What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-07 compared with 2023-08-01 · 150 added, 91 removed, 442 unchanged (35% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share and par value amounts)

Real estate assets:

Land (amounts related to variable interest entities ("VIEs") of $ 6,416 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Buildings and improvements (amounts related to VIEs of $ 13,279 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Land (amounts related to variable interest entities ("VIEs") of $ 6,416 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Buildings and improvements (amounts related to VIEs of $ 13,279 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Fixtures and equipment

Less accumulated depreciation (amounts related to VIEs of $ 170 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Real estate assets, net (amounts related to VIEs of $ 19,524 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Acquired real estate leases, less accumulated amortization of $ 20,962 and $ 20,243 , respectively (amounts related to VIEs of $ 305 , less accumulated amortization of $ 111 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Asset held for sale

Cash, cash equivalents and restricted cash (amounts related to VIEs of $ 2,604 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Less accumulated depreciation (amounts related to VIEs of $ 256 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Real estate assets, net (amounts related to VIEs of $ 19,439 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Acquired real estate leases, less accumulated amortization of $ 19,660 and $ 20,243 , respectively (amounts related to VIEs of $ 305 , less accumulated amortization of $ 166 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Assets held for sale

Cash, cash equivalents and restricted cash (amounts related to VIEs of $ 2,445 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Tenant rent receivables

10 unchanged sentences

Series A & Series B Senior Notes, less unamortized financing costs of $ 371 and $ 494 , respectively

Accounts payable and accrued expenses (amounts related to VIEs of $ 539 and $ 0 at June 30, 2023 and December 31, 2022, respectively)

Accounts payable and accrued expenses (amounts related to VIEs of $ 628 and $ 0 at September 30, 2023 and December 31, 2022, respectively)

Accrued compensation

15 unchanged sentences

Consolidated Statements of Operations

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(in thousands, except per share amounts)

10 unchanged sentences

Impairment and loan loss reserve

Gain on sale of properties and impairment of asset held for sale, net

Loss before taxes

Gain (loss) on sale of properties and impairment of assets held for sale, net

Income (loss) before taxes

Net income (loss)

Weighted average number of shares outstanding , basic and diluted

Net loss 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

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net income (loss)

Other comprehensive income (loss):

2 unchanged sentences

Total other comprehensive income (loss)

Comprehensive loss

Comprehensive income (loss)

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

17 unchanged sentences

Balance, June 30, 2022

Comprehensive income

Distributions $ 0.01 per

share of common stock

Balance, September 30, 2022

Balance, December 31, 2022

8 unchanged sentences

Balance, June 30, 2023

Comprehensive loss

Distributions $ 0.01 per

share of common stock

Balance, September 30, 2023

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

1 unchanged sentence

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in thousands)

Cash flows from operating activities:

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

Net income (loss)

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

Depreciation and amortization expense

5 unchanged sentences

Impairment and loan loss reserve

Gain on sale of properties and impairment of asset held for sale, net

(Gain) loss on sale of properties and impairment of assets held for sale, net

Changes in operating assets and liabilities:

7 unchanged sentences

Payment of deferred leasing commissions

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

2 unchanged sentences

Proceeds received from sales of properties

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities:

24 unchanged sentences

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 June 30, 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.

As of September 30, 2023, the Company owned and operated a portfolio of real estate consisting of 19 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 June 30,

As of September 30,

Owned and Consolidated Properties:

1 unchanged sentence

Rentable square feet

(1) Includes a property that was classified as an asset held for sale as of June 30, 2023.

(1) Includes three properties that were classified as assets held for sale as of September 30, 2023.

Basis of Presentation

6 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 six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any other period.

Management is in discussions with lenders to extend or refinance the Company’s debt, a portion of which matures within one year after the date that these financial statements are issued as more fully described in Note 3 below.

