What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-29 compared with 2025-04-29 · 152 added, 102 removed, 325 unchanged (44% of the section changed)

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

As of March 31, 2025, 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.

As of June 30, 2025, all of our total owned portfolio, consisting of approximately 4.8 million square feet, 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 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.

We are continuing to pursue select potential property dispositions when we believe that short to intermediate term valuation potential has been reached.

Assuming that demand, pricing and liquidity allows us to transact on any potential dispositions, we intend to use the net proceeds primarily for the continued repayment of debt.

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 credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service from Ba1 to Ba3 on April 12, 2023, from Ba3 to B3 on June 14, 2023, and from B3 to Caa1 on February 27, 2025.

As of March 31, 2025, our credit rating remains at Caa1.

As of June 30, 2025, our credit rating remains at Caa1.

Strategic Review

In May 2025, the Company announced that its Board of Directors had initiated a review of strategic alternatives in order to explore ways to maximize shareholder value.

The review includes a range of potential strategic alternatives, including a sale of the Company, a sale of assets, and a refinancing of existing indebtedness, among others.

No assurances can be given regarding the outcome or timetable for completion of the strategic review process.

Trends and Uncertainties

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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 March 31, 2025, approximately 50.6% of our total debt constituted unhedged variable rate debt.

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 June 30, 2025, approximately 50.6% of our total debt constituted unhedged variable rate debt.

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.

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Real Estate Operations

As of March 31, 2025, our real estate portfolio was comprised of 14 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.

As of June 30, 2025, our real estate portfolio was comprised of 14 owned properties, which we refer to as our owned properties.

We also hold 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 and the property held by the Sponsored REIT was sold on June 6, 2025.

We refer to these 15 properties as our owned and consolidated properties.

Our owned properties were approximately 69.2% leased as of March 31, 2025, a decrease from 70.3% leased as of December 31, 2024.

The 1.1% decrease in leased space was primarily a result of lease maturities that occurred during the three months ended March 31, 2025 .

As of March 31, 2025, we had approximately 1,482,000 square feet of vacancy in our owned properties compared to approximately 1,428,000 square feet of vacancy at December 31, 2024.

During the three months ended March 31, 2025, we leased approximately 60,000 square feet of office space in our owned properties, which were with existing tenants, at a weighted average term of 5.2 years.

On average, tenant improvements for such leases were $3.77 per square foot, lease commissions were $6.65 per square foot and rent concessions were approximately three months of free rent.

Our owned properties were approximately 69.1% leased as of June 30, 2025, a decrease from 70.3% leased as of December 31, 2024.

The 1.2% decrease in leased space was primarily a result of lease maturities that occurred during the six months ended June 30, 2025.

As of June 30, 2025, we had approximately 1,484,000 square feet of vacancy in our owned properties compared to approximately 1,428,000 square feet of vacancy at December 31, 2024.

During the six months ended June 30, 2025, we leased approximately 187,000 square feet of office space in our owned properties, of which approximately 171,000 square feet were with existing tenants, at a weighted average term of 6.3 years.

On average, tenant improvements for such leases were $25.78 per square foot, lease commissions were $11.15 per square foot and rent concessions were approximately four months of free rent.

Average GAAP base rents under such leases were $31.89 per square foot, or 4.2% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2024.

Our owned and consolidated properties were approximately 66.4% and 67.5% leased, as of March 31, 2025 and December 31, 2024, respectively.

As of March 31, 2025, leases for approximately 4.9% and 11.6% of the square footage in our owned portfolio are scheduled to expire during 2025 and 2026, respectively.

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

As of June 30, 2025, leases for approximately 3.0% and 11.9% of the square footage in our owned portfolio are scheduled to expire during 2025 and 2026, respectively.

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

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

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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 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.

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 2025 and potentially in future periods.

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.

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On October 29, 2021, we agreed to amend and restate 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.

The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023, increased the aggregate principal amount of the loan from $21

million to $24 million, and included certain other modifications.

The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023, increased the aggregate principal amount of the loan from $21 million to $24 million, and included certain other modifications.

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.

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On September 27, 2024, the Sponsored REIT Loan maturity was extended to September 30, 2025.

