What changed in this filing

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Item 9A. Controls and Procedures

2022-02-15 compared with 2021-02-16 · 205 added, 236 removed, 753 unchanged (37% of the section changed)

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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

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.

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Other Information

On February 10, 2022, we entered into a Joinder and Increase Agreement (the “Joinder Agreement”) with BankUnited, N.A., (“New Lender”) and Bank of America, N.A., as administrative agent (the “Administrative Agent”), to supplement our Credit Agreement, dated as of January 10, 2022 (the “Credit Agreement”) with the lenders named therein and the Administrative Agent.

Under the Credit Agreement, we have right under an accordion feature to request an increase in borrowing capacity of the revolving line of credit to an amount not exceeding $750 million in the aggregate, subject to receipt of lender commitments and satisfaction of certain customary conditions.

The Joinder Agreement increases the commitments under the Credit Agreement by $20 million (the “Increased Commitment Amount”) and provides for New Lender to join as a lender under the Credit Agreement with its commitment equal in amount to the Increased Commitment Amount.

The Joinder Agreement is attached to this Annual Report on Form 10-K as Exhibit 10.3.

The foregoing summary of the Joinder Agreement is qualified in its entirety by the complete text of the Joinder Agreement.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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.

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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.

Exhibits, Financial Statement Schedules.

Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

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2002 Stock Incentive Plan of FSP Corp .

Credit Agreement, dated January 10, 2022, among FSP Corp., Bank of America, N.A.

and the other parties thereto

Joinder and Increase Agreement, dated February 10, 2022, among FSP Corp., BankUnited N.A.

and Bank of America, N.A., as administrative agent.

Second Amended and Restated Credit Agreement, dated September 27, 2018, among FSP Corp., Bank of Montreal and the other parties thereto.

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Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Quarterly Report on Form 10-Q filed on July 30, 2019 (File No.

Incorporated by reference to Exhibit 3.2 to FSP Corp.’s Current Report on Form 10-Q, filed on August 4, 2020 (File No.

Incorporated by reference to Exhibit 4.1 to FSP Corp.’s Annual Report on Form 10-K, filed on February 11, 2020 (File No.

Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Current Report on Form 8-K, filed on April 16, 2021 (File No.

Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Annual Report on Form 10-K, filed on March 29, 2002 (File No.

Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on January 12, 2022 (File No.

Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed on September 27, 2018 (File No.

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Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID 42 )

Consolidated Financial Statements:

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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.

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Report of Independent Registered Public Accounting Firm

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Prepaid expenses and other assets

Other assets:

derivative asset

Related party mortgage loan receivable

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Total expenses

Gain on sale of property

Income before taxes on income and equity in income of non-consolidated REITs

Tax expense on income

Loss on extinguishment of debt

Gain on sale of properties, net

Income before taxes and equity in income of non-consolidated REITs

Equity in income of non-consolidated REITs

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Comprehensive income (loss)

Shares issued for:

Equity-based compensation

Distributions

Balance, December 31, 2019

Comprehensive income

Comprehensive income (loss)

Shares issued for:

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Comprehensive income (loss)

Repurchased shares

Shares issued for:

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Shares issued as compensation

Gain on sale of property

Loss on extinguishment of debt

Gain on sale of properties, net

Equity in income of non-consolidated REITs

Distributions from non-consolidated REITs

Decrease in allowance for doubtful accounts

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Property improvements, fixtures and equipment

Investment in non-consolidated REITs

Distributions in excess of earnings from non-consolidated REITs

Investment in related party mortgage loan receivable

Repayment of related party mortgage loan receivable

Proceeds received on sales of real estate assets

Proceeds received from sales of properties

Proceeds received from liquidating trust

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Distributions to stockholders

Stock repurchases

Borrowings under bank note payable

Repayments of bank note payable

Repayment on term loan payable

Repayment of term loan payable

Deferred financing costs

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Non-cash investing and financing activities:

Accrued dividend

Accrued costs for purchase of real estate assets

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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.

