UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10 - Q~~10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended ~~September~~June 30, ~~2017.~~2023.

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from to

Commission File Number: 001-32470

Franklin Street Properties Corp.

(Exact name of registrant as specified in its charter)


Maryland		04-3578653
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)

401 Edgewater Place, Suite 200

Wakefield, MA01880

(Address of principal executive offices)(Zip Code)

~~(781)~~ (781) 557-1300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $.0001 par value per share	FSP	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ Yes ☒ NO No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes ☒ NO No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large ~~accelerated filer ☒~~Accelerated Filer ☐		Accelerated ~~filer ☐~~Filer ☒

Non-accelerated ~~filer~~ Filer ☐		Smaller ~~reporting company~~ Reporting Company ☐

~~(Do not check if a smaller reporting company)~~
		Emerging ~~growth company~~ Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ Yes ☐ NO No ☒

The number of shares of common stock outstanding as of ~~October 26, 2017~~July 27, 2023 was ~~107,231,155.~~103,430,353.

Table of Contents

Franklin Street Properties Corp.
Form 10-Q

Quarterly Report
~~September~~June 30, ~~2017~~2023

Table of Contents


			Page

Part I.	Financial Information

	Item 1.	Financial Statements

		~~Condensed~~ Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022	3

		~~Condensed~~ Consolidated Statements of ~~Income~~Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	4

		~~Condensed~~ Consolidated Statements of ~~Other~~ Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	5

		~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022	6

		Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	67

		Notes to ~~Condensed~~ Consolidated Financial Statements	7~~-17~~8-20

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18~~-37~~21

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

	~~Item 4.~~	~~Controls and Procedures~~	38

	Item 4.	Controls and Procedures	39

Part II.	Other Information

	Item 1.	Legal Proceedings	40

	Item 1A.	Risk Factors	40

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 3.	Defaults Upon Senior Securities	40

	Item 4.	Mine Safety Disclosures	40

	Item 5.	Other Information	40

	Item 6.	Exhibits	41

Signatures			4342

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

Franklin Street Properties Corp.

~~Condensed~~ Consolidated Balance Sheets

(Unaudited)


	June 30,		December 31,
(in thousands, except share and par value amounts)	2023		2022
Assets:
Real estate assets:
Land (amounts related to variable interest entities ("VIEs") of $6,416 and $0 at June 30, 2023 and December 31, 2022, respectively)	$	128,588	$	126,645
Buildings and improvements (amounts related to VIEs of $13,279 and $0 at June 30, 2023 and December 31, 2022, respectively)		1,362,939		1,388,869
Fixtures and equipment		11,612		11,151
		1,503,139		1,526,665
Less accumulated depreciation (amounts related to VIEs of $170 and $0 at June 30, 2023 and December 31, 2022, respectively)		421,180		423,417
Real estate assets, net (amounts related to VIEs of $19,524 and $0 at June 30, 2023 and December 31, 2022, respectively)		1,081,959		1,103,248
Acquired real estate leases, less accumulated amortization of $20,962 and $20,243, respectively (amounts related to VIEs of $305, less accumulated amortization of $111 and $0 at June 30, 2023 and December 31, 2022, respectively)		8,828		10,186
Asset held for sale		8,860		—
Cash, cash equivalents and restricted cash (amounts related to VIEs of $2,604 and $0 at June 30, 2023 and December 31, 2022, respectively)		6,697		6,632
Tenant rent receivables		1,938		2,201
Straight-line rent receivable		50,267		52,739
Prepaid expenses and other assets		5,648		6,676
Related party mortgage loan receivable, less allowance for credit loss of $0 and $4,237, respectively		—		19,763
Other assets: derivative asset		—		4,358
Office computers and furniture, net of accumulated depreciation of $1,149 and $1,115, respectively		127		154
Deferred leasing commissions, net of accumulated amortization of $20,327 and $19,043, respectively		34,985		35,709
Total assets	$	1,199,309	$	1,241,666

Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	75,000	$	48,000
Term loans payable, less unamortized financing costs of $529 and $250, respectively		124,471		164,750
Series A & Series B Senior Notes, less unamortized financing costs of $412 and $494, respectively		199,588		199,506
Accounts payable and accrued expenses (amounts related to VIEs of $539 and $0 at June 30, 2023 and December 31, 2022, respectively)		32,501		50,366
Accrued compensation		2,286		3,644
Tenant security deposits		5,666		5,710
Lease liability		550		759
Acquired unfavorable real estate leases, less accumulated amortization of $537 and $574, respectively		153		195
Total liabilities		440,215		472,930

Commitments and contingencies

Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $.0001 par value, 180,000,000 shares authorized, 103,430,353 and 103,235,914 shares issued and outstanding, respectively		10		10
Additional paid-in capital		1,335,091		1,334,776
Accumulated other comprehensive income		2,480		4,358
Accumulated distributions in excess of accumulated earnings		(578,487)		(570,408)
Total stockholders’ equity		759,094		768,736
Total liabilities and stockholders’ equity	$	1,199,309	$	1,241,666

~~(Unaudited)~~

September 30,

December 31,

(in thousands, except share and par value amounts)

2017

2016

Assets:

Real estate assets:

Land

$
191,578

$
196,178

Buildings and improvements

1,800,831

1,822,183

Fixtures and equipment

5,017

4,136

1,997,426

2,022,497

Less accumulated depreciation

361,720

337,228

Real estate assets, net

1,635,706

1,685,269

Acquired real estate leases, less accumulated amortization of $105,997 and $112,441, respectively

96,282

125,491

Investment in non-consolidated REITs

73,405

75,165

Asset held for sale

31,615

3,871

Cash and cash equivalents

12,647

9,335

Restricted cash

63

31

Tenant rent receivables, less allowance for doubtful accounts of $125 and $100, respectively

3,990

3,113

Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively

52,272

50,930

Prepaid expenses and other assets

6,282

5,231

Related party mortgage loan receivables

71,985

81,780

Other assets: derivative asset

10,771

12,907

Office computers and furniture, net of accumulated depreciation of $1,390 and $1,277, respectively

319

313

Deferred leasing commissions, net of accumulated amortization of $20,842 and $18,301, respectively

36,348

34,697

Total assets

$
2,031,685

$
2,088,133

Liabilities and Stockholders’ Equity:

Liabilities:

Bank note payable

$
300,000

$
280,000

Term loans payable, less unamortized financing costs of $3,817 and $4,783, respectively

766,183

765,217

Accounts payable and accrued expenses

57,593

57,259

Accrued compensation

3,000

3,784

Tenant security deposits

5,431

5,355

Other liabilities: derivative liabilities

3,721

5,551

Acquired unfavorable real estate leases, less accumulated amortization of $7,397 and $8,422, respectively

6,371

8,923

Total liabilities

1,142,299

1,126,089

Commitments and contingencies

Stockholders’ Equity:

Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding

—

—

Common stock, $.0001 par value, 180,000,000 shares authorized, 107,231,155 and 107,231,155 shares issued and outstanding, respectively

11

11

Additional paid-in capital

1,356,457

1,356,457

Accumulated other comprehensive loss

4,954

5,478

Accumulated distributions in excess of accumulated earnings

(472,036)

(399,902)

Total stockholders’ equity

889,386

962,044

Total liabilities and stockholders’ equity

$
2,031,685

$
2,088,133

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

Table of Contents

Franklin Street Properties Corp.