Additional information about the consolidation of Monument Circle is incorporated herein by reference to Note 1, “Organization, Properties, Basis of Presentation, Financial Instruments, and Recent Accounting Standards – Variable Interest Entities (VIEs)” in the Notes to Consolidated Financial Statements included in this report.

The Sponsored REIT Loan was extinguished on June 6, 2025, when the property securing the loan was sold.

Additional information about the consolidation of Monument Circle is described below and incorporated herein by reference to Note 1, “Organization, Properties, Basis of Presentation, Financial Instruments, and Recent Accounting Standards – Variable Interest Entities (VIEs)” and to Note 8, “Disposition of Properties and Assets Held for Sale”, in the Notes to Consolidated Financial Statements included in this report.

Dispositions of Properties and Assets Held for Sale

On April 7, 2025, Monument Circle entered into a purchase and sale agreement with a third party to sell its property located in Indianapolis, Indiana for a gross sales price of $6.0 million.

We estimated the fair value of this property, less estimated costs to sell, based on the purchase price set forth in the letter of intent to purchase the property that Monument Circle entered into with the third party, which resulted in recording an impairment loss of $13.3 million and we reclassified the property as an asset held for sale of $5.7 million as of March 31, 2025.

We estimated the fair value of this property, less estimated costs to sell, based on the purchase price set forth in the letter of intent to purchase the property that Monument Circle entered into with the third party, which resulted in recording an impairment loss of $13.3 million during the three months ended March 31, 2025, and we reclassified the property as an asset held for sale of $5.7 million as of March 31, 2025.

On June 6, 2025, the property was sold and the impairment loss was decreased by $0.4 million to during the three months ended June 30, 2025 to a net loss of $12.9 million for final sale adjustments after the sale was completed.

On January 26, 2024, we sold an 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 loss 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.

The disposition of this property did not represent a strategic shift that has a major effect on our operations and financial results.

The disposition 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 focus on the sunbelt and mountain west regions of the United States.

Accordingly, the property 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.

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

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

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

Critical Accounting Estimates

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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, 2024.

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, 2024.

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, 2025 and 2024:

Three months ended March 31,

The following table shows financial results for the three months ended June 30, 2025 and 2024:

Three months ended June 30,

(in thousands)

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Loss on extinguishment of debt

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

Interest income

Loss before taxes

Comparison of the three months ended June 30, 2025 to the three months ended June 30, 2024:

Total revenues decreased by $4.1 million to $26.7 million for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024.

The decrease was primarily a result of:

● A decrease in rental revenue of approximately $4.1 million arising primarily from the sale of three properties 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, 2024.

Our leased space in our owned properties was 69.1% as of June 30, 2025 and 72.3% as of June 30, 2024.

Total expenses decreased by $3.8 million to $35.1 million for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024.

The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $1.9 million, which was primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $0.8 million, which was primarily attributable to the property dispositions noted above.

● A decrease in general and administrative expenses of $0.4 million, which was primarily attributable to fees and costs incurred from the loan amendment we entered into on February 21, 2024 and higher professional fees incurred during the three months ended June 30, 2024.

● A decrease in interest expense of approximately $0.7 million.

The decrease was primarily due to a lower principal amount of debt outstanding during the three months ended June 30, 2025 compared to

the same period in 2024 and was partially offset by higher interest rates that went into effect on April 1, 2025 under the loan amendment we entered into on February 21, 2024.

Loss on extinguishment of debt

During the three months ended June 30, 2025, we repaid debt and incurred a loss on extinguishment of debt of approximately $3,000 related to unamortized deferred financing costs on the dates of the repayments.

Gain (loss) on sale of properties and impairment on asset held for sale

On April 7, 2025, Monument Circle entered into a purchase and sale agreement to sell its property located in Indianapolis, Indiana for a gross sales price of $6.0 million.

We estimated the fair value of this property, less estimated costs to sell, based on the purchase price set forth in the letter of intent to purchase the property that Monument Circle entered into with the third party, which resulted in recording an impairment loss of $13.3 million for the three months ended March 31, 2025 that was decreased by $0.4 million during the three months ended June 30, 2025 for final sale adjustments after the sale was completed on June 6, 2025.

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 loss 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.

Interest income

During the three months ended June 30, 2025 and 2024, we invested disposition proceeds in an interest-bearing account and earned $0.2 million and $0.3 million, respectively, in interest income.

