What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-04-30 · 139 added, 87 removed, 332 unchanged (41% of the section changed)

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The real estate operations market involves real estate rental operations, leasing, secured financing of real estate and services provided for asset management, property management, property acquisitions, dispositions and development.

Our current strategy is to invest in infill and central business district office properties in the United States sunbelt and mountain west regions as well as select opportunistic markets.

Our current strategy is to focus on infill and central business district office properties in the United States sunbelt and mountain west regions as well as select opportunistic markets.

We believe that the United States sunbelt and mountain west regions have macro-economic drivers that have the potential to increase occupancies and rents.

We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income.

As of March 31, 2024, approximately 4.8 million square feet, or approximately 87.7% of our total owned and consolidated portfolio, was located in Dallas, Denver, Houston and Minneapolis.

We are focused on long-term growth and appreciation, as well as current income.

As of June 30, 2024, approximately 4.8 million square feet, or approximately 87.7% of our total owned and consolidated portfolio, was located in Dallas, Denver, Houston and Minneapolis.

The main factor that affects our real estate operations is the broad economic market conditions in the United States.

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We have no influence on broader economic market conditions.

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.

In the future, 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.

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

For the three months ended March 31, 2024 and the year ended December 31, 2023, our disposition strategy resulted in aggregate gross sale proceeds of $35.0 million and $154.5 million, respectively.

For the six months ended June 30, 2024 and the year ended December 31, 2023, our disposition strategy resulted in aggregate gross sale proceeds of $35.0 million and $154.5 million, respectively.

On July 8, 2024, we sold a property located in Glen Allen, Virginia for a gross selling price of $31.0 million.

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

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As more fully described in Note 3 “Bank Note Payable, Term Loans Payable and Senior Notes” in the Notes to Consolidated Financial Statements included in this report and in “Liquidity and Capital Resources” below, on February 21, 2024, we entered into amendments to each of the BofA Term Loan, BMO Term Loan, Series A Notes and Series B Notes (each as defined in Note 3 in the Notes to Consolidated Financial Statements included in this report) to extend the maturity dates of each facility and modify the interest rate payable under each facility and in connection with such amendments, repaid an aggregate of $102 million principal amount of debt.

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, which continues to be the rating as of March 31, 2024.

On July 10, 2024, we used proceeds from the sale of a property in Glen Allen, Virginia to repay an aggregate of approximately $25.3 million of principal amount of debt.

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

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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%.

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.

As of March 31, 2024, approximately 50.6% of our total debt constituted unhedged variable rate debt.

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%

As of June 30, 2024, approximately 50.6% of our total debt constituted unhedged variable rate debt.

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.

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Real Estate Operations

As of March 31, 2024, our real estate portfolio was comprised of 16 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.

As of June 30, 2024, our real estate portfolio was comprised of 16 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 17 properties as our owned and consolidated properties.

Our owned properties were approximately 73.3% leased as of March 31, 2024, a decrease from 74.0% leased as of December 31, 2023.

The 0.7% decrease in leased space was primarily a result of lease maturities that occurred during the three months ended March 31, 2024, and the impact on leased percentage from the disposition of one property on January 26, 2024.

These decreases were partially offset by new leasing during the three months ended March 31, 2024.

As of March 31, 2024, we had approximately 1,405,000 square feet of vacancy in our owned properties compared to approximately 1,445,000 square feet of vacancy at December 31, 2023.

During the three months ended March 31, 2024, we leased approximately 197,000 square feet of office space in our owned properties, of which approximately 136,000 square feet were with existing tenants, at a weighted average term of 6.8 years.

On average, tenant improvements for such leases were $29.23 per square foot, lease commissions were $9.00 per square foot and rent concessions were approximately five months of free rent.

Our owned properties were approximately 72.3% leased as of June 30, 2024, a decrease from 74.0% leased as of December 31, 2023.

The 1.7% decrease in leased space was primarily a result of lease maturities that occurred during the six months ended June 30, 2024, and the impact on leased percentage from the disposition of one property on January 26, 2024.

These decreases were partially offset by new leasing during the six months ended June 30, 2024.

