239
5
-
39
2000
2003
Blue Lagoon, Miami, FL
—
6,306
46,124
18,068
6,306
64,192
70,498
14,998
55,500
5
-
39
2002
2003
Eldridge Green, Houston, TX
—
3,900
43,791
5,548
3,900
49,339
53,239
19,925
33,314
5
-
39
1999
2004
Liberty Plaza, Addison, TX
—
4,374
21,146
8,976
4,374
30,122
34,496
12,090
22,406
5
-
39
1985
2006
One Overton, Atlanta, GA
—
3,900
77,229
17,781
3,900
95,010
98,910
37,025
61,885
5
-
39
2002
2006
390 Interlocken, Broomfield, CO
—
7,013
37,751
14,197
7,013
51,948
58,961
18,480
40,481
5
-
39
2002
2006
Park Ten II, Houston, TX
—
1,300
31,712
6,979
1,300
38,691
39,991
11,764
28,227
5
-
39
2006
2006
Dulles Virginia, Sterling, VA
—
4,813
13,285
6,714
4,813
19,999
24,812
7,295
17,517
5
-
39
1999
2008
Stonecroft, Chantilly, VA
—
2,102
18,003
1,814
2,102
19,817
21,919
5,116
16,803
5
-
39
2008
2009
121 South Eight Street, Minneapolis, MN
—
4,444
15,214
24,592
4,444
39,806
44,250
10,917
33,333
5
-
39
1974
2010
801 Marquette Ave South, Minneapolis, MN
—
4,184
—
22,295
4,184
22,295
26,479
1,836
24,643
5
-
39
1923
2010
909 Davis, Evanston, IL
—
4,912
18,229
8,112
4,912
26,341
31,253
6,985
24,268
5
-
39
2002
2011
Legacy Tennyson Center, Plano, TX
—
3,067
22,064
3,411
3,067
25,475
28,542
6,390
22,152
5
-
39
2008
2011
One Legacy Circle, Plano, TX
—
2,590
36,608
3,783
2,590
40,391
42,981
10,600
32,381
5
-
39
2008
2011
One Ravinia Drive, Atlanta, GA
—
2,686
35,125
12,471
2,686
47,596
50,282
10,821
39,461
5
-
39
1985
2012
Two Ravinia Drive, Atlanta, GA
—
7,375
58,726
12,259
7,375
70,985
78,360
11,630
66,730
5
-
39
1987
2015
Westchase I & II, Houston, TX
—
8,491
121,508
14,548
8,491
136,056
144,547
29,975
114,572
5
-
39
2008
2012
1999 Broadway, Denver CO
—
16,334
137,726
38,338
16,334
176,064
192,398
34,199
158,199
5
-
39
1986
2013
999 Peachtree, Atlanta, GA
—
10,187
107,727
23,820
10,187
131,547
141,734
25,096
116,638
5
-
39
1987
2013
1001 17th Street, Denver, CO
—
17,413
165,058
22,284
17,413
187,342
204,755
35,495
169,260
5
-
39
2006
2013
Plaza Seven, Minneapolis, MN
—
6,604
54,240
11,073
6,604
65,313
71,917
9,175
62,742
5
-
39
1987
2016
Pershing Plaza, Atlanta, GA
—
5,300
34,158
2,040
5,300
36,198
41,498
4,110
37,388
5
-
39
1989
2016
600 17th Street, Denver, CO
—
20,876
99,941
11,050
20,876
110,991
131,867
12,069
119,798
5
-
39
1982
2016
Balance — Real Estate
—
$
189,649
$
1,556,258
$
394,826
$
189,155
$
1,951,578
$
2,140,733
$
538,717
$
1,602,016
(1) There are no encumbrances on the above properties.
(2) The aggregate cost for Federal Income Tax purposes is $ 2,419,780 .
(3) Original date of acquisition by Sponsored Entity.
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Table of Contents
The following table summarizes the changes in the Company’s real estate investments and accumulated depreciation:
December 31,
(in thousands)
2020
2019
2018
Real estate investments, at cost:
Balance, beginning of year
$
2,127,907
$
2,058,352
$
2,008,823
Improvements
75,472
74,324
53,279
Dispositions
( 62,646 )
( 4,769 )
( 3,750 )
Balance, end of year - Real Estate
$
2,140,733
$
2,127,907
$
2,058,352
Accumulated depreciation:
Balance, beginning of year
$
490,697
$
432,579
$
376,131
Depreciation
67,001
62,887
60,198
Dispositions
( 18,981 )
( 4,769 )
( 3,750 )
Balance, end of year - Accumulated Depreciation
$
538,717
$
490,697
$
432,579
F-37