Tax expense on income

Included in income taxes is an estimate of federal income taxes of $31,000 from the sale of Monument Circle and the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties that was $50,000 during the three months ended June 30, 2025, compared to $48,000 during the three months ended June 30, 2024.

Net loss for the three months ended June 30, 2025 was $7.9 million, compared to a net loss of $21.0 million for the three months ended June 30, 2024, for the reasons described above.

The following table shows financial results for the six months ended June 30, 2025 and 2024:

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

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

1 unchanged sentence

Loss before taxes

Comparison of the three months ended March 31, 2025 to the three months ended March 31, 2024:

Total revenues decreased by $4.1 million to $27.1 million for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

Comparison of the six months ended June 30, 2025 to the six months ended June 30, 2024:

Total revenues decreased by $8.2 million to $53.8 million for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024.

The decrease was primarily a result of:

● A decrease in rental revenue of approximately $8.2 million arising primarily from the sale of three properties 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, 2024.

Our leased space in our owned and consolidated properties was 66.4% as of March 31, 2025 and 70.6% as of March 31, 2024 .

Total expenses decreased by $4.1 million to $35.5 million for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

These decreases were partially offset by rental income earned from leases commencing after June 30, 2024.

Our leased space in our owned properties was 69.1% as of June 30, 2025 and 72.3% as of June 30, 2024.

Total expenses decreased by $7.9 million to $70.6 million for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024.

The decrease was primarily a result of:

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● A decrease in depreciation and amortization of approximately $1.7 million, which was primarily attributable to the property dispositions noted above.

● A decrease in general and administrative expenses of $0.7 million, which was primarily attributable to fees and costs incurred from the loan amendment we entered into on February 21, 2024 described above and higher professional fees incurred during the three months ended March 31, 2024.

● A decrease in general and administrative expenses of $1.0 million, which was primarily attributable to lower personnel costs during 2025 and fees and costs incurred from the loan amendment we entered into on February 21, 2024 and higher professional fees incurred during the six months ended June 30, 2024.

● A decrease in interest expense of approximately $1.9 million.

The decrease was primarily due to a lower principal amount of debt outstanding during the three months ended March 31, 2025 compared to the same period in 2024 and was partially offset by higher interest rates under the loan amendment we entered into on February 21, 2024.

The decrease was primarily due to a lower principal amount of debt outstanding during the six months ended June 30, 2025 compared to the same period in 2024 and was partially offset by higher interest rates that went into effect on April 1, 2025 under the loan amendment we entered into on February 21, 2024.

Loss on extinguishment of debt

During the three months ended March 31, 2025, we repaid debt and incurred a loss on extinguishment of debt of approximately $2,000 related to unamortized deferred financing costs on the dates of the repayments.

During the six months ended June 30, 2025, we repaid debt and incurred a loss on extinguishment of debt of approximately $5,000 related to unamortized deferred financing costs on the dates of the repayments.

Loss on sale of properties and impairment on asset held for sale

On April 7, 2025, Monument Circle entered into a purchase and sale agreement to sell its property located in Indianapolis, Indiana for a gross sales price of $6.0 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.

We estimated the fair value of this property, less estimated costs to sell, based on the purchase price set forth in the letter of intent to purchase the property that Monument Circle entered into with the third party, which resulted in recording an impairment charge of $13.3 million during the three months ended March 31, 2025 that was decreased by $0.4 million during the three months ended June 30, 2025 for final sale adjustments after the sale was completed on June 6, 2025.

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 loss 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.

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.

The Company reclassified $28.6 million of its office property as an asset held for sale as of June 30, 2024, which was comprised of $38.0 million of real estate assets, net of accumulated depreciation, $1.4 million of straight-line rents receivable, and $2.4 million of deferred leasing commissions, net of accumulated amortization.

The Company recorded the property at the fair value less cost to sell, which was less than the carrying value and resulted in an impairment loss of $13.2 million in the three months ended June 30, 2024.

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

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

The Company closed on the sale of the property on July 8, 2024.

Interest income

During the three months ended March 31, 2025 and 2024, we invested disposition proceeds in an interest-bearing account and earned $0.3 million and $1.0 million, respectively, in interest income.

