What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 225 added, 234 removed, 281 unchanged (62% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share and par value amounts)

Real estate assets:

Buildings and improvements

Land (amounts related to variable interest entities ("VIEs") of $ 6,415 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Buildings and improvements (amounts related to VIEs of $ 13,279 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Fixtures and equipment

Less accumulated depreciation

Real estate assets, net

Acquired real estate leases, less accumulated amortization of $ 19,535 and $ 40,423 , respectively

Cash, cash equivalents and restricted cash

Less accumulated depreciation (amounts related to VIEs of $ 85 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Real estate assets, net (amounts related to VIEs of $ 19,609 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Acquired real estate leases, less accumulated amortization of $ 20,170 and $ 20,243 , respectively (amounts related to VIEs of $ 305 , less accumulated amortization of $ 55 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Cash, cash equivalents and restricted cash (amounts related to VIEs of $ 2,919 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Tenant rent receivables

10 unchanged sentences

Series A & Series B Senior Notes, less unamortized financing costs of $ 453 and $ 494 , respectively

Accounts payable and accrued expenses

Accounts payable and accrued expenses (amounts related to VIEs of $ 619 and $ 0 at March 31, 2023 and December 31, 2022, respectively)

Accrued compensation

1 unchanged sentence

Lease liability

Other liabilities:

derivative liabilities

Acquired unfavorable real estate leases, less accumulated amortization of $ 519 and $ 574 , respectively

5 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated distributions in excess of accumulated earnings

4 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)

8 unchanged sentences

Loss on extinguishment of debt

Impairment and loan loss reserve

Gain on consolidation of Sponsored REIT

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

Income (loss) before taxes

Net income (loss)

Weighted average number of shares outstanding , basic and diluted

Net income per share , basic and diluted

Net income (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)

Other comprehensive income:

Net income (loss)

Other comprehensive income (loss):

Unrealized gain on derivative financial instruments

Total other comprehensive income

Reclassification from accumulated other comprehensive income into interest expense

Total other comprehensive income (loss)

Comprehensive income

9 unchanged sentences

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

Comprehensive income

Repurchased shares

1 unchanged sentence

share of common stock

Balance, September 30, 2021

Balance, March 31, 2022

Balance, December 31, 2022

Comprehensive income (loss)

Repurchased shares

Distributions $ 0.01 per

1 unchanged sentence

Balance, March 31, 2023

Comprehensive income (loss)

Equity-based compensation

Distributions $ 0.09 per

share of common stock

Balance, June 30, 2022

Comprehensive income

Distributions $ 0.01 per

share of common stock

Balance, September 30, 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:

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss)

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

Amortization of other comprehensive income into interest expense

Loss on extinguishment of debt

Impairment and loan loss reserve

Gain on consolidation of Sponsored REIT

Gain on sale of properties, net

Equity in income of non-consolidated REITs

Distributions from non-consolidated REITs

Changes in operating assets and liabilities:

7 unchanged sentences

Payment of deferred leasing commissions

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Property improvements, fixtures and equipment

Consolidation of Sponsored REIT

Proceeds received from sales of properties

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Distributions to stockholders

Proceeds received from termination of interest rate swap

Stock repurchases

1 unchanged sentence

Repayments of bank note payable

Repayment of term loans payable

Repayment of term loan payable

Deferred financing costs

7 unchanged sentences

Accrued costs for purchases of real estate assets

Investment in related party mortgage loan receivable converted to real estate assets

and acquired real estate leases in conjunction with variable interest entity consolidation

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

5 unchanged sentences

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 (the “Sponsored REIT”).

As of September 30, 2022, the Company owned and operated a portfolio of real estate consisting of 22 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.

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 September 30,

Operating Properties:

The Company also has a non-controlling common stock interest in the corporation that is the sole member of FSP Monument Circle LLC, which corporation was organized to operate as a real estate investment trust (“Monument Circle” or the “Sponsored REIT”).

As of March 31, 2023, the Company owned and operated a portfolio of real estate consisting of 20 operating properties, and the Sponsored REIT, which was consolidated effective January 1, 2023.

The Company may 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.

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

As of March 31,

Owned and Consolidated Properties:

Number of properties

1 unchanged sentence

Basis of Presentation

The unaudited consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned subsidiaries.

The unaudited consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned and controlled subsidiaries.

All significant intercompany balances and transactions have been eliminated.

4 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 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.

As disclosed in Note 4, the Company’s derivatives were recorded at fair value using Level 2 inputs prior to their termination on February 8, 2023.

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.

1 unchanged sentence

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)

2 unchanged sentences

Total cash, cash equivalents and restricted cash

(1) Includes $ 2,919 pertaining to Monument Circle, which the Company is unable to utilize for its own operational purposes.

Restricted cash consists of escrows arising from property sales.

1 unchanged sentence

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.

The Company determines 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 the Company holds 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.

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

The Company analyzes any investments in VIEs to determine if the Company is the primary beneficiary.

In evaluating whether the Company is the primary beneficiary, the Company evaluates its 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 September 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 $ 24.0 million and $ 24.5 million at September 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 $ 1.8 million and $ 0.5 million at September 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.

The Company considers 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, the Company considers the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter.

The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and considers that conclusion upon a reconsideration event.

As of January 1, 2023, the Company’s relationship with the Sponsored REIT was considered a VIE and the Company became the primary beneficiary.

Upon this reconsideration event, the entity is included within the Company’s consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation.

A gain on consolidation of approximately $ 0.4 million was recognized in the three months ended March 31, 2023.

Cash and cash equivalents of $ 3 million held by Monument Circle was included in the Company’s cash and cash equivalents upon consolidation and is reflected as “Consolidation of Sponsored REIT” in the consolidated statement of cash flows.

The cash and cash equivalents held by Monument Circle are unable to be utilized for the Company’s operational purposes.

The creditors of Monument Circle’s trade payables do not have any recourse against the Company.

The consolidation value of Monument Circle was allocated to real estate investments and leases, including lease origination costs.

Lease origination costs represent the value associated with acquiring an in-place lease (i.e.

the market cost to execute a similar lease, including leasing commission, legal, vacancy, and other related costs).

The value assigned to building approximates the replacement cost;

the value assigned to land approximates its appraised value;

and the value assigned to leases approximate their fair value.

Other assets and liabilities are recorded at their historical costs, which approximates fair value.

The Company assessed the fair value of the acquired real estate leases based on estimated cash flow projections that utilize appropriate discount rates and available market information.

Such inputs are level 3 in the fair value hierarchy.

The following table summarizes the estimated fair value of the assets acquired at the date of consolidation, January 1, 2023:

(in thousands)

Real estate assets

Value of acquired real estate leases

The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the assets acquired in the consolidation of Monument Circle and were measured at fair value on a nonrecurring basis at Janury 1, 2023:

Fair Value (1) at

January 1, 2023

Valuation Technique

Unobservable Input

(in thousands)

Monument Circle Consolidation

Discounted Cash Flows

Exit Cap Rate

Discount Rate

(1) Classified within Level 3 of the fair value hierarchy.

(2) Unobservable inputs were weighted based on the fair value of the related instrument.

Prior to January 1, 2023, the Company’s relationship with the Sponsored REIT was considered a VIE in which the Company was not the primary beneficiary.

The Company’s maximum exposure to losses associated with this VIE was limited to the principal amount outstanding under the loan from the Company to the Sponsored REIT secured by a mortgage on real estate owned by the Sponsored REIT (the “Sponsored REIT Loan”) net of the allowance for credit loss, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $ 22.1 million at December 31, 2022.

The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and were approximately $ 2.3 million at December 31, 2022.

The relationships and investments related to the Sponsored REIT are summarized in Note 2.

Recent Accounting Standards

4 unchanged sentences

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.

The Company does not anticipate that the adoption of ASU 2020-04 will have a material impact on the consolidated financial statements.

Related Party Transactions and Investments in Non-Consolidated Entities

Investment in Sponsored REITs:

At September 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.

At December 31, 2022, the Company held a non-controlling common stock interest in the Sponsored REIT.

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 $ 26,000 and $ 50,000 for the nine months ended September 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.

Asset management fee income from non-consolidated entities amounted to approximately $ 0 and $ 9,000 for the three months ended March 31, 2023 and 2022, respectively.

Prior to the consolidation of Monument Circle on January 1, 2023, the Company held the Sponsored REIT Loan, which was reported in the balance sheet as a related party mortgage loan receivable.

The Company reviewed the need for an allowance under the current expected credit loss model (“CECL”) for the Sponsored REIT Loan at each reporting period.

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

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

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

The Company regularly evaluated 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 were considered and used to assess whether cash flows from operations were sufficient to cover the current and future operating and debt service requirements.

The Company also evaluated the borrower’s competency in managing and operating the secured property and considered the overall economic environment, real estate sector and geographic sub-market in which the secured property is located.

The Company applied normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.

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 matures on June 30, 2023.

The following is a summary of the sole Sponsored REIT Loan outstanding as of September 30, 2022:

(dollars in thousands, except footnotes)

Sponsored REIT

Mortgage loan secured by property

FSP Monument Circle LLC (1)

Indianapolis, IN

(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 $ 1,367,000 and $ 1,196,000 for the nine months ended September 30, 2022 and 2021, respectively.

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.

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $ 0 and $ 451,000 for the three months ended March 31, 2023 and 2022, respectively.

On October 29, 2021, the Company agreed to amend and restate the then existing Sponsored REIT Loan 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 collateralized by the mortgage held on the Sponsored REIT’s property and by cash accounts, as of September 30, 2022.

As of December 31, 2021, we did not have an allowance for credit losses recorded on our consolidated balance sheets.

We recorded a $ 1.9 million increase in our provision for credit losses during the nine months ended September 30, 2022.

The change in the allowance for credit losses during the nine months ended September 30, 2022 is primarily due to the deterioration within the current real estate market, changes to key assumptions applied within our financial model to reflect these market changes, such as the exit cap and the discount rate, and due to an increase in the accrued interest receivable balance.

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 Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023.

There were no commitments to lend additional funds to the Sponsored REIT.

The Company recorded a $ 4.2 million increase in our provision for credit losses during the year ended December 31, 2022 which was primarily due to the deterioration within the real estate market, changes to key assumptions applied without our financial model to reflect these changes, such as the exit capitalization and discount rates, and due to an increase in the accrued interest receivable balance.

The Company recorded a $ 4.2 million decrease in our provision for credit losses during the three months ended March 31, 2023.

The change in the allowance for credit losses during the three months ended March 31, 2023 is due to the consolidation of Monument Circle.

The following table presents a roll-forward of our allowance for credit losses.

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

1 unchanged sentence

Additional increases to the allowance for credit losses

Reductions to the allowance for credit losses

Ending allowance for credit losses

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:

The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the collateral of the Sponsored REIT Loan measured at fair value on a nonrecurring basis at December 31, 2022:

Fair Value (1) at

September 30, 2022

December 31, 2022

Valuation Technique

8 unchanged sentences

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

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 September 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 September 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 10, 2023, the Company entered into a First Amendment to the Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal, as administrative agent (the “BMO First Amendment”).

The BMO First Amendment amended the Second Amended and Restated Credit Agreement, dated September 27, 2018, among the Company and the lending institutions party thereto (as amended by the BMO First Amendment, the “BMO Credit Agreement”) to, among other things, extend the maturity date from January 31, 2024 to October 1, 2024 and change the interest rate from a number of basis points over LIBOR depending on the Company’s credit rating to 300 basis points over SOFR (Secured Overnight Financing Rate).

The BMO Credit Agreement initially provided for an unsecured term loan borrowing in the amount of $ 220 million (the “BMO Term Loan”).

In connection with the BMO First Amendment, the Company repaid a $ 40 million portion of the remaining balance of the BMO Term Loan, so that $ 125 million remains outstanding as of March 31, 2023.

On or before April 1, 2024, the Company is required to repay an additional $ 25 million of the BMO Term Loan.

The remaining balance of the BMO Term Loan matures on October 1, 2024.

Effective February 10, 2023 upon entering into the BMO First Amendment, the BMO Term Loan bears interest at either (i) 300 basis points over one , three or six month term SOFR, plus a corresponding adjustment of 0.11448 %, 0.26161 % or 0.42826 %, respectively, or (ii) 200 basis points over the base rate.

Prior to February 10, 2023, the BMO Term Loan bore interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating ( 165 basis points over LIBOR at December 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 December 31, 2022).

As of March 31, 2023, the interest rate on the BMO Term Loan was 7.92 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan from February 8, 2023, which is when the Company terminated its outstanding interest rate swaps applicable to the BMO Term Loan as described below, through March 31, 2023 was approximately 7.16 % per annum.

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

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, 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.

Accordingly, based upon the Company’s credit rating, as of both December 31, 2022 and February 8, 2023, the effective interest rate on the BMO Term Loan was 4.04 % per annum.

On February 8, 2023, the Company terminated all outstanding interest rate swaps applicable to the BMO Term Loan and, on February 10, 2023, the Company received an aggregate of approximately $ 4.3 million as a result of such terminations, of which approximately $ 0.1 million related to interest receivable.

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 and repurchases and redemptions of the Company’s common stock;

going concern

qualifications to our financial statements;

and the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates.

In addition, the BMO Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $ 0.01 per share of the Company’s common stock;

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 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 maximum secured recourse 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

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, 2022.

In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or administrative agent under the BMO Credit Agreement and related documents.

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

We were in compliance with the BMO Term Loan financial covenants as of March 31, 2023.

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.

On February 10, 2023, the Company entered into a First Amendment to 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 (the “BofA First Amendment”), for a revolving line of credit for borrowings, at the Company’s election, of up to $ 150 million (the “BofA Revolver”).

The BofA First Amendment amended the Credit Agreement, dated January 10, 2022, among the Company and the lending institutions party thereto (as amended by the BofA First Amendment, the “BofA Credit Agreement”) to, among other things, extend the maturity date from January 12, 2024 to October 1, 2024, reduce availability for borrowings, at the Company’s election, from up to $ 237.5 million to up to $ 150 million, and to change the interest rate from a number of basis points over SOFR depending on the Company’s credit rating to 300 basis points over SOFR.

Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $ 150 million outstanding at any time.

As of September 30, 2022, there were borrowings of $ 65.0 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 September 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 September 30, 2022).

Based upon the Company’s credit rating, as of September 30, 2022, the interest rate on the BofA Revolver was 5.11 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through September 30, 2022 was approximately 1.84 % per annum.

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;

Effective October 1, 2023, availability under the BofA Revolver will be reduced to $ 125 million and, effective April 1, 2024, availability under the BofA Revolver will be further reduced to $ 100 million.

As of March 31, 2023 and April 27, 2023, there were borrowings of $ 75 million and $ 75 million drawn and outstanding under the BofA Revolver, respectively, which borrowings include $ 40 million that the Company borrowed on February 10, 2023 to repay a portion of the BMO Term Loan.

Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on October 1, 2024.

Effective February 10, 2023 upon entering into the BofA First Amendment, the BofA Revolver bears interest at 300 basis points over either (i) the daily simple 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 was not able to be determined, the BofA Revolver will instead bear interest at 200 basis points over the base rate.

Prior to February 10, 2023, borrowings under the BofA Revolver bore interest at a margin over either (i) the daily simple 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.

Prior to February 10, 2023, the margin over SOFR or, if applicable, the base rate, varied depending on the Company’s leverage ratio ( 1.750 % over SOFR and 0.750 % over the base rate at December 31, 2022).

Effective February 10, 2023 upon entering into the BofA First Amendment, the Company is also obligated to pay an annual facility fee on the unused portion of the BofA Revolver at the rate of 0.350 % per annum and, if applicable, letter of credit fees.

Prior to February 10, 2023, the Company was also obligated to pay an annual facility fee and, if applicable, letter of credit fees in amounts that were also based on the Company’s leverage ratio.

The previous facility fee was assessed against the aggregate amount of lender commitments regardless of usage ( 0.350 % at December 31, 2022).

As of March 31, 2023, the interest rate on the BofA Revolver was 7.92 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through March 31, 2023 was approximately 6.91 % 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, use of proceeds, the amount of cash and cash equivalents that the Company can have on its balance sheet after giving effect to an advance under the BofA Revolver, repurchases and redemptions of the Company’s common stock, going concern qualifications to our financial statements, and 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 maximum secured recourse 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 quarterly dividend distributions that exceed $ 0.01 per share of the Company’s common stock;

The Company was in compliance with the BofA Revolver financial covenants as of September 30, 2022.

The Company was in compliance with the BofA Revolver financial covenants as of March 31, 2023.

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).

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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.

The Company may use the net proceeds of the BofA Revolver for permitted investments, working capital and other general business purposes, including for building improvements, tenant improvements and leasing commissions, in each case to the extent permitted under the BofA Credit Agreement.

Former 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 “Amended Former BofA Credit Facility”) that continued an existing unsecured revolving line of credit (the “Former BofA Revolver”) and an existing term loan (the “Former BofA Term Loan”).

Effective simultaneously with the closing of the Amended Former BofA Credit Facility 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.

On September 6, 2022, the Company prepaid the remaining $ 110 million balance of the BofA Term Loan in full and incurred a loss on extinguishment of debt of $ 0.1 million related to unamortized deferred financing costs.

As of September 30, 2022, there was no balance outstanding under the BofA Term Loan.

● If the Company had not prepaid the BofA Term Loan on September 6, 2022, the BofA Term Loan would have matured by its own terms on January 12, 2023.

The BofA Term Loan bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.75 % over LIBOR at the date of repayment on September 6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.75 % over the base rate at the date of repayment on September 6, 2022).

The interest rate on the BofA Term Loan was variable through the date of prepayment on September 6, 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.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan through the date of repayment on September 6, 2022, was approximately 2.65 % per annum.

Former BofA Revolver Highlights

● The Former BofA Revolver was terminated at the Company’s election effective January 10, 2022.

● As of December 31, 2021 and January 10, 2022, there were no borrowings under the Former BofA Revolver.

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

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

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

The amount of any applicable facility

fee, and the margin over LIBOR rate or base rate was determined based on the Company’s credit rating pursuant to a pricing grid.

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

(i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50 %, and (iii) the one month LIBOR based rate for such day plus 1.00 %.

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

During 2022 and as of December 31, 2022, there were no borrowings under the Former BofA Revolver.

Former BofA Term Loan Highlights

● The Former BofA Term Loan was repaid in its entirety on September 6, 2022.

● The original principal amount of the Former 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 Former BofA Term Loan and incurred a loss on extinguishment of debt of $ 0.7 million related to unamortized deferred financing costs.

On September 6, 2022, the Company prepaid the remaining $ 110 million balance of the Former BofA Term Loan in full and incurred a loss of extinguishment of debt of $ 0.1 million related to unamortized deferred financing costs.

● If the Company had not prepaid the Former BofA Term Loan in full on September 6, 2022, the Former BofA Term Loan would have matured on January 12, 2023.

The Former BofA Term Loan bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ( 1.75 % over LIBOR at the date of repayment on September 6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating ( 0.750 % over the base rate at the date of repayment on September 6, 2022).

The margin over LIBOR rate or base rate was determined based on the Company’s credit rating pursuant to a pricing grid.

The interest rate on the Former BofA Term Loan was variable through the date of repayment on September 6, 2022.

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

The weighted average variable interest rate on all amounts outstanding under the Former BofA Term Loan through the date of repayment on September 6, 2022 was approximately 2.65 % per annum.

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.

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

As of September 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.

As of March 31, 2023, 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 ;

Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA Credit Agreement and the BMO 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).

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

The Company was in compliance with the Senior Notes financial covenants as of September 30, 2022.

The Company was in compliance with the Senior Notes financial covenants as of March 31, 2023.

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 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 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.

The variable rates that were fixed under the 2019 BMO Interest Rate Swap is described in Note 3.

On February 8, 2023, we terminated the 2019 BMO Interest Rate Swap applicable to the BMO Term Loan and, on February 10, 2023, the Company received an aggregate of approximately $ 4.3 million as a result of such terminations, of which approximately $ 0.1 million related to interest receivable.

As of March 31, 2023, there were no derivative instruments.

The 2019 BMO Interest Rate Swap qualified as a cash flow hedge and has 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 September 30, 2022 and December 31, 2021.

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

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.

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(in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

2019 BMO Interest Rate Swap

(1) The Notional Value decreased to $ 165 million on June 4, 2021.

(1) 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 $ 4.3 million and a liability of approximately $ 5.2 million at September 30, 2022 and December 31, 2021, respectively.

The 2019 BMO Interest Rate Swap was reported as an asset with a fair value of approximately $ 4.4 million at December 31, 2022.

The balance is included in other assets:

derivative asset and other liabilities:

derivative liabilities in the consolidated balance sheet at September 30, 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 nine months ended September 30, 2022 and 2021, respectively, was as follows:

derivative asset in the consolidated balance sheet at December 31, 2022.

The gain (loss) on the Company’s 2019 BMO Interest Rate Swap 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, 2023 and 2022, was as follows:

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Interest Rate Swaps in Cash Flow Hedging Relationships:

Amounts of gain recognized in OCI

Amounts of previously recorded loss reclassified from OCI into Interest Expense

Amounts of previously recorded gain (loss) reclassified from OCI into Interest Expense

Total amount of Interest Expense presented in the consolidated statements of operations

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 $ 3.2 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.

Over time, the realized gains in accumulated other comprehensive income will be reclassified into earnings as a decrease to interest expense in the same periods in which the hedged interest payments woud affect earnings.

The Company estimates

that approximately $ 3.5 million of the current balance held in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

The Company hedged the exposure to variability in anticipated future interest payments on existing debt.

The BMO Term Loan hedging transaction used derivative instruments that involved certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates would cause a significant loss of basis in the contract.

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

As a result, the Company did not anticipate that any counterparty would fail to meet its obligations.

However, there was no assurance that the Company would be able to adequately protect against the foregoing risks or that it would ultimately realize an economic benefit that exceeded 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.

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 sheet.

The Company’s derivatives are recorded at fair value in other assets:

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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, 2022 and 2021.

There were no potential dilutive shares outstanding at each of March 31, 2023 and 2022.

Stockholders’ Equity

As of September 30, 2022, the Company had 103,235,914 shares of common stock outstanding.

As of March 31, 2023, 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

Special dividend declared in December 2021 and paid January 2022

First quarter of 2023

Second quarter of 2022

Third quarter of 2022

Special dividend declared in December 2021 and paid January 2022

First quarter of 2022

Second quarter of 2021

Third quarter of 2021

Equity-Based Compensation

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Upon granting an Award, the Company will recognize compensation cost equal to the fair value of the Company’s common stock, as determined by the Company’s Board of Directors, on the date of the grant.

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 nine months ended September 30, 2022, respectively, and is included in general and administrative expenses for such periods.

On 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, 2022 and is included in general and administrative expenses for such period.

Such shares were fully vested on the date of issuance.

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Shares granted 2023

Balance September 30, 2022

Balance March 31, 2023

Repurchase of Common Stock

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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 and third quarters of 2022.

The Company 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 remainder of 2022 or the first quarter of 2023.

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

On February 10, 2023, the Company announced it had discontinued the previous repurchase authorization made on June 23, 2021.

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

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Balance, December 31, 2022

Repurchase of shares

Balance, September 30, 2022

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

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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 TRSs have gross amounts of net operating losses (“NOLs”) available to those taxable corporations of $ 4.9 million and $ 4.8 million as of December 31, 2022 and December 31, 2021, respectively.

The NOLs created prior to 2018 will expire between 2030 and 2047 and the NOLs generated after 2017 will not expire.

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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 $ 1.7 million and $ 1.1 million as of September 30, 2022 and December 31, 2021, respectively.

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 $ 1.7 million and $ 1.7 million as of March 31, 2023 and December 31, 2022, respectively.

Income Tax Expense

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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 $ 167,000 and $ 174,000 for the nine months ended September 30, 2022 and 2021, respectively.

The Company recorded a provision for the Revised Texas Franchise Tax of $ 67,000 and $ 49,000 for the three months ended March 31, 2023 and 2022, 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)

10 unchanged sentences

The Company applies ASC 842-Leases to the combined lease and non-lease components.

For the nine months ended September 30, 2022 and 2021, the Company recognized the following amounts of income relating to lease payments:

For the three months ended March 31, 2023 and 2022, 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, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Income from leases (1)

(1) Amounts recognized from variable lease payments were $ 37,050 and $ 42,298 for the nine months ended September 30, 2022 and 2021, respectively.

(1) Includes amounts recognized from variable lease payments were $ 10,852 and $ 12,665 for the three months ended March 31, 2023 and 2022, respectively.

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 two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $ 102.5 million, at a net gain of approximately $ 24.1 million.

In 2021, 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 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.

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 where it believes valuation potential has been reached.

In 2023, the Company sold one office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $ 29.1 million, at a gain of approximately $ 8.4 million.

The Company used the proceeds of the disposition principally to repay a portion of outstanding indebtedness.

In 2022, the Company sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $ 102.5 million, at a gain of approximately $ 24.1 million.

The Company sold an office property located in Evanston, Illinois on December 28, 2022 for a sales price of $ 27.8 million, at a gain of approximately $ 3.9 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 nine months ended September 30, 2022 and 2021, respectively, 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

Subsequent Events

On October 7, 2022, the Board of Directors of the Company declared a cash distribution of $ 0.01 per share of common stock payable on November 10, 2022 to stockholders of record on October 21, 2022.

On April 7, 2023, the Board of Directors of the Company declared a cash distribution of $ 0.01 per share of common stock payable on May 11, 2023 to stockholders of record on April 21, 2023.

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