FRANKLIN STREET PROPERTIES CORP /MA/ 10-Q

Item 1. Financial Statements ​ Franklin Street Properties Corp. Consolidated Balance Sheets (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, (in thousands, except share and par value amounts) 2022 2021 Assets: ​ ​ ​ ​ ​ ​ ​ Real estate assets: ​ ​ ​ ​ ​ ​ ​ Land $ 146,844 $ 146,844 ​ Buildings and improvements ​ 1,477,913 ​ 1,457,209 ​ Fixtures and equipment ​ 12,192 ​ 11,404 ​ ​ ​ 1,636,949 ​ 1,615,457 ​ Less accumulated depreciation ​ 450,792 ​ 424,487 ​ Real estate assets, net ​ 1,186,157 ​ 1,190,970 ​ Acquired real estate leases, less accumulated amortization of $ 18,956 and $ 40,423 , respectively ​ 12,373 ​ 14,934 ​ Cash, cash equivalents and restricted cash ​ 4,693 ​ 40,751 ​ Tenant rent receivables ​ 2,627 ​ 1,954 ​ Straight-line rent receivable ​ 54,354 ​ 49,024 ​ Prepaid expenses and other assets ​ 6,863 ​ 4,031 ​ Related party mortgage loan receivable, less allowance for credit loss of $ 1,140 and $ 0 , respectively ​ 22,860 ​ 24,000 ​ Other assets: derivative asset ​ 1,951 ​ — ​ Office computers and furniture, net of accumulated depreciation of $ 1,082 and $ 1,198 , respectively ​ 187 ​ 198 ​ Deferred leasing commissions, net of accumulated amortization of $ 21,840 and $ 21,099 , respectively ​ 39,654 ​ 38,311 ​ Total assets $ 1,331,719 $ 1,364,173 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Equity: ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ Bank note payable $ 55,000 $ — ​ Term loans payable, less unamortized financing costs of $ 482 and $ 714 , respectively ​ 274,518 ​ 274,286 ​ Series A & Series B Senior Notes, less unamortized financing costs of $ 576 and $ 658 , respectively ​ ​ 199,424 ​ ​ 199,342 ​ Accounts payable and accrued expenses ​ 39,315 ​ 89,493 ​ Accrued compensation ​ 2,252 ​ 4,704 ​ Tenant security deposits ​ 5,819 ​ 6,219 ​ Lease liability ​ ​ 962 ​ ​ 1,159 ​ Other liabilities: derivative liabilities ​ — ​ 5,239 ​ Acquired unfavorable real estate leases, less accumulated amortization of $ 634 and $ 2,285 , respectively ​ 397 ​ 528 ​ Total liabilities ​ 577,687 ​ 580,970 ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ Equity: ​ ​ ​ ​ ​ ​ ​ Preferred stock, $ .0001 par value, 20,000,000 shares authorized, none issued or outstanding ​ — ​ — ​ Common stock, $ .0001 par value, 180,000,000 shares authorized, 103,235,914 and 103,998,520 shares issued and outstanding , respectively ​ 10 ​ 10 ​ Additional paid-in capital ​ 1,334,776 ​ 1,339,226 ​ Accumulated other comprehensive income (loss) ​ 1,951 ​ ( 5,239 ) ​ Accumulated distributions in excess of accumulated earnings ​ ( 582,705 ) ​ ( 550,794 ) ​ Total stockholders’ equity ​ 754,032 ​ 783,203 ​ Total liabilities and stockholders’ equity $ 1,331,719 $ 1,364,173 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 3 Table of Contents Franklin Street Properties Corp. Consolidated Statements of Operations (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended June 30, ​ For the Six Months Ended June 30, (in thousands, except per share amounts) 2022 2021 2022 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Rental ​ $ 40,831 ​ $ 55,722 ​ $ 82,628 ​ $ 114,345 ​ Related party revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Management fees and interest income from loans ​ 467 ​ 417 ​ 927 ​ 827 ​ Other ​ 6 ​ 6 ​ 13 ​ 12 ​ Total revenues ​ 41,304 ​ 56,145 ​ 83,568 ​ 115,184 ​ Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate operating expenses ​ 12,344 ​ 15,352 ​ 25,178 ​ 31,291 ​ Real estate taxes and insurance ​ 9,043 ​ 11,895 ​ 17,762 ​ 24,261 ​ Depreciation and amortization ​ 18,186 ​ 19,136 ​ 33,856 ​ 43,517 ​ General and administrative ​ 3,981 ​ 3,962 ​ 7,765 ​ 8,108 ​ Interest ​ 5,664 ​ 10,054 ​ 11,030 ​ 18,654 ​ Total expenses ​ 49,218 ​ 60,399 ​ 95,591 ​ 125,831 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss on extinguishment of debt ​ ​ — ​ ​ ( 167 ) ​ ​ — ​ ​ ( 167 ) ​ Impairment and loan loss reserve ​ ​ ( 1,140 ) ​ ​ — ​ ​ ( 1,140 ) ​ ​ — ​ Gain on sale of properties, net ​ ​ — ​ ​ 20,626 ​ ​ — ​ 20,626 ​ Income (loss) before taxes ​ ( 9,054 ) ​ 16,205 ​ ( 13,163 ) ​ 9,812 ​ Tax expense ​ 56 ​ 56 ​ 105 ​ 123 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 9,110 ) ​ $ 16,149 ​ $ ( 13,268 ) ​ $ 9,689 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of shares outstanding , basic and diluted ​ 103,193 ​ 107,359 ​ 103,441 ​ 107,344 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ( loss ) per share , basic and diluted ​ $ ( 0.09 ) ​ $ 0.15 ​ $ ( 0.13 ) ​ $ 0.09 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents Franklin Street Properties Corp. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ For the ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, (in thousands) 2022 2021 2022 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 9,110 ) ​ $ 16,149 ​ $ ( 13,268 ) ​ $ 9,689 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain on derivative financial instruments ​ 2,146 ​ 4,273 ​ 7,189 ​ 7,886 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total other comprehensive income ​ 2,146 ​ 4,273 ​ 7,189 ​ 7,886 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income (loss) ​ $ ( 6,964 ) ​ $ 20,422 ​ $ ( 6,079 ) ​ $ 17,575 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 5 Table of Contents Franklin Street Properties Corp. Consolidated Statements of Stockholders’ Equity (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Distributions ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ other ​ in excess of ​ Total ​ ​ Common Stock ​ Paid-In ​ comprehensive ​ accumulated ​ Stockholders’ (in thousands, except per share amounts) Shares Amount Capital income (loss) earnings Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2020 107,328 ​ $ 11 ​ $ 1,357,131 ​ $ ( 17,311 ) ​ $ ( 571,740 ) ​ $ 768,091 ​ Comprehensive income (loss) — ​ — ​ — ​ 3,613 ​ ( 6,460 ) ​ ( 2,847 ) ​ Distributions $ 0.09 per share of common stock — ​ — ​ — ​ — ​ ( 9,660 ) ​ ( 9,660 ) ​ Balance, March 31, 2021 107,328 ​ $ 11 ​ $ 1,357,131 ​ $ ( 13,698 ) ​ $ ( 587,860 ) ​ $ 755,584 ​ Comprehensive income — ​ — ​ — ​ 4,273 ​ 16,149 ​ 20,422 ​ Equity-based compensation ​ 67 ​ ​ — ​ ​ 338 ​ ​ ​ ​ ​ ​ ​ ​ 338 ​ Distributions $ 0.09 per share of common stock — ​ — ​ — ​ — ​ ( 9,659 ) ​ ( 9,659 ) ​ Balance, June 30, 2021 107,395 ​ $ 11 ​ $ 1,357,469 ​ $ ( 9,425 ) ​ $ ( 581,370 ) ​ $ 766,685 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2021 103,999 ​ $ 10 ​ $ 1,339,226 ​ $ ( 5,239 ) ​ $ ( 550,794 ) ​ $ 783,203 ​ Comprehensive income (loss) — ​ — ​ — ​ 5,044 ​ ( 4,158 ) ​ 886 ​ Repurchased shares ​ ( 847 ) ​ — ​ ( 4,843 ) ​ — ​ — ​ ( 4,843 ) ​ Distributions $ 0.09 per share of common stock — ​ — ​ — ​ — ​ ( 9,360 ) ​ ( 9,360 ) ​ Balance, March 31, 2022 103,152 ​ $ 10 ​ $ 1,334,383 ​ $ ( 195 ) ​ $ ( 564,312 ) ​ $ 769,886 ​ Comprehensive income (loss) — ​ — ​ — ​ 2,146 ​ ( 9,110 ) ​ ( 6,964 ) ​ Equity-based compensation ​ 84 ​ ​ — ​ ​ 393 ​ ​ ​ ​ ​ ​ ​ ​ 393 ​ Distributions $ 0.09 per share of common stock — ​ — ​ — ​ — ​ ( 9,283 ) ​ ( 9,283 ) ​ Balance, June 30, 2022 103,236 ​ $ 10 ​ $ 1,334,776 ​ $ 1,951 ​ $ ( 582,705 ) ​ $ 754,032 ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 6 Table of Contents Franklin Street Properties Corp. Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended June 30, (in thousands) 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 13,268 ) ​ $ 9,689 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization expense ​ 34,863 ​ 44,910 Amortization of above and below market leases ​ ( 54 ) ​ ( 38 ) Shares issued as compensation ​ ​ 394 ​ 338 Loss on extinguishment of debt ​ ​ — ​ ​ 167 Impairment and loan loss reserve ​ ​ 1,140 ​ ​ — Gain on sale of properties, net ​ — ​ ( 20,626 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Tenant rent receivables ​ ( 673 ) ​ 4,540 Straight-line rents ​ ( 2,904 ) ​ ( 2,858 ) Lease acquisition costs ​ ( 2,426 ) ​ ( 623 ) Prepaid expenses and other assets ​ ( 1,153 ) ​ ( 485 ) Accounts payable and accrued expenses ​ ( 18,268 ) ​ ( 18,520 ) Accrued compensation ​ ( 2,452 ) ​ ( 1,609 ) Tenant security deposits ​ ( 400 ) ​ ( 1,870 ) Payment of deferred leasing commissions ​ ( 5,033 ) ​ ( 6,926 ) Net cash provided by (used in) operating activities ​ ( 10,234 ) ​ 6,089 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Property improvements, fixtures and equipment ​ ​ ( 21,496 ) ​ ​ ( 36,957 ) Proceeds received from sales of properties ​ ​ — ​ ​ 228,717 Net cash provided by (used in) investing activities ​ ( 21,496 ) ​ 191,760 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Distributions to stockholders ​ ( 51,924 ) ​ ( 19,319 ) Stock repurchases ​ ( 4,843 ) ​ — Borrowings under bank note payable ​ 60,000 ​ 66,500 Repayments of bank note payable ​ ( 5,000 ) ​ ( 70,000 ) Repayment of term loans payable ​ ​ — ​ ( 155,000 ) Deferred financing costs ​ ( 2,561 ) ​ — Net cash used in financing activities ​ ( 4,328 ) ​ ( 177,819 ) Net increase (decrease) in cash, cash equivalents and restricted cash ​ ( 36,058 ) ​ 20,030 Cash, cash equivalents and restricted cash , beginning of year ​ 40,751 ​ 4,150 Cash, cash equivalents and restricted cash , end of period ​ $ 4,693 ​ $ 24,180 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid for: ​ ​ ​ ​ ​ ​ Interest ​ $ 10,209 ​ $ 17,588 Taxes ​ $ 664 ​ $ 417 Non-cash investing activities: ​ ​ ​ ​ ​ ​ Accrued costs for purchases of real estate assets ​ $ 6,077 ​ $ 5,881 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 7 Table of Contents Franklin Street Properties Corp. Notes to Consolidated Financial Statements (Unaudited) ​ 1.  Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards ​ Organization ​ Franklin Street Properties Corp. (“FSP Corp.” or the “Company”) holds, directly and indirectly, 100 % of the interest in FSP Investments LLC, FSP Property Management LLC , FSP Holdings LLC and FSP Protective TRS Corp . FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in one corporation organized to operate as a real estate investment trust (“REIT”) and held a non-controlling common stock interest in an additional REIT that was sold in June 2022. Collectively, these two REITs are referred to as the “Sponsored REITs”. ​ As of June 30, 2022, the Company owned and operated a portfolio of real estate consisting of 24 operating properties, one managed Sponsored REIT and held one promissory note secured by a mortgage on real estate owned by the 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, for geographic, property specific reasons or for other general corporate purposes. ​ Properties ​ 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 June 30, ​ 2022 2021 Operating Properties: ​ ​ ​ ​ ​ Number of properties 24 29 ​ Rentable square feet 6,915,715 8,228,148 ​ ​ Basis of Presentation ​ The unaudited consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission. ​ The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and six months ended June 30, 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. 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 8 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, June 30, (in thousands) ​ 2022 ​ 2021 Cash and cash equivalents ​ $ 4,393 ​ $ 19,038 Restricted cash ​ 300 ​ 5,142 Total cash, cash equivalents and restricted cash ​ $ 4,693 ​ $ 24,180 ​ Restricted cash consists of escrows arising from property sales. 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 June 30, 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 (as defined in Note 2) net of the allowance for credit loss, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $ 24.2 million and $ 24.5 million at June 30, 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 $ 1.4 million and $ 0.5 million at June 30, 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 ​ 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”). 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. The Company is currently assessing the potential impact that the adoption of ASU 2020-04 may have on its consolidated financial statements. ​ ​ 9 Table of Contents 2.  Related Party Transactions and Investments in Non-Consolidated Entities ​ Investment in Sponsored REITs: ​ At June 30, 2022 and December 31, 2021, the Company held a non-controlling common stock interest in one and two Sponsored REITs, respectively, 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 $ 21,000 and $ 34,000 for the six months ended June 30, 2022 and 2021, respectively. ​ From time to time the Company may make secured loans (“Sponsored REIT Loans”) to the Sponsored REIT 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 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. A property’s fair value, operating results and existing cash balances are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. ​ The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid through operation or sale of the property. The outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and the balances within the borrower’s cash accounts. The Sponsored REIT Loan has a term of approximately one year . ​ The following is a summary of the sole Sponsored REIT Loan outstanding as of June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maximum Amount Interest (dollars in thousands, except footnotes) ​ ​ Maturity ​ Amount ​ Outstanding Rate at Sponsored REIT Location ​ Date ​ of Loan ​ 30-Jun-22 30-Jun-22 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage loan secured by property ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FSP Monument Circle LLC (1) ​ Indianapolis, IN ​ 30-Jun-23 ​ $ 24,000 ​ $ 24,000 7.51 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 24,000 ​ $ 24,000 ​ ​ ​ (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 $ 906,000 and $ 793,000 for the six months ended June 30, 2022 and 2021, respectively. ​ 10 Table of Contents 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 June 30, 2022. ​ As of December 31, 2021 and June 30, 2021, we did not have an allowance for credit losses recorded on our consolidated balance sheets. We recorded a $ 1.1 million increase in our provision for credit losses during the six months ended June 30, 2022. The change in the allowance for credit losses during the six months ended June 30, 2022 is primarily due to the deterioration within the current real estate market and changes to key assumptions applied within our financial model to reflect these market changes, such as the exit cap and the discount rate. The following table presents a roll-forward of our allowance for credit losses. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended June 30, (Dollars in thousands) ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Beginning allowance for credit losses ​ $ — ​ $ — Additional increases or decreases to the allowance for credit losses ​ ​ 1,140 ​ ​ — Ending allowance for credit losses ​ $ 1,140 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the Sponsored REIT Loan measured at fair value on a nonrecurring basis: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value (1) at ​ Significant Range ​ Weighted Description ​ June 30, 2022 ​ Valuation Technique ​ Unobservable Input ​ Min ​ Max Average (2) ​ ​ ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sponsored REIT Loan ​ $ 22,860 Discounted Cash Flows ​ Exit Cap Rate 7.50 % ​ 7.50 % ​ 7.50 % ​ ​ ​ ​ ​ ​ ​ Discount Rate ​ 8.75 % ​ 8.75 % ​ 8.75 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) Classified within Level 3 of the fair value hierarchy. ​ (2) Unobservable inputs were weighted based on the fair value of the related instrument. ​ ​ ​ ​ ​ ​ ​ 3.  Bank Note Payable, Term Loans Payable and Senior Notes ​ JPM Term Loan ​ On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which provided 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 remained fully advanced and outstanding under the JPM Term Loan. On June 4, 2021, the Company repaid the remaining $ 100 million 11 Table of Contents 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. 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 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. ​ 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 June 30, 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 June 30, 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 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 June 30, 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. ​ The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or the 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 12 Table of Contents outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BMO Term Loan financial covenants as of June 30, 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 June 30, 2022, there were borrowings of $ 55.0 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 ( 1.95 % over SOFR and 0.95 % over the base rate at June 30, 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 ( 0.35 % at June 30, 2022). ​ Based upon the Company’s credit rating, as of June 30, 2022, the interest rate on the BofA Revolver was 3.75 % per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through June 30, 2022 was approximately 2.43 % 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 June 30, 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. ​ 13 Table of Contents 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 June 30, 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 June 30, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.75 % over the base rate at June 30, 2022). ​ The interest rate on the BofA Term Loan was variable at June 30, 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 June 30, 2022, the interest rate on the BofA Term Loan was 3.54 % per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan through June 30, 2022, was approximately 2.22 % 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 14 Table of Contents 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. The Company was in compliance with the BofA Credit Facility financial covenants as of June 30, 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; 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 Facility. ​ Senior Notes ​ On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes. Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $ 200 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 Former BofA Revolver. ​ The Senior Notes bear interest depending on the Company’s credit rating. As of June 30, 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 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 ; a maximum leverage ratio and an unsecured leverage ratio of no more than 60 % ( 65 % if there were a significant acquisition for a short period of time). In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material indebtedness or certain other private placements of debt of the Company and its subsidiaries. The Note Purchase Agreement contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Purchasers may, among other remedies, accelerate the payment of all obligations. The Company was in compliance with the Senior Notes financial covenants as of June 30, 2022. ​ 15 Table of Contents 4.  Financial Instruments: Derivatives and Hedging ​ 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. ​ 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. The 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 3. ​ The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. ​ The following table summarizes the notional and fair value of the Company’s derivative financial instrument at June 30, 2022 and December 31, 2021. The notional value is an indication of the extent of the Company’s involvement in this instrument at that time, but does not represent exposure to credit, interest rate or market risks. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Notional Strike Effective Expiration Fair Value (2) at (in thousands) ​ Value ​ Rate ​ Date ​ Date ​ June 30, 2022 December 31, 2021 2019 BMO Interest Rate Swap (1) ​ $ 165,000 2.39 % Aug-20 Jan-24 ​ $ 1,951 ​ $ ( 5,239 ) ​ (1) The Notional Value decreased to $ 165 million on June 4, 2021. ​ (2) Classified within Level 2 of the fair value hierarchy. ​ ​ The 2019 BMO Interest Rate Swap was reported as an asset with a fair value of approximately $ 2.0 million and a liability of approximately $ 5.2 million at June 30, 2022 and December 31, 2021, respectively. The balance is included in other assets: derivative asset and other liabilities: derivative liabilities in the consolidated balance sheet at June 30, 2022 and December 31, 2021, respectively. ​ 16 Table of Contents The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the six months ended June 30, 2022 and 2021, respectively, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Six Months Ended June 30, Interest Rate Swaps in Cash Flow Hedging Relationships: 2022 2021 ​ ​ ​ ​ ​ ​ ​ Amounts of gain recognized in OCI ​ $ 5,600 ​ $ 2,542 Amounts of previously recorded loss reclassified from OCI into Interest Expense ​ $ ( 1,589 ) ​ $ ( 5,344 ) ​ ​ ​ ​ ​ ​ ​ Total amount of Interest Expense presented in the consolidated statements of operations ​ $ 11,030 ​ $ 18,654 ​ Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified into earnings as an increase or reduction to interest expense in the same periods in which the hedged interest payments affect earnings. The Company estimates that approximately $ 1.2 million of the current balance held in accumulated other comprehensive income (loss) will be reclassified into earnings within the next 12 months. ​ The Company is hedging the exposure to variability in anticipated future interest payments on existing debt. ​ The BMO Term Loan 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. As a result, the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that the Company will be able to adequately protect against the foregoing risks or that it will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies. ​ The fair value of the Company’s derivative instruments are determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve and are adjusted to reflect credit or nonperformance risk. The risk is estimated by the Company using credit spreads and risk premiums that are observable in the market. These financial instruments were classified within Level 2 of the fair value hierarchy and were classified as an asset or liability on the consolidated balance sheets. ​ The Company’s derivatives are recorded at fair value in other assets: derivative asset and other liabilities: derivative liability in the consolidated balance sheets and the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the consolidated statements of comprehensive income (loss). ​ 5.  Net Income Per Share ​ Basic net income per share is computed by dividing net income by the weighted average number of Company shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were no potential dilutive shares outstanding at each of June 30, 2022 and 2021. ​ 17 Table of Contents 6.  Stockholders’ Equity ​ As of June 30, 2022, the Company had 103,235,914 shares of common stock outstanding. The Company declared and paid dividends as follows (in thousands, except per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends Per ​ Total Quarter Paid Share Dividends ​ ​ ​ ​ ​ ​ ​ ​ Special dividend declared in December 2021 and paid January 2022 $ 0.32 $ 33,280 ​ First quarter of 2022 $ 0.09 $ 9,360 ​ Second quarter of 2022 $ 0.09 $ 9,284 ​ ​ ​ ​ ​ ​ ​ ​ ​ First quarter of 2021 $ 0.09 $ 9,660 ​ Second quarter of 2021 $ 0.09 $ 9,659 ​ ​ Equity-Based Compensation ​ On May 20, 2002, the stockholders of the Company approved the 2002 Stock Incentive Plan (the “Plan”). The Plan is an equity-based incentive compensation plan, and provides for the grants of up to a maximum of 2,000,000 shares of the Company’s common stock (“Awards”). All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted Awards. Awards under the Plan are made at the discretion of the Company’s Board of Directors, and have no vesting requirements. Upon granting an Award, the Company will recognize compensation cost equal to the fair value of the Company’s common stock, as determined by the Company’s Board of Directors, on the date of the grant. ​ On May 20, 2021 and May 17, 2022, the Company granted shares under the Plan to non-employee directors with the compensation cost related to such grants indicated in the table below, which was recognized during the year ended December 31, 2021 and the three months ended June 30, 2022, respectively, and is included in general and administrative expenses for such periods. Such shares were fully vested on the date of issuance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares Available ​ Compensation ​ ​ for Grant ​ Cost ​ ​ ​ ​ ​ ​ ​ Balance December 31, 2020 ​ ​ 1,847,384 ​ $ 675,000 Shares granted 2021 ​ ​ ( 66,564 ) ​ ​ 337,500 Balance December 31, 2021 ​ ​ 1,780,820 ​ ​ 1,012,500 Shares granted 2022 ​ ​ ( 84,133 ) ​ ​ 393,750 Balance June 30, 2022 ​ ​ 1,696,687 ​ $ 1,406,250 ​ ​ ​ ​ ​ ​ ​ ​ 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 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 Company did not repurchase any shares of common stock during the second quarter of 2022. The excess of the purchase price over the par value of the shares repurchased is applied to reduce additional paid-in capital. ​ 18 Table of Contents A summary of the repurchase of common stock by the Company is shown in the following table: ​ ​ ​ ​ ​ ​ ​ ​ (Cost in thousands) ​ ​ Shares Repurchased ​ Cost Balance December 31, 2020 ​ 1,017,498 $ 18,775 Repurchase of shares ​ ​ 3,396,243 ​ ​ 18,244 Balance, December 31, 2021 ​ ​ 4,413,741 ​ ​ 37,019 Repurchase of shares ​ ​ 846,739 ​ ​ 4,843 Balance, June 30, 2022 ​ ​ 5,260,480 ​ $ 41,862 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7.  Income Taxes ​ General ​ The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, the Company generally is entitled to a tax deduction for distributions paid to its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only. The Company must comply with a variety of restrictions to maintain its status as a REIT. These restrictions include the type of income it can earn, the type of assets it can hold, the number of shareholders it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed annually. ​ One such restriction is that the Company generally cannot own more than 10 % of the voting power or value of the securities of any one issuer unless the issuer is itself a REIT or a taxable REIT subsidiary (“TRS”). In the case of TRSs, the Company’s ownership of securities in all TRSs generally cannot exceed 20 % ( 25 % of taxable years beginning on or before December 31, 2017) of the value of all of the Company’s assets and, when considered together with other non-real estate assets, cannot exceed 25 % of the value of all of the Company’s assets. FSP Investments LLC and FSP Protective TRS Corp. are the Company’s taxable REIT subsidiaries operating as taxable corporations under the Code. The TRSs have gross amounts of net operating losses (“NOLs”) available to those taxable corporations of $ 4.8 million and $ 4.6 million as of each of December 31, 2021 and 2020, respectively. The NOLs created prior to 2018 will expire between 2030 and 2047 and the NOLs generated after 2017 will not expire. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured. ​ Income taxes are recorded based on the future tax effects of the difference between the tax and financial reporting bases of the Company’s assets and liabilities. In estimating future tax consequences, potential future events are considered except for potential changes in income tax law or in rates. ​ The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2018 and thereafter. ​ Net operating losses ​ Section 382 of the Code restricts a corporation’s ability to use NOLs to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Sponsored REITs available for use by the Company in any particular future taxable year will be limited. To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years. NOLs 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 19 Table of Contents 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 June 30, 2022 and December 31, 2021, respectively. ​ Income Tax Expense ​ The Company is subject to a business tax known as the Revised Texas Franchise Tax. Some of the Company’s leases allow reimbursement by tenants for these amounts because the Revised Texas Franchise Tax replaces a portion of the property tax for school districts. Because the tax base on the Revised Texas Franchise Tax is derived from an income based measure, it is considered an income tax. The Company recorded a provision for the Revised Texas Franchise Tax of $ 105,000 and $ 123,000 for the six months ended June 30, 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 Six Months Ended June 30, (Dollars in thousands) 2022 2021 ​ ​ ​ ​ ​ ​ ​ Revised Texas Franchise Tax ​ $ 105 ​ $ 123 ​ Other Taxes ​ — ​ — ​ Tax expense ​ $ 105 ​ $ 123 ​ ​ Taxes on income are a current tax expense. No deferred income taxes were provided as there were no material temporary differences between the financial reporting basis and the tax basis of the TRSs. ​ 8.  Leases ​ Leases as a Lessor: The Company is a lessor of commercial real estate with operations that include the leasing of office and industrial properties. Many of the leases with customers contain options to extend leases at a fair market rate and may also include options to terminate leases. The Company considers several inputs when evaluating the amount it expects to derive from its leased assets at the end of the lease terms, such as the remaining useful life, expected market conditions, fair value of lease payments, expected fair values of underlying assets, and expected deployment of the underlying assets. The Company’s strategy to address its risk for the residual value in its commercial real estate is to re-lease the commercial space. ​ The Company has elected to apply the practical expedient to not separate non-lease components from the related lease component of real estate leases. This combined component is primarily comprised of fixed lease payments, early termination fees, common area maintenance cost reimbursements, and parking lease payments. The Company applies ASC 842-Leases to the combined lease and non-lease components. ​ For the six months ended June 30, 2022 and 2021, the Company recognized the following amounts of income relating to lease payments: ​ ​ ​ ​ ​ ​ ​ ​ Income relating to lease payments: ​ ​ ​ ​ Six Months Ended (in thousands) June 30, 2022 ​ June 30, 2021 Income from leases (1) ​ $ 79,671 ​ $ 111,362 ​ ​ $ 79,671 ​ $ 111,362 (1) Amounts recognized from variable lease payments were $ 24,396 and $ 28,974 for the six months ended June 30, 2022 and 2021, respectively. ​ ​ ​ ​ ​ ​ ​ ​ 20 Table of Contents 9. Disposition of Properties ​ In furtherance of the Company’s strategy adopted in 2021 to dispose of certain properties where it believed its valuation objective has been met, 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 $ 22.7 million. The Company sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $ 2.1 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 during the three and six months ended June 30, 2021 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ June 30, ​ June 30, (in thousands) 2022 2021 2022 2021 Rental revenue ​ $ — ​ $ 4,139 ​ $ — ​ $ 10,722 Rental operating expenses ​ — ​ ( 1,525 ) ​ — ​ ( 3,832 ) Real estate taxes and insurance ​ — ​ ( 621 ) ​ — ​ ( 1,644 ) Depreciation and amortization ​ — ​ ( 537 ) ​ — ​ ( 3,107 ) Income from dispositions ​ $ — ​ $ 1,456 ​ $ — ​ $ 2,139 ​ ​ ​ ​ 10.  Subsequent Events ​ On July 5, 2022, the Company announced that its Board of Directors had adopted a variable quarterly dividend policy, which replaces its previous regular quarterly dividend policy. Under the new variable quarterly dividend policy, the Company’s Board of Directors will determine quarterly dividends based upon a variety of factors, including the Company’s estimates of its annual taxable income and the amount that the Company is required to distribute annually in the aggregate to enable the Company to continue to qualify as a real estate investment trust for federal income tax purposes. On July 5, 2022, the Board of Directors of the Company declared a cash distribution of $ 0.01 per share of common stock payable on August 11, 2022 to stockholders of record on July 19, 2022. ​ On July 6, 2022, the Company entered into a reinstatement of, and amendment to, a Purchase and Sale Agreement with a third-party buyer for the disposition of two properties located in Broomfield, Colorado. Assuming satisfaction of certain customary conditions to close, the closing of the sale of the properties is expected to take place during the third quarter of 2022 . ​ ​ 21 Table of Contents