During the six months ended June 30, 2025 and 2024, we invested disposition proceeds in an interest-bearing account and earned $0.5 million and $1.4 million, respectively, 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 $52,000 during the three months ended March 31, 2025, compared to $58,000 during the three months ended March 31, 2024.

Net loss for the three months ended March 31, 2025 was $21.4 million, compared to a net loss of $7.6 million for the three months ended March 31, 2024, for the reasons described above.

Included in income taxes is an estimate of federal income taxes of $31,000 from the sale of Monument Circle and the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $102,000 during the six months ended June 30, 2025, compared to $106,000 during the six months ended June 30, 2024.

Net loss for the six months ended June 30, 2025 was $29.3 million, compared to a net loss of $28.6 million for the six months ended June 30, 2024, for the reasons described above.

Non-GAAP Financial Measures

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Three Months Ended

Six Months Ended

(in thousands):

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

(Gain) loss on sale of properties and impairment of asset 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, 2025 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, 2025 for our owned 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)

120 Monument Circle

121 South 8th Street

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Greenwood Plaza

Total Owned & Consolidated Properties

(a) Based on weighted occupied square feet for the three months ended March 31, 2025, 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, 2025, per weighted occupied square foot.

Total Owned Properties

(a) Based on weighted occupied square feet for the six months ended June 30, 2025, 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, 2025, per weighted occupied square foot.

Liquidity and Capital Resources

As of April 29, 2025, the Company had aggregate outstanding indebtedness under three unsecured loans, the BofA Term Loan, the BMO Term Loan and the Senior Notes (each as defined and described below), totaling approximately $250.2 million and maturing on April 1, 2026, which is within 12 months of the date of issuance of the financial statements accompanying this Quarterly Report on Form 10-Q.

Management intends to engage in discussions with the Company’s lenders and/or third party financing sources to extend or refinance the Company’s existing debt.

Management believes that it is more likely than not that the Company will be successful in extending the maturity date or refinancing all of its existing debt.

As of July 29, 2025, the Company had aggregate outstanding indebtedness under three unsecured loans, the BofA Term Loan, the BMO Term Loan and the Senior Notes (each as defined and described below), totaling approximately $249.8 million and maturing on April 1, 2026, which is within 12 months of the date of issuance of the financial statements accompanying this Quarterly Report on Form 10-Q.

Management intends to engage in discussions with the Company’s lenders and/or third party financing sources to extend or refinance the Company’s existing debt and the Company also may seek to effect asset sales or other potential transactions to repay such debt prior to the applicable maturity dates.

Management believes that it is more likely than not that the Company will be successful in extending the maturity date or refinancing all of its existing debt, or in effecting asset sales or other potential transactions prior to the applicable maturity dates.

Accounting Standards Codification (ASC) 205-40, “Presentation of Financial Statements— Going Concern”, requires management to consider whether there is substantial doubt regarding the Company’s ability to continue as a going concern as a result of uncertainty about the maturity of the Company’s debt on April 1, 2026.

Although management believes that it is more likely than not that the Company will be able to extend the maturity date or retire the existing debt through a refinancing and/or asset sales, guidance issued under ASC 205-40 requires that management not conclude that such an outcome is “probable” if, among other factors, the outcome is not within the control of the Company.

Because no such restructuring, refinancing or sale transactions have closed, such outcomes are not within the control of the Company;

Although management believes that it is more likely than not that the Company will be able to extend the maturity date or retire the existing debt through a refinancing, asset sales or other potential transactions, guidance issued under ASC 205-40 requires that management not conclude that such an outcome is “probable” if, among other factors, the outcome is not within the control of the Company.

Because no such restructuring, refinancing, sale transactions or other potential transactions have closed, such outcomes are not within the control of the Company;

therefore, for accounting purposes, management is unable to conclude that such an outcome is probable.

Accordingly, ASC 205-40 requires management to conclude that there is substantial doubt about the Company’s ability to continue as a going concern for at least one year following the date of issuance of the financial statements accompanying this Quarterly Report on Form 10-Q.

While management believes that it is more likely than not that the Company will be able to extend the maturity dates applicable to, or retire, the BofA Term Loan, the BMO Term Loan and the Senior Notes through a refinancing and/or asset sales, there is no assurance that the Company will be able to do so.

The failure to extend the maturity dates applicable to, or retire, the BofA Term Loan, the BMO Term Loan and the Senior Notes through a refinancing and/or asset sales could lead to events of default, which would have a material adverse effect on the Company’s financial condition.

Cash and cash equivalents were $31.6 million and $42.7 million as of March 31, 2025 and December 31, 2024, respectively.

While management believes that it is more likely than not that the Company will be able to extend the maturity dates applicable to, or retire, the BofA Term Loan, the BMO Term Loan and the Senior Notes through a refinancing, asset sales or other potential transactions, there is no assurance that the Company will be able to do so.

The failure to extend the maturity dates applicable to, or retire, the BofA Term Loan, the BMO Term Loan and the Senior Notes through a refinancing, asset sales or other potential transactions could lead to events of default, which would have a material adverse effect on the Company’s financial condition.

Cash and cash equivalents were $30.5 million and $42.7 million as of June 30, 2025 and December 31, 2024, respectively.

The decrease of 12.2 million is attributable to $8.4 million used in operating activities, less $1.2 million used in investing activities less $2.6 million used in financing activities.

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Operating Activities

Cash used in operating activities for the three months ended March 31, 2025, of $5.4 million is primarily attributable to a net loss of $21.4 million, excluding $13.3 million from an impairment loss on an asset held for sale, plus the add-back of $11.6 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $7.8 million, less an increase in payment of deferred leasing commissions of $0.5 million, less an increase in tenant receivables of $0.2 million, less a decrease in prepaid expenses of $0.2 million, less an increase in lease acquisition costs of $0.1 million and less a decrease in tenant security deposits of $0.1 million.

Cash used in operating activities for the six months ended June 30, 2025, of $8.4 million is primarily attributable to a net loss of $29.3 million, excluding $12.9 million from a loss on the sale of a property, plus the add-back of $23.0 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $12.1 million, less an increase in payment of deferred leasing commissions of $2.2 million, less an increase in tenant receivables of $0.3 million, less a decrease in prepaid expenses of $0.3 million and less an increase in lease acquisition costs of $0.1.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2025, of $4.5 million is primarily attributable to purchases of other real estate assets and office equipment investments of $4.5 million.

Cash used in investing activities for the six months ended June 30, 2025, of $1.2 million is primarily attributable to purchases of other real estate assets and office equipment investments of $7.3 million less proceeds from the sale of a property of $6.1 million.

Financing Activities

Cash used in financing activities for the three months ended March 31, 2025 of $1.2 million is primarily attributable to payment of distributions to stockholders of $1.0 million and the repayment of $0.2 million of our debt.

Cash used in financing activities for the six months ended June 30, 2025 of $2.6 million is primarily attributable to payment of distributions to stockholders of $2.1 million and the repayment of $0.5 million of our debt.

Liquidity beyond the next 12 months

As of March 31, 2025, we had aggregate outstanding indebtedness of $250.2 million under the BofA Term Loan, the BMO Term Loan and the Senior Notes, each of which matures on April 1, 2026.

As of June 30, 2025, we had aggregate outstanding indebtedness of $249.8 million under the BofA Term Loan, the BMO Term Loan and the Senior Notes, each of which matures on April 1, 2026.

Our ability to generate cash adequate to satisfy our debt obligations as they mature and meet our operating 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.

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BMO Term Loan

As of March 31, 2025, we have a term loan borrowing in the aggregate principal amount of approximately $71.0 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.

As of June 30, 2025, we have a term loan borrowing in the aggregate principal amount of approximately $70.9 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 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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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.

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.

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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.

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.

On March 6, 2025, we repaid an approximately $43,000 portion of the tranche B term loan from an escrow collected on March 4, 2025, which had been held from the sale of a property located in Glen Allen, Virginia.

On May 16, 2025, we repaid an approximately $103,000 portion of the BMO Term Loan from escrows collected on May 14, 2025, which had been held from the sale of a property located in Glen Allen, Virginia and the sale of a property located in Atlanta, Georgia.

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%.

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Effective April 1, 2025, the spread over SOFR or the base rate, as applicable, permanently increased 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, 2025 and December 31, 2024, the interest rate on the BMO Term Loan was 8.00% and 8.00% per annum, respectively.

As of April 1, 2025, the interest rate on the BMO Term Loan was 9.00%.

The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.00% and 8.34% for the three months ended March 31, 2025 and the year ended December 31, 2024, respectively.

Effective April 1, 2025, the interest rate on the BMO Term Loan increased from 8.00% per annum to 9.00% per annum.

As of June 30, 2025 and December 31, 2024, the interest rate on the BMO Term Loan was 9.00% and 8.00% per annum, respectively.

The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.50% and 8.34% for the six months ended June 30, 2025 and the year ended December 31, 2024, respectively.

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.

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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, 2025.

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).

We were in compliance with the BMO Term Loan financial covenants as of June 30, 2025.

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

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BofA Term Loan

As of March 31, 2025, 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 of June 30, 2025, we have a term loan borrowing in the amount of approximately $55.5 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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On March 6, 2025, we repaid an approximately $34,000 portion of the BofA Term Loan from an escrow collected on March 4, 2025, which had been held from the sale of a property located in Glen Allen, Virginia.

On May 16, 2025, we repaid an approximately $80,000 portion of the BofA Term Loan from escrows collected on May 14, 2025, which had been held from the sale of a property located in Glen Allen, Virginia and the sale 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.

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, 2025 and December 31, 2024, the interest rate on the BofA Term Loan was 8.00% and 8.00% per annum, respectively.

As of April 1, 2025, the interest rate on the BofA Term Loan was 9.00%.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was 8.00% and 8.34% for the three months ended March 31, 2025 and for the year ended December 31, 2024, respectively.

Effective April 1, 2025, the interest rate on the BMO Term Loan increased from 8.00% per annum to 9.00% per annum.

As of June 30, 2025 and December 31, 2024, the interest rate on the BofA Term Loan was 9.00% and 8.00% per annum, respectively.

The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was 8.50% and 8.34% for the six months ended June 30, 2025 and for the year ended December 31, 2024, respectively.

The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge our equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of our common stock, going concern qualifications to our financial statements, and transactions with affiliates.

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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, 2025.

We were in compliance with the BofA Term Loan financial covenants as of June 30, 2025.

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 $123.6 million as of March 31, 2025, 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 $123.4 million as of June 30, 2025, 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 $71.6 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 $51.8 million, which we refer to as the Series B Notes.

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(b) 20.00000% to the BofA Term Loan;

Senior Notes;

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

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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 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.

On March 6, 2025, we repaid an approximately $44,000 portion of the Series A Notes and an approximately $32,000 portion of the Series B Notes from an escrow collected on March 4, 2025, which had been held from the sale of a property located in Glen Allen, Virginia.

As of March 31, 2025, 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 March 31, 2025 and December 31, 2024, the interest rate on each of the Series A Notes was 8.00% per annum and the interest rate on the Series B Notes was 8.00% per annum, respectively.

Effective April 1, 2025, the interest rates applicable to the Series A Notes and the Series B Notes permanently increased from 8.00% per annum to 9.00% per annum, respectively.

On May 16, 2025, we repaid an approximately $103,000 portion of the Series A Notes and an approximately $75,000 portion of the Series B Notes from escrows collected on May 14, 2025, which had been held from the sale of a property located in Glen Allen, Virginia and the sale of a property located in Atlanta, Georgia.

As of June 30, 2025, approximately $71.6 million aggregate principal amount of the Series A Notes remained outstanding and approximately $51.8 million aggregate principal amount of the Series B Notes remained outstanding.

Effective April 1, 2025, the interest rates on both the Series A Notes and the Series B Notes permanently increased from 8.00% per annum to 9.00% per annum.

As of June 30, 2025 and December 31, 2024, the interest rates on both the Series A Notes and the Series B Notes was 9.00% per annum and 8.00% per annum, respectively.

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.

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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, 2025.

We were in compliance with the Note Purchase Agreement financial covenants as of June 30, 2025.

Equity Offering

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Stock Repurchase Program

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

permitted by federal securities laws.

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

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Contingencies

As of March 31, 2025, the Sponsored REIT Loan had $24 million principal amount outstanding.

The Sponsored REIT Loan is secured by a mortgage on the underlying property and has a current term of less than one year.

We anticipate that the Sponsored REIT Loan will be repaid through cash flow from the sale of the underlying property.

The property is currently under a purchase and sale agreement for a gross sale price of $6.0 million.

We may be subject to various legal proceedings and claims that arise in the ordinary course of our business.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis