What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-14 · 294 added, 252 removed, 322 unchanged (63% of the section changed)

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Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.

Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, adverse changes in general economic or local market conditions, including the impact of recessionary concerns, inflation, energy prices and interest rates, as well as those resulting from the COVID-19 pandemic, including the impact of work-from-home policies, and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future property dispositions, uncertainty relating to the completion and timing of the disposition of the properties under agreement, expectations for the potential payment of special dividends, changes in interest rates as a result of economic market conditions, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments.

Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, adverse changes in general economic or local market conditions, including the impact of recessionary concerns, inflation, energy prices and interest rates, as well as those resulting from the COVID-19 pandemic, including the impact of work-from-home and return-to-work policies, and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, our inability to extend and/or refinance our debt or effect asset sales sufficient to repay such debt prior to the maturity dates thereof, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future property dispositions, expectations for future potential leasing activity, expectations for the potential payment of special dividends, changes in interest rates as a result of economic market conditions, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments.

See “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

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We may look to acquire and/or develop quality properties in good locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.

We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets and we will seek to increase shareholder value by (1) pursuing the sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) striving to lease vacant space.

where we believe that short to intermediate term valuation potential has been reached and (2) striving to lease vacant space.

As we continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures may decrease in the short term.

Proceeds from dispositions are intended to be used primarily for the repayment of debt.

For the year ended December 31, 2022, our disposition strategy resulted in gross sale proceeds of $130.3 million and we repaid $128.9 million of debt.

Specifically, on August 31, 2022, we sold two office properties located in Broomfield, Colorado for aggregate gross proceeds of $102.5 million, at a gain of approximately $24.1 million.

On September 6, 2022, we prepaid our $110 million term loan with Bank of America, N.A.

as administrative agent and the other lending institutions party thereto (the “Former BofA Term Loan”).

If we had not prepaid the Former BofA Term Loan in full, it would have matured by its own terms on January 12, 2023.

In addition, on December 28, 2022, we sold one office property located in Evanston, Illinois for gross proceeds of $27.8 million, at a gain of $3.9 million.

On December 29, 2022 and December 30, 2022, we repaid $7 million and $20 million, respectively, that had been drawn under our revolving line of credit with Bank of America, N.A.

as administrative agent and the other lending institutions party thereto (the “BofA Revolver”).

For the year ended December 31, 2023, our disposition strategy resulted in aggregate gross sale proceeds of $154.5 million.

On February 21, 2024, we repaid $102 million of debt in connection with the extensions of our BofA Term Loan, BMO Term Loan, our Series A Notes and our Series B Notes (each as defined in Liquidity and Capital Resources below).

In July 2022, we adopted a variable quarterly dividend policy, which replaced our previous regular quarterly dividend policy.

Under the new variable quarterly dividend policy, the Board of Directors will determine quarterly dividends based upon a variety of factors, including the Company’s estimates of its annual taxable income and the amount that the Company is required to distribute annually in the aggregate to enable the Company to continue to qualify as a real estate investment trust for federal income tax purposes.

On June 15, 2021, the credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service to Ba1 from Baa3.

As of December 31, 2022, the interest rate applicable to borrowings under the BMO Term Loan, the BofA Revolver and the Senior Notes (each as defined in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources) was based in part on the rating of our debt.

On February 10, 2023, we entered into amendments to the BMO Term Loan and the BofA Revolver that, among other things, caused the interest rate applicable to those borrowings to no longer be based in part on the rating of our debt.

The interest rate applicable to borrowings under the Senior Notes continues to be based in part on the rating of our debt.

We anticipate that as a result of this downgrade we will incur approximately $1.0 million in additional interest costs from the Senior Notes over a full twelve-month period based on our borrowings as of February 10, 2023.

Under the variable quarterly dividend policy, the Board of Directors determines quarterly dividends based upon a variety of factors, including the Company’s estimates of its annual taxable income and the amount that the Company is required to distribute annually in the aggregate to enable the Company to continue to qualify as a real estate investment trust for federal income tax purposes.

The credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service from Ba1 to Ba3 on April 12, 2023, and from Ba3 to B3 on June 14, 2023.

As of December 31, 2023, the interest rate applicable to borrowings under the Senior Notes (as defined in– Liquidity and Capital Resources below) was based in part on the rating of our debt.

As of February 21, 2024, the interest rate applicable to borrowings under the Senior Notes was no longer based on the rating of our debt.

Trends and Uncertainties

COVID-19 Pandemic

The COVID-19 pandemic continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets.

It has disrupted global travel supply chains, adversely impacted global commercial activity, and its long-term economic impact remains uncertain.

Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus.

Long-Term Impact of COVID-19 Pandemic

Considerable uncertainty still surrounds the long-term impact of the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, and on the commercial real estate market and our business.

Many of our tenants still do not fully occupy the space that they lease.

The pandemic has had an adverse impact on economic and market conditions in various sectors of the economy.

However, the evolving nature of the pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our business.

The COVID-19 pandemic continues to present material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the impact of work-from-home policies, the potential negative impact to leasing efforts and occupancy at our properties, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, negative impacts on our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, making more difficult our ability to complete required capital expenditures in a timely manner and on budget, decreases in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

We are unable to estimate the full extent of the impact that the COVID-19 pandemic will have on our future financial results at this time.

The COVID-19 pandemic continues to present material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the impact of work-from-home and return-to-work policies, the potential negative impact to leasing efforts and occupancy at our properties, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, negative impacts on our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, making more difficult our ability to complete required capital expenditures in a timely manner and on budget, decreases in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

We are unable to estimate the full extent of the long term impact that the COVID-19 pandemic will have on our future financial results at this time.

See “Risk Factors” in Item 1A.

We have been following and directing our vendors to follow the guidelines from the Centers for Disease Control and other applicable authorities to minimize the spread of COVID-19 among our employees, tenants, vendors and visitors, as well as at our properties.

During the year ended December 31, 2022, all of our properties remained open for business.

Some of our tenants have requested rent concessions, and more tenants may request rent concessions or may not pay rent in the future.

Future rent concession requests or nonpayment of rent could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, extended lease terms, increased tenant improvement capital expenditures, or reduced rental rates to maintain occupancies.

We review each rent concession request on a case by case basis and may or may not provide rent concessions, depending on the specific circumstances involved.

Cash, cash equivalents and restricted cash were $6.6 million as of December 31, 2022.

Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BofA Revolver ($45 million available as of February 10, 2023) and proceeds from dispositions of properties, will be sufficient to meet working capital requirements, term loan repayment and anticipated capital expenditures for at least the next 12 months.

Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations.

We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses.

Our ability to pay dividends to stockholders and the level of such dividends, however, depends in significant part upon the level of rental income from our real estate properties and the amount, timing and terms of any property dispositions.

“Risk Factors”.

Economic Conditions

The global economy is experiencing significant disruptions as a result of various factors, including geopolitical events such as the ongoing conflict between Russia and Ukraine, the COVID-19 pandemic and continuing supply chain difficulties.

In addition, negative gross domestic product growth, inflation, energy prices and interest rates and declining consumer confidence and spending are contributing to recessionary concerns for the economy of the United States.

Although recent indicators suggest that economic activity has expanded at a modest pace, the global economy continues to experience significant disruptions as a result of various factors, including geopolitical events such as the ongoing wars between Russia and Ukraine and between Israel and Hamas, a U.S.

designated Foreign Terrorist Organization, in the Gaza Strip and ongoing conflicts in various other parts of the Middle East, increasing tensions with China, the long-term impact of the COVID-19 pandemic and continuing supply chain difficulties.

In addition, various economic factors, including but not limited to, inflation and interest rates, are contributing to recessionary concerns for the economy of the United States.

Economic conditions directly affect the demand for office space, our primary income producing asset.

In addition, the broad economic market conditions in the United States are typically affected by numerous other factors, including but not limited to, inflation and employment levels, energy prices, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, the regulatory environment and the availability of credit.

During 2022 and as of February 10, 2023, the Federal Reserve raised the federal funds rate target several times, most recently by 25 basis points on February 1, 2023, to a range of 4.50% to 4.75%.

The Federal Reserve has indicated that ongoing increases in the target range will be appropriate, which could also increase interest rates.

In addition, in April 2022, the Federal Reserve confirmed its plan to reduce its balance sheet at a rapid pace beginning in May 2022 and in September 2022 indicated it would continue to reduce its holdings of Treasury Securities and agency debt and agency mortgage-backed securities.

In addition, the broad economic market conditions in the United States are typically affected by numerous other factors, including but not limited to, employment levels, energy prices, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, the regulatory environment and the availability of credit.

During 2023, the Federal Reserve raised the federal funds rate target several times, most recently increasing it by 25 basis points on July 26, 2023, to a range of 5.25% to 5.50%.

Any future increases in the target range

could also increase interest rates.

If interest rates continue to increase, then the interest costs on our unhedged variable rate debt would be adversely affected, which could in turn adversely affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders.

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Increasing interest rates could also decrease the amount third parties are willing to pay for our assets and limit our ability to incur new debt or refinance existing debt when it matures.

As of the date of this report, the impact of current economic conditions and geopolitical events and the ongoing effects of the COVID-19 pandemic are adversely affecting the demand for office space in the United States.

As of the date of this report, the impact of current economic conditions and geopolitical events and the long-term impact of the COVID-19 pandemic are adversely affecting the demand for office space in the United States.

Real Estate Operations

As of December 31, 2022, our real estate portfolio was comprised of 21 operating properties, which we also refer to as our owned properties.

Our 21 operating properties were approximately 75.6% leased as of December 31, 2022, a decrease from 78.4% leased as of December 31, 2021.

The 2.8% decrease in leased space was primarily a result of lease maturities that occurred during the year ended December 31, 2022.

As of December 31, 2023, our real estate portfolio was comprised of 17 owned properties, which we refer to as our owned properties, and 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, which we refer to as the Sponsored REIT.

The Sponsored REIT, which we also refer to as Monument Circle, was consolidated effective January 1, 2023.

We refer to these 18 properties as our owned and consolidated properties.

Our owned properties were approximately 74.0% leased as of December 31, 2023, a decrease from 75.6% leased as of December 31, 2022.

The 1.6% decrease in leased space was primarily a result of lease maturities that occurred during the year ended December 31, 2023 and the impact on leased percentage from the disposition of one property on each of March 10, 2023, August 9, 2023, October 26, 2023 and December 6, 2023.

These decreases were partially offset by new leasing during the year ended December 31, 2023.

As of December 31, 2023, we had approximately 1,650,000 square feet of vacancy in our owned properties compared to approximately 1,524,000 square feet of vacancy at December 31, 2022.

During the year ended December 31, 2022, we leased approximately 435,000 square feet of office space, of which approximately 160,000 square feet were with existing tenants, at a weighted average term of 6.4 years.

During the year ended December 31, 2023, we leased approximately 706,000 square feet of office space in our owned properties, of which approximately 478,000 square feet were with existing tenants, at a weighted average term of 6.8 years.

On average, tenant improvements for such leases were $22.42 per square foot, lease commissions were $10.56 per square foot and rent concessions were approximately six months of free rent.

Average GAAP base rents

under such leases were $33.27 per square foot, or 10.6% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2021.

During 2022, we had no redevelopment properties.

Average GAAP base rents under such leases were $29.71 per square foot, or 7.4% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2022.

Our owned and consolidated properties were approximately 71.5% leased as of December 31, 2023, compared to our owned properties at 75.6% leased as of December 31, 2022.

The difference is primarily a result of the consolidation of Monument Circle effective January 1, 2023.

As of December 31, 2023, Monument Circle was approximately 4.1% leased.

During 2023 and 2022, we had no redevelopment properties.

On November 16, 2021, we sold a property known as Stonecroft in Chantilly, Virginia and another property located in Chantilly, Virginia for aggregate gross sales proceeds of approximately $40 million.

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Our property known as Blue Lagoon in Miami, Florida, was substantially completed during the first quarter of 2021, and had previously been classified as a redevelopment property.

As of December 31, 2022, the property had leases signed for 98.5% of the rentable square feet of the property, including one tenant occupying approximately 73.6% of the rentable square feet of the property.

As of December 31, 2022 and September 30, 2023, the property had leases signed for 98.5% of the rentable square feet of the property, including one tenant occupying approximately 73.6% of the rentable square feet of the property.

On December 6, 2023, we sold this property for gross sales proceeds of approximately $68.0 million.

As of December 31, 2023, leases for approximately 9.0% and 7.6% of the square footage in our owned portfolio are scheduled to expire during 2024 and 2025, respectively.

As the first quarter of 2023 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants.

While leasing activity at our properties has continued, we believe that the impact of geopolitical events, current economic conditions and the ongoing effects of the COVID-19 pandemic may limit or delay new tenant leasing during at least the first quarter of 2023 and potentially in future periods.

While we cannot generally predict when an existing vacancy in our owned portfolio will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates.

Also, we believe the potential exists for any of our tenants to default on its lease or to seek the protection of bankruptcy.

As the first quarter of 2024 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and existing vacancy is being actively marketed to numerous potential tenants.

While leasing activity at our properties has continued, we believe that the impact of geopolitical events, current economic conditions and the long-term impact of the COVID-19 pandemic may limit or delay new tenant leasing during at least the the first quarter of 2024 and potentially in future periods.

While we cannot generally predict when an existing vacancy in our owned properties will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates.

Also, we believe the potential exists for any of our tenants to default

on its lease or to seek the protection of bankruptcy.

If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment.

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Real Estate Acquisition and Investment Activity

● on September 26, 2023, we agreed to extend the maturity date of our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan, to September 30, 2024.

● we continued to actively explore additional potential real estate investment opportunities.

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● we continued to actively explore additional potential real estate investment opportunities.

Property Dispositions and Assets Held for Sale

During 2023, we sold an 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.

During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina at an expected loss of $0.8 million, which was recorded as an impairment and we classified the property as an asset held for sale as of June 30, 2023.

The property sold on August 9, 2023 for a sales price of $9.2 million, at a loss of $0.8 million, which had been our expected loss.

During the three months ended September 30, 2023, we 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.

In addition, during the three months ended September 30, 2023, we executed purchase and sale agreements with four different unrelated purchasers for the potential sale of four properties.

Three of these potential dispositions were classified as assets held for sale as of September 30, 2023.

On October 26, 2023, we completed the sale of one of the assets held for sale as of September 30, 2023, an office building located in Plano, Texas for a sales price of $48.0 million at a gain of approximately $10.6 million.

On December 6, 2023, we sold another of the assets held for sale, an office property located in Miami, Florida for a sales price of $68.0 million at a loss of approximately $18.9 million.

The one remaining asset held for sale was expected to sell for a sales price of $40.0 million at a loss of approximately $20.5 million, which was recorded as an impairment as of September 30, 2023, however on November 15, 2023, we received notice from the buyer indicating that the buyer was terminating the transaction and directing the deposit and interest be disbursed to us.

During the three months ended December 31, 2023, we executed a purchase and sale agreement to sell a property located in Richardson, Texas for $35 million at an expected loss of approximately $2.1 million, which was recorded as an impairment as of December 31, 2023.

On January 26, 2024, we sold the office property located in Richardson, Texas for a sales price of $35 million, at a loss of approximately $2.1 million, which is consistent with the previously recorded impairment.

During 2022, we 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.

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On November 16, 2021, we sold two office properties in Chantilly, Virginia for an aggregate sales price of approximately $40 million, at a loss of approximately $2.9 million.

During 2020, we sold an office property located in Durham, North Carolina, for a sales price of approximately $89.7 million, at a gain of approximately $41.9 million.

We used the proceeds of the dispositions principally to repay outstanding indebtedness.

We used, or intend to use, the proceeds of the dispositions primarily to repay outstanding indebtedness.

The dispositions of these properties did not represent a strategic shift that has a major effect on our operations and financial results.

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The accounting policies that we believe are most critical to the understanding of our financial position and results of operations, and that require significant management estimates and judgments, are discussed below.

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

Significant estimates in the consolidated financial statements include purchase price allocations, impairment considerations and the valuation of derivatives.

Critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates.

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● allocation of purchase price;

● allowance for doubtful accounts;

● allowance for loan losses on mortgage loans;

● assessment of the carrying values and impairments of long lived assets;

● useful lives of fixed assets and intangibles;

● valuation of derivatives;

● classification of leases;

● ownership of stock in a Sponsored REIT and related interests.

These policies involve significant judgments made based upon our experience, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located.

Competition, economic conditions and other factors may cause occupancy declines in the future.

In the future we may need to revise our carrying value assessments to incorporate information which is not now known and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets.

These policies involve significant judgments made based upon our experience, including judgments about current valuations, ultimate realizable value, current and future economic conditions and competitive factors in the markets in which our properties are located.

Competition, economic conditions and other factors may cause occupancy

declines in the future.

In the future we may need to revise our carrying value assessments to incorporate information which is not now known and such revisions could decrease the carrying values of our assets.

Allocation of Purchase Price

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If future acquisitions result in our allocating material amounts to the value of tenant relationships, those amounts would be separately allocated and amortized over the estimated life of the relationships.

Allowance for Doubtful Accounts

We provided an allowance for doubtful accounts based on collectability.

We recognize the effect of a change in our assessment of whether the collectability of operating lease receivables are probable as an adjustment to lease income rather than bad debt expense.

We periodically evaluate our real estate properties for impairment indicators.

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If indicators of impairment are present, we evaluate the carrying value of the property by comparing it to its expected future undiscounted cash flows.

If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to the present value of these expected future cash flows.

A property’s value is impaired only if management’s estimate of future undiscounted cash flows to be generated by the property over its estimated holding period is less than the carrying value of the property.

If there are different potential outcomes for a property, we will take a probability weighted approach to estimating future cash flows.

If we determine that impairment has occurred, the affected assets are reduced to their fair value.

This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows.

If we misjudge or estimate incorrectly or if future tenant profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate or fail to record a charge when we should have done so, or the amount of such charges may be inaccurate.

Depreciation and Amortization Expense

We compute depreciation expense using the straight-line method over estimated useful lives of up to 39 years for buildings and improvements, and up to 15 years for personal property.

Costs incurred in connection with leasing

(primarily tenant improvements and leasing commissions) are capitalized and amortized over the lease period.

The allocated cost of land is not depreciated.

The value of above or below-market leases is amortized over the remaining non-cancelable periods of the respective leases as an adjustment to rental income.

The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is also amortized over the remaining non-cancelable periods of the respective leases.

If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off.

Inappropriate allocation of acquisition costs, or incorrect estimates of useful lives, could result in depreciation and amortization expenses which do not appropriately reflect the allocation of our capital expenditures over future periods, as is required by generally accepted accounting principles.

Derivative Instruments

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Amounts are then reclassified from accumulated other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects 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 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.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

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To the extent we enter into fair value hedges in the future, the results of such variability could be a significant increase or decrease in our derivative assets, derivative liabilities, book equity, and/or earnings.

Lease Classification

Some of our real estate properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, operating leases.

Each time we enter a new lease or materially modify an existing lease we evaluate whether it is appropriately classified as a financing lease or as an operating lease.

The classification of a lease as financing or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue.

These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a property, discount rates and future cash flows.

Incorrect assumptions or estimates may result in misclassification of our leases.

Results of Operations

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Loss on extinguishment of debt

Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

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

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

Interest income

Income (loss) before taxes

Net income (loss)

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The decrease was primarily a result of:

● A decrease in rental revenue of approximately $43.8 million primarily due to the sale of thirteen properties during 2021 and 2022 and the loss of rental income from lease expirations during the periods presented.

These decreases were partially offset by rental income earned from leases that commenced during the periods presented.

Our leased space in our operating properties was 75.6% at December 31, 2022 and 78.4% at December 31, 2021.

This decrease was partially offset by:

● An increase in interest income of approximately $0.2 million from a higher principal balance on the Sponsored REIT Loan during 2022 compared to 2021.

● A decrease in rental revenue of approximately $18.3 million arising primarily from the sale of three properties during 2022 and four properties in 2023 and other losses of rental income from lease expirations during the periods presented.

These decreases were partially offset by rental income earned from leases commencing after December 31, 2022.

Our leased space in our owned and consolidated properties was 71.5% at December 31, 2023 and for our owned properties was 75.6% at December 31, 2022.

● A decrease in interest income from loans of approximately $1.8 million due to the consolidation of Monument Circle in our financial results as of January 1, 2023.

● These decreases were partially offset by an increase in other income of $0.2 million from a deposit that was forfeited by a potential buyer for a property in Atlanta, Georgia that we had under agreement when the transaction was terminated.

Total expenses decreased by $16.9 million to $171.0 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022.

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● A decrease in depreciation and amortization of approximately $9.1 million primarily attributable to the property dispositions noted above.

● A decrease in general and administrative expenses of approximately $2.0 million, which was primarily due to lower personnel costs of $1.3 million and professional fees and expenses of $0.7 million.

● A decrease in interest expense of approximately $9.5 million.

The decrease was primarily from lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset by higher interest rates during the year ended December 31, 2022 compared to the year ended December 31, 2021.

In addition, the decrease was higher in 2022 as a result of interest swap breakage costs in 2021 of $1.9 million related to the repayment of $155 million in term loan debt on June 4, 2021.

These decreases were partially offset by:

● An increase in general and administrative expenses of $0.1 million primarily attributable to expenses relating to a proposed sale transaction that was terminated by the prospective buyer.

● An increase in interest expense of approximately $1.5 million.

The increase was primarily due to higher interest expense as a result of higher interest rates under the loan amendments we entered into on February 10, 2023 described below and was partially offset by a lower principal amount of debt outstanding compared to the year ended December 31, 2022.

Loss on extinguishment of debt

During the year ended December 31, 2022 and 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.1 million and $0.9 million, respectively, related to unamortized deferred financing costs on the dates of the repayments.

During the year ended December 31, 2023 and December 31, 2022, we repaid debt and incurred a loss on extinguishment of debt of approximately $0.1 million and $0.1 million, respectively, related to unamortized deferred financing costs on the dates of the repayments.

Gain on consolidation of Sponsored REIT

During the year ended December 31, 2023, we recorded a gain on consolidation of Sponsored REIT as a result of reducing the Monument Circle loan loss reserve, which resulted in a $0.4 million gain.

Impairment and loan reserve

During the year ended December 31, 2022, we recorded an impairment on a mortgage receivable of $4.2 million.

Gain on sale of properties, net

During the year ended December 31, 2022, we 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 $24.1 million.

We also sold an office property in Evanston, Illinois on December 28, 2022 for a sales price of approximately $27.8 million, at a gain of $3.9 million.

During the year ended December 31, 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million.

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

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

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

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

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

Gain and loss on sale of properties and impairment

During the three months ended March 31, 2023, we sold an 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.

During the three months ended September 30, 2023, we sold an office property located in Charlotte, North Carolina known as Forest Park, for a sales price of $9.2 million at a loss of approximately $0.8 million.

During the three months ended September 30, 2023, we also 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 and increased the loss on sale of Forest Park by $38,000 as a result of final sales adjustments.

During the three months ended September 30, 2023, we entered into an agreement to sell a property in Miami, Florida, known as Blue Lagoon, for a gross sales price of approximately $68.0 million at an expected loss of $19.2 million, that was recorded as an impairment loss.

We completed the sale of the property on December 6, 2023 at an actual loss of $18.9 million.

During the three months ended September 30, 2023, we entered into 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 that was recorded as an impairment loss.

On October 26, 2023, we completed the sale of an asset held for sale as of September 30, 2023, which was an office building located in Plano, Texas for a sales price of $48.0 million at a gain of approximately $10.6 million.

During the three months ended September 30, 2023, we entered into a purchase and sales agreement, which was subsequently amended, to sell a property located in Richardson, Texas for a gross sales price of $35 million, at an expected loss of $2.1 million that was recorded as an impairment loss during the three months ended December 31, 2023.

Interest Income

During the three months ended December 31, 2023, we invested disposition proceeds in an interest bearing account and earned $0.6 million in interest income.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $239,000 during the year ended December 31, 2022 compared to $234,000 during the year ended December 31, 2021.

We received state tax refunds of $35,000 during the year ended December 31, 2022.

We incurred $404,000 in state income taxes as a result of using some net operating loss carryforwards, which are not fully useable for some state income tax purposes during the year ended December 31, 2021

Net income (loss)

Net income for the year ended December 31, 2022 was $1.1 million compared to net income of $92.7 million for the year ended December 31, 2021, for the reasons described above.

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $0.3 million during the year ended December 31, 2023, compared to $0.2 million during the year ended December 31, 2022.

Net income and loss

Net loss for year ended December 31, 2023, was $48.1 million compared to net income of $1.1 million for the year ended December 31, 2022, for the reasons described above.

The following table shows financial results for the years ended December 31, 2022 and 2021.

10 unchanged sentences

Loss on extinguishment of debt

Impairment and loan loss reserve

Gain on sale of properties, net

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The decrease was primarily a result of:

● A decrease in rental revenue of approximately $36.6 million arising primarily from the sale of ten properties during 2021 and a tenant bankruptcy in December 2020 and other losses of rental income from leases that expired after December 31, 2020.

These decreases were partially offset by rental income earned from leases commencing after December 31, 2020.

These decreases were partially offset by rental income earned from leases that commenced during the periods presented.

Our leased space in our operating properties was 75.6% at December 31, 2022 and 78.4% at December 31, 2021.

This decrease was partially offset by:

● An increase in interest income of approximately $0.2 million from a higher principal balance on the Sponsored REIT Loan during 2022 compared to 2021.

Total expenses decreased by $40.7 million to $187.9 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $13.4 million, primarily as a result of the sale of ten properties during 2021.

● A decrease to depreciation and amortization of approximately $10.0 million, primarily as a result of the sale of ten properties during 2021.

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $14.5 million primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $14.7 million primarily attributable to the property dispositions noted above.

● A decrease in interest expense of approximately $9.5 million.

The decrease was primarily from debt repayments made during 2021 and lower interest rates during the year ended December 31, 2021 compared to the year ended December 31, 2020.

These decreases were partially offset by:

● An increase in general and administrative expenses of $0.9 million, which was primarily attributable to an increase in public company related expenses.

In addition, the decrease was higher in 2022 as a result of interest swap breakage costs in 2021 of $1.9 million related to the repayment of $155 million in term loan debt on June 4, 2021.

Loss on extinguishment of debt

During the year ended December 31, 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.9 million related to unamortized deferred financing costs on the dates of the repayments.

Impairment and loan reserve

During the year ended December 31, 2022, we recorded an impairment on a mortgage receivable of $4.2 million.

Gain on sale of properties, net

During the year ended December 31, 2022, we 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 $24.1 million.

We also sold an office property in Evanston, Illinois on December 28, 2022 for a sales price of approximately $27.8 million, at a gain of $3.9 million.

During the year ended December 31, 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million at a net gain of approximately $22.8 million.

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

During the year ended December 31, 2020, we sold an office property located in Durham, North Carolina on December 23, 2020 for a sales price of approximately $89.7 million, at a gain of approximately $41.9 million.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $16,000 during the year ended December 31, 2021, as compared to the year ended December 31, 2020.

We incurred $404,000 in state income taxes as a result of using some net operating loss carryforwards, which were not fully useable for some state income tax purposes during the year ended December 31, 2021.

Net income for the year ended December 31, 2021 was $92.7 million compared to a net income of $32.6 million for the year ended December 31, 2020, for the reasons described above .

We received state tax refunds of $35,000 during the year ended December 31, 2022.

Net income (loss)

Net income for the year ended December 31, 2022 was $1.1 million compared to net income of $92.7 million for the year ended December 31, 2021, for the reasons described above.

Non-GAAP Financial Measures

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(in thousands):

Net income (loss)

Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

Gain on sale of properties

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

Equity in income of non-consolidated REITs

8 unchanged sentences

We exclude the NOI from any Sponsored REIT that is consolidated from the calculation of NOI.

The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Same Store.

The comparative Same Store results include properties held for the periods

presented and exclude properties that are redevelopment properties.

The information presented includes footnotes and the data is shown by region with properties owned in the

periods presented, which we call Same Store.

The comparative Same Store results include properties held for the periods presented and exclude acquired properties.

We also exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees.

11 unchanged sentences

Loss on extinguishment of debt

Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

12 unchanged sentences

Cash and cash equivalents were $127.9 million and $6.6 million at December 31, 2023 and December 31, 2022, respectively.

The decrease of $34.2 million is attributable to $15.2 million provided by operating activities, plus $74.0 million provided by investing activities less $123.4 million used in financing activities.

Management believes that existing cash, cash anticipated to be generated internally by operations, including property dispositions, and our existing availability under the BofA Revolver ($45 million available as of February 10, 2023), will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

The increase of $121.3 million is attributable to $17.9 million provided by operating activities, plus $113.6 million provided by investing activities less $10.2 million used in financing activities.

Management believes that existing cash and cash anticipated to be generated internally by operations, including property dispositions, will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.

Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations and property dispositions.

2 unchanged sentences

Operating Activities

Cash provided by our operating activities of $15.2 million is primarily attributable to net income of $1.1 million excluding gains on sale of properties of $27.9 million and the impairment of a mortgage loan receivable of $4.2 million plus the add-back of $60.1 million of non-cash expenses, less $8.2 million increase in payments of deferred leasing commissions, a $7.0 million increase in accounts payable and accrued expenses, a $4.5 million increase in lease acquisition costs, a $1.8 million increase in prepaid expenses and other assets, a $0.5 million increase in tenant security deposits and a $0.3 million increase in tenant rent receivables.

Cash provided by our operating activities for the year ended December 31, 2023 of $17.9 million is primarily attributable to a net loss of $48.1 million excluding net losses on sale of properties of $23.3 million less the gain on consolidation of Sponsored REIT of $0.4 million, plus the add-back of $54.4 million of non-cash expenses, less $7.6 million increase in payments of deferred leasing commissions, a $2.7 million increase in accounts payable and accrued expenses, a $2.0 million increase in lease acquisition costs plus a $0.5 million increase in tenant security deposits and a $0.4 million decrease in prepaid expenses and other assets.

Investing Activities

Cash provided by investing activities for the year ended December 31, 2022 of $74.0 million is primarily attributable to proceeds from the sale of three properties of $128.9 million and was partially offset by capital expenditures and office equipment investments of approximately $54.9 million.

Cash provided by investing activities for the year ended December 31, 2023 of $113.6 million is primarily attributable to proceeds from the sale of four properties of $142.2 million and an increase of investment in a mortgage receivable of $3.0 million from cash recorded in consolidation of Monument Circle, which was partially offset by capital expenditures and office equipment investments of approximately $31.6 million.

Financing Activities

Cash used in financing activities for the year ended December 31, 2022 of $123.4 million is primarily attributable to repayment of the Former BofA Term Loan in the amount of $110.0 million, distributions paid to stockholders in the amount of $54.0 million, stock repurchases in the amount of $4.8 million, and payment of deferred financing costs of $2.6 million, which was partially offset by net borrowings under the BofA Revolver of $48.0 million.

Cash used in financing activities for the year ended December 31, 2023 of $10.2 million is primarily attributable to repayment of the Former BofA Term Loan (defined below) in the amount of $50.0 million, distributions paid to stockholders in the amount of $4.1 million, and payment of deferred financing costs of $2.3 million, which was partially offset by net borrowings under the BofA Revolver (defined below) of $42.0 million and the proceeds from the termination of interest rate swap of $4.2 million.

Liquidity beyond the next 12 months

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We have used a variety of sources to fund our cash needs in addition to our free cash flow generated from our investments in real estate.

In the past, we considered borrowing on our unsecured line of credit facility, adding or refinancing existing term debt or raising capital through public offerings or At The Market (ATM) programs of our common stock.

See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of

Operations, Contractual Obligations.

In the past, we considered borrowing on our revolving line of credit facility (which was converted to a term loan on February 21, 2024, and is no longer available), adding or refinancing existing term debt or

raising capital through public offerings or At The Market (ATM) programs of our common stock.

See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Contractual Obligations.

We believe these sources of funds will provide sufficient funds to adequately meet our obligations beyond the next twelve months.

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.

On August 2, 2018, we entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, which we refer to as JPMorgan, and the other lending institutions party thereto, which we refer to as the JPM Credit Agreement, which provided a single unsecured bridge loan in the aggregate principal amount of $150 million, which we refer to as the JPM Term Loan.

On December 24, 2020, we repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of our Durham, North Carolina property, and $100 million remained fully advanced and outstanding under the JPM Term Loan.

On June 4, 2021, we 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, we fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions.

On March 7, 2019, we 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, we 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, we paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.

BMO Term Loan

On February 10, 2023, the Company entered into a First Amendment to 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 (as amended by the BMO First Amendment, the “BMO Credit Agreement”) among the Company and the lending institutions party thereto 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”), of which $125 million remains 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 .

On February 10, 2023, as part of the BMO First Amendment, the Company repaid a $40 million portion of the $165 million tranche B term loan, so that $125 million remains outstanding.

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

The tranche B 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).

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

Effective February 10, 2023 upon entering into the BMO First Amendment, base rate means, for any day, a fluctuating rate per annum equal to the highest of:

As of February 21, 2024, we have a term loan borrowing in the amount of approximately $86.0 million, which we refer to as the BMO Term Loan, with Bank of Montreal, as administrative agent, and the other lending institutions party thereto, that matures on April 1, 2026.

On February 21, 2024, we entered into a Second Amendment to Second Amended and Restated Credit Agreement with the lending institutions party thereto, which we refer to as the BMO Second Amendment.

The BMO Second Amendment amended the Second Amended and Restated Credit Agreement dated September 27, 2018, which we refer to as the Original BMO Credit Agreement, as amended by the First Amendment to Second Amended and Restated Credit Agreement dated February 10, 2023, which we refer to as the BMO First Amendment, to, among other things:

(1) extend the maturity date from October 1, 2024 to April 1, 2026;

(2) change the interest rate from either 300 basis points over SOFR (Secured Overnight Financing Rate) or 200 basis points over the base rate to either 300 basis points over SOFR with a floor on SOFR of 500 basis points or 200 basis points over the base rate with a floor on the base rate of 600 basis points;

(3) provide that, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan (defined below) and the Senior Notes (defined below) exceeds $200 million, the spread over SOFR or the base rate, as applicable, will permanently increase by 100 basis points, from 300 basis points to 400 basis points in the case of SOFR, and from 200 basis points to 300 basis points in the case of the base rate;

(4) require mandatory prepayments of the BMO Term Loan, the BofA Term Loan and the Senior Notes with net cash proceeds from the disposition of property, assets and equity issuances as follows:

(a) 25.55556% to the BMO Term Loan;

(b) 20.00000% to the BofA Term Loan;

and (d) the remaining 10% to be retained by us;

(5) require that, within 90 days of the February 21, 2024 effective date of the BMO Second Amendment, certain of our subsidiaries guarantee the BMO Term Loan;

(6) require that, within 90 days of the February 21, 2024 effective date of the BMO Second Amendment, we pledge our equity interests in certain of our subsidiaries as collateral for the BMO Term Loan;

(7) reduce our minimum fixed charge coverage ratio from 1.50x to 1.25x;

and (8) reduce our minimum unsecured interest coverage ratio from 1.75x to 1.25x.

We refer to the Original BMO Credit Agreement, as amended by the BMO First Amendment and the BMO Second Amendment, as the BMO Credit Agreement.

The BMO Credit Agreement initially provided for an unsecured term loan borrowing in the amount of $220 million, of which approximately $86.0 million remains 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, we 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 .

On February 10, 2023, we repaid a $40 million portion of the tranche B term loan, so that $125 million remained outstanding.

On August 10, 2023, we repaid an additional $10 million portion of the tranche B term loan, so that $115 million remained outstanding as of August 10, 2023 and as of December 31, 2023.

On February 21, 2024, as part of the BMO Second Amendment, we repaid an approximately $29.0 million portion of the tranche B term loan so that approximately $86.0 million remains outstanding.

The tranche B term loan matures on April 1, 2026.

Effective February 10, 2023 upon entering into the BMO First Amendment, interest on the BMO Term Loan has been 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.

Effective February 21, 2024 upon entering into the BMO Second Amendment, interest on the BMO Term Loan was amended to be 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, with a floor on SOFR of 5.00% or (ii) 200 basis points over the base rate with a floor on the base rate of 6.00%.

In addition, effective February 21, 2024 upon entering into the BMO Second Amendment, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan and the Senior Notes exceeds $200 million, the spread over SOFR or the base rate, as applicable, will permanently increase by 100 basis points from 300 basis points to 400 basis points in the case of SOFR , and from 200 basis points to 300 basis points in the case of 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 our credit rating (165 basis points over LIBOR at December 31, 2022) or (ii) a number of basis points over the base rate depending on our credit rating (65 basis points over the base rate at December 31, 2022).

As of December 31, 2022, our credit rating from Moody’s Investors Service was Ba1.

Effective February 10, 2023 upon entering into the BMO First Amendment, the base rate meant, for any day, a fluctuating rate per annum equal to the highest of:

(i) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime commercial rate”, (ii) the Federal Funds Rate plus ½ of 1% (0.50%), (iii) term SOFR for one month plus 1.00% and (iv) 1.00%.

If the base rate is being used because SOFR is not able to be determined, base rate is the greater of clauses (i) and, (ii) and (iv).

Effective February 21, 2024 upon entering into the BMO Second Amendment, the base rate was amended to mean, for any day, a fluctuating rate per annum equal to the highest of:

If the base rate is being used because SOFR is not able to be determined, base rate is the greater of clauses (i) and, (ii) and (iv).

Prior to February 10, 2023, 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, 2022, the Company’s credit rating from Moody’s Investors Service was Ba1.

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

On August 26, 2013, the Company entered into an ISDA Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum, which matured on August 26, 2020.

On 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 December 31, 2022, the effective interest rate on the BMO Term Loan was 4.04% per annum.

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

As of December 31, 2023, the interest rate on the BMO Term Loan was 8.47% 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 December 31, 2023 was approximately 8.11% per annum.

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

On August 26, 2013, we entered into an ISDA Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum, which matured on August 26, 2020.

On February 20, 2019, we 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 our credit rating, as of December 31, 2022, the effective interest rate on the BMO Term Loan was 4.04% per annum.

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

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

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 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 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, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge our equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of our common stock, going concern qualifications to our financial statements, and transactions with affiliates.

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

provided, however, that notwithstanding such restriction, we are permitted to make dividend distributions based on our good faith estimate of projected or estimated taxable income or otherwise as necessary to retain our 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 we would otherwise be subject.

The BMO Credit Agreement also contains financial covenants that require us 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.

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

BofA Revolver

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 (as amended by the BofA First Amendment, the “BofA Credit Agreement”) among the Company and the lending institutions party thereto 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.

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.

In the event of a default by us, 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 of our outstanding obligations will become immediately due and payable.

BofA Term Loan

As of February 21, 2024, we have a term loan borrowing in the amount of approximately $67.3 million, which we refer to as the BofA Term Loan, with Bank of America, N.A.

as administrative agent, and other lending institutions party thereto that matures on April 1, 2026.

Prior to February 21, 2024, we referred to the BofA Term Loan as the BofA Revolver.

On February 21, 2024, we entered into a Second Amendment to Credit Agreement with the lending institutions party thereto, which we refer to as the BofA Second Amendment.

The BofA Second Amendment amended the Credit Agreement dated January 10, 2022, which we refer to as the Original BofA Credit Agreement, as amended by the First Amendment to Credit Agreement dated February 10, 2023, which we refer to as the BofA First Amendment, to, among other things:

(1) extend the maturity date from October 1, 2024 to April 1, 2026;

(2) convert borrowings from being either revolving loans or letters of credit to a term loan;

(3) change the interest rate from 300 basis points over SOFR to 300 basis points over SOFR with a floor on SOFR of 500 basis points;

(4) provide that, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan and the Senior Notes exceeds $200 million, the spread over SOFR will permanently increase by 100 basis points from 300 basis points to 400 basis points;

(5) require mandatory prepayments of the BMO Term Loan, the BofA Term Loan and the Senior Notes with net cash proceeds from the disposition of property, assets and equity issuances as follows:

((a) 25.55556% to the BMO Term Loan;

(b) 20.00000% to the BofA Term Loan;

and (d) the remaining 10% to be retained by us;

(6) require that, within 90 days of the February 21, 2024 effective date of the BofA Second Amendment, certain of our subsidiaries guarantee the BofA Term Loan;

(7) require that, within 90 days of the February 21, 2024 effective date of the BofA Second Amendment, we pledge our equity interests in certain of our subsidiaries as collateral for the BofA Term Loan;

(8) reduce our minimum fixed charge coverage ratio from 1.50x to 1.25x;

and (9) reduce our minimum unsecured interest coverage ratio from 1.75x to 1.25x.

We refer to the Original BofA Credit Agreement, as amended by the BofA First Amendment and the BofA Second Amendment, as the BofA Credit Agreement.

Prior to entering into the BofA Second Amendment on February 21, 2024, borrowings made under the BofA Revolver could be revolving loans or letters of credit, the combined sum of which could not exceed $150 million outstanding at any time.

On February 10, 2023, we borrowed $40.0 million under the BofA Revolver to repay a portion of the BMO Term Loan.

Effective October 1, 2023, availability under the BofA Revolver was reduced to $125 million.

As of December 31, 2023, there were borrowings of $90 million drawn and outstanding under the BofA Revolver.

As of February 10, 2023, there were borrowings of $105 million drawn and outstanding under the BofA Revolver, which borrowings include $40.0 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.

On February 21, 2024, as part of the BofA Second Amendment, we repaid an approximately $22.7 million portion of the BofA Revolver so that approximately $67.3 million remains outstanding under the BofA Term Loan.

Effective February 10, 2023 upon entering into the BofA First Amendment, interest on the BofA Revolver was 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 is not able to be determined, the BofA Revolver would have instead bore interest at 200 basis points over the base rate.

Effective February 21, 2024 upon entering into the BofA Second Amendment, interest on the BofA Term Loan was amended to mean 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, with a floor on SOFR of 5.00%.

In addition, effective February 21, 2024 upon entering into the BofA Second Amendment, under certain circumstances, such as if SOFR is not able to be determined, the BofA Term Loan bears interest at 200 basis points over the base rate with a floor on the base rate of 600 basis points.

In addition, effective February 21, 2024 upon entering into the BofA Second Amendment, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan and the Senior Notes exceeds $200 million, the spread over SOFR will permanently increase by 100 basis points from 300 basis points to 400 basis points in the case of SOFR, and from 200 basis points to 300 basis points in the case of 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.

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.

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.

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

Prior to February 10, 2023, the margin over SOFR or, if applicable, the base rate, varied depending on our 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, we were 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.

Effective February 21, 2024 upon entering into the BofA Second Amendment, those fees no longer apply.

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

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

Prior to February 10, 2023, the actual amount of the facility fee, any letter of credit fees, and the margin over SOFR or the base rate was determined based on the per annum percentages in the following grids:

Leverage Ratio

Daily SOFR Rate Loans, Term SOFR Loans and Letter of Credit Fees

Base Rate Loans

Prior to February 10, 2023, in the event that the Company was assigned an investment grade credit rating, the Company had a one-time right to elect to convert to a different, credit-based pricing grid with the following per annum percentages:

Credit Rating

Daily SOFR Rate Loans, Term SOFR Loans and Letter of Credit Fees

Base Rate Loans

A-/A3 (or higher)

Base rate means, for any day, a fluctuating rate per annum equal to the highest of:

Prior to February 21, 2024, base rate meant, for any day, a fluctuating rate per annum equal to the highest of:

(i) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime rate”, (ii) the Federal Funds Rate plus 1/2 of 1% (0.50%), (iii) term SOFR for one month plus 1.00% and (iv) 1.00%.

If the base rate is being used because SOFR is not able to be determined, base rate is the greater of clauses (i), (ii) and (iv).

Based upon the Company’s credit rating, as of December 31, 2022, the interest rate on the BofA Revolver was 6.22% per annum.

Effective February 21, 2024 upon entering into the BofA Second Amendment, base rate was amended to mean, for any day, a fluctuating rate per annum equal to the highest of:

If the base rate is being used because SOFR is not able to be determined, base rate is the greater of clauses (i), (ii) and (iv).

As of December 31, 2023, the interest rate on the BofA Revolver was 8.47% per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through December 31, 2023 was approximately 8.05% 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, 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.

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 December 31, 2022.

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

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

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

The Company may use the net proceeds of the BofA Revolver for permitted investments and for 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.

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, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge our equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of our common stock, going concern qualifications to our financial statements, and transactions with affiliates.

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

provided, however, that notwithstanding such restriction, we are permitted to make dividend

distributions based on our good faith estimate of projected or estimated taxable income or otherwise as necessary to retain our 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 we would otherwise be subject.

The BofA Credit Agreement also contains financial covenants that require us 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.

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

In the event of a default by us, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BofA Credit Agreement immediately due and payable and enforce any and all rights of the lenders or BofA under the BofA Credit Agreement and related documents.

For certain events of default related to bankruptcy, insolvency, and receivership, all of our outstanding obligations will become immediately due and payable.

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

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

Effective simultaneously with the closing of the Former BofA Credit Facility on January 10, 2022, we delivered a notice 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.

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● 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 also based on the Company’s credit rating.

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

The Former BofA Credit Facility also obligated us to pay an annual facility fee in an amount that was also based on our 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.

The amount of any applicable facility fee, and the margin over LIBOR rate or base rate was determined based on our 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.

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

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

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● 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.

On September 30, 2021, we repaid a $90 million portion and on October 25, 2021, we 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, we 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 we 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 our 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 our 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 our 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%.

At the date of repayment on September 6, 2022, the Company’s credit rating from Moody’s Investors Service was Ba1.

At the date of repayment on September 6, 2022, our credit rating from Moody’s Investors Service was Ba1.

The interest rate on the Former BofA Credit Facility 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.

Previously we had fixed the base LIBOR interest rate on the Former BofA Term Loan by entering into interest rate swap transactions.

On July 22, 2016, we 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.

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

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

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

On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes.

Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $200,000,000 of senior unsecured notes consisting of (i) 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”).

As of February 21, 2024, we have senior notes in the aggregate principal amount of approximately $149.6 million, which we refer to as the Senior Notes, that mature on April 1, 2026.

The Senior Notes consist of (i) Series A Senior Notes due April 1, 2026 in an aggregate principal amount of approximately $86.8 million, which we refer to as the Series A Notes, and (ii) Series B Senior Notes due April 1, 2026 in the aggregate principal amount of approximately $62.8 million, which we refer to as the Series B Notes.

On February 21, 2024, we entered into a First Amendment to Note Purchase Agreement, which we refer to as the NPA First Amendment.

The NPA First Amendment amended the Note Purchase Agreement dated October 24, 2017, which we refer to as the Original Note Purchase Agreement, to, among other things:

(1) extend the maturity date of the Series A Notes from December 20, 2024 to April 1, 2026;

(2) shorten the maturity date of the Series B Notes from December 20, 2027 to April 1, 2026;

(3) increase the interest rate applicable to the Series A Notes from 4.49% per annum to 8.00% per annum;

(4) increase the interest rate applicable to the Series B Notes from 4.76% per annum to 8.00% per annum;

(5) provide that, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan and the Senior Notes exceeds $200 million, the per annum interest rates applicable to the Series A Note and the Series B Notes will permanently increase by 1.00% from 8.00% per annum to 9.00% per annum;

(6) require mandatory prepayments of the BMO Term Loan, the BofA Term Loan and the Senior Notes with net cash proceeds from the disposition of property, assets and equity issuances as follows:

(a) 25.55556% to the BMO Term Loan;

(b) 20.00000% to the BofA Term Loan;

and (d) the remaining 10% to be retained by us;

(7) require that, within 90 days of the February 21, 2024 effective date of the NPA First Amendment, certain of our subsidiaries guarantee the Senior Notes;

(8) require that, within 90 days of the February 21, 2024 effective date of the NPA First Amendment, we pledge our equity interests in certain of our subsidiaries as collateral for the Senior Notes;

and (9) conform all financial covenants and negative covenants in the Note Purchase Agreement with the BofA Credit Agreement and the BMO Credit Agreement.

We refer to the Original Note Purchase Agreement, as amended by the NPA First Amendment, as the Note Purchase Agreement.

Under the Original Note Purchase Agreement, we agreed to sell to the purchasers party thereto an aggregate principal amount of $200,000,000 of senior unsecured notes consisting of (i) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $116 million and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million.

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

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

As of December 31, 2022, the Series A Notes bear interest at 4.49% per annum and the Series B Notes bear interest at 4.76% per annum.

The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio.

The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness.

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

In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material indebtedness or certain other private placements of debt of the Company and its subsidiaries.

On February 21, 2024, as part of the NPA First Amendment, we repaid an approximately $29.2 million portion of the Series A Notes so that approximately $86.8 million of the Series A Notes remains outstanding.

In addition, on February 21, 2024, as part of the NPA First Amendment, we repaid an approximately $21.2 million portion of the Series B Notes so that approximately $62.8 million of the Series B Notes remains outstanding.

The Note Purchase Agreement contains customary affirmative and negative covenants, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge our equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of our common stock, going concern qualifications to our financial statements, transactions with affiliates, certain restrictions on severance, retention and similar arrangements applicable to our executive officers, and real estate investment trust compliance requirements.

In addition, the Note Purchase Agreement also restricts our ability to make quarterly dividend distributions that exceed $0.01 per share of our common stock;

The Note Purchase Agreement also contains financial covenants that require us 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.

We were in compliance with the Note Purchase Agreement financial covenants as of December 31, 2023.

The Note Purchase Agreement contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events.

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

We were in compliance with the Senior Notes financial covenants as of December 31, 2022.

Equity Offering

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Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations.

Related Party Transactions

To the extent permitted by the BofA Credit Agreement, we intend to draw on the BofA Revolver in the future for a variety of corporate purposes, including for the Sponsored REIT Loan as described below.

Loan to Sponsored REIT

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However, we believe that our position as asset manager of the Sponsored REIT helps mitigate that risk by providing us with unique insight and the ability to rely on qualitative analysis of the Sponsored REIT.

Before making the Sponsored REIT Loan, we considered a variety of subjective factors, including the quality of the underlying real estate, leasing, the financial condition of the Sponsored REIT and local and national market conditions.

These factors are subject to change and we do not apply a formula or assign relative weights to the factors.

Instead, we make a subjective determination after considering such factors collectively.

Additional information about the Sponsored REIT Loan outstanding as of December 31, 2022, including a summary table of the Sponsored REIT Loan, is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Additional information about the Sponsored REIT Loan outstanding as of December 31, 2023 is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Other Considerations

We generally pay the ordinary annual operating expenses of our properties from the rental revenue generated by the properties.

For the years ended December 31, 2022 and 2021, respectively, the rental income exceeded the expenses for each individual property, with the exception of Pershing Park for the year ended December 31, 2022 and for the three months ended December 31, 2021.

We generally pay the ordinary annual operating expenses of our owned and consolidated properties from the rental revenue generated by the properties.

For the three and twelve months ended December 31, 2023 and 2022, respectively, the rental income exceeded the expenses for each individual property, with the exception of Monument Circle for the three and twelve months ended December 31, 2023 and Pershing Park for the three and twelve months ended December 31, 2022.

Monument Circle has approximately 214,000 square feet of rentable space comprised of both office and street level retail space.

The office component comprises approximately 95% of the rentable space and had been net leased to a single corporate tenant, through December 31, 2018.

The retail component comprises the remaining approximately 5% of the property’s rentable space.

Monument Circle had approximately $70,000 of rental income and $293,000 of operating expenses for the three months ended December 31, 2023, all related to the retail component.

Monument Circle had approximately $277,000 of rental income and $1,123,000 of operating expenses for the twelve months ended December 31, 2023, and was 4.1% leased to two retail tenants as of December 31, 2023.

Pershing Park has approximately 160,000 square feet of rentable space, which was 12.4% leased at June 30, 2021 due to a large tenant departure on May 31, 2021.

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During the three months ended March 31, 2022, we signed an expansion of space with that same tenant.

The new lease inclusive of the expansion space is for approximately 101,000 square feet and has commenced.

The new lease inclusive of the expansion space is for approximately 101,000 square feet.

Pershing Park had approximately $1,977,000 of rental income and $2,269,000 of operating expenses for the year ended December 31, 2022, and was 79.2% leased as of December 31, 2022.

The property had $125,000 of rental income and $489,000 of operating expenses for the three months ended December 31, 2021.

Rental Income Commitments

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(3) Amounts include principal and interest payments.

(4) The BMO Term Loan has an interest rate swap with an effective interest rate of 4.04% per annum as of December 31, 2022, which was used for estimating interest.

(4) Debt obligations presented in this table are as of December 31, 2023 and do not reflect subsequent amendments that were entered into effective February 21, 2024 or the BofA Term Loan replacing the BofA Revolver.

The operating lease in the table above consists of our lease of corporate office space, which commenced September 1, 2010, and was amended on October 25, 2016.

The amended lease expires on September 30, 2024 and has one five year renewal option.

The amended lease expires on September 30, 2024.

The lease includes a base annual rent and additional rent for our share of taxes and operating costs.

As of December 31, 2022, the Sponsored REIT Loan had $24 million of principal and $2.3 million in accrued interest and exit fees outstanding.

Additional information about our Sponsored REIT Loan outstanding as of December 31, 2022, including a summary table of our Sponsored REIT Loan, is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Off-Balance Sheet Arrangements

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The investment banking segment involved the structuring of real estate investments and broker/dealer services that included the organization of sponsored REITs, the acquisition and development of real estate on behalf of sponsored REITs and the raising of capital to equitize the sponsored REITs through sale of preferred stock in private placements.

The Sponsored REITs own real estate, purchases of which were financed through the private placement of equity in those entities, typically through syndication.

These Sponsored REITs are operated in a manner intended to qualify as real estate investment trusts.

The sponsored REITs owned real estate, purchases of which were financed through the private placement of equity in those entities, typically through syndication.

These sponsored REITs operated in a manner intended to qualify as real estate investment trusts.

We earned fees related to the sale of preferred stock in the sponsored REITs in these syndications.

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Generally the preferred stock is owned by unaffiliated investors, however, we held an interest in preferred shares of two sponsored REITs, which were liquidated during 2018.

In addition, directors and officers of FSP Corp., have from time to time invested in Sponsored REITs.

In addition, directors and officers of FSP Corp.,

have from time to time invested in sponsored REITs.

Following consummation of the offerings, the preferred stockholders in each of the sponsored REITs were entitled to 100% of the sponsored REIT’s cash distributions.

Subsequent to the completion of the offering of preferred shares, except for the preferred stock we previously owned, we do not share in any of the sponsored REIT’s earnings, or any related dividend, and the common stock ownership interests have virtually no economic benefit or risk.

As a common stockholder, we have no rights to the Sponsored REIT’s earnings or any related cash distributions.

However, upon liquidation of a Sponsored REIT, we are entitled to our percentage interest as a common stockholder in any proceeds remaining after the preferred stockholders have recovered their investment.

Our common stock percentage interest in each Sponsored REIT is less than 1%.

The affirmative vote of the holders of a majority of the Sponsored REIT’s preferred stockholders is required for any actions involving merger, sale of property, amendment to charter or issuance of additional capital stock.

In addition, all of the Sponsored REITs allow the holders of more than 50% of the outstanding preferred shares to remove (without cause) and replace one or more members of that Sponsored REIT’s board of directors.

As a common stockholder, we had no rights to a sponsored REIT’s earnings or any related cash distributions.

However, upon liquidation of a sponsored REIT, we were entitled to our percentage interest as a common stockholder in any proceeds remaining after the preferred stockholders have recovered their investment.

Our common stock percentage interest in each sponsored REIT was less than 1%.

The affirmative vote of the holders of a majority of the sponsored REIT’s preferred stockholders was required for any actions involving merger, sale of property, amendment to charter or issuance of additional capital stock.

In addition, all of the sponsored REITs allowed the holders of more than 50% of the outstanding preferred shares to remove (without cause) and replace one or more members of that sponsored REIT’s board of directors.

We previously acquired a preferred stock interest in three sponsored REITs, including one that sold the property owned by it on September 24, 2018, one that sold the property owned by it on July 19, 2018 and one that sold the property owned by it on December 20, 2012 and each made a liquidating distribution to us;

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As of December 31, 2023, the Sponsored REIT Loan had $24 million principal amount outstanding.

Additional information about the Sponsored REIT Loan as of December 31, 2022, including a summary table of the Sponsored

REIT Loan, is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Additional information about the Sponsored REIT Loan as of December 31, 2023 is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

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What changed 10-K

Item 7. Management’s Discussion and Analysis