As of December 31, 2021, the Company owned and operated a portfolio of real estate consisting of 24 operating properties, 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.

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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.

Significant estimates in the consolidated financial statements include the allowance for doubtful accounts, allowance for credit losses, purchase price allocations, impairment considerations, useful lives of fixed assets and the valuation of derivatives.

Investments in non-consolidated REITs

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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.

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.

Variable Interest Entities (VIEs)

We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective.

The determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support.

We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.

We analyze any investments in VIEs to determine if we are the primary beneficiary.

In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity.

Determining which reporting entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity.

Performance of that analysis requires the exercise of judgment.

We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct a proposed sale of the property or merger of the company.

In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter.

We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion upon a reconsideration event.

As of December 31, 2021, our relationship with FSP Monument Circle LLC was considered a VIE for which we are not the primary beneficiary.

Our maximum exposure to losses associated with this VIE is limited to the outstanding Sponsored REIT Loan, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $ 24.5 million at December 31, 2021.

The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and are approximately $ 0.5 million at December 31, 2021.

The relationships and investments related to the entity in which we have a variable interest with are summarized in Note

3, Related Party Transactions and Investments in Non-Consolidated Entities.

Real Estate and Depreciation

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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.

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.

(in thousands)

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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.

The Company recognizes the effect of a change in its 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

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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.

Straight-line rent receivable, which is the cumulative revenue recognized in excess of amounts billed by the Company, was $ 49.0 million, $ 67.8 million and $ 66.9 million at December 31, 2021, 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.

The Company recognized the effect of a change in its 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 based on such assessment.

Deferred Leasing Commissions

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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.

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.

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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.

In March 2020, the Financial Accounting Standards Board (“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.

ASU 2020-04 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.

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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 common stock interest in 2 Sponsored REITs at December 31, 2021, 2020 and 2019.

The Company held a non-controlling preferred stock investment in two Sponsored REITs, FSP 303 East Wacker Drive Corp.

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(“Grand Boulevard”), each of which were liquidated during the three months ended September 30, 2018.

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.

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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:

Equity in income of investment in non-consolidated REITs:

The following table includes equity in income of investments in non-consolidated REITs:

(in thousands)

Equity in income of East Wacker

Equity in loss of Grand Boulevard

Impairment charge

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

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).

On September 24, 2018, the property owned by East Wacker was sold at a gain.

On October 6, 2021, the Company received a liquidating distribution of $ 0.4 million, which is included in equity in income of non-consolidated REITs on the consolidated statements of income.

The following table includes distributions received from non-consolidated REITs:

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Distributions from East Wacker

Distributions from Grand Boulevard

Non-consolidated REITs

As of December 31, 2021, 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:

(in thousands)

Balance Sheet Data (unaudited):

Real estate, net

Total liabilities

Shareholders’ equity

(in thousands)

Operating Data (unaudited):

Rental revenues

Other revenues

Operating and maintenance expenses

Depreciation and amortization

Interest expense

Management fees and interest income from loans:

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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

and the value of the secured property, as well as the financial and operating capability of the borrower.

The Company reviews the need for an allowance under CECL for Sponsored REIT loans at each reporting period.

The measurement of expected credit losses is based upon historical experiences, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company has elected to apply the practical expedient for financial assets secured by collateral in instances where the borrower is experiencing financial difficulty and repayment of the Sponsored REIT Loan is expected to be provided substantially through operation or sale of the collateral.

The Company uses the fair value of the collateral at the reporting date and an adjustment to the allowance for expected credit losses is recorded when the amortized cost basis of the financial asset exceeds the fair value of the collateral, less costs to sell.

The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance 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.

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The financial instrument was classified within Level 3 of the fair value hierarchy and had a fair value of approximately $ 23.8 million as of December 31, 2021.

On October 29, 2021, the Company agreed to amend and restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $ 3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $ 21 million to $ 24 million.

