What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-11 compared with 2024-02-26 · 162 added, 273 removed, 343 unchanged (56% of the section changed)

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

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

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

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

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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 December 31, 2023, approximately 5.1 million square feet, or approximately 88.4% of our total owned 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 December 31, 2024, approximately 4.8 million square feet, or approximately 95.7% 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 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.

We continue to believe that the current price of our common stock does not accurately reflect the intrinsic 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.

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

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For the year ended December 31, 2024, our disposition strategy resulted in aggregate gross sale proceeds of $100.0 million.

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

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

On July 10, 2024 and October 25, 2024, we repaid an aggregate amount of $25.3 million and $27.4 million, respectively, of our debt previously outstanding under the BofA Term Loan, BMO Term Loan, Series A Notes and Series B Notes (each as defined in Liquidity and Capital Resources below).

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

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

As of February 21, 2024, the interest rate applicable to borrowings under the Senior Notes (as defined in Liquidity and Capital Resources below) was no longer based on the credit rating of our 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.

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

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

As of December 31, 2024, our credit rating remains at B3.

Trends and Uncertainties

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

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

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

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

See “Risk Factors” in Item 1A.

The long-term impact of the COVID-19 pandemic has had and may continue to have an adverse impact on our financial condition and results of operations.

This impact could be materially adverse to the extent that the long-term impact of the COVID-19 pandemic, or future pandemics, cause tenants to be unable to pay their rent or reduce the demand for commercial real estate, or cause other impacts described below.” in Item 1A.

“Risk Factors”.

Economic Conditions

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

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

Although recent indicators suggest that economic activity has expanded at a modest pace, the global economy continues to experience significant disruptions as a result of various factors, including geopolitical events such as the wars conflicts in Ukraine and the Middle East, increasing tensions with China and Iran, the long-term impact of the COVID-19 pandemic and continuing supply chain difficulties.

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

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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%.

Any future increases in the target range

could also increase interest rates.

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

During 2023 and 2024, the

Federal Reserve adjusted the federal funds rate target several times, most recently decreasing it by 25 basis points on December 18, 2024, to a range of 4.25% to 4.50%.

If interest rates 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 December 31, 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.

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

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

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Our owned properties were approximately 70.3% leased as of December 31, 2024, a decrease from 74.0% leased as of December 31, 2023.

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

The 3.7% decrease in leased space was primarily a result of lease maturities that occurred during the year ended December 31, 2024, and the impact on leased percentage from the disposition of properties on January 26, 2024, July 8, 2024 and October 23, 2024, respectively.

These decreases were partially offset by new leasing during the year ended December 31, 2024.

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

As of December 31, 2024, we had approximately 1,428,000 square feet of vacancy in our owned properties compared to approximately 1,445,000 square feet of vacancy as of December 31, 2023.

During the year ended December 31, 2024, we leased approximately 616,000 square feet of office space in our owned properties, of which approximately 445,000 square feet were with existing tenants, at a weighted average term of 6.3 years.

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

On average, tenant improvements for such leases were $26.06 per square foot, lease commissions were $9.72 per square foot and rent concessions were approximately four months of free rent.

Average GAAP base rents under such leases were $30.06 per square foot, or 8.2% 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 71.5% leased as of December 31, 2023, compared to our owned properties at 75.6% leased as of December 31, 2022.

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

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

Our owned and consolidated properties were approximately 67.5% leased as of December 31, 2024, compared to 71.5% leased as of December 31, 2023.

The difference is primarily a result of property sales and lease expirations during 2024, which were partially offset by leasing achieved during 2024.

During 2024, 2023 and 2022, we had no redevelopment properties.

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

Stonecroft had been our sole redevelopment property prior to its sale.

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

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As of December 31, 2024, leases for approximately 6.4% and 12.1% of the square footage in our owned portfolio are scheduled to expire during 2025 and 2026, respectively.

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

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

As the first quarter of 2025 begins, we believe that:

● approximately half of our operating properties are stabilized with leased occupancy of 75% or more;

● our remaining operating properties are value add in nature with leased occupancy of less than 75%.