~~Condensed~~ Consolidated Statements of ~~Income~~Operations

(Unaudited)



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share amounts)	2023		2022		2023		2022

Revenues:
Rental	$	36,257	$	40,831	$	74,024	$	82,628
Related party revenue:
Management fees and interest income from loans		—		467		—		927
Other		9		6		9		13
Total revenues		36,266		41,304		74,033		83,568
Expenses:
Real estate operating expenses		12,140		12,344		24,830		25,178
Real estate taxes and insurance		7,169		9,043		14,142		17,762
Depreciation and amortization		14,645		18,186		29,372		33,856
General and administrative		3,767		3,981		7,584		7,765
Interest		6,084		5,664		11,890		11,030
Total expenses		43,805		49,218		87,818		95,591

Loss on extinguishment of debt		—		—		(67)		—
Gain on consolidation of Sponsored REIT		—		—		394		—
Impairment and loan loss reserve		—		(1,140)		—		(1,140)
Gain on sale of properties and impairment of asset held for sale, net		(806)		—		7,586		—
Loss before taxes		(8,345)		(9,054)		(5,872)		(13,163)
Tax expense		75		56		142		105

Net loss	$	(8,420)	$	(9,110)	$	(6,014)	$	(13,268)

Weighted average number of shares outstanding, basic and diluted		103,330		103,193		103,283		103,441

Net loss per share, basic and diluted	$	(0.08)	$	(0.09)	$	(0.06)	$	(0.13)

~~(Unaudited)~~

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(in thousands, except per share amounts)

2017

2016

2017

2016


Revenues:

Rental

$
67,339

$
61,925

$
201,710

$
179,738

Related party revenue:

Management fees and interest income from loans

1,278

1,338

4,014

4,108

Other

9

17

29

54

Total revenues

68,626

63,280

205,753

183,900

Expenses:

Real estate operating expenses

17,898

16,905

52,492

47,126

Real estate taxes and insurance

11,882

10,218

35,880

29,522

Depreciation and amortization

24,988

23,298

75,599

68,095

Selling, general and administrative

3,286

3,419

9,806

10,443

Interest

8,258

6,767

23,730

19,617

Total expenses

66,312

60,607

197,507

174,803

Income before equity in losses of non-consolidated REITs, other and gain (loss) on sale of properties and properties held for sale, less applicable income tax and taxes

2,314

2,673

8,246

9,097

Equity in losses of non-consolidated REITs

(121)

(196)

(719)

(568)

Other

67

621

218

(388)

Gain (loss) on sale of properties and properties held for sale, less applicable income tax

(257)

(523)

(18,460)

(1,166)

Income (loss) before taxes on income

2,003

2,575

(10,715)

6,975

Taxes on income

100

117

297

326

Net income (loss)

$
1,903

$
2,458

$
(11,012)

$
6,649

Weighted average number of shares outstanding, basic and diluted

107,231

103,709

107,231

101,370

Net income (loss) per share, basic and diluted

$
0.02

$
0.02

$
(0.10)

$
0.07

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

Table of Contents

Franklin Street Properties Corp.

~~Condensed~~ Consolidated Statements of ~~Other~~ Comprehensive Income (Loss)

(Unaudited)


	For the				For the
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2023		2022		2023		2022

Net loss	$	(8,420)	$	(9,110)	$	(6,014)	$	(13,268)

Other comprehensive income (loss):
Unrealized gain on derivative financial instruments		—		2,146		177		7,189
Reclassification from accumulated other comprehensive income into interest expense		(1,064)		—		(2,055)		—

Total other comprehensive income (loss)		(1,064)		2,146		(1,878)		7,189

Comprehensive loss	$	(9,484)	$	(6,964)	$	(7,892)	$	(6,079)

~~(Unaudited)~~

For the

For the

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2017

2016

2017

2016

Net income (loss)

$
1,903

$
2,458

$
(11,012)

$
6,649

Other comprehensive income (loss):

Unrealized loss on derivative financial instruments

14

1,641

(524)

(5,151)

Total other comprehensive loss

14

1,641

(524)

(5,151)

Comprehensive income (loss)

$
1,917

$
4,099

$
(11,536)

$
1,498

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

Table of Contents

Franklin Street Properties Corp.

~~Condensed~~ Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity

(Unaudited)


						Accumulated		Distributions
				Additional		other		in excess of		Total
	Common Stock			Paid-In		comprehensive		accumulated		Stockholders’
(in thousands, except per share amounts)	Shares	Amount		Capital		income (loss)		earnings		Equity

Balance, December 31, 2021	103,999	$	10	$	1,339,226	$	(5,239)	$	(550,794)	$	783,203
Comprehensive income (loss)	—		—		—		5,044		(4,158)		886
Repurchased shares	(847)		—		(4,843)		—		—		(4,843)
Distributions $0.09 per share of common stock	—		—		—		—		(9,360)		(9,360)
Balance, March 31, 2022	103,152	$	10	$	1,334,383	$	(195)	$	(564,312)	$	769,886
Comprehensive income (loss)	—		—		—		2,146		(9,110)		(6,964)
Equity-based compensation	84		—		393		—		—		393
Distributions $0.09 per share of common stock	—		—		—		—		(9,283)		(9,283)
Balance, June 30, 2022	103,236	$	10	$	1,334,776	$	1,951	$	(582,705)	$	754,032

Balance, December 31, 2022	103,236	$	10	$	1,334,776	$	4,358	$	(570,408)	$	768,736
Comprehensive income (loss)	—		—		—		(814)		2,406		1,592
Distributions $0.01 per share of common stock	—		—		—		—		(1,033)		(1,033)
Balance, March 31, 2023	103,236	$	10	$	1,334,776	$	3,544	$	(569,035)	$	769,295
Comprehensive loss	—		—		—		(1,064)		(8,420)		(9,484)
Equity-based compensation	194		—		315		—		—		315
Distributions $0.01 per share of common stock	—		—		—		—		(1,032)		(1,032)
Balance, June 30, 2023	103,430	$	10	$	1,335,091	$	2,480	$	(578,487)	$	759,094

~~(Unaudited)~~

For the Nine Months Ended September 30,
(in thousands)

2017

2016
Cash flows from operating activities:

Net income (loss)

$
(11,012)

$
6,649
Adjustments to reconcile net income or loss to net cash provided by operating activities:

Depreciation and amortization expense

77,418

69,750
Amortization of above and below market leases

(941)

(104)
Hedge ineffectiveness

(218)

388
(Gain) loss on sale of properties and properties held for sale,
  less applicable income tax

18,460

1,166
Equity in losses of non-consolidated REITs

719

568
Increase in allowance for doubtful accounts

25

70
Changes in operating assets and liabilities:

Restricted cash

(32)

(25)
Tenant rent receivables

(902)