In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023.

As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to vote their shares in favor of any sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023.

The amended and restated Sponsored REIT Loan qualified as a troubled debt restructuring.

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 and by cash accounts, as of December 31, 2021.

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.

Bank Note Payable, Term Note Payable and Private Placements

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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).

The margin over the LIBOR-based rate or base rate is determined based on the Company’s credit rating pursuant to the following grid:

A3 (or higher)

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 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 remained fully advanced and outstanding under the JPM Term Loan.

On June 4, 2021, the Company repaid the remaining $ 100 million outstanding on the loan, which had been scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $ 0.1 million related to unamortized deferred financing costs.

Although the interest rate on the JPM Term Loan was 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.

On June 4, 2021, the Company paid approximately $ 1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.

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

allows up to $ 100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions.

The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $ 220 million (the “BMO Term Loan”), of which $ 165 million remains fully advanced and outstanding.

The BMO Term Loan initially consisted of a $ 55 million tranche A term loan and a $ 165 million tranche B term loan.

On June 4, 2021, the Company repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $ 0.1 million related to unamortized deferred financing costs.

The $ 165 million tranche B term loan matures on January 31, 2024.

The BMO Credit Agreement also includes an accordion feature that 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.

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(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.

As of December 31, 2021, the Company’s credit rating from Moody’s Investors Service was Ba1.

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

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Accordingly, based upon the Company’s credit rating, as of December 31, 2021, the effective interest rate on the BMO Term Loan was 4.04 % per annum.

On June 4, 2021, the Company paid approximately $ 0.6 million to terminate the portion of the interest rate swap on the tranche A term loan, which was scheduled to mature on November 30, 2021.

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

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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.

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, 2021.

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

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:

BofA Credit Facility

On July 21, 2016, the Company entered into a First Amendment (the “BofA First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BofA Second Amendment”), to the Second Amended and Restated Credit Agreement dated October 29, 2014 among the Company, the lending institutions party thereto and BofA, as administrative agent, L/C Issuer and Swing Line Lender (as amended by the BofA First Amendment and the BofA Second Amendment, the “BofA Credit Facility”) that continued an existing unsecured revolving line of credit (the “Former BofA Revolver”) and an existing term loan (the “BofA Term Loan”).

Effective simultaneously with the closing of the BofA Revolver (as defined in Note 11 to these Consolidated Financial Statements) on January 10, 2022, the Company delivered a notice to BofA terminating the aggregate lender commitments under the Former BofA Revolver in their entirety.

Former BofA Revolver Highlights

● As of December 31, 2021, there were no borrowings under the Former BofA Revolver.

● The Former BofA Revolver was for borrowings, at the Company's election, of up to $ 600 million.

Borrowings made pursuant to the Former BofA Revolver could be revolving loans, swing line loans or letters of credit, the combined sum of which could not exceed $ 600 million outstanding at any time.

As of December 31, 2021, there were no borrowings outstanding under the Former BofA Revolver.

The Former BofA Revolver bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.550 % over LIBOR at December 31, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.550 % over the base rate at December 31, 2021).

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

The facility fee was assessed against the total amount of the Former BofA Revolver, or $ 600 million ( 0.30 % at December 31, 2021).

The amount of any applicable facility fee, and the margin over LIBOR rate or base rate was determined based on the Company’s credit rating pursuant to the following grid:

Credit Rating

For purposes of the BAML Credit Facility, base rate means, for any day, a fluctuating rate per annum equal to the highest of:

For purposes of the BofA 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.

● 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

( 0.35 % over the base rate at December 31, 2020).

As of December 31, 2021, the Company’s credit rating from Moody’s Investors Service was Ba1.

Based upon the Company’s credit rating, as of December 31, 2021, the interest rate on the Former BofA Revolver would have been 1.65 % per annum.

The weighted average interest rate on all amounts outstanding on the Former BofA Revolver during the year ended December 31, 2021, was approximately 1.33 % per annum.