As of June 30, 2024, we had approximately 1,456,000 square feet of vacancy in our owned properties compared to approximately 1,445,000 square feet of vacancy at December 31, 2023.

During the six months ended June 30, 2024, we leased approximately 272,000 square feet of office space in our owned properties, of which approximately 180,000 square feet were with existing tenants, at a weighted average term of 6.1 years.

On average, tenant improvements for such leases were $28.18 per square foot, lease commissions were $8.57 per square foot and rent concessions were approximately four months of free rent.

Average GAAP base rents under such leases were $28.10 per square foot, or 12.0% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2023.

Our owned and consolidated properties were approximately 70.6% and 71.5% leased, as of March 31, 2024 and March 31, 2023, respectively.

As of March 31, 2024, leases for approximately 5.6% and 8.0% of the square footage in our owned and consolidated properties are scheduled to expire during 2024 and 2025, respectively.

As the second 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 second quarter of 2024 and potentially in future periods.

Our owned and consolidated properties were approximately 69.7% and 73.3% leased, as of June 30, 2024 and June 30, 2023, respectively.

As of June 30, 2024, leases for approximately 3.1% and 8.7% of the square footage in our owned and consolidated properties are scheduled to expire during 2024 and 2025, respectively.

As the third 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 third 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.

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In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023.

As a result of our obtaining this right to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023.

As a result of our obtaining this right

to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023.

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

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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.

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 had been 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.

The property was classified as held for sale as of December 31, 2023 and an impairment of $2.1 million was recorded during the year ended December 31, 2023.

The property was classified as held for sale as of December 31, 2023 and an impairment of $2.1 million had been recorded 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.

We used, or intend to use, the proceeds of the dispositions primarily for the repayment of debt.

We used the proceeds from the disposition primarily for the repayment of debt.

During the three months ended June 30, 2024, the Company entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately $31.0 million and an expected loss of $13.2 million, which was recorded as an impairment as of June 30, 2024.

The property was sold on July 8, 2024.

On July 10, 2024, the Company used proceeds of $25.3 million, or 90% of the net proceeds from the disposition, 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.

Our current strategy is to continue to invest in the sunbelt and mountain west regions of the United States.

Our current strategy is to focus on the sunbelt and mountain west regions of the United States.

Accordingly, the properties sold remained classified within continuing operations for all periods presented.

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In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information.

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 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023.

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 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023.

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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Results of Operations

The following table shows financial results for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

The following table shows financial results for the three months ended June 30, 2024 and 2023:

Three months ended June 30,

(in thousands)

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Total expenses

Loss on extinguishment of debt

Gain on consolidation of Sponsored REIT

Gain (loss) on sale of property

Impairment on asset held for sale

Interest income

Income (loss) before taxes

Net income (loss)

Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023:

Total revenues decreased by $6.5 million to $31.2 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

Loss before taxes

Comparison of the three months ended June 30, 2024 to the three months ended June 30, 2023:

Total revenues decreased by $5.4 million to $30.8 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

The decrease was primarily a result of:

● A decrease in rental revenue of approximately $5.4 million arising primarily from the sale of four properties in 2023, and one property in 2024 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 March 31, 2023.

Our leased space in our owned and consolidated properties was 70.6% as of March 31, 2024 and 71.5% as of March 31, 2023.

Total expenses decreased by $4.4 million to $39.6 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

These decreases were partially offset by rental income earned from leases commencing after June 30, 2023.

Our leased space in our owned and consolidated properties was 69.7% as of June 30, 2024 and 73.3% as of June 30, 2023.

Total expenses decreased by $4.9 million to $38.9 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $2.6 million is primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $3.1 million is primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $3.2 million, which was primarily attributable to the property dispositions noted above.

● A decrease in general and administrative expenses of $0.1 million, which was primarily attributable to lower personnel expenses during the three months ended June 30, 2024 compared to the same period in 2023.

These decreases were partially offset by:

● An increase in general and administrative expenses of $0.3 million, which was primarily attributable to higher professional fees related to debt transactions made during the three months ended March 31, 2024 compared to the same period in 2023.

● An increase in interest expense of approximately 1.0 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, and February 21, 2024, described above and was partially offset by a lower principal amount of debt outstanding compared to the same period in 2023.

Impairment on assets held for sale

During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina for a sales price of $9.2 million, at an expected loss of $0.8 million, which was recorded as an impairment.

We classified the property as an asset held for sale as of June 30, 2023.

The property was sold on August 9, 2023.

During the three months ended June 30, 2024, we entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately $31.0 million and an expected loss of $13.2 million, which was recorded as an impairment.

We classified the property as an asset held for sale as of June 30, 2024.

The property was sold on July 8, 2024.

Interest income

During the three months ended June 30, 2024, we invested disposition proceeds in an interest-bearing account and earned $0.3 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 $48,000 during the three months ended June 30, 2024, compared to $75,000 during the three months ended June 30, 2023.

Net income and loss

Net loss for the three months ended June 30, 2024 was $21.0 million, compared to a net loss of $8.4 million for the three months ended June 30, 2023, for the reasons described above.

The following table shows financial results for the six months ended June 30, 2024 and 2023:

Six months ended June 30,

(in thousands)

Total revenues

Real estate operating expenses

Real estate taxes and insurance

Depreciation and amortization

General and administrative

Total expenses

Loss on extinguishment of debt

During the three months ended March 31, 2024 and March 31, 2023, we repaid debt and incurred a loss on extinguishment of debt of $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 three months ended March 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.

Gain on sale of properties

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

Interest income

Loss before taxes

Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023:

Total revenues decreased by $12.0 million to $62.1 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

The decrease was primarily a result of:

● A decrease in rental revenue of approximately $12.0 million arising primarily from the sale of four properties in 2023, and one property in 2024 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 June 30, 2023.

Our leased space in our owned and consolidated properties was 69.7% as of June 30, 2024 and 73.3% as of June 30, 2023.

Total expenses decreased by $9.3 million to $78.5 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $5.3 million, which was primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $6.2 million, which was primarily attributable to the property dispositions noted above.

These decreases were partially offset by:

● An increase in general and administrative expenses of $0.2 million, which was primarily attributable to higher professional fees related to debt transactions during the six months ended June 30, 2024 compared to the same period in 2023.

● An increase in interest expense of approximately $2.0 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 and February 21, 2024, as described above, and was partially offset by a lower principal amount of debt outstanding compared to the same period in 2023.

Loss on extinguishment of debt

During the six months ended June 30, 2024 and June 30, 2023, we repaid debt and incurred a loss on extinguishment of debt of $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 six months ended June 30, 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.

Gain on sale of properties and impairment of assets held for sale

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 March 31, 2024, we sold an 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, The property was classified as held for sale as of December 31, 2023 and an impairment of $2.1 million was recorded 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.

We classified the property as an asset held for sale as of June 30, 2023.

The property was sold on August 9, 2023.

During the six months ended June 30, 2024, we sold an 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, The property was classified as held for sale as of December 31, 2023 and an impairment of $2.1 million was recorded during the year ended December 31, 2023.

An additional $5,000 of costs related to the sale were recorded during the six months ended June 30, 2024.

We classified the property as an asset held for sale as of June 30, 2024.

The property was sold on July 8, 2024.

Interest income

During the three months ended March 31, 2024, we invested disposition proceeds in an interest-bearing account and earned $1.0 million in interest income.

During the six months ended June 30, 2024, we invested disposition proceeds in an interest-bearing account and earned $1.4 million in interest income.

On February 21, 2024, we used $102.0 million of disposition proceeds to repay debt.

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 $58,000 during the three months ended March 31, 2024, compared to $67,000 during the three months ended March 31, 2023.

Net income and loss

Net loss for the three months ended March 31, 2024 was $7.6 million, compared to net income of $2.4 million for the three months ended March 31, 2023, 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 $106,000 during the six months ended June 30, 2024, compared to $142,000 during the six months ended June 30, 2023.

Net loss for the six months ended June 30, 2024 was $28.6 million, compared to a net loss of $6.0 million for the six months ended June 30, 2023, for the reasons described above.

Non-GAAP Financial Measures

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The calculations of FFO are shown in the following table:

For the three months ended March 31,

Three Months Ended

Six Months Ended

(in thousands):

Net income (loss)

Gain on consolidation of Sponsored REIT

(Gain) loss on sale of property

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

Depreciation and amortization

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Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(in thousands)

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Items in NOI* (b)

Six Months Ended

Three Months Ended

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*Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.

The information presented below provides the weighted average GAAP rent per square foot for the three months ended March 31, 2024 for our owned and consolidated properties and weighted occupancy square feet and percentages.

The information presented below provides the weighted average GAAP rent per square foot for the six months ended June 30, 2024 for our owned and consolidated properties and weighted occupancy square feet and percentages.

GAAP rent includes the impact of tenant concessions and reimbursements.

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Square Feet (b)

Innsbrook (c)

120 Monument Circle

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Total Owned & Consolidated Properties

(a) Based on weighted occupied square feet for the three months ended March 31, 2024, including month-to-month tenants, divided by the applicable property’s net rentable square footage.

(b) Represents annualized GAAP rental revenue for the three months ended March 31, 2024, per weighted occupied square foot.

(a) Based on weighted occupied square feet for the six months ended June 30, 2024, including month-to-month tenants, divided by the applicable property’s net rentable square footage.

(b) Represents annualized GAAP rental revenue for the six months ended June 30, 2024, per weighted occupied square foot.

Liquidity and Capital Resources

Cash and cash equivalents were $37.8 million and $127.9 million at March 31, 2024 and December 31, 2023, respectively.

Cash and cash equivalents were $31.5 million and $127.9 million at June 30, 2024 and December 31, 2023, respectively.

The decrease of $96.4 million is attributable to $7.7 million used in operating activities, plus $21.1 million provided by investing activities less $109.8 million used in financing activities.

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Operating Activities

Cash used in operating activities for the three months ended March 31, 2024 of $7.1 million is primarily attributable to a net loss of $7.6 million, plus the add-back of $12.3 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $9.1 million, an increase in payment of deferred leasing commissions of $2.2 million, an increase in prepaid expenses of $0.4 million, and an increase in lease acquisition costs of $0.1 million.

Cash used in operating activities for the six months ended June 30, 2024 of $7.7 million is primarily attributable to a net loss of $28.6 million.

excluding $13.2 million of impairment charges on an asset held for sale, plus the add-back of $25.1 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $13.9 million, an increase in payment of deferred leasing commissions of $2.7 million, an increase in lease acquisition costs of $0.3 million, an increase in prepaid expenses of $0.4 million and an increase in tenant receivables of $0.2 million.

Investing Activities

Cash provided by investing activities for the three months ended March 31, 2024 of $25.5 million is primarily attributable to proceeds from an asset sale of $34.3 million, which was partially offset by purchases of other real estate assets and office equipment investments of $8.8 million.

Cash provided by investing activities for the six months ended June 30, 2024 of $21.1 million is primarily attributable to proceeds from an asset sale of $34.3 million, which was partially offset by purchases of other real estate assets and office equipment investments of $13.2 million.

Financing Activities

Cash used in financing activities for the three months ended March 31, 2024 of $108.5 million is primarily attributable to the repayment of a portion of the BMO Term Loan of $28.9 million, repayment of a portion of the BofA Term Loan of $22.7 million, repayment of a portion of the Senior Notes of $50.4 million, payment of distributions to stockholders of $1.0 million, and payment of deferred financing costs of $5.5 million.

Cash used in financing activities for the six months ended June 30, 2024 of $109.8 million is primarily attributable to the repayment of a portion of the BMO Term Loan of $28.9 million, repayment of a portion of the BofA Term Loan of $22.7 million, repayment of a portion of the Senior Notes of $50.4 million, payment of distributions to stockholders of $2.1 million, and payment of deferred financing costs of $5.7 million.

Liquidity beyond the next 12 months

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BMO Term Loan

We have a term loan borrowing in the aggregate principal amount of approximately $86.0 million as of March 31, 2024, 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.

We have a term loan borrowing in the aggregate principal amount of approximately $86.0 million as of June 30, 2024, 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 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, which we refer to as the BMO Second Amendment.

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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 aggregate principal amount remained outstanding as of March 31, 2024.

The BMO Credit Agreement initially provided for an unsecured term loan borrowing in the amount of $220 million.

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 aggregate principal amount remained outstanding as of March 31, 2024.

On February 10, 2023, we repaid a $40 million portion of the tranche B term loan.

On August 10, 2023, we repaid an additional $10 million portion of the tranche B term loan.

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.

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

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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 June 30, 2024, the interest rate on the BMO Term Loan was 8.45% per annum.

The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.45% for the six months ended June 30, 2024.

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

8 unchanged sentences

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 March 31, 2024.

We were in compliance with the BMO Term Loan financial covenants as of June 30, 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 (as defined in the BMO Credit Agreement).

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BofA Term Loan

As of March 31, 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 of June 30, 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.

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

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 aggregate principal amount remained outstanding under the BofA Term Loan as of March 31, 2024.

On February 21, 2024, as part of the BofA Second Amendment, we repaid an approximately $22.7 million portion of the BofA Revolver.

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%.

1 unchanged sentence

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 June 30, 2024, the interest rate on the BofA Term Loan was 8.45% per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was 8.44% for the six months ended June 30, 2024.

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

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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 March 31, 2024.

We were in compliance with the BofA Term Loan financial covenants as of June 30, 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 (as defined in the BofA Credit Agreement).

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

We have senior notes in the aggregate principal amount of approximately $149.6 million as of March 31, 2024, which we refer to as the Senior Notes, that mature on April 1, 2026.

We have senior notes in the aggregate principal amount of approximately $149.6 million as of June 30, 2024, 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.

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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, we 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, we repaid an approximately $21.2 million aggregate principal amount 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.

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

In addition, on February 21, 2024, as part of the NPA First Amendment, we repaid an approximately $21.2 million aggregate principal amount of the Series B Notes.

As of June 30, 2024, approximately $86.8 million aggregate principal amount remained outstanding under the Series A Notes and approximately $62.8 million aggregate principal amount remained outstanding under the Series B Notes.

As of June 30, 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.

3 unchanged sentences

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 March 31, 2024.

We were in compliance with the Note Purchase Agreement financial covenants as of June 30, 2024.

Equity Offering

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

February 10, 2023, we disclosed in a Current Report on Form 8-K that our Board of Directors had discontinued the repurchase authorization.

On February 10, 2023, we disclosed in a Current Report on Form 8-K that our Board of Directors had discontinued the repurchase authorization.

Contingencies

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

Additional information about the Sponsored REIT Loan outstanding as of March 31, 2024, is incorporated herein by reference to Note 2, “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 June 30, 2024, is incorporated herein by reference to Note 2, “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 Consideration s

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 months ended March 31, 2024 and 2023, respectively, the rental income exceeded the expenses for each individual property, with the exception of Monument Circle for the three months ended March 31, 2024 and 2023.

For the three and six months ended June 30, 2024 and 2023, respectively, the rental income exceeded the expenses for each individual property, with the exception of Monument Circle for the three and six months ended June 30, 2024 and 2023.

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

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

Monument Circle had approximately $71,000 of rental income and $289,000 of operating expenses for the three months ended March 31, 2024.

Monument Circle had approximately $70,000 of rental income and $216,000 of operating expenses for the three months ended March 31, 2023.

Monument Circle was 4.1% leased to two retail tenants at each of March 31, 2024 and 2023.

Monument Circle had approximately $77,000 and $148,000 of rental income, and, $240,000 and $529,000 of operating expenses, for the three and six months ended June 30, 2024, respectively, and was 4.1% leased to two retail tenants as of June 30, 2024.

Monument Circle had approximately $68,000 and $138,000 of rental income, and, $310,000 and $526,000 of operating expenses, for the three and six months ended June 30, 2023, respectively, and was 4.1% leased to two retail tenants as of June 30, 2023.

Off-Balance Sheet Arrangements and Contractual Obligations

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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 2. Management’s Discussion and Analysis