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 first quarter of 2025 and potentially in future periods.

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

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

on its lease or to seek the protection of bankruptcy.

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

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

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● on September 27, 2024, we agreed to extend the maturity date of our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan, to September 30, 2025.

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

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

In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023.

As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to vote their shares in favor of any sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023.

● on September 26, 2023, we agreed to extend the maturity date of the Sponsored REIT Loan, to September 30, 2024.

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

Property Dispositions and Assets Held for Sale

During 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $29.1 million, at a gain of approximately $8.4 million.

During 2024, we sold an office property located in Richardson, Texas on January 26, 2024, for a gross 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 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.

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 at an expected loss of $13.2 million, which was recorded as an impairment.

The property was sold on July 8, 2024, at the expected loss.

During the three months ended September 30, 2024, we entered into a new agreement to sell a property in Atlanta, Georgia, which was previously classified as an asset held for sale during 2023 pursuant to a previous agreement that was terminated on November 15, 2023.

We increased the expected loss on this property by $6.6 million to $27.2 million when we entered into this new agreement to sell the property for a gross sales price of $34.0 million.

The property was sold on October 23, 2024, with a $0.4 million increase to loss from final sales adjustments on the date of sale.

During 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023, for a gross sales price of $29.1 million, at a gain of approximately $8.4 million.

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

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

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

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

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

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

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

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

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

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

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

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

The one remaining asset held for sale was expected to sell for a gross sales price of $40.0 million at a loss of approximately $20.5 million, which was recorded as an impairment as of September 30, 2023;

however, on November 15, 2023, we received notice from the buyer indicating that the buyer was terminating the transaction and directing the deposit and interest be disbursed to us.

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

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

We also sold an office property in Evanston, Illinois on December 28, 2022, for a gross sales price of approximately $27.8 million, at a gain of $3.4 million.

There were no properties held for sale as of December 31, 2022.

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

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

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

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

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

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

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

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

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.

We continue to believe that the current price of our common stock does not accurately reflect the intrinsic 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.

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

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

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

Significant estimates in the consolidated financial statements include purchase price allocations and impairment considerations.

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

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● allocation of purchase price;

● allowance for loan losses on mortgage loans;

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

● valuation of derivatives;

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

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

Competition, economic conditions and other factors may cause occupancy

declines in the future.

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

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

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

Derivative Instruments

We recognize derivatives on the balance sheet at fair value.

Derivatives that do not qualify, or are not designated as hedge relationships, must be adjusted to fair value through income.

Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability.

To the extent hedges are effective, a corresponding amount, adjusted for swap payments, is recorded in accumulated other comprehensive income within stockholders’ equity.

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

The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments

affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.

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

We currently have no fair value hedges outstanding.

Fair values of derivatives are subject to significant variability based on changes in interest rates and counterparty credit risk.

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

Results of Operations

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(in thousands)

Related party revenue:

Management fees and interest income from loans

Total revenues

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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

Loss on sale of properties and impairment of assets held for sale, net

Interest income

Income (loss) before taxes

Net income (loss)

Loss before taxes

Comparison of the year ended December 31, 2024 to the year ended December 31, 2023

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These decreases were partially offset by rental income earned from leases commencing after December 31, 2023.

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

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

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

Our leased space in our owned and consolidated properties was 67.5% as of December 31, 2024, as compared to 71.5% as of December 31, 2023.

● A decrease in other income of $0.2 million during 2024 compared to 2023 from a deposit that was forfeited by a potential buyer in 2023 for a property in Atlanta, Georgia that we had under agreement when the transaction was terminated.

Total expenses decreased by $18.2 million to $152.8 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $9.4 million primarily attributable to the property dispositions noted above.

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

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $10.2 million was primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $10.0 million 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 costs, which were partially offset by higher professional fees

related to debt transactions completed in 2024 and the costs associated with adding a new director to our Board of Directors in the fourth quarter of 2024.