As of December 31, 2020, there were borrowings of $ 3.5 million outstanding under the Former BofA Revolver.

The weighted average interest rate on all amounts outstanding on the Former BofA Revolver during the year ended December 31, 2020, was approximately 1.65 % per annum.

BofA Term Loan Highlights

● The original principal amount of the BofA Term Loan was $ 400 million.

On September 30, 2021, the Company repaid a $ 90 million portion and on October 25, 2021, the Company repaid a $ 200 million portion of the BofA Term Loan and incurred a loss on extinguishment of debt of $ 0.7 million related to unamortized deferred financing costs.

As of December 31, 2021, $ 110 million remained outstanding under the BofA Term Loan.

● The BofA Term Loan matures on January 12, 2023.

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

The BofA Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.75 % over LIBOR at December 31, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.750 % over the base rate at December 31, 2021).

The margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the following grid:

Credit Rating

For purposes of the BAML Credit Facility, base rate means, for any day, a fluctuating rate per annum equal to the highest of:

For purposes of the BofA 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.

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.

As of December 31, 2021, the Company’s credit rating from Moody’s Investors Service was Ba1.

The interest rate on the BofA Term Loan was variable at December 31, 2021.

Previously the Company had fixed the base LIBOR interest rate on the BofA 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 BofA Term Loan at 1.12 % per annum for the period beginning on September 27, 2017 and ended on September 27, 2021.

Based upon the Company’s credit rating, as of December 31, 2021, the interest rate on the BofA Term Loan was 1.84 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan after the expiration of the interest rate swaps, on September 27, 2021, during the period from September 28 through December 31, 2021, was approximately 1.85 % per annum.

BofA Credit Facility General Information

The BofA 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 BofA 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 BofA 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 BofA 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 BofA Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BofA Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BofA 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.

We were in compliance with the BofA Credit Facility financial covenants as of December 31, 2021.

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

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,

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.

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) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $ 116 million (the “Series A Notes”) and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $ 84 million (the “Series B Notes,” and, together with the Series A Notes, the “Senior Notes”).

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

The Senior Notes bear interest depending on the Company’s credit rating.

As of December 31, 2021, the Series A Notes bear interest at 4.49 % per annum and the Series B Notes bear interest at 4.76 % per annum.

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.

Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA 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 ;

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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 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 BofA 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 ended 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.

On June 4, 2021, the Company paid approximately $ 1.2 million to terminate the 2019 JPM Interest Rate Swap that was scheduled to mature on November 30, 2021 and approximately $ 0.6 million to terminate a portion of the 2019 BMO Interest Rate Swap that was scheduled to mature on November 30, 2021.

As a result of the terminations, approximately $ 1.9 million of the balance held in accumulated other comprehensive income (loss) was reclassified into earnings.

JPM Term Loan and a portion of the BMO Term Loan related to these interest rate swaps was also repaid on June 4, 2021, which is 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.

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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.

Fair Value (2) at December 31,

Fair Value (2) at

(in thousands)

December 31, 2021

December 31, 2020

2017 Interest Rate Swap

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2019 BMO Interest Rate Swap (1)

2013 BMO Interest Rate Swap

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

(1) The Notional Value decreased to $ 165 million on June 4, 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:

On December 31, 2021, 2019 BMO Interest Rate Swap was reported as a liability with a fair value of approximately $ 5.2 million and are included in other liabilities:

derivative liabilities in the consolidated balance sheet at December 31, 2021.

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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 BMO Term Loan, BofA 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.

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

in the market.

The risk is estimated by the Company using credit spreads and risk premiums that are observable 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.

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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.

Stockholders’ Equity

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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.

On December 10, 2019, June 4, 2020 and May 20, 2021, the Company granted shares 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 and are included in the table below.

Shares Available

(in thousands)

Balance, December 31, 2016, 2017 and 2018

Balance, December 31, 2018

Shares granted 2019

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Balance December 31, 2020

Shares granted 2021

Balance December 31, 2021

Repurchase of Common Stock

On June 23, 2021, the Board of Directors of the Company authorized the repurchase of up to $ 50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws.

The repurchase authorization may be suspended or discontinued at any time.

The Company subsequently repurchased 3,396,243 shares of common stock during the third and fourth quarter of 2021 at an aggregate cost of approximately $ 18.2 million at an average cost of approximately $ 5.37 per share, inclusive of brokerage commissions.

The excess of the purchase price over the par value of the shares repurchased is applied to reduce additional paid-in capital.

The Company did not effect any repurchases during 2020.

A summary of the repurchase of common stock by the Company is shown in the following table:

(Cost in thousands)

Shares Repurchased

Balance December 31, 2020

Repurchase of shares

Balance, December 31, 2021

Federal Income Tax Reporting

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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

Protective TRS Corp.

FSP Investments LLC and FSP Protective TRS Corp.

are the Company’s taxable REIT subsidiaries operating as taxable corporations under the Code.

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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.

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.

Approximately $ 0.1 million of NOLs expired in 2021.

The Company is expecting to use approximately $ 11.8 million of NOLs in 2021 to offset federal net taxable capital gains resulting from the sale of properties in 2021, therefore approximately $ 11.8 million of valuation allowances were reversed in 2021.

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

The gross amount of NOLs available to the Company was approximately $ 1.1 million and $ 13.0 million as of each of December 31, 2021 and 2020, respectively with full valuation allowances.

Income Tax Expense

The income tax expense reflected in the consolidated statements of income relates primarily the Revised Texas Franchise Tax.

The income tax expense reflected in the consolidated statements of income relates primiarly to state income taxes as a result of some states that limit the use of net operating losses, which are in Other Taxes, and to a lesser extent, 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:

provides taxable services to tenants at some of the Company’s properties.

For the Year Ended December 31,

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At December 31, 2021, 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 $ 153.7 million and 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.

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)

Net income per GAAP

Adjustments to GAAP net income:

GAAP depreciation and amortization

Tax depreciation and amortization

Tax basis more than GAAP basis on assets sold

Straight line rent adjustment, net

Deferred rent, net

Non-taxable distributions

Taxable income

Capital gains recognized

Taxable income subject to distribution requirement

Tax Components

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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, 2021 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.

The incremental borrowing rate is the rate equal to the closest borrowing under the Former BofA Revolver at the time of the Company’s adoption of ASU 2016-02.

(in thousands)

1 unchanged sentence

December 31, 2020

December 31, 2019

Operating lease cost

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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.

Although increases in the CPI are not estimated as part of the Company’s measurement of straight-line rent revenue, to the extent

that the actual CPI is greater or less than the CPI at lease commencement, there could be changes to realized income or loss.

For the year ended December 31, 2021, 2020 and 2019, the Company recognized the following amounts of income relating to lease payments:

3 unchanged sentences

December 31, 2020

December 31, 2019

Income from leases (1)

2 unchanged sentences

2027 and thereafter

(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.

(1) Amounts recognized from variable lease payments were $ 54,825 , $ 61,310 and $ 64,421 for the years ended December 31, 2021, 2020 and 2019, respectively.

Retirement Plan

5 unchanged sentences

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.

In 2021, the Company determined that further debt reduction would provide greater financial flexibility and potentially increase shareholder value.

Accordingly, the Company adopted a strategy to dispose of certain properties in 2021 where it believes valuation potential has been reached.

The Company sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $ 219.5 million, at a net gain of approximately $ 22.8 million.

The Company sold an office property in Dulles, Virginia on June 29, 2021 for a sales price of approximately $ 17.3 million, at a loss of $ 2.1 million.

The Company sold an office property located in Indianapolis, Indiana on August 31, 2021 for a sales price of approximately $ 35 million, at a loss of approximately $ 1.7 million.

The Company sold two office properties located in Chesterfield, Missouri on September 23, 2021 for an aggregate sales price of approximately $ 67 million, at a gain of approximately $ 10.3 million.

The Company sold an office property in Atlanta, Georgia on October 22, 2021, for a sales price of approximately $ 223.9 million, at a gain of approximately $ 86.8 million.

The Company sold two office properties located in Chantilly, Virginia on November 16, 2021 for an aggregate sales price of $ 40 million, at a loss of $ 2.9 million.

The Company used the proceeds of the dispositions principally to repay outstanding indebtedness.

The Company sold an office property located in Durham, North Carolina on December 23, 2020 for a sales price of approximately $ 89.7 million, at a gain of approximately $ 41.9 million.

The Company reports the results of operations of its properties in its consolidated statements of operations, which includes rental income, rental operating expenses, real estate taxes and insurance and depreciation and amortization.

The operating results for the properties that the Company disposed of are summarized below:

For the Years Ended

(in thousands)

Rental revenue

Rental operating expenses

Real estate taxes and insurance

Depreciation and amortization

Income from dispositions

Subsequent Events

On January 10, 2022, the Company entered into a credit agreement for a new revolving line of credit for borrowings, at the Company’s election, of up to $ 217.5 million (the “BofA Revolver”), which may be borrowed, repaid and reborrowed from time to time until the maturity date on January 12, 2024.

The Company has the right to request an extension of the maturity date, subject to acceptance by the lenders and satisfaction of certain other customary conditions.

The BofA Revolver includes an accordion feature that allows the Company to request an increase in borrowing capacity to an amount not exceeding $ 750 million in the aggregate, subject to receipt of lender commitments and satisfaction of certain customary conditions.

Effective simultaneously with the closing of the BofA Revolver on January 10, 2022, the Company terminated the Former BofA Revolver.

The Former BofA Revolver would have matured by its own terms on January 12, 2022.

On January 12, 2022, the Company paid a special cash distribution of $ 0.32 per share of common stock, which was declared on December 3, 2021 for shareholders of record on December 31, 2021.

On January 14, 2022, the Board of Directors of the Company declared a cash distribution of $ 0.09 per share of common stock payable on February 17, 2022 to stockholders of record on January 28, 2022.

Selected Unaudited Quarterly Information

Selected unaudited quarterly information is shown in the following table:

(in thousands, except per share data)

Net income (loss)

Basic and diluted net income (loss) per share

Weighted average number of shares outstanding

(in thousands, except per share data)

Net income (loss)

Basic and diluted net income (loss) per share

Weighted average number of shares outstanding

On February 10, 2022, the Company increased its BofA Revolver availability by $ 20.0 million to $ 237.5 million as part of the accordion feature that is available to increase borrowing capacity.

Franklin Street Properties Corp.

13 unchanged sentences

Forest Park, Charlotte, NC

Meadow Point, Chantilly, VA

Timberlake, Chesterfield, MO

Northwest Point, Elk Grove Village, IL

Timberlake East, Chesterfield, MO

Park Ten, Houston, TX

2 unchanged sentences

Greenwood, Englewood, CO

River Crossing, Indianapolis, IN

Innsbrook, Glenn Allen, VA

3 unchanged sentences

Liberty Plaza, Addison, TX

One Overton, Atlanta, GA

390 Interlocken, Broomfield, CO

Park Ten II, Houston, TX

Dulles Virginia, Sterling, VA

Stonecroft, Chantilly, VA

121 South Eight Street, Minneapolis, MN

3 unchanged sentences

One Legacy Circle, Plano, TX

One Ravinia Drive, Atlanta, GA

Two Ravinia Drive, Atlanta, GA

Westchase I & II, Houston, TX

1999 Broadway, Denver CO

999 Peachtree, Atlanta, GA

1001 17th Street, Denver, CO

15 unchanged sentences

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

What changed 10-K

Item 9A. Controls and Procedures