What changed in this filing

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Item 1. Financial Statements

2024-04-30 compared with 2023-11-07 · 164 added, 266 removed, 326 unchanged (57% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(in thousands, except share and par value amounts)

Real estate assets:

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

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

Land (amounts related to variable interest entities ("VIEs") of $ 6,416 and $ 6,416 at March 31, 2024 and December 31, 2023, respectively)

Buildings and improvements (amounts related to VIEs of $ 13,279 and $ 13,279 at March 31, 2024 and December 31, 2023, respectively)

Fixtures and equipment

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

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

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

Less accumulated depreciation (amounts related to VIEs of $ 426 and $ 341 at March 31, 2024 and December 31, 2023, respectively)

Real estate assets, net (amounts related to VIEs of $ 19,269 and $ 19,354 at March 31, 2024 and December 31, 2023, respectively)

Acquired real estate leases, less accumulated amortization of $ 19,840 and $ 20,413 , respectively (amounts related to VIEs of $ 67 and $ 305 , less accumulated amortization of $ 22 and $ 222 at March 31, 2024 and December 31, 2023, respectively)

Assets held for sale

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

Cash, cash equivalents and restricted cash (amounts related to VIEs of $ 2,080 and $ 2,167 at March 31, 2024 and December 31, 2023, respectively)

Tenant rent receivables

1 unchanged sentence

Prepaid expenses and other assets

Related party mortgage loan receivable, less allowance for credit loss of $ 0 and $ 4,237 , respectively

Other assets:

derivative asset

Office computers and furniture, net of accumulated depreciation of $ 1,036 and $ 1,020 , respectively

4 unchanged sentences

Series A & Series B Senior Notes, less unamortized financing costs of $ 2,290 and $ 329 , respectively

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

Accounts payable and accrued expenses (amounts related to VIEs of $ 702 and $ 590 at March 31, 2024 and December 31, 2023, respectively)

Accrued compensation

15 unchanged sentences

Consolidated Statements of Operations

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in thousands, except per share amounts)

Related party revenue:

Management fees and interest income from loans

Total revenues

6 unchanged sentences

Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

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

Interest income

Income (loss) before taxes

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

15 unchanged sentences

Comprehensive income (loss)

Repurchased shares

Distributions $ 0.01 per

1 unchanged sentence

Balance, March 31, 2023

Comprehensive income (loss)

Equity-based compensation

Distributions $ 0.09 per

share of common stock

Balance, June 30, 2022

Comprehensive income

Distributions $ 0.01 per

share of common stock

Balance, September 30, 2022

Balance, December 31, 2023

3 unchanged sentences

Balance, March 31, 2024

Comprehensive loss

Equity-based compensation

Distributions $ 0.01 per

share of common stock

Balance, June 30, 2023

Comprehensive loss

Distributions $ 0.01 per

share of common stock

Balance, September 30, 2023

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

1 unchanged sentence

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in thousands)

4 unchanged sentences

Amortization of above and below market leases

Shares issued as compensation

Amortization of other comprehensive income into interest expense

1 unchanged sentence

Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

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

8 unchanged sentences

Payment of deferred leasing commissions

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

6 unchanged sentences

Proceeds received from termination of interest rate swap

Stock repurchases

Borrowings under Bank note payable

Repayments of Bank note payable

Repayment of term loan payable

Repayments of Term loans payable

Repayments of Series A&B Senior Notes

Deferred financing costs

7 unchanged sentences

Accrued costs for purchases of real estate assets

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

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

Investment in related party mortgage loan receivable converted to real estate assets and acquired real estate leases in conjunction with variable interest entity consolidation

Accrued deferred financing costs

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

6 unchanged sentences

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

As of September 30, 2023, the Company owned and operated a portfolio of real estate consisting of 19 operating properties, and the Sponsored REIT, which was consolidated effective January 1, 2023.

As of March 31, 2024, the Company owned and operated a portfolio of real estate consisting of 16 operating properties, and the Sponsored REIT, which was consolidated effective January 1, 2023.

The Company may pursue, on a selective basis, the sale of its properties in order to take advantage of the value creation and demand for its properties, for geographic, property specific reasons or for other general corporate purposes.

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

As of September 30,

As of March 31,

Owned and Consolidated Properties:

1 unchanged sentence

Rentable square feet

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

(1) Includes one property that was classified as an asset held for sale as of March 31, 2024.

Basis of Presentation

6 unchanged sentences

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

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

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

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

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

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

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.

Financial Instruments

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

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

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

Cash, Cash Equ ivalents and Restricted Cash

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

September 30,

(in thousands)

2 unchanged sentences

Total cash, cash equivalents and restricted cash

(1) Includes $ 2,445 at September 30, 2023, pertaining to Monument Circle, which the Company is unable to utilize for its own operational purposes.

(1) Includes $ 2,080 and $ 2,919 at March 31, 2024 and 2023, respectively, pertaining to Monument Circle, which the Company is unable to utilize for its own operational purposes.

Restricted cash consists of escrows arising from property sales.

13 unchanged sentences

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

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

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

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

26 unchanged sentences

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

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

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

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

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

Liquidity and Management’s Plan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Recent Accounting Standards

4 unchanged sentences

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

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

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

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

In March 2020, the FASB issued ASU No.

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is

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

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 requires public entities to disclose significant segment expense and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

The guidance in ASU 2023-07 is applied retrospectively to all periods presented in the financial statements and is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company does not anticipate that the adoption of ASU 2023-07 will have a material impact on the consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures and disclosures about income taxes paid.

The guidance in ASU 2023-09 should be applied prospectively but may be applied retrospectively for each period presented.

ASU 2023-09 is effective for public entities for fiscal years beginning after December 15, 2024.

The Company does not anticipate that the adoption of ASU 2023-09 will have a material impact on the consolidated financial statements.

Related Party Transactions and Investments in Non-Consolidated Entities

Investment in Sponsored REITs:

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

Management fees and interest income from loans:

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

Asset management fee income from non-consolidated entities amounted to approximately $ 0 and $ 26,000 for the nine months ended September 30, 2023 and 2022, respectively.

Asset management fee income from non-consolidated entities amounted to approximately $ 0 and $ 0 for the three months ended March 31, 2024 and 2023, respectively.

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

8 unchanged sentences

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

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $ 0 and $ 1,367,000 for the nine months ended September 30, 2023 and 2022, respectively.

The Company recognized no interest income and fees from the Sponsored REIT Loan for the three months ended March 31, 2024 and 2023, respectively.

On October 29, 2021, the Company agreed to amend and restate the then existing Sponsored REIT Loan to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $ 3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $ 21 million to $ 24 million.

4 unchanged sentences

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

The Company recorded a $ 4.2 million increase in its provision for credit losses during the year ended December 31, 2022 which was primarily due to the deterioration within the real estate market, changes to key assumptions applied within our financial model to reflect these changes, such as the exit capitalization and discount rates, and an increase in the accrued interest receivable balance.

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

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

was due to the consolidation of Monument Circle.

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

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

There were no adjustments during the subsequent months through March 31, 2024.

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(In thousands)

3 unchanged sentences

Ending allowance for credit losses

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

Fair Value (1) at

December 31, 2022

Valuation Technique

Unobservable Input

(in thousands)

Sponsored REIT Loan

Discounted Cash Flows

Exit Cap Rate

Discount Rate

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

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

Bank Note Payable, Term Loans Payable and Senior Notes

BMO Term Loan

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

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

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

In connection with the BMO First Amendment, the Company repaid a $ 40 million portion of the remaining balance of the BMO Term Loan, so that $ 125 million principal amount remained outstanding.

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

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

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

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

Prior to February 10, 2023, the BMO Term Loan bore interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating ( 165 basis points over LIBOR at December 31, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating ( 65 basis points over the base rate at December 31, 2022).

As of September 30, 2023, the interest rate on the BMO Term Loan was 8.43 % 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 September 30, 2023 was approximately 7.98 % per annum.

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

As of March 31, 2024, the Company has a term loan borrowing in the aggregate principal amount of approximately $ 86.0 million (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, the Company amended the BMO Term Loan by entering into a Second Amendment to Second Amended and Restated Credit Agreement with Bank of Montreal and the other lending institutions party thereto (the “BMO Second Amendment”).

The BMO Second Amendment amended the Second Amended and Restated Credit Agreement dated September 27, 2018 (the “Original BMO Credit Agreement”), as amended by the First Amendment to Second Amended and Restated Credit Agreement dated February 10, 2023 (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 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, 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 the Company;

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

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

(7) reduce the Company’s minimum fixed charge coverage ratio from 1.50 x to 1.25 x;

and (8) reduce the Company’s minimum unsecured interest coverage ratio from 1.75 x to 1.25 x.

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.

On February 21, 2024, as part of the BMO Second Amendment, the Company repaid an approximately $ 29.0 million portion of the BMO Term Loan so that approximately $ 86.0 million remains outstanding as of March 31, 2024.

Effective February 21, 2024, upon entering into the BMO Second 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, 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.

As of March 31, 2024, the interest rate on the BMO Term Loan was 8.44 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.45 % for the three months ended March 31, 2024.

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

On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39 % per annum for the period beginning on August 26, 2020 and ending January 31, 2024.

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

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

going concern qualifications to the Company’s financial statements;

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

The 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 the Company’s common stock, going concern qualifications to the Company’s financial statements, 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;

1 unchanged sentence

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 Company was in compliance with the BMO Term Loan financial covenants as of March 31, 2024.

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).

1 unchanged sentence

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

The Company was in compliance with the BMO Term Loan financial covenants as of September 30, 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, among the Company and the lending institutions party thereto (as amended by the BofA First Amendment, the “BofA Credit Agreement”) to, among other things, extend the maturity date from January 12, 2024 to October 1, 2024, reduce availability for borrowings, at the Company’s election, from up to $ 237.5 million to up to $ 150 million, and to change the interest rate from a number of basis points over SOFR depending on the Company’s credit rating to 300 basis points over SOFR.

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

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

As of September 30, 2023 and November 7, 2023, there were borrowings of $ 80 million and $ 90 million drawn and outstanding under the BofA Revolver, respectively, which borrowings include $ 40 million that the Company borrowed on February 10, 2023 to repay a portion of the BMO Term Loan.

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

Effective February 10, 2023 upon entering into the BofA First Amendment, the BofA Revolver bears interest at 300 basis points over either (i) the daily simple SOFR, plus an adjustment of 0.11448 %, or (ii) one , three or six month term SOFR, plus

a corresponding adjustment of 0.11448 %, 0.26161 % or 0.42826 % , respectively.

In addition, under certain circumstances, such as if SOFR was not able to be determined, the BofA Revolver will instead bear interest at 200 basis points over the base rate.

Prior to February 10, 2023, borrowings under the BofA Revolver bore interest at a margin over either (i) the daily simple SOFR, plus an adjustment of 0.11448 %, or (ii) one , three or six month term SOFR, plus a corresponding adjustment of 0.11448 %, 0.26161 % or 0.42826 %, respectively.

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

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

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

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

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

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

The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, use of proceeds, the amount of cash and cash equivalents that the Company can have on its balance sheet after giving effect to an advance under the BofA Revolver, repurchases and redemptions of the Company’s common stock, going concern qualifications to the Company’s financial statements, and the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates.

The BofA Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio and a minimum unsecured interest coverage ratio.

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;

BofA Term Loan

As of March 31, 2024, the Company has a term loan borrowing in the aggregate principal amount of approximately $ 67.3 million (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, the Company amended the BofA Term Loan by entering into a Second Amendment to Credit Agreement with the lending institutions party thereto (the “BofA Second Amendment”).

The BofA Second Amendment amended the Credit Agreement dated January 10, 2022 (the Original BofA Credit Agreement, as amended by the First Amendment to Credit Agreement dated February 10, 2023 (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 the Company;

(6) require that, within 90 days of the February 21, 2024 effective date of the BofA Second Amendment, certain of the Company’s subsidiaries guarantee the

BofA Term Loan;

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

(8) reduce the Company’s minimum fixed charge coverage ratio from 1.50 x to 1.25 x;

and (9) reduce the Company’s minimum unsecured interest coverage ratio from 1.75 x to 1.25 x.

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.

On February 21, 2024, as part of the BofA Second Amendment, the Company repaid an approximately $ 22.7 million portion of the BofA Revolver so that approximately $ 67.3 million aggregate principal amount remained outstanding under the BofA Term Loan as of March 31, 2024.

Effective February 21, 2024, upon entering into the BofA Second Amendment, the BofA Term Loan 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, 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.

As of March 31, 2024, the interest rate on the BofA Term Loan was 8.44 % per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was 8.43 % for the three months ended March 31, 2024.

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, 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 the Company’s equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of the Company’s common stock, going concern qualifications to the Company’s financial statements, and transactions with affiliates.

In addition, 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;

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

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

The Company was in compliance with the BofA Term Loan financial covenants as of March 31, 2024.

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

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

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

Former BofA Credit Facility

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

Effective simultaneously with the closing of the Amended Former BofA Credit Facility on January 10, 2022, the Company delivered a notice to BofA

terminating the aggregate lender commitments under the Former BofA Revolver in their entirety.

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

Former BofA Revolver Highlights

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

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

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

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

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

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

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

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

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

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

Former BofA Term Loan Highlights

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

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

On September 30, 2021, the Company repaid a $ 90 million portion and on October 25, 2021, the Company repaid a $ 200 million portion of the Former BofA Term Loan and incurred a loss on extinguishment of debt of $ 0.7 million related to unamortized deferred financing costs.

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

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

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

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

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

On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the Former BofA Term Loan at 1.12 % per annum for the period beginning on September 27, 2017 and ended on September 27, 2021.

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

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

Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $ 200 million of senior unsecured notes consisting of (i) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $ 116 million (the “Series A Notes”) and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount

of $ 84 million (the “Series B Notes” and, together with the Series A Notes, the “Senior Notes”).

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

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

As of September 30, 2023, the Series A Notes bear interest at 4.49 % per annum and the Series B Notes bear interest at 4.76 % per annum.

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

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.

As of March 31, 2024, the Company has senior notes in the aggregate principal amount of approximately $ 149.6 million (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 (the “Series A Notes”) and (ii) Series B Senior Notes due April 1, 2026 in the aggregate principal amount of approximately $ 62.8 million (the “Series B Notes”).

On February 21, 2024, the Company amended the terms of the Senior Notes by entering into a First Amendment to Note Purchase Agreement (the “NPA First Amendment”) with the purchasers party thereto.

The NPA First Amendment amended the Note Purchase Agreement dated October 24, 2017 (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 the Company;

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

(8) require that, within 90 days of the February 21, 2024 effective date of the NPA First Amendment, the Company pledge its equity interests in certain of the Company’s 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.

On February 21, 2024, as part of the NPA First Amendment, the Company repaid an approximately $ 29.2 million portion of the Series A Notes so that approximately $ 86.8 million aggregate principal amount of the Series A Notes remained outstanding as of March 31, 2024.

In addition, on February 21, 2024, as part of the NPA First Amendment, the Company repaid an approximately $ 21.2 million portion of the Series B Notes so that approximately $ 62.8 million aggregate principal amount of the Series B Notes remained outstanding as of March 31, 2024.

As of March 31, 2024, the interest rate on the Series A Notes was 8.00 % per annum and the interest rate on the Series B Notes was 8.00 % per annum.

As of December 31, 2023, the interest rate on the Series A Notes was 4.49 % per annum and the interest rate on the Series B Notes was 4.76 % per annum.

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 the Company’s equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of the Company’s common stock, going concern qualifications to the Company’s financial statements, transactions with affiliates, certain restrictions on severance, retention and similar arrangements applicable to the Company’s executive officers, and real estate investment trust compliance requirements.

In addition, the Note Purchase 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 Note Purchase 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 Company was in compliance with the Note Purchase Agreement financial covenants as of March 31, 2024.

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

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

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

Financial Instruments:

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

As of September 30, 2023, there were no derivative instruments.

As of March 31, 2024, there were no derivative instruments.

The 2019 BMO Interest Rate Swap qualified as a cash flow hedge and has been recognized on the consolidated balance sheets at fair value.

1 unchanged sentence

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

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

The following table summarizes the notional and fair value of the Company’s derivative financial instrument at December 31, 2023 and March 31, 2024.

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

1 unchanged sentence

(in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

2 unchanged sentences

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

The balance is included in other assets:

The balance was included in other assets:

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

The gain (loss) on the Company’s 2019 BMO Interest Rate Swap was recorded in other comprehensive income (loss) (OCI), and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2023 and 2022, was as follows:

The gain (loss) on the Company’s 2019 BMO Interest Rate Swap was recorded in other comprehensive income (loss) (OCI), and the accompanying consolidated statements of operations as a component of interest expense for the three months ended March 31, 2024 and 2023, was as follows:

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Interest Rate Swaps in Cash Flow Hedging Relationships:

2 unchanged sentences

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

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

The Company estimates that approximately $ 1.4 million of the current balance held in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

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

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

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

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

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

However, there was no assurance that the Company would be able to adequately protect against the foregoing risks or that it would ultimately realize an economic benefit that exceeded the related amounts incurred in connection with engaging in such hedging strategies.

The fair value of the Company’s derivative instruments are determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve and are adjusted to reflect credit or nonperformance risk.

The risk is estimated by the Company using credit spreads and risk premiums that are observable in the market.

These financial instruments were classified within Level 2 of the fair value hierarchy and were classified as an asset or liability on the consolidated balance sheet.

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

derivative asset and other liabilities:

derivative liability in the consolidated balance sheets, and the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the consolidated statements of comprehensive income (loss).

Net Income Per Share

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

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

There were no potential dilutive shares outstanding at each of March 31, 2024 and 2023.

Stockholders’ Equity

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

As of March 31, 2024, the Company had 103,430,353 shares of common stock outstanding.

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

1 unchanged sentence

First quarter of 2024

Second quarter of 2023

Third quarter of 2023

Special dividend declared in December 2021 and paid January 2022

First quarter of 2023

Second quarter of 2022

Third quarter of 2022

Equity-Based Compensation

4 unchanged sentences

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

On each of May 17, 2022 and May 18, 2023, the Company granted shares under the Plan to non-employee directors with the compensation cost related to such grants indicated in the table below, which was recognized during the year ended December 31, 2022 and the nine months ended September 30, 2023, respectively, included in general and administrative expenses for the respective period.

On May 18, 2023, the Company granted shares under the Plan to non-employee directors with the compensation cost related to such grants indicated in the table below, which was recognized during the year ended December 31, 2023 and is included in general and administrative expenses for such period.

Such shares were fully vested on the date of issuance.

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Shares granted 2024

Balance September 30, 2023

Repurchase of Common Stock

On June 23, 2021, the Board of Directors of the Company authorized the repurchase of up to $ 50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws.

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

The Company repurchased 846,739 shares of common stock during the first quarter of 2022 at an aggregate cost of approximately $ 4.8 million at an average cost of approximately $ 5.72 per share, inclusive of brokerage commissions.

The Company did not repurchase any shares of common stock during the remainder of 2022 or the first quarter of 2023.

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

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

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

(Cost in thousands)

Shares Repurchased

Balance, December 31, 2021

Repurchase of shares

Balance, December 31, 2022

Balance March 31, 2024

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

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Net operating losses

Section 382 of the Code restricts a corporation’s ability to use NOLs to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Company’s prior sponsored REITs available for use by the Company in any particular future taxable year will be limited.

Section 382 of the Code restricts a corporation’s ability to use net operating losses (“NOLs”) to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Company’s prior sponsored REITs available for use by the Company in any particular future taxable year will be limited.

To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years.

NOLs generated prior to December 31, 2018 will expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027.

A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured.

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

NOLs expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027.

Approximately $ 0.7 million of NOLs expired in 2023 and approximately $ 0.1 million of NOLs expired in 2021.

The Company used approximately $ 11.1 million of NOLs in 2021 to offset federal net taxable capital gains resulting from the sale of properties in 2021, therefore approximately $ 11.1 million of valuation allowances were reversed in 2021.

A valuation allowance is provided for the full amount of the gross NOLs available as the realization of any tax benefits remaining from such NOLs is not assured.

The gross amount of NOLs available to the Company was approximately $ 29.7 million and $ 29.7 million as of March 31, 2024 and December 31, 2023, respectively.

Income Tax Expense

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

The Company recorded a provision for the Revised Texas Franchise Tax of $ 212,000 and $ 167,000 for the nine months ended September 30, 2023 and 2022, respectively.

The Company recorded a provision for the Revised Texas Franchise Tax of $ 58,000 and $ 67,000 for the three months ended March 31, 2024 and 2023, respectively.

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

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

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

For the three months ended March 31, 2024 and 2023, the Company recognized the following amounts of income relating to lease payments:

Income relating to lease payments:

Nine Months Ended

For the Three Months Ended March 31,

(in thousands)

September 30, 2023

September 30, 2022

Income from leases (1)

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

(1) Includes amounts recognized from variable lease payments of $ 8,707 and $ 10,852 for the three months ended March 31, 2024 and 2023, respectively.

Disposition of Properties and Asset Held for Sale

In 2021, the Company determined that further debt reduction would provide greater financial flexibility and potentially increase shareholder value.

Accordingly, the Company adopted a strategy to dispose of certain properties where it believes valuation potential has been reached.

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

The Company sold an office property located in Evanston,

Illinois on December 28, 2022 for a sales price of $ 27.8 million, at a gain of approximately $ 3.9 million.

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

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

In the three months ended March 31, 2023, the Company sold one office property located in Elk Grove, Illinois on March 10, 2023, for a sales price of $ 29.1 million, at a gain of approximately $ 8.4 million.

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

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

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

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

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

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

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

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

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

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

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

The Company reports the results of operations of its properties in its consolidated statements of operations, which includes rental income, rental operating expenses, real estate taxes and insurance and depreciation and amortization.

The operating results for the properties that the Company disposed of or classified as assets held for sale are summarized below:

Three months ended September 30,

Nine months ended September 30,

(in thousands)

Rental revenue

Rental operating expenses

Real estate taxes and insurance

Depreciation and amortization

Income from dispositions and assets held for sale

In the three months ended March 31, 2024, the Company sold one office property located in Richardson, Texas on January 26, 2024, for a sales price of $ 35.0 million at a loss of approximately $ 2.1 million, which was recorded as an impairment during the year ended December 31, 2023.

An additional $ 5,000 of costs related to the sale were recorded during the three months ended March 31, 2024.

During the three months ended September 30, 2023, the Company reclassified $ 39.0 million of an office property in Atlanta, Georgia as assets held for sale as of September 30, 2023.

The Company recorded this property at the fair value less cost to sell, which was less than the carrying value and resulted in an impairment of $ 20.5 million in the three months ended

September 30, 2023.

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

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

The property 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, the Company received notice from the buyer indicating that the buyer was terminating the transaction and directing the deposit and interest be disbursed to the Company.

At March 31, 2024 and December 31, 2023, the office property remained classified on the consolidated balance sheet as an asset held for sale in the amount of $ 39.0 million and was comprised of $ 52.2 million of real estate assets, net of accumulated depreciation, $ 4.4 million of straight-line rents receivable, and $ 2.9 million of deferred leasing commissions, net of accumulated amortization.

The Company expects the property to be sold within the next twelve months.

The Company reports the results of operations of its properties that have been disposed of or classified as held for sale in its consolidated statements of operations, which includes rental income, rental operating expenses, real estate taxes and insurance and depreciation and amortization.

Subsequent Events

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

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

On April 5, 2024, the Board of Directors of the Company declared a cash distribution of $ 0.01 per share of common stock payable on May 9, 2024, to stockholders of record on April 19, 2024.

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

What changed 10-Q

Item 1. Financial Statements