(503)
Straight-line rents

(2,021)

(2,094)
Lease acquisition costs

(876)

(679)
Prepaid expenses and other assets

(1,945)

(1,667)
Accounts payable, accrued expenses and other items

(489)

1,478
Accrued compensation

(784)

(488)
Tenant security deposits

76

(110)
Payment of deferred leasing commissions

(8,178)

(9,147)
Net cash provided by operating activities

69,300

65,252
Cash flows from investing activities:

Property acquisitions

—

(100,302)
Property improvements, fixtures and equipment

(41,743)

(22,020)
Office computers and furniture

(119)

(77)
Acquired real estate leases

—

(18,873)
Distributions in excess of earnings from non-consolidated REITs

1,041

691
Repayment of related party mortgage receivable

9,795

39,596
Proceeds received on sales of real estate assets

6,160

20,058
Net cash used in investing activities

(24,866)

(80,927)
Cash flows from financing activities:

Distributions to stockholders

(61,122)

(57,108)
Proceeds from equity offering

—

83,511
Offering costs

—

(544)
Borrowings under bank note payable

60,000

155,000
Repayments of bank note payable

(40,000)

(167,000)
Deferred financing costs

—

(2,975)
Net cash provided by (used in) financing activities

(41,122)

10,884
Net increase (decrease) in cash and cash equivalents

3,312

(4,791)
Cash and cash equivalents, beginning of year

9,335

18,163
Cash and cash equivalents, end of period

$
12,647

$
13,372

Non-cash investing and financing activities:

Accrued costs for purchases of real estate assets

$
6,053

$
6,143
Accrued offering costs

—

65

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

Table of Contents

Franklin Street Properties Corp.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Six Months Ended June 30,
(in thousands)	2023		2022
Cash flows from operating activities:
Net loss	$	(6,014)	$	(13,268)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization expense		30,634		34,863
Amortization of above and below market leases		(30)		(54)
Shares issued as compensation		315		394
Amortization of other comprehensive income into interest expense		(1,726)		—
Loss on extinguishment of debt		67		—
Gain on consolidation of Sponsored REIT		(394)		—
Impairment and loan loss reserve		—		1,140
Gain on sale of properties and impairment of asset held for sale, net		(7,586)		—
Changes in operating assets and liabilities:
Tenant rent receivables		263		(673)
Straight-line rents		322		(2,904)
Lease acquisition costs		(824)		(2,426)
Prepaid expenses and other assets		(267)		(1,153)
Accounts payable and accrued expenses		(8,747)		(18,268)
Accrued compensation		(1,358)		(2,452)
Tenant security deposits		(44)		(400)
Payment of deferred leasing commissions		(4,137)		(5,033)
Net cash provided by (used in) operating activities		474		(10,234)
Cash flows from investing activities:
Property improvements, fixtures and equipment		(18,369)		(21,496)
Consolidation of Sponsored REIT		3,048		—
Proceeds received from sales of properties		28,098		—
Net cash provided by (used in) investing activities		12,777		(21,496)
Cash flows from financing activities:
Distributions to stockholders		(2,065)		(51,924)
Proceeds received from termination of interest rate swap		4,206		—
Stock repurchases		—		(4,843)
Borrowings under bank note payable		62,000		60,000
Repayments of bank note payable		(35,000)		(5,000)
Repayment of term loan payable		(40,000)		—
Deferred financing costs		(2,327)		(2,561)
Net cash used in financing activities		(13,186)		(4,328)
Net increase (decrease) in cash, cash equivalents and restricted cash		65		(36,058)
Cash, cash equivalents and restricted cash, beginning of year		6,632		40,751
Cash, cash equivalents and restricted cash, end of period	$	6,697	$	4,693

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	12,345	$	10,209
Taxes	$	337	$	664
Non-cash investing activities:
Accrued costs for purchases of real estate assets	$	4,643	$	6,077
Investment in related party mortgage loan receivable converted to real estate assets and acquired real estate leases in conjunction with variable interest entity consolidation	$	20,000	$	—

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

Table of Contents

Franklin Street Properties Corp.
Notes to ~~Condensed~~ Consolidated Financial Statements
(Unaudited)

~~(Unaudited)~~

1. Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards

Organization

Franklin Street Properties Corp. (“FSP Corp.” or the “Company”) holds, directly and indirectly, 100% of the interest in FSP Investments LLC, FSP Property Management LLC, FSP Holdings LLC and FSP Protective TRS ~~Corp.~~Corp. FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in ~~six corporations~~the corporation that is the sole member of FSP Monument Circle LLC, which corporation was organized to operate as a real estate investment ~~trusts~~trust (“~~REIT”) and a non-controlling preferred stock interest in two of those REITs. Collectively, the six REITs are referred to as~~Monument Circle” or the “Sponsored ~~REITs”~~REIT”).

As of ~~September~~June 30, ~~2017,~~2023, the Company owned and operated a portfolio of real estate consisting of 3520 operating properties, ~~one property that~~and the Sponsored REIT, which was substantially redeveloped and is in lease-up and six managed Sponsored REITs; and held four promissory notes secured by mortgages on real estate owned by Sponsored REITs, including two mortgage loans and two revolving lines of credit. From time-to-time, the Company may acquire, develop or redevelop real estate, make additional secured loans or acquire a Sponsored REIT.consolidated effective January 1, 2023. The Company may ~~also~~ pursue, on a selective basis, the sale of its properties in order to take advantage of the value creation and demand for its properties, for geographic, property specific reasons or for ~~geographic or property specific reasons.~~other general corporate purposes.

Properties

The following table summarizes the Company’s number of ~~operating~~owned and consolidated properties and rentable square feet of real estate. ~~In January 2016, the Company classified one~~


	As of June 30,
	2023	2022
Owned and Consolidated Properties:
Number of properties (1)	21	24
Rentable square feet	6,270,658	6,915,715

(1) Includes a property ~~as non-operating~~ that was ~~substantially redeveloped and is in lease-up, which is excluded~~classified as an asset held for sale as of ~~September~~June 30, ~~2017.~~

As of September 30,

2017

2016

Commercial real estate:

Number of properties

35

36

Rentable square feet

10,085,889

9,683,846

2023.

Basis of Presentation

The unaudited ~~condensed~~ consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2016,~~2022, as filed with the Securities and Exchange Commission.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017~~2023 or for any other period.

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Financial Instruments

As disclosed in Note 4, the Company’s derivatives ~~are~~were recorded at fair value using Level 2 ~~inputs.~~inputs prior to their termination on February 8, 2023. The Company estimates that the carrying values of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued expenses, accrued compensation, and tenant security deposits

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

Cash, Cash Equivalents and Restricted Cash

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


	June 30,		June 30,
(in thousands)	2023		2022
Cash and cash equivalents (1)	$	5,947	$	4,393
Restricted cash		750		300
Total cash, cash equivalents and restricted cash	$	6,697	$	4,693

(1)

Includes $2,604 pertaining to Monument Circle, which the Company is unable to utilize for its own operational purposes.

Restricted cash consists of escrows arising from property sales. Cash held in escrow is paid based on the terms of the closing agreements for the sale.

Variable Interest Entities (VIEs)

The Company determines whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity in which the Company holds a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. The Company makes judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.

The Company analyzes any investments in VIEs to determine if the Company is the primary beneficiary. In evaluating whether the Company is the primary beneficiary, the Company evaluates its direct and indirect economic interests in the entity. Determining which reporting entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.

The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct a proposed sale of the property or merger of the company. In addition, the Company considers the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and considers that conclusion upon a reconsideration event.

As of January 1, 2023, the Company’s relationship with the Sponsored REIT was considered a VIE and the Company became the primary beneficiary. Upon this reconsideration event, the entity is included within the Company’s consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023. Cash and cash equivalents of $3 million held by Monument Circle was included in the Company’s cash and cash equivalents upon consolidation and is reflected as “Consolidation of Sponsored REIT” in the consolidated statement of cash flows. The cash and cash equivalents held by Monument Circle are unable to be utilized for the Company’s operational purposes. The creditors of Monument Circle’s trade payables do not have any recourse against the Company.

The consolidation value of Monument Circle was allocated to real estate investments and leases, including lease origination costs. Lease origination costs represent the value associated with acquiring an in-place lease (i.e. the market cost to execute a similar lease, including leasing commission, legal, vacancy, and other related costs). The value assigned to building approximates the replacement cost; the value assigned to land approximates its appraised value; and the value assigned to

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leases approximate ~~market.~~ their fair value. Other assets and liabilities are recorded at their historical costs, which approximates fair value.

The Company assessed the fair value of the acquired real estate leases based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 in the fair value hierarchy.

The following table summarizes the estimated fair value of the assets acquired at the date of consolidation, January 1, 2023:


(in thousands)

Real estate assets	$	19,695
Value of acquired real estate leases		305
Total	$	20,000

The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the assets acquired in the consolidation of Monument Circle and were measured at fair value on a nonrecurring basis at January 1, 2023:


	Fair Value (1) at			Significant	Range				Weighted
Description	January 1, 2023		Valuation Technique	Unobservable Input	Min		Max		Average (2)
		(in thousands)

Monument Circle Consolidation	$	20,000	Discounted Cash Flows	Exit Cap Rate	7.50	%	7.50	%	7.50	%
				Discount Rate	9.50	%	9.50	%	9.50	%

(1) Classified within Level 3 of the fair value hierarchy.
(2) Unobservable inputs were weighted based on the fair value of the related instrument.

Prior to January 1, 2023, the Company’s relationship with the Sponsored REIT was considered a VIE in which the Company was not the primary beneficiary. The Company’s maximum exposure to losses associated with this VIE was limited to the principal amount outstanding under the loan from the Company to the Sponsored REIT secured by a mortgage on real estate owned by the Sponsored REIT (the “Sponsored REIT Loan”) net of the allowance for credit loss, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $22.1 million at December 31, 2022. The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and were approximately $2.3 million at December 31, 2022. The relationships and investments related to the Sponsored REIT are summarized in Note 2.

Recent Accounting Standards

In ~~May 2014,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. ~~2014-09, Revenue from Contracts with Customers~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“~~Topic 606”~~ASU 2020-04”)~~, which provides~~. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance ~~for revenue recognition.~~in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The ~~standard’s core principle is~~Company does not anticipate that ~~a company~~the adoption of ASU 2020-04 will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This update is effective for interim and annual reporting periods beginning after December 15, 2017. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from Topic 606. We are continuing to evaluate Topic 606; however, we do not believe there will behave a material impact on the ~~timing of our revenue recognition in the~~ consolidated financial statements. ~~We currently expect to adopt the standard using the modified retrospective approach.~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to establish a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees will continue to recognize lease expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This new standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter with early adoption permitted. The Company is currently evaluating the potential changes from ASU 2016-02 to future financial reporting and disclosures. The Company expects that the adoption of this standard in 2019 will increase our assets and liabilities by approximately $3 million for the addition of right-of-use assets and lease liabilities related to an operating lease for office space; however, we do not expect the adoption of this standard to have a material impact to our results of operations or liquidity.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how reporting entities should present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact that adoption of ASU 2016-15 will have on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash (“ASU 2016-18”), which clarifies how reporting entities should present restricted cash and restricted cash equivalents. Reporting entities will show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheets. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU 2016-18 will have on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”), which provides additional guidance on evaluating whether transactions should be accounted for as an acquisition (or disposal) of assets of a business. The update defines three requirements for a set of assets and activities (collectively referred to as a “set”) to be considered a business: inputs, processes and outputs. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. This update will be applied prospectively to any transactions occurring within the period of adoption. We are currently assessing the impact of the update; however, subsequent to adoption we believe certain property acquisitions which under previous guidance would have been accounted for as business combinations will be accounted for as acquisitions of assets. In an acquisition of assets, certain acquisition costs are capitalized as opposed to expensed under business combination guidance.

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2. Related Party Transactions and Investments in Non-Consolidated Entities

Investment in Sponsored REITs:

At ~~September 30, 2017 and~~ December 31, ~~2016,~~2022, the Company held a non-controlling common stock interest in ~~six and seven~~the Sponsored ~~REITs, respectively. The Company holds a non-controlling preferred stock investment in two~~REIT.

Table of ~~these Sponsored REITs, FSP 303 East Wacker Drive Corp. (“East Wacker”) and FSP Grand Boulevard Corp. (“Grand Boulevard”), from which it continues to derive economic benefits and risks.~~Contents

During the year ended December 31, 2016 properties owned by two Sponsored REITs were sold and during the nine months ended September 30, 2017, another property owned by a Sponsored REIT was sold and, thereafter, liquidating distributions for their preferred shareholders were declared and issued. The Company held a mortgage loan with two of these entities, which were secured by the property owned by FSP 385 Interlocken Development Corp. (“385 Interlocken”) and the property owned by FSP 1441 Main Street Corp. (“1441 Main”). The loan with 385 Interlocken in the principal amount of $37,500,000 and the loan with 1441 Main in the principal amount of $9,000,000 were repaid by the proceeds of the sales.

~~Equity in losses of investment in non-consolidated REITs:~~

~~The following table includes equity in losses of investments in non-consolidated REITs~~

Nine Months Ended September 30,

(in thousands)

2017

2016

Equity in losses of East Wacker

$
272

$
444

Equity in losses of Grand Boulevard

447

124

$
719

$
568

Equity in losses of investments in non-consolidated REITs is derived from the Company’s share of income or loss in the operations of those entities. The Company exercises influence over, but does not control these entities, and investments are accounted for using the equity method.

Equity in losses of East Wacker is derived from the Company’s preferred stock investment in the entity. In December 2007, the Company purchased 965.75 preferred shares or 43.7% of the outstanding preferred shares of East Wacker for $82,813,000 (which represented $96,575,000 at the offering price net of commissions of $7,726,000, loan fees of $5,553,000 and acquisition fees of $483,000 that were excluded).

Equity in losses of Grand Boulevard is derived from the Company’s preferred stock investment in the entity. In May 2009, the Company purchased 175.5 preferred shares or 27.0% of the outstanding preferred shares of Grand Boulevard for $15,049,000 (which represented $17,550,000 at the offering price net of commissions of $1,404,000, loan fees of $1,009,000 and acquisition fees of $88,000 that were excluded).

~~The Company recorded distributions of $1,041,000 and $691,000 from non-consolidated REITs during the nine months ended September 30, 2017 and 2016, respectively.~~

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are ~~cancelable~~cancellable with 30 days notice. Asset management fee income from non-consolidated entities amounted to approximately ~~$459,000~~$0 and ~~$474,000~~$21,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~From time~~Prior to ~~time~~the consolidation of Monument Circle on January 1, 2023, the Company ~~may make secured loans (“~~held the Sponsored REIT ~~Loans”) to Sponsored REITs~~Loan, which was reported in the ~~form of~~balance sheet as a related party mortgage ~~loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes.~~loan receivable. The Company ~~reviews~~reviewed the need for an allowance under the current expected credit loss model (“CECL”) for the Sponsored REIT ~~loans for impairment~~Loan at each reporting period. ~~A loan is impaired when,~~

~~Table~~The measurement of ~~Contents~~

expected credit losses was based onupon historical experiences, current ~~information~~conditions, and ~~events, it is probable~~reasonable and supportable forecasts that affected the ~~Company will be unable to collect all amounts recorded on~~collectability of the ~~balance sheet.~~reported amount. The Company ~~applies~~elected to apply the practical expedient for financial assets secured by collateral in instances where the borrower was experiencing financial difficulty and repayment of the Sponsored REIT Loan was expected to be provided substantially through operation or sale of the collateral. The Company used the fair value of the collateral at the reporting date, and an adjustment to the allowance for expected credit losses was recorded when the amortized cost basis of the financial asset exceeded the fair value of the collateral, less costs to sell.

The Company regularly evaluated the extent and impact of any credit deterioration that could affect performance and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s fair value, operating results and existing cash balances were considered and used to assess whether cash flows from operations were sufficient to cover the current and future operating and debt service requirements. The Company also evaluated the borrower’s competency in managing and operating the secured property and considered the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applied normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. ~~None of the Sponsored REIT loans have been impaired.~~

The Company anticipates that each Sponsored REIT Loan will be repaid at maturity or earlier from long term financings of the underlying properties, cash flows from the underlying properties or some other capital event. Eachoutstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and ~~has a term of approximately one to three years. Except for two mortgage loans which bear interest at a fixed rate, advances under each Sponsored REIT Loan bear interest at a rate equal to~~ the ~~30-day LIBOR rate plus an agreed upon amount of basis points and also require a 50 basis point draw fee.~~

~~The following is a summary of~~balances within the ~~Sponsored REIT Loans outstanding as of September 30, 2017:~~borrower’s cash accounts.

Maximum

Amount






Interest

(dollars in thousands)


Maturity

Amount

Drawn at

Interest

Draw

Rate at

Sponsored REIT

Location

Date

of Loan

30-Sep-17

Rate (1)

Fee (2)

30-Sep-17

Secured revolving lines of credit

FSP Satellite Place Corp.

Duluth, GA

31-Dec-19

$
5,500

$
2,385

L+
4.4
%
0.5
%
5.63
%
FSP Energy Tower I Corp. (3)

Houston, TX

30-Jun-19

20,000

15,600

L+
5.0
%
0.5
%
6.23
%

Mortgage loan secured by property

FSP Monument Circle LLC (4)

Indianapolis, IN

7-Dec-18

21,000

21,000

4.90
%
n/a

4.90
%
FSP Energy Tower I Corp. (3) (5)

Houston, TX

30-Jun-19

33,000

33,000

6.41
%
n/a

6.41
%

$
79,500

$
71,985

~~(1)~~

~~The interest rate is 30-day LIBOR rate plus the additional rate indicated, otherwise a fixed rate.~~

~~(2)~~

~~The draw fee is a percentage of each new advance, and is paid at the time of each new draw.~~

~~(3)~~

~~These loans were extended on June 16, 2017.~~

~~(4)~~

~~This mortgage loan includes an origination fee of $164,000 and an exit fee of $38,000 when repaid by the borrower.~~

~~(5)~~

~~This mortgage loan includes an annual extension fee of $108,900 paid by the borrower.~~

The Company recognized interest income and fees from the Sponsored REIT ~~Loans~~Loan of approximately ~~$3,554,000~~$0 and ~~$3,634,000~~$906,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~Non-consolidated REITs:~~

~~The balance sheet data below for 2017 and 2016 includes the 6 and 7 Sponsored REITs~~On October 29, 2021, the Company ~~held~~agreed to amend and restate the then existing Sponsored REIT Loan to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an ~~interest in as~~additional $3.0 million tranche of ~~September~~indebtedness to FSP Monument Circle LLC with the same June 30, 2017 and December 31, 2016, respectively. The operating data below for 2017 and 2016 include the operations of the 7 and 9 Sponsored REITs in which the Company held an interest in during the nine months ended September 30, 2017 and 2016, respectively.

~~Summarized financial information for these Sponsored REITs is as follows:~~

September 30,

December 31,

(in thousands)

2017

2016

Balance Sheet Data (unaudited):

Real estate, net

$
311,999

$
345,532

Other assets

77,140

86,594

Total liabilities

(151,830)

(164,820)

Shareholders’ equity

$
237,309

$
267,306

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For the Nine Months Ended

September 30,

(in thousands)

2017

2016

Operating Data (unaudited):

Rental revenues

$
40,775

$
40,453

Other revenues

5

36

Operating and maintenance expenses

(21,219)

(21,892)

Depreciation and amortization

(14,220)

(13,663)

Interest expense

(6,256)

(6,380)

Gain (loss) on sale, less applicable income tax

(702)

26,397

Net income (loss)

$
(1,617)

$
24,951

~~3. Bank Note Payable and Term Note Payable~~

~~JPM Term Loan~~

On November 30, 2016, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and the other lending institutions party thereto (“JPM Credit Agreement”), to provide a single unsecured bridge loan in2023 maturity date, effectively increasing the aggregate principal amount of ~~$150~~the Sponsored REIT Loan from $21 million ~~(the “JPM Term Loan”) that remains fully advanced~~to $24 million. In addition, the Company agreed to defer all principal and ~~outstanding. The JPM Term~~interest payments due under the Sponsored REIT Loan ~~has a two year term that matures~~until the maturity date. 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 Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on ~~November~~or after January 1, 2023. There were no commitments to lend additional funds to the Sponsored REIT. On June 26, 2023, the Sponsored REIT Loan maturity was extended to September 30, ~~2018.~~ 2023.

The ~~JPM Term Loan bears interest at either (i)~~Company recorded a ~~number of basis points over the Eurodollar Rate depending on the Company’s~~$4.2 million increase in our provision for credit rating (135.0 basis points over the Eurodollar Rate at September 30, 2017) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (35.0 basis points over the base rate at September 30, 2017).

Based upon the Company’s credit rating, as of September 30, 2017, the interest rate on the JPM Term Loan was 2.60% per annum. The weighted average interest rate on the JPM Term Loan during the nine months ended September 30, 2017 was approximately 2.38% per annum. The weighted average interest rate on the JPM Term Loanlosses during the year ended December 31, ~~2016~~2022 which was ~~approximately 1.99% per annum.~~

primarily due to the deterioration within the real estate market, changes to key assumptions applied within our financial model to reflect these changes, such as the exit capitalization and discount rates, and an increase in the accrued interest receivable balance. The ~~JPM Credit Agreement contains customary affirmative and negative covenants~~Company recorded a $4.2 million decrease in its provision for credit ~~facilities~~losses during the three months ended March 31, 2023. The change in the allowance for credit losses during the three months ended March 31, 2023 was due to the consolidation of ~~this type.~~Monument Circle. There were no adjustments during the three months ended June 30, 2023. The ~~JPM Credit Agreement also contains financial covenants that require the Company to maintain~~following table presents a minimum tangible net worth, a minimum fixed charge coverage ratio, a maximum secured leverage ratio, a maximum leverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest coverage and a maximum ratioroll-forward of ~~certain investments to total assets. The Company was in compliance with the JPM Term Loan financial covenants as~~our allowance for credit losses.


	For the Six Months Ended June 30,
(Dollars in thousands)		2023		2022

Beginning allowance for credit losses	$	(4,237)	$	—
Additional increases to the allowance for credit losses		—		(1,140)
Reductions to the allowance for credit losses		4,237		—
Ending allowance for credit losses	$	—	$	(1,140)

Table of ~~September 30, 2017.~~Contents

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


	Fair Value (1) at			Significant	Range				Weighted
Description	December 31, 2022		Valuation Technique	Unobservable Input	Min		Max		Average (2)
		(in thousands)

Sponsored REIT Loan	$	19,763	Discounted Cash Flows	Exit Cap Rate	7.50	%	7.50	%	7.50	%
				Discount Rate	9.50	%	9.50	%	9.50	%

(1) Classified within Level 3 of the fair value hierarchy.
(2) Unobservable inputs were weighted based on the fair value of the related instrument.

3. Bank Note Payable, Term ~~Loan to acquire the property located at 600 17th Street, Denver, Colorado on December 1, 2016~~Loans Payable and ~~for other general business purposes.~~ Senior Notes

BMO Term Loan

On ~~July 21, 2016,~~February 10, 2023, the Company entered into a First Amendment ~~(the “BMO First Amendment”)~~ to the Second Amended and Restated Credit Agreement ~~dated October 29, 2014 among the Company,~~with the lending institutions party thereto and Bank of Montreal, as administrative agent ~~( as~~(the “BMO First Amendment”). The BMO First Amendment amended the Second Amended and Restated Credit Agreement, dated September 27, 2018, among the Company and the lending institutions party thereto (as amended by the BMO First Amendment, the “BMO Credit Agreement”) to, among other things, extend the maturity date from January 31, 2024 to October 1, 2024 and change the interest rate from a number of basis points over LIBOR depending on the Company’s credit rating to 300 basis points over SOFR (Secured Overnight Financing Rate). The BMO Credit Agreement ~~provides~~initially provided for ~~a single,~~an unsecured term loan borrowing in the amount of $220 million (the “BMO Term Loan”). In connection with the BMO First Amendment, the Company repaid a $40 million portion of the remaining balance of the BMO Term Loan, so that $125 million remains ~~fully advanced and outstanding.~~outstanding as of June 30, 2023. On or before April 1, 2024, the Company is required to repay an additional $25 million of the BMO Term Loan. The remaining balance of the BMO Term Loan matures on ~~August 26, 2020. The~~October 1, 2024.

Effective February 10, 2023 upon entering into the BMO ~~Credit Agreement also includes an accordion feature that allows up to $50 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions.~~

~~The~~First Amendment, the BMO Term Loan bears interest at either (i) 300 basis points over one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively, or (ii) 200 basis points over the base rate. Prior to February 10, 2023, the BMO Term Loan bore interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating ~~(165~~(165 basis points over LIBOR at ~~September 30, 2017)~~December 31, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (65 basis points over the base rate at ~~September~~December 31, 2022).

As of June 30, ~~2017).~~ 2023, the interest rate on the BMO Term Loan was 8.26% 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 June 30, 2023 was approximately 7.75% per annum.

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Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate that previously applied to the BMO Term Loan by entering into an interest rate swap ~~agreement.~~transactions. On ~~August 26, 2013,~~February 20, 2019, the Company entered into an ISDA Master ~~Agreement~~Agreements with ~~Bank~~a group of ~~Montreal~~banks that fixed the base LIBOR interest rate on the BMO Term Loan at ~~2.32%~~2.39% per annum for ~~seven years, until~~ the period beginning on August 26, 2020 ~~maturity date.~~and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of ~~September 30, 2017,~~both December 31, 2022 and February 8, 2023, the effective interest rate on the BMO Term Loan was ~~3.97%~~4.04% per annum. On February 8, 2023, the Company terminated all outstanding interest rate swaps applicable to the BMO Term Loan and, on February 10, 2023, the Company received an aggregate of approximately $4.3 million as a result of such terminations, of which approximately $0.1 million related to interest receivable.

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qualifications to our financial statements; and the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. In addition, the BMO Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $0.01 per share of the Company’s common stock; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest ~~coverage~~coverage.

The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a ~~maximum ratio~~change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or administrative agent under the BMO Credit Agreement and related documents. For certain ~~investments~~events of default related to ~~total assets.~~bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BMO Term Loan financial covenants as of ~~September~~June 30, ~~2017.~~2023.

BofA Revolver

On February 10, 2023, the Company entered into a First Amendment to Credit Agreement with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto (the “BofA First Amendment”), for a revolving line of credit for borrowings, at the Company’s election, of up to $150 million (the “BofA Revolver”). The BofA First Amendment amended the Credit Agreement, dated January 10, 2022, among the Company and the lending institutions party thereto (as amended by the BofA First Amendment, the “BofA Credit Agreement”) to, among other things, extend the maturity date from January 12, 2024 to October 1, 2024, reduce availability for borrowings, at the Company’s election, from up to $237.5 million to up to $150 million, and to change the interest rate from a number of basis points over SOFR depending on the Company’s credit rating to 300 basis points over SOFR. Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $150 million outstanding at any time. Effective October 1, 2023, availability under the BofA Revolver will be reduced to $125 million and, effective April 1, 2024, availability under the BofA Revolver will be further reduced to $100 million. As of June 30, 2023 and July 27, 2023, there were borrowings of $75 million and $80 million drawn and outstanding under the BofA Revolver, respectively, which borrowings include $40 million that the Company borrowed on February 10, 2023 to repay a portion of the BMO Term Loan. Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on October 1, 2024.

Effective February 10, 2023 upon entering into the BofA First Amendment, the BofA Revolver bears interest at 300 basis points over either (i) the daily simple SOFR, plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively. In addition, under certain circumstances, such as if SOFR was not able to be determined, the BofA Revolver will instead bear interest at 200 basis points over the base rate. Prior to February 10, 2023, borrowings under the BofA Revolver bore interest at a margin over either (i) the daily simple SOFR, plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively. Prior to February 10, 2023, the margin over SOFR or, if applicable, the base rate, varied depending on the Company’s leverage ratio (1.750% over SOFR and 0.750% over the base rate at December 31, 2022). Effective February 10, 2023 upon entering into the BofA First Amendment, the Company is also obligated to pay an annual facility fee on the unused portion of the BofA Revolver at the rate of 0.350% per annum and, if applicable, letter of credit fees. Prior to February 10, 2023, the Company was also obligated to pay an annual facility fee and, if applicable, letter of credit fees in amounts that were also based on the Company’s leverage ratio. The previous facility fee was assessed against the aggregate amount of lender commitments regardless of usage (0.350% at December 31, 2022).

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As of June 30, 2023, the interest rate on the BofA Revolver was 8.26% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through June 30, 2023 was approximately 7.66% per annum.

The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, use of proceeds, the amount of cash and cash equivalents that the Company can have on its balance sheet after giving effect to an advance under the BofA Revolver, repurchases and redemptions of the Company’s common stock, going concern qualifications to our financial statements, and the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BofA Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio and a minimum unsecured interest coverage ratio. The BofA Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $0.01 per share of the Company’s common stock; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The Company was in compliance with the BofA Revolver financial covenants as of June 30, 2023.

The BofA Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with the provisions of the BofA Credit Agreement, certain cross defaults and a change in control of the Company (as defined in the BofA Credit Agreement). In the event of a default by the Company, BofA, in its capacity as administrative agent, may, and at the request of the requisite number of lenders shall, declare all obligations under the BofA Credit Agreement immediately due and payable and enforce any and all rights of the lenders or BofA under the BofA Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, all outstanding obligations of the Company will become immediately due and payable.

The Company may use the net proceeds of the ~~loans under the BMO Credit Agreement to finance the acquisition of real properties and~~BofA Revolver for ~~other~~ permitted ~~investments; to finance~~ investments, ~~associated with Sponsored REITs, to refinance or retire indebtedness and for~~ working capital and other general business purposes, including for building improvements, tenant improvements and leasing commissions, in each case to the extent permitted under the ~~BMO~~BofA Credit Agreement.

~~BAML~~Former BofA Credit Facility

On July 21, 2016, the Company entered into a First Amendment (the ~~“BAML~~“BofA First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BofA Second Amendment”), to the Second Amended and Restated Credit Agreement dated October 29, 2014 among the Company, the lending institutions party thereto and ~~Bank of America, N.A.,~~BofA, as administrative agent, L/C Issuer and Swing Line Lender (as amended by the ~~BAML~~BofA First Amendment and the ~~“BAML~~BofA Second Amendment, the “Amended Former BofA Credit Facility”) that continued an existing unsecured revolving line of credit (the ~~“BAML~~“Former BofA Revolver”) and ~~extended the maturity of a~~an existing term loan (the ~~“BAML~~“Former BofA Term Loan”). Effective simultaneously with the closing of the Amended Former BofA Credit Facility on January 10, 2022, the Company delivered a notice to BofA terminating the aggregate lender commitments under the Former BofA Revolver in their entirety. There were no amounts drawn on the Former BofA Revolver as of December 31, 2021 and January 10, 2022.

~~BAML~~Former BofA Revolver Highlights

●

The ~~BAML~~Former BofA Revolver ~~is for borrowings,~~was terminated at the Company’s election ~~of up to $500 million. Borrowings made pursuant to the BAML Revolver may be revolving loans, swing line loans or letters of credit, the combined sum of which may not exceed $500 million~~ ~~outstanding at any time.~~

effective January 10, 2022.

●

~~Borrowings made pursuant to~~As of December 31, 2021 and January 10, 2022, there were no borrowings under the BAML Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date of October 29, 2018. The Company has the right to extend the initial maturity date of the BAML Revolver by an additional 12 months, or until October 29, 2019, upon payment of a fee and satisfaction of certain customary conditions.

Former BofA Revolver.

The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $350 million of additional borrowing capacity applicable to the BAML Revolver and/or the BAML Term Loan subject to receipt of lender commitments and satisfaction of certain customary conditions.

~~As of September 30, 2017, there were borrowings of $300 million outstanding under the BAML Revolver.~~ The ~~BAML~~Former BofA Revolver ~~bears~~bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.25%~~(1.550% over LIBOR at ~~September 30, 2017)~~December 31, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.25%~~(0.550% over the base rate at ~~September 30, 2017)~~December 31, 2021). The ~~BAML~~Former BofA Credit Facility also ~~obligates~~obligated the Company to pay an annual facility fee in an amount that is ~~also~~ based on the Company’s credit ~~rating (0.25% at September 30, 2017).~~rating. The facility fee iswas assessed against the total amount of the ~~BAML~~Former BofA Revolver, or ~~$500 million.~~$600 million (0.30% at December 31, 2021). The amount of any applicable facility

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fee, and the margin over LIBOR rate or base rate was determined based on the Company’s credit rating aspursuant to a pricing grid.

For purposes of ~~September 30, 2017,~~ the ~~weighted average interest~~Former BofA Credit Facility, base rate onmeant, for any day, a fluctuating rate per annum equal to the ~~BAML Revolver was 2.49% per annum.~~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, ~~2016,~~2021, the ~~weighted average interest rate on the BAML Revolver~~Company’s credit rating from Moody’s Investors Service was ~~1.88% per annum~~Ba1.

During 2022 and as of December 31, 2022, there were noborrowings ~~of $280 million outstanding. The weighted average interest rate on all amounts outstanding on~~under the BAML Revolver during the nine months ended September 30, 2017 was approximately 2.26% per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2016 was approximately 1.73% per annum.Former BofA Revolver.

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~~BAML~~Former BofA Term Loan Highlights

●

The ~~BAML~~Former BofA Term Loan ~~is for $400 million.~~

was repaid in its entirety on September 6, 2022.

●

The ~~BAML~~original principal amount of the Former BofA Term Loan ~~matures~~was $400 million. On September 30, 2021, the Company repaid a $90 million portion and on October 25, 2021, the Company repaid a $200 million portion of the Former BofA Term Loan and incurred a loss on extinguishment of debt of $0.7 million related to unamortized deferred financing costs. On September 6, 2022, the Company prepaid the remaining $110 million balance of the Former BofA Term Loan in full and incurred a loss of extinguishment of debt of $0.1 million related to unamortized deferred financing costs.

●

If the Company had not prepaid the Former BofA Term Loan in full on September ~~27, 2021.~~

~~The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $350 million of additional borrowing capacity applicable to~~6, 2022, the ~~BAML Revolver and/or the BAML~~Former BofA Term Loan ~~subject to receipt of lender commitments and satisfaction of certain customary conditions.~~

would have matured on January 12, 2023.

~~On September 27, 2012, the Company drew down the entire $400 million and such amount remains fully advanced and outstanding under the BAML Credit Facility.~~

The ~~BAML~~Former BofA Term Loan ~~bears~~bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.45%~~(1.75% over LIBOR at the date of repayment on September ~~30, 2017)~~6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.45%~~(0.750% over the base rate at the date of repayment on September ~~30, 2017)~~6, 2022). The margin over LIBOR rate or base rate was determined based on the Company’s credit rating pursuant to a pricing grid.

~~Although the~~The interest rate on the ~~BAML Credit Facility is~~Former BofA Term Loan was variable through the date of repayment on September 6, 2022. Previously the Company had fixed the base LIBOR interest rate on the ~~BAML~~Former BofA Term Loan by entering into an interest rate swap agreement. On September 27, 2012, the Company entered into an ISDA Master Agreement with Bank of America, N.A. that fixed the base LIBOR interest rate on the BAML Term Loan at 0.75% per annum until September 27, 2017.transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the ~~BAML~~Former BofA Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ~~ending~~ended on September 27, 2021. ~~Accordingly, based upon~~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.

Senior Notes

The Senior Notes bear interest depending on the Company’s credit ~~rating, as~~rating. As of ~~September~~June 30, ~~2017,~~2023, the ~~effective~~Series A Notes bear interest ~~rate on~~at 4.49% per annum and the ~~BAML Term Loan was 2.57%~~Series B Notes bear interest at 4.76% per annum.

~~BAML Credit Facility General Information~~

The ~~BAML Credit Facility~~Note Purchase Agreement contains customary ~~affirmative and negative covenants for credit facilities of this type. The BAML Credit Facility also contains~~ financial covenants, ~~that require the Company to maintain a minimum tangible net worth,~~including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA Credit Agreement and the BMO Credit Agreement. The Senior Notes

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financial covenants require, among other things, the maintenance of a fixed charge coverage ratio ~~minimum unsecured interest coverage and~~of at least 1.50; a maximum leverage ratio and an unsecured leverage ratio of no more than 60% (65% if there were a significant acquisition for a short period of time). In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material indebtedness or certain ~~investments to total assets.~~other private placements of debt of the Company and its subsidiaries. The Note Purchase Agreement contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Purchasers may, among other remedies, accelerate the payment of all obligations. The Company was in compliance with the ~~BAML Credit Facility~~Senior Notes financial covenants as of ~~September~~June 30, ~~2017.~~2023.

The Company may use the proceeds of the loans under the BAML Credit Facility to finance the acquisition of real properties and for other permitted investments; to finance investments associated with Sponsored REITs, to refinance or retire indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the BAML Credit Facility.

4. Financial Instruments: Derivatives and Hedging

On ~~July 22, 2016,~~February 20, 2019, the Company entered into interest rate swap transactions that fixed the interest rate for the period beginning ~~on September 27, 2017~~August 26, 2020 and ending on September 27, 2021 on the BAML Term Loan with multiple interest rate swap agreements (the “2017 Interest Rate Swap”). On August 26, 2013, the Company fixed the interest rate until August 26, 2020January 31, 2024 on the BMO Term Loan ~~with an interest rate swap agreement~~ (the ~~“BMO Interest Rate Swap”). On September 27, 2012, the Company fixed the interest rate until September 27, 2017 on the BAML Term Loan with an interest rate swap agreement (the “BAML~~“2019 BMO Interest Rate Swap”). The variable rates that were fixed under the ~~2017 Interest Rate Swap, the~~2019 BMO Interest Rate Swap ~~and the BAML Interest Rate Swap are~~is described in Note 3.

~~The 2017 Interest Rate Swap,~~ On February 8, 2023, the Company terminated the 2019 BMO Interest Rate Swap applicable to the BMO Term Loan and, on February 10, 2023, the ~~BAML~~Company received an aggregate of approximately $4.3 million as a result of such terminations, of which approximately $0.1 million related to interest receivable. As of June 30, 2023, there were no derivative instruments.

The 2019 BMO Interest Rate Swap ~~qualify~~qualified as a cash flow ~~hedges~~hedge and ~~have~~has been recognized on the consolidated balance ~~sheet~~sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be ~~immediately~~ 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.

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The following table summarizes the notional and fair value of ~~our~~the Company’s derivative financial ~~instruments~~instrument at ~~September 30, 2017.~~December 31, 2022. The notional value is an indication of the extent of ~~our~~the Company’s involvement in ~~these instruments~~this instrument at that time, but does not represent exposure to credit, interest rate or market risks.

Notional

Strike

Effective

Expiration

Fair

(in thousands)

Value

Rate

Date

Date

Value

2017 Interest Rate Swap

$
400,000

1.12
%
Sep-17

Sep-21

$
10,771

BMO Interest Rate Swap

$
220,000

2.32
%
Aug-13

Aug-20

$
(3,721)

Notional

Strike

Effective

Expiration

Fair Value (1) at

(in thousands)

Value

Rate

Date

June 30, 2023

December 31, 2022

2019 BMO Interest Rate Swap

165,000

2.39

Aug-20

Jan-24

—

4,358

(1) Classified within Level 2 of the fair value hierarchy.

~~On September 30, 2017, the 2017~~The 2019 BMO Interest Rate Swap was reported as an asset ~~at its~~with a fair value of approximately ~~$10.8~~$4.4 million ~~and~~at December 31, 2022. The balance is included in other assets: derivative asset in the consolidated balance sheet at December 31, 2022.

The gain (loss) on the Company’s 2019 BMO Interest Rate Swap was ~~reported as a liability at its fair value of approximately $3.7 million. These are included~~recorded in other liabilities: derivative liability and other assets: derivative asset on the consolidated balance sheet at September 30, 2017, respectively. Offsetting adjustments are reported as unrealized gains or losses on derivative financial instruments in accumulated other comprehensive income (loss) (OCI), and the accompanying consolidated statements of ~~$0.5 million. During~~operations as a component of interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017, $1.4 million~~2023 and 2022, was ~~reclassified out of other comprehensive income and into interest expense.~~as follows:


(in thousands)	Six Months Ended June 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2023		2022

Amounts of gain recognized in OCI	$	177	$	5,600
Amounts of previously recorded gain (loss) reclassified from OCI into Interest Expense	$	2,055	$	(1,589)

Total amount of Interest Expense presented in the consolidated statements of operations	$	11,890	$	11,030

Over time, the ~~unrealized~~realized gains ~~and losses held~~ in accumulated other comprehensive income will be reclassified into earnings as ~~an increase or reduction~~a decrease to interest expense in the same periods in which the hedged interest payments would affect earnings. ~~We estimate~~ The Company estimates

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that approximately ~~$0.6~~$2.5 million of the current balance held in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

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

The BMO Term Loan hedging transaction used derivative instruments that involved certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates would cause a significant loss of basis in the contract. The Company required its derivatives contracts to be with counterparties that have investment grade ratings. As a result, the Company did not anticipate that any counterparty would fail to meet its obligations. However, there was no assurance that the Company would be able to adequately protect against the foregoing risks or that it would ultimately realize an economic benefit that exceeded the related amounts incