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Item 1. Financial Statements

2022-05-03 compared with 2021-11-08 · 137 added, 177 removed, 305 unchanged (51% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share and par value amounts)

36 unchanged sentences

Consolidated Statements of Operations

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in thousands, except per share amounts)

7 unchanged sentences

Total expenses

Loss on extinguishment of debt

Gain on sale of properties, net

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

Equity in income of non-consolidated REITs

Net Income (loss)

Loss before taxes

Weighted average number of shares outstanding , basic and diluted

Net income (loss) per share , basic and diluted

Net loss per share , basic and diluted

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Other comprehensive income (loss):

11 unchanged sentences

Balance, December 31, 2020

Comprehensive loss

Distributions $ 0.09 per

share of common stock

Balance, March 31, 2020

Comprehensive income (loss)

Equity-based compensation

Distributions $ 0.09 per

share of common stock

Balance, June 30, 2020

Comprehensive income (loss)

Distributions $ 0.09 per

share of common stock

Balance, September 30, 2020

Balance, December 31, 2020

Comprehensive income (loss)

Distributions $ 0.09 per

share of common stock

Balance, March 31, 2021

Comprehensive income

Equity-based compensation

Distributions $ 0.09 per

share of common stock

Balance, June 30, 2021

Balance, December 31, 2021

Comprehensive income (loss)

2 unchanged sentences

share of common stock

Balance, September 30, 2021

Balance, March 31, 2022

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

1 unchanged sentence

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in thousands)

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization expense

Amortization of above and below market leases

Shares issued as compensation

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

and write-off of accounts receivable

Changes in operating assets and liabilities:

7 unchanged sentences

Payment of deferred leasing commissions

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Property improvements, fixtures and equipment

Proceeds received on sales of real estate assets

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities:

3 unchanged sentences

Repayments of bank note payable

Repayment of term loan payable

Deferred financing costs

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash , beginning of year

13 unchanged sentences

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

As of September 30, 2021, the Company owned and operated a portfolio of real estate consisting of 26 operating properties, one redevelopment property and two managed Sponsored REITs and held one promissory note secured by a mortgage on real estate owned by a Sponsored REIT.

As of March 31, 2022, 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.

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.

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

As of September 30, 2021 and September 30, 2020, the Company had one and three redevelopment properties, respectively, which are excluded from the table.

As of September 30,

The following table summarizes the Company’s number of operating properties, which we also refer to as our owned properties and rentable square feet of real estate.

As of March 31,

Operating Properties:

9 unchanged sentences

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

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other period.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.

Financial Instruments

As disclosed in Note 4, the Company’s derivatives are recorded at fair value using Level 2 inputs.

maturity and the bank note and term loans payable approximate their fair values as they bear interest at variable interest rates or at rates that are at market for similar investments.

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 or at rates that are at market for similar investments.

Cash, Cash Equ ivalents and Restricted Cash

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

September 30,

(in thousands)

3 unchanged sentences

Restricted cash consists of escrows arising from property sales.

Cash held in escrow is paid when the related issue is resolved.

Cash held in escrow is paid based on the terms of the closing agreements for the sale.

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 March 31, 2022, 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 $ 24.9 million and $ 24.5 million at March 31, 2022 and December 31, 2021, respectively.

The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and are approximately $ 0.9 million and $ 0.5 million at March 31, 2022 and December 31, 2021, respectively.

The relationships and investments related to the entity in which we have a variable interest are summarized in Note 2.

Recent Accounting Standards

7 unchanged sentences

Investment in Sponsored REITs:

At each of September 30, 2021 and December 31, 2020, the Company held a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk.

At each of March 31, 2022 and December 31, 2021, the Company held a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk.

Management fees and interest income from loans:

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

Asset management fee income from non-consolidated entities amounted to approximately $ 50,000 and $ 59,000 for the nine months ended September 30, 2021 and 2020, respectively.

Asset management fee income from non-consolidated entities amounted to approximately $ 9,000 and $ 16,000 for the three months ended March 31, 2022 and 2021, 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 reviews the need for an allowance under the current expected credit loss model (“CECL”) for Sponsored REIT Loans 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.

4 unchanged sentences

The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid at maturity or earlier from refinancing, long term financings of the underlying property, cash flows from the underlying property or some other capital event.

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

The following is a summary of the sole Sponsored REIT Loan outstanding as of September 30, 2021:

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

The following is a summary of the sole Sponsored REIT Loan outstanding as of March 31, 2022:

(dollars in thousands, except footnotes)

4 unchanged sentences

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

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $ 1,196,000 and $ 1,149,000 for the nine months ended September 30, 2021 and 2020, respectively.

The financial instrument was classified within Level 3 of the fair value hierarchy and had a fair value of approximately $ 20.5 million as of September 30, 2021.

On December 6, 2020, the Company entered into a second amendment to the Sponsored REIT Loan with FSP Monument Circle LLC 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 in this amendment to lend additional funds to such Sponsored REIT and the loan is fully collateralized by the mortgage held on the Sponsored REIT's property.

Repayment of this Sponsored REIT Loan is expected to be provided substantially through the sale of the collateral.

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $ 451,000 and $ 394,000 for the three months ended March 31, 2022 and 2021, respectively.

The financial instrument was classified within Level 3 of the fair value hierarchy and had a fair value of approximately $ 24.3 million as of March 31, 2022.

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.

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 March 31, 2022.

Bank Note Payable, Term Loans Payable and Senior Notes

9 unchanged sentences

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 initial amount of $ 220 million (the “BMO

Term Loan”), of which $ 165 million remains fully advanced and outstanding.

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.

3 unchanged sentences

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

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating ( 165 basis points over LIBOR at September 30, 2021) or (ii) a number of basis points over the base rate depending on the Company’s credit rating ( 65 basis points over the base rate at September 30, 2021).

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating ( 165 basis points over LIBOR at March 31, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating ( 65 basis points over the base rate at March 31, 2022).

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 August 26, 2013, the Company entered into an ISDA Master Agreement with BMO 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 September 30, 2021, the effective interest rate on the BMO Term Loan was 4.04 % per annum.

Accordingly, based upon the Company’s credit rating, as of March 31, 2022, 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.

4 unchanged sentences

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

The Company was in compliance with the BMO Term Loan financial covenants as of September 30, 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 an existing 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 September 30, 2021, there were no borrowings outstanding under the BAML Revolver.

The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.55 % over LIBOR at September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.55 % over the base rate at September 30, 2021).

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 ( 0.30 % at September 30, 2021).

Based upon the Company’s credit rating, as of September 30, 2021, the interest rate on the BAML Revolver was 1.63 % per annum.

The weighted average interest rate on all amounts outstanding on the BAML Revolver during the nine months ended September 30, 2021 was approximately 1.32 % per annum.

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

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.

BAML Term Loan Highlights

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

On September 30, 2021, the Company repaid a $ 90 million portion of the BAML Term Loan and incurred a loss on extinguishment of debt of $ 0.2 million related to unamortized deferred financing costs.

As of September 30, 2021, $ 310 million remained outstanding under the BAML Term Loan.

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

The BAML Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.75 % over LIBOR at September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.75 % over the base rate at September 30, 2021).

The interest rate on the BAML Credit Facility was variable at September 30, 2021.

Previously the Company had 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 ended on September 27, 2021.

Based upon the Company’s credit rating, as of September 30, 2021, the interest rate on the BAML Term Loan was 1.83 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BAML Term Loan after the expiration of the interest rate swaps, from September 28 through September 30, 2021 was approximately 1.84 % 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 BMO Term Loan financial covenants as of March 31, 2022.

BofA Revolver

On January 10, 2022, the Company entered into a Credit Agreement (the “BofA Credit Agreement”) with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto, for a new revolving line of credit for borrowings, at the Company’s election, of up to $ 217.5 million (the “BofA Revolver”).

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.

Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $ 237.5 million outstanding at any time.

As of March 31, 2022, there were borrowings of $ 40.0 million drawn and outstanding under the BofA Revolver.

Borrowings made pursuant to the BofA Revolver 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.

Borrowings under the BofA Revolver bear interest at a margin over either (i) the daily simple Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.11448 %, or (ii) one , three or six month term SOFR, plus a corresponding adjustment of 0.11448 %, 0.26161 % or 0.42826 %, respectively.

In addition, under certain circumstances, such as if SOFR is not able to be determined, the BofA Revolver will instead bear interest at a margin over a specified base rate.

The margin over SOFR or, if applicable, the base rate varies depending on the Company’s leverage ratio ( 1.650 % over SOFR and 0.650 % over the base rate at March 31, 2022).

The Company is also obligated to pay an annual facility fee and, if applicable, letter of credit fees in amounts that are also based on the Company’s leverage ratio.

The facility fee is assessed against the aggregate amount of lender commitments regardless of usage ( 0.30 % at March 31, 2022).

Based upon the Company’s credit rating, as of March 31, 2022, the interest rate on the BofA Revolver was 2.06 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through March 31, 2022 was approximately 2.04 % per annum.

The BofA 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 BofA 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 a minimum unsecured interest coverage ratio.

The BofA Credit Agreement also restricts the Company’s ability to make dividend distributions that exceed 95 % of the Company’s good faith estimate of projected funds from operations for the applicable fiscal year;

provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject.

The Company was in compliance with the BofA Revolver financial covenants as of March 31, 2022.

The BofA Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with the provisions of the BofA Credit Agreement, certain cross defaults and a change in control of the Company (as defined in the BofA Credit Agreement).

In the event of a default by the Company, BofA, in its capacity as administrative agent, may, and at the request of the requisite number of lenders shall, declare all obligations under the BofA Credit Agreement immediately due and payable and enforce any and all rights of the lenders or BofA under the BofA 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 may use the net proceeds of the BofA Revolver 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 BofA Credit Agreement.

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 on January 10, 2022, the Company delivered a notice to BofA terminating the aggregate lender commitments under the Former BofA Revolver in their entirety.

There were no amounts drawn on the Former BofA Revolver as of December 31, 2021 and January 10, 2022.

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 March 31, 2022, $ 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 applicable to the BofA Term Loan, subject to receipt of lender commitments and satisfaction of certain customary conditions.

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 March 31, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.75 % over the base rate at March 31, 2022).

The interest rate on the BofA Term Loan was variable at March 31, 2022.

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 March 31, 2022, the interest rate on the BofA Term Loan was 2.20 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan through March 31, 2022, was approximately 1.90 % 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.

The Company was in compliance with the BAML Credit Facility financial covenants as of September 30, 2021.

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.

The Company was in compliance with the BofA Credit Facility financial covenants as of March 31, 2022.

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 million 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 BAML Revolver.

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 September 30, 2021, the Series A Notes bear interest at 4.49 % per annum and the Series B Notes bear interest at 4.76 % per annum.

As of March 31, 2022, 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 ;

3 unchanged sentences

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

The Company was in compliance with the Senior Notes financial covenants as of September 30, 2021.

The Company was in compliance with the Senior Notes financial covenants as of March 31, 2022.

Financial Instruments:

Derivatives and Hedging

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

On March 7, 2019, the Company entered into interest rate swap tranactions that 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 entered into interest rate swap tranactions that 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”).

On July 22, 2016, the Company entered into interest rate swap transactions that fixed the interest rate for the period beginning on September 27, 2017 and ended on September 27, 2021 on the BofA Term Loan (the “2017 Interest Rate Swap”).

On March 7, 2019, the Company entered into interest rate swap transactions that 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 entered into interest rate swap transactions that 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 3.

5 unchanged sentences

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

The following table summarizes the notional and fair value of the Company’s derivative financial instruments at September 30, 2021 and December 31, 2020.

The following table summarizes the notional and fair value of the Company’s derivative financial instruments at March 31, 2022 and December 31, 2021.

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

1 unchanged sentence

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

2017 Interest Rate Swap

2019 JPM Interest Rate Swap

2019 BMO Interest Rate Swap (1)

1 unchanged sentence

(2) Classified within Level 2 of the fair value hierarchy.

On September 30, 2021, the 2019 BMO Interest Rate Swap was reported as a liability with a fair value of approximately $ 7.6 million and is included in other liabilities:

derivative liabilities in the consolidated balance sheet at September 30, 2021.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2021 and 2020, respectively, was as follows:

The 2019 BMO Interest Rate Swap was reported as a liability with a fair value of approximately $ 0.2 million and $ 5.2 million at March 31, 2022 and December 31, 2021, respectively.

The balance is included in other liabilities:

derivative liabilities in the consolidated balance sheet at March 31, 2022 and December 31, 2021, respectively.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the three months ended March 31, 2022 and 2021, respectively, was as follows:

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Interest Rate Swaps in Cash Flow Hedging Relationships:

5 unchanged sentences

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 hedging transaction uses 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 the contract.

The Company requires its derivatives contracts to be with counterparties that have investment grade ratings.

10 unchanged sentences

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

There were no potential dilutive shares outstanding at each of September 30, 2021 and 2020.

There were no potential dilutive shares outstanding at each of March 31, 2022 and 2021.

Stockholders’ Equity

As of September 30, 2021, the Company had 105,632,725 shares of common stock outstanding.

As of March 31, 2022, the Company had 103,151,781 shares of common stock outstanding.

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

Dividends Per

Special dividend declared in December 2021 and paid January 2022

First quarter of 2022

Second quarter of 2021

Third quarter of 2021

First quarter of 2021

Second quarter of 2020

Third quarter of 2020

Equity-Based Compensation

4 unchanged sentences

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.

On June 4, 2020, the Company granted 58,998 shares under the Plan to non-employee directors at a compensation cost of approximately $ 337,500 and on May 20, 2021, the Company granted 66,564 shares under the Plan to non-employee directors at a compensation cost of approximately $ 337,500 , which was recognized during the nine months ended September 30, 2020 and 2021, respectively, and is included in general and administrative expenses for such periods.

On June 4, 2020 and May 20, 2021, the Company granted shares under the Plan to non-employee directors at a compensation cost of approximately $ 337,500 at each grant date, which was recognized during the year ended December 31, 2020 and 2021, respectively, and is included in general and administrative expenses for such periods.

Such shares were fully vested on the date of issuance.

There are currently 1,780,820 shares available for grant under the Plan.

Shares Available

3 unchanged sentences

Shares granted 2022

Balance September 30, 2021

Balance March 31, 2022

Repurchase of Common Stock

1 unchanged sentence

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

The Company subsequently repurchased 1,762,038 shares of common stock during the third quarter of 2021 at an aggregate cost of approximately $ 8.2 million at an average cost of approximately $ 4.68 per share, inclusive of brokerage commissions.

The Company subsequently repurchased 3,396,243 shares of common stock during the third and fourth quarters 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 Company subsequently repurchased 846,739 shares of common stock during the first quarter of 2022 at an aggregate cost of approximately $ 4.8 million at an average cost of approximately $ 5.72 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:

3 unchanged sentences

Repurchase of shares

Balance, September 30, 2021

Balance, December 31, 2021

Repurchase of shares

Balance, March 31, 2022

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

21 unchanged sentences

NOLs generated prior to December 31, 2018 will 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 September 30, 2021 and December 31, 2020.

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 $ 1.1 million and $ 1.1 million as of March 31, 2022 and December 31, 2021, respectively.

Income Tax Expense

2 unchanged sentences

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

The Company recorded a provision for the Revised Texas Franchise Tax of $ 174,000 and $ 203,000 for the nine months ended September 30, 2021 and 2020, respectively.

The Company recorded a provision for the Revised Texas Franchise Tax of $ 49,000 and $ 67,000 for the three months ended March 31, 2022 and 2021, respectively.

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

12 unchanged sentences

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

For the nine months ended September 30, 2021 and 2020, the Company recognized the following amounts of income relating to lease payments:

For the three months ended March 31, 2022 and 2021, the Company recognized the following amounts of income relating to lease payments:

Income relating to lease payments:

Nine Months Ended

Three Months Ended

(in thousands)

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Income from leases (1)

(1) Amounts recognized from variable lease payments were $ 42,298 and $ 45,281 for the nine months ended September 30, 2021 and 2020, respectively.

Dispositions of properties

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 its valuation objective has been met.

The Company sold three office properties located in Atlanta, Georgia on May 27, 2021 with 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 with 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 with 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 with an aggregate sales price of approximately $ 67 million, at a gain of approximately $ 10.3 million.

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

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 Three Months Ended

For the Nine Months Ended

September 30,

(in thousands)

Rental revenue

Rental operating expenses

Real estate taxes and insurance

Depreciation and amortization

Income from dispositions

(1) Amounts recognized from variable lease payments were $ 12,665 and $ 14,688 for the three months ended March 31, 2022 and 2021, respectively.

Subsequent Events

On October 5, 2021, the Company entered into a Purchase and Sale Agreement with a third-party buyer for the disposition of two properties located in Chantilly, Virginia for a purchase price of approximately $ 40 million.

Assuming satisfaction of certain customary conditions to close, including successful completion by the buyer of a due diligence inspection period, the closing of the sale of the properties is expected to take place during the fourth quarter of 2021.

On October 8, 2021, the Board of Directors of the Company declared a cash distribution of $ 0.09 per share of common stock payable on November 11, 2021 to stockholders of record on October 22, 2021.

On October 22, 2021, the Company sold the 999 Peachtreee property located in Atlanta Georgia for a sales price of approximately $ 223.9 million, at a gain of approximately $ 86.8 million.

On October 25, 2021, the Company repaid $ 15.0 million of the BAML Revolver and $ 200.0 million of the BAML Term Loan using proceeds from the sale of the property.

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 cause the sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023.

On April 1, 2022, the Board of Directors of the Company declared a cash distribution of $ 0.09 per share of common stock payable on May 5, 2022 to stockholders of record on April 15, 2022.

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

What changed 10-Q

Item 1. Financial Statements