These decreases were partially offset by:

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

● An increase in interest expense of approximately $2.1 million.

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

The increase was primarily due to higher interest expense as a result of higher interest rates under the loan amendments we entered into in February 2024, which are described below and was partially offset by a lower principal amount of debt outstanding compared to the year ended December 31, 2023.

Loss on extinguishment of debt

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

During the years ended December 31, 2024 and December 31, 2023, we repaid debt and incurred a loss on extinguishment of debt of approximately $1.1 million and $0.1 million, respectively, related to unamortized deferred financing costs on the dates of the repayments.

Gain on consolidation of Sponsored REIT

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

Impairment and loan reserve

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

Gain and loss on sale of properties and impairment

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

Gain and loss 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 gross sales price of $29.1 million, at a gain of approximately $8.4 million.

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

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

During the three months ended September 30, 2023, we entered into an agreement to sell a

property in Atlanta, Georgia for a gross sales price of approximately $40.0 million, at an expected loss of $20.5 million that was recorded as an impairment loss.

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

During the three months ended September 30, 2023, we entered into an agreement to sell a property in Atlanta, Georgia for a gross sales price of approximately $40.0 million, at an expected loss of $20.5 million that was recorded as an impairment loss.

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

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

The property sold on January 26, 2024, at the expected loss.

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 at an expected loss of $13.2 million that was recorded as an impairment, and we classified the property as an asset held for sale as of June 30, 2024.

The property was sold on July 8, 2024, at the expected loss.

During the three months ended September 30, 2024, an additional $0.7 million in costs related to the sale of properties previously sold were recorded.

During the three months ended September 30, 2024, we entered into a new agreement to sell a property in Atlanta, Georgia, which was classified as an asset held for sale, for a gross sales price of $34.0 million, and recorded an additional impairment loss of $6.6 million based on the fair value less cost to sell.

The property sold on October 23, 2024, with a $0.4 million increase to loss from final sales adjustments on the date of sale .

Interest Income

Interest income increased $1.5 million to $2.1 million during the year ended December 31, 2024, compared to the year ended December 31, 2023.

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

During 2024, we used a portion of the disposition proceeds to reduce debt and earned $2.1 million in interest income from proceeds that remained invested.

Tax expense on income

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Net income and loss

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

Net loss for year ended December 31, 2024, was $52.7 million compared to $48.1 million for the year ended December 31, 2023, for the reasons described above.

The following table shows financial results for the years ended December 31, 2023 and 2022.

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Loss on extinguishment of debt

Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

Gain on sale of properties, net

Income before taxes on income and equity in income of non-consolidated REITs

Equity in income of non-consolidated REITs

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

Interest income

Income (loss) before taxes

Net income (loss)

Comparison of the year ended December 31, 2023 to the year ended December 31, 2022

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The decrease was primarily a result of:

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

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

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

This decrease was partially offset by:

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

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

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

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

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

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

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

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

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

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

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

These decreases were partially offset by:

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

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

Loss on extinguishment of debt

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

Gain on consolidation of Sponsored REIT

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

Impairment and loan reserve

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

Gain on sale of properties, net

During the year ended December 31, 2022, we sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $102.5 million, at a gain of $24.1 million.

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

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

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

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

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

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

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

Gain and loss on sale of properties and impairment

During the three months ended September 30, 2023, we also recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project and increased the loss on sale of Forest Park by $38,000 as a result of final sales adjustments.

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

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

Interest Income

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

Tax expense on income

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

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

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

Net income (loss)

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

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

Net income and loss

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

Non-GAAP Financial Measures

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The calculations of FFO are shown in the following table:

For the Year December 31,

For the year ended December 31,

(in thousands):

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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

Equity in income of non-consolidated REITs

FFO from non-consolidated REITs

Depreciation and amortization

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

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

periods presented, which we call Same Store.

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

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

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

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

settlements and lease termination fees.

NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently.

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Items in NOI (a)

Reconciliation to Net income

Reconciliation to Net loss

Add (deduct):

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Gain on consolidation of Sponsored REIT

Impairment and loan loss reserve

Gain on sale of property

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Interest income

Equity in income of non-consolidated REITs

Non-property specific items, net

(a) Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.

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

Liquidity and Capital Resources

Cash and cash equivalents were $42.7 million and $127.9 million at December 31, 2024 and December 31, 2023, respectively.

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

The decrease of $85.2 million is attributable to $9.0 million provided by operating activities, plus $70.3 million provided by investing activities less $164.5 million used in financing activities.

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

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Operating Activities

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

Cash provided by our operating activities for the year ended December 31, 2024 of $9.0 million was primarily attributable to a net loss of $52.7 million excluding net losses on sale of properties of $20.8 million, plus the add-back of $50.7 million of non-cash expenses, less $6.1 million increase in payments of deferred leasing commissions, less a $4.3 million increase in accounts payable and accrued expenses, less a $0.7 million increase in lease acquisition costs plus an increase in tenant rent receivables of $0.9 million and a $0.4 million increase in prepaid expenses and other assets.

Investing Activities

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

Cash provided by investing activities for the year ended December 31, 2024 of $70.3 million was primarily attributable to proceeds from the sale of three properties of $95.5 million, which was partially offset by capital expenditures and office equipment investments of approximately $25.2 million.

Financing Activities

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

Cash used in financing activities for the year ended December 31, 2024 of $164.5 million is primarily attributable to repayment of a portion of the BMO Term Loan (defined below) of $43.9 million, repayment of a portion of the BofA Revolver (defined below) of $22.7 million, repayment of a portion of the BofA Term Loan (defined below) of $11.7 million, repayment of a portion of the Senior Notes (defined below) of $76.4 million, payment of deferred financing costs of $5.7 million and payment of distributions to stockholders of $4.1 million.

Liquidity beyond the next 12 months

Our ability to generate cash adequate to meet our needs is dependent primarily on income from real estate investments, the sale of real estate investments, leveraging of real estate investments, availability of bank borrowings, proceeds from public offerings of stock, private placement of debt and access to the capital markets.

Our ability to generate cash adequate to meet our needs is dependent primarily on income from real estate investments, the sale of real estate investments, leveraging of real estate investments, proceeds from public offerings of stock, private placement of debt and access to the capital markets.

The acquisition of new properties, the payment of expenses related to real estate operations, capital improvement expenses, debt service payments, general and administrative expenses, and distribution requirements place demands on our liquidity.

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

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

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

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

We have considered adding or refinancing existing term debt or raising capital through public offerings or At The Market (ATM) programs of our common stock.

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

JPM Term Loan

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

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

On June 4, 2021, we repaid the remaining $100 million outstanding on the loan, which had been scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs.

Although the interest rate on the JPM Term Loan was variable under the JPM Credit Agreement, we fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions.

On March 7, 2019, we entered into ISDA Master Agreements with various financial institutions to hedge a $100 million portion of the future LIBOR-based rate risk under the JPM Credit Agreement.

Effective March 29, 2019, we fixed the LIBOR-based rate at 2.44% per annum on a $100 million portion of the JPM Term Loan until November 30, 2021.

On June 4, 2021, we paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.

BMO Term Loan

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

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

We have a term loan borrowing in the aggregate principal amount of approximately $71.1 million as of December 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.

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.

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

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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 remains outstanding.

The BMO Term Loan initially consisted of a $55

million tranche A term loan and a $165 million tranche B term loan.

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 remains outstanding.

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.

On July 10, 2024, we repaid an approximately $7.2 million portion of the tranche B term loan from asset sale proceeds of a property located in Glen Allen, Virginia.

On October 25, 2024, we repaid an approximately $7.8 million portion of the tranche B term loan from asset sale proceeds of a property located in Atlanta, Georgia.

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

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

Effective February 21, 2024 upon entering into the BMO Second Amendment, interest on the BMO Term Loan was amended to be either (i) 300 basis points over one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively, with a floor on SOFR of 5.00% or (ii) 200 basis points over the base rate with a floor on the base rate of 6.00%.

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.

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

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

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

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

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

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

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

Prior to February 10, 2023, base rate meant, for any day, a fluctuating rate per annum equal to the highest of:

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

As of December 31, 2024, the interest rate on the BMO Term Loan was 8.00% per annum.

The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.34% for the year ended December 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 is currently variable under the BMO Credit Agreement, we previously fixed the base LIBOR interest rate by entering into interest rate swap transactions.

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

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

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

Accordingly, based upon our credit rating, as of December 31, 2022, the effective interest rate on the BMO Term Loan was 4.04% per annum.

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

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

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BofA Term Loan

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

As of December 31, 2024, we have a term loan borrowing in the amount of approximately $55.6 million, which we refer to as the BofA Term Loan, with Bank of America, N.A.

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

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

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

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

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

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(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:

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

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

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

collateral for the BofA Term Loan;

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

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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 remains outstanding under the BofA Term Loan.

Effective February 10, 2023 upon entering into the BofA First Amendment, interest on the BofA Revolver was 300 basis points over either (i) the daily simple SOFR, plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively.

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

Effective February 21, 2024 upon entering into the BofA Second Amendment, interest on the BofA Term Loan was amended to mean 300 basis points over either (i) the daily simple SOFR, plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively, with a floor on SOFR of 5.00%.

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

On July 10, 2024, we repaid an approximately $5.6 million portion of the BofA Term Loan from asset sale proceeds of a property located in Glen Allen, Virginia.

On October 25, 2024, we repaid an approximately $6.1 million portion of the BofA Term Loan from asset sale proceeds of a property located in Atlanta, Georgia.

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.

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

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2024, the interest rate on the BofA Term Loan was 8.00% per annum.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was 8.34% for the year ended December 31, 2024.

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

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

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

distributions based on our good faith estimate of projected or estimated taxable income or otherwise as necessary to retain our status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which we would otherwise be subject.

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

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

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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).

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

or BofA under the BofA Credit Agreement and related documents.

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

Former BofA Credit Facility

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

Effective simultaneously with the closing of the Former BofA Credit Facility on January 10, 2022, we delivered a notice terminating the aggregate lender commitments under the Former BofA Revolver in their entirety.

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

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 our credit rating (1.550% over LIBOR at December 31, 2021) or (ii) a margin over the base rate depending on our credit rating (0.550% over the base rate at December 31, 2021).

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

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

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

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

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

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

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

The weighted average interest rate on all amounts outstanding on the Former BofA Revolver during the year ended December 31, 2021 was approximately 1.33% per annum.

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

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

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

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

The margin over LIBOR rate or base rate was determined based on our credit rating pursuant to a pricing grid.

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

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

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

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

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

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

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

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

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

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

We have senior notes in the aggregate principal amount of approximately $123.6 million as of December 31, 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 $71.7 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 $51.9 million, which we refer to as the Series B Notes.

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

On February 21, 2024, we amended the terms of the Senior Notes by entering into a First Amendment to Note Purchase Agreement, which we refer to as the NPA First Amendment, with the purchasers party thereto.

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

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

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

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

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

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

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.

On July 10, 2024, we repaid an approximately $7.2 million portion of the Series A Notes and an approximately $5.3 million portion of the Series B Notes from asset sale proceeds of a property located in Glen Allen, Virginia.

On October 25, 2024, we repaid an approximately $7.8 million portion of the Series A Notes and an approximately $5.7 million portion of the Series B Notes from asset sale proceeds of a property located in Atlanta, Georgia.

As of December 31, 2024, approximately $71.7 million aggregate principal amount of the Series A Notes remained outstanding and approximately $51.9 million aggregate principal amount of the Series B Notes remained outstanding.

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

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

Internal Revenue Code or to eliminate any income or excise taxes to which we would otherwise be subject.

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

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

Equity Offering

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Loan to Sponsored REIT

What changed 10-K

Item 7. Management’s Discussion and Analysis