Management has considered whether there is substantial doubt about the Company's ability to continue as a going concern within one year of the issuance date of these interim financial statements due to the fact of the uncertainty regarding the maturities of this debt as set forth in Accounting Standards Codification (ASC) 205-40, “Presentation of Financial Statements - Going Concern.” As described in Note 1 below, the Company has concluded that management’s plans to dispose of assets and extend and/or

refinance the Company’s debt are probable of being achieved and alleviate substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from an adverse outcome of this uncertainty.

Financial Instruments

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.

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.

The Company estimates that the carrying values of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued expenses, accrued compensation, and tenant security deposits approximate their fair values based on their short-term maturity and the bank note and term loans payable approximate their fair values as they bear interest at variable interest rates or at rates that are at market for similar investments.

Cash, Cash Equ ivalents and Restricted Cash

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

September 30,

(in thousands)

2 unchanged sentences

Total cash, cash equivalents and restricted cash

(1) Includes $ 2,604 pertaining to Monument Circle, which the Company is unable to utilize for its own operational purposes.

(1) Includes $ 2,445 at September 30, 2023, 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.

13 unchanged sentences

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.

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.

6 unchanged sentences

the value assigned to land approximates its appraised value;

and the value assigned to

leases approximate their fair 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.

5 unchanged sentences

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 January 1, 2023:

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

Fair Value (1) at

13 unchanged sentences

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

Liquidity and Management’s Plan

When preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued as set forth in Accounting Standards Codification (ASC) 205-40, “Presentation of Financial Statements - Going Concern.” In making its assessment, management considered the Company’s financial condition and liquidity sources.

As of September 30, 2023 and November 7, 2023, the Company had aggregate outstanding indebtedness under two unsecured loans, the BofA Revolver and the BMO Term Loan (as defined in Note 3), totaling approximately $ 195 million and $ 205 million, respectively, maturing within 12 months of the date of issuance of the financial statements, and expects to have sufficient financial resources available to satisfy the obligations when due.

Subsequent to September 30, 2023, on October 26, 2023, the Company closed on the disposition of one property resulting in net proceeds of approximately $ 46.7 million.

As of the date of these interim financial statements, the Company is holding such net proceeds in cash and cash equivalents.

As of September 30, 2023, the Company had entered into agreements to effect the sale of two properties held for sale that are scheduled to close during the fourth quarter of 2023, which two dispositions would result in aggregate net proceeds of approximately $ 96.5 million.

As of November 7, 2023, the Company had cash and cash equivalents of approximately $ 73.5 million, which when combined with the aggregate net proceeds of approximately $ 96.5 million from the above-described two dispositions scheduled to close during the fourth quarter of 2023, will be sufficient to repay approximately $ 170.0 million of the approximately $ 205.0 million of indebtedness maturing on October 1, 2024.

The Company is also actively working on the potential disposition of additional properties that are not classified as assets held for sale as of September 30, 2023.

As of September 30, 2023, the Company had entered into an agreement to effect the sale of a property that is scheduled to close during the fourth quarter of 2023, which would result in net proceeds of approximately $ 43.6 million.

The Company intends to use net proceeds from dispositions primarily for the repayment of debt.

Management is also actively engaged in discussions with the Company’s lenders to extend and/or refinance the BofA Revolver and the BMO Term Loan prior to maturity.

The Company believes that it will be able to extend and/or refinance the BofA Revolver and the BMO Term Loan prior to their scheduled October 1, 2024 maturity dates.

However, there can be no assurance that the Company will be able to obtain extensions and/or refinancings in a timely manner, or on acceptable terms, if at all, or generate the cash necessary to pay off the BofA Revolver and the BMO Term Loan through asset sales prior to their October 1, 2024 maturity dates.

The failure to obtain extensions and/or refinancings, or otherwise to repay the BofA Revolver and the BMO Term Loan, when due, could lead to events of default, which would have a material adverse effect on the Company’s financial condition.

The Company has concluded that management’s plans to dispose of assets and extend and/or refinance the BofA Revolver and the BMO Term Loan are probable of being achieved and alleviate substantial doubt about the Company’s ability to continue as a going concern.

As of September 30, 2023, the Company also has the Series A Notes (as defined in Note 3) in the aggregate principal amount of $ 116 million outstanding that are scheduled to mature on December 20, 2024, which is beyond 12 months of the date of issuance of the financial statements in this Quarterly Report on Form 10-Q and therefore have been excluded from management’s associated going concern assessment and analysis.

Recent Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”).

ASU 2023-06 adds interim and annual disclosure requirements to GAAP at the request of the Securities and Exchange Commission.

The guidance in ASU 2023-06 is required to be applied prospectively and the GAAP requirements will be effective when the removal of the related SEC disclosure requirements is effective.

If the SEC does not act to remove its related requirement by June 30, 2027, any related FASB amendments will be removed from the Accounting Standards Codification and will not be effective.

The Company does not anticipate that the adoption of ASU 2023-06 will have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

1 unchanged sentence

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 guidance in ASU 2020-04 is

optional and may be elected over time as reference rate reform activities occur.

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

4 unchanged sentences

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 $ 0 and $ 21,000 for the six months ended June 30, 2023 and 2022, respectively.

Asset management fee income from non-consolidated entities amounted to approximately $ 0 and $ 26,000 for the nine months ended September 30, 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 Company reviewed the need for an allowance under the current expected credit loss model 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.

6 unchanged sentences

The outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and the balances within the borrower’s cash accounts.

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $ 0 and $ 906,000 for the six months ended June 30, 2023 and 2022, respectively.

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $ 0 and $ 1,367,000 for the nine months ended September 30, 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.

3 unchanged sentences

On June 26, 2023, the Sponsored REIT Loan maturity was extended to September 30, 2023.

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 within our financial model to reflect these changes, such as the exit capitalization and discount rates, and an increase in the accrued interest receivable balance.

On September 26, 2023, the Sponsored REIT Loan maturity was extended to September 30, 2024.

The Company recorded a $ 4.2 million increase in its 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 within our financial model to reflect these changes, such as the exit capitalization and discount rates, and an increase in the accrued interest receivable balance.

The Company recorded a $ 4.2 million decrease in its 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 was due to the consolidation of Monument Circle.

There were no adjustments during the three months ended June 30, 2023.

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

For the Six Months Ended June 30,

(Dollars in thousands)

The change in the allowance for credit losses during the three months ended March 31, 2023

was due to the consolidation of Monument Circle.

There were no adjustments during the subsequent months through September 30, 2023.

The following table presents a roll-forward of the Company’s allowance for credit losses.

For the Nine Months Ended September 30,

(In thousands)

Beginning allowance for credit losses

2 unchanged sentences

Ending allowance for credit losses

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:

The following is quantitative information about significant unobservable inputs in the Company’s 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

14 unchanged sentences

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 June 30, 2023.

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 principal amount remained outstanding.

On August 10, 2023, the Company repaid an additional $ 10 million of this loan, so that $ 115 million principal amount remains outstanding under the BMO Term Loan as of September 30, 2023 .

On or before April 1, 2024, the Company is required to repay an additional $ 15 million of the BMO Term Loan.

2 unchanged sentences

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 June 30, 2023, the interest rate on the BMO Term Loan was 8.26 % 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 June 30, 2023 was approximately 7.75 % per annum.

As of September 30, 2023, the interest rate on the BMO Term Loan was 8.43 % 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.

3 unchanged sentences

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;

going concern qualifications to the Company’s financial statements;

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

5 unchanged sentences

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

The Company was in compliance with the BMO Term Loan financial covenants as of June 30, 2023.

The Company was in compliance with the BMO Term Loan financial covenants as of September 30, 2023.

BofA Revolver

3 unchanged sentences

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 June 30, 2023 and July 27, 2023, there were borrowings of $ 75 million and $ 80 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.

As of September 30, 2023 and November 7, 2023, there were borrowings of $ 80 million and $ 90 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.

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.

4 unchanged sentences

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

As of June 30, 2023, the interest rate on the BofA Revolver was 8.26 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through June 30, 2023 was approximately 7.66 % 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.

As of September 30, 2023, the interest rate on the BofA Revolver was 8.43 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through September 30, 2023 was approximately 7.80 % 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 the Company’s 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.

1 unchanged sentence

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, 2023.

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

4 unchanged sentences

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.

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.

5 unchanged sentences

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.

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:

7 unchanged sentences

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).

5 unchanged sentences

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”).

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, 2023, 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 September 30, 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.

1 unchanged sentence

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 ;

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).

2 unchanged sentences

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

The Company was in compliance with the Senior Notes financial covenants as of June 30, 2023.

The Company was in compliance with the Senior Notes financial covenants as of September 30, 2023.

Financial Instruments:

3 unchanged sentences

On February 8, 2023, the Company 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 June 30, 2023, there were no derivative instruments.

As of September 30, 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.

5 unchanged sentences

(in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

4 unchanged sentences

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 six months ended June 30, 2023 and 2022, was as follows:

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 nine months ended September 30, 2023 and 2022, was as follows:

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Interest Rate Swaps in Cash Flow Hedging Relationships:

3 unchanged sentences

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 would affect earnings.

The Company estimates

that approximately $ 2.5 million of the current balance held in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

The Company estimates that approximately $ 1.4 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.

12 unchanged sentences

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

There were no potential dilutive shares outstanding at each of June 30, 2023 and 2022.

There were no potential dilutive shares outstanding at each of September 30, 2023 and 2022.

Stockholders’ Equity

As of June 30, 2023, the Company had 103,430,353 shares of common stock outstanding.

As of September 30, 2023, the Company had 103,430,353 shares of common stock outstanding.

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

2 unchanged sentences

Second quarter of 2023

Third quarter of 2023

Special dividend declared in December 2021 and paid January 2022

1 unchanged sentence

Second quarter of 2022

Third quarter of 2022

Equity-Based Compensation

4 unchanged sentences

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

On each of May 17, 2022 and May 18, 2023, 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 the six months ended June 30, 2023, respectively, included in general and administrative expenses for the respective period.

On each of May 17, 2022 and May 18, 2023, 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 the nine months ended September 30, 2023, respectively, included in general and administrative expenses for the respective period.

Such shares were fully vested on the date of issuance.

4 unchanged sentences

Shares granted 2023

Balance June 30, 2023

Balance September 30, 2023

Repurchase of Common Stock

35 unchanged sentences

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 June 30, 2023 and December 31, 2022, respectively.

The gross amount of NOLs available to the Company was $ 1.7 million and $ 1.7 million as of September 30, 2023 and December 31, 2022, respectively.

Income Tax Expense

2 unchanged sentences

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

The Company recorded a provision for the Revised Texas Franchise Tax of $ 142,000 and $ 105,000 for the six months ended June 30, 2023 and 2022, respectively.

The Company recorded a provision for the Revised Texas Franchise Tax of $ 212,000 and $ 167,000 for the nine months ended September 30, 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 Six Months Ended June 30,

For the Nine Months Ended September 30,

(Dollars in thousands)

10 unchanged sentences

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

For the six months ended June 30, 2023 and 2022, the Company recognized the following amounts of income relating to lease payments:

For the nine months ended September 30, 2023 and 2022, the Company recognized the following amounts of income relating to lease payments:

Income relating to lease payments:

Six Months Ended

Nine Months Ended

(in thousands)

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

Income from leases (1)

(1) Includes amounts recognized from variable lease payments of $ 21,382 and $ 24,396 for the six months ended June 30, 2023 and 2022, respectively.

(1) Includes amounts recognized from variable lease payments of $ 32,275 and $ 37,050 for the nine months ended September 30, 2023 and 2022, respectively.

Disposition of Properties and Asset Held for Sale

2 unchanged sentences

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 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.

1 unchanged sentence

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

During the three months ended June 30, 2023, the Company entered into an agreement to sell a property in Charlotte, North Carolina for a gross sales price of approximately $ 9.2 million and an expected loss of $ 0.8 million.

The Company reclassified $ 8.9 million of its office property as an asset held for sale as of June 30, 2023, which is comprised of $ 8.4 million of real estate assets, net of accumulated depreciation, $ 0.8 million of straight-line rents receivable, and $ 0.5 million of deferred leasing commissions, net of accumulated amortization.

The Company recorded the property at the fair value less cost to sell, which was less than the carrying value and resulted in an impairment of $ 0.8 million in the three months ended June 30, 2023.

The Company sold one office property located in Charlotte, North Carolina on August 9, 2023 for a sales price of $ 9.2 million, at a loss of $ 0.8 million.

During the three months ended September 30, 2023, the Company recorded a gain on sale of $ 53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project.

During the three months ended September 30, 2023, the Company entered into an agreement to sell a property in Miami, Florida for a gross sales price of approximately $ 68.0 million at an expected loss of $ 19.2 million and an agreement to sell a property in Atlanta, Georgia for a gross sales price of approximately $ 40.0 million at an expected loss of $ 20.5 million.

The Company reclassified $ 96.4 million of its office properties in Miami, Florida and Atlanta, Georgia as assets held for sale as of September 30, 2023, which is comprised of $ 122.2 million of real estate assets, net of accumulated depreciation, $ 5.5 million of straight-line rents receivable, and $ 8.4 million of deferred leasing commissions, net of accumulated amortization.

The Company recorded these properties at the fair value less cost to sell, which was less than the carrying value and resulted in an impairment of $ 39.7 million in the three months ended September 30, 2023.

The reclassification is a non-cash investing activity on the statement of cash flows.

The Company estimated the fair value of the property, less estimated costs to sell, using the offers to purchase the property made by third parties (Level 3 inputs, as there is no active market).

The Company estimated the fair value of these properties, less estimated costs to sell, using the offers to purchase the properties made by third parties (Level 3 inputs, as there is no active market).

During the three months ended September 30, 2023, the Company entered into an agreement to sell a property in Plano, Texas for a gross sales price of approximately $ 48.0 million at an expected gain of $ 10.6 million.

The Company reclassified $ 36.2 million of this office property as an asset held for sale as of September 30, 2023, which is comprised of $ 32.6 million of real estate assets, net of accumulated depreciation, $ 1.4 million of straight-line rents receivable, $ 1.7 million of deferred leasing commissions, net of accumulated amortization and $ 0.5 million of acquired real estate leases, net of accumulated amortization.

The reclassification is a non-cash investing activity on the statement of cash flows.

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 or classified as assets held for sale are summarized below:

Three months ended September 30,

Nine months ended September 30,

(in thousands)

Rental revenue

Rental operating expenses

Real estate taxes and insurance

Depreciation and amortization

Income from dispositions and assets held for sale

Subsequent Events

On July 7, 2023, the Board of Directors of the Company declared a cash distribution of $ 0.01 per share of common stock payable on August 10, 2023 to stockholders of record on July 21, 2023.

Subsequent to June 30, 2023, the Company executed purchase and sale agreements with three different unrelated purchasers for the potential sale of three properties that would result in aggregate gross proceeds of approximately $ 156 million.

These transactions remain subject to customary closing conditions, including successful completion by the purchasers of due diligence inspection periods.

If successful, these transactions are expected to close during the fourth quarter of 2023 and the proceeds are intended to be used primarily for the repayment of debt.

On October 6, 2023, the Board of Directors of the Company declared a cash distribution of $ 0.01 per share of common stock payable on November 9, 2023 to stockholders of record on October 20, 2023.

On October 26, 2023, the Company sold an office building located in Plano, Texas, for a sales price of $ 48.0 million at a gain of approximately $ 10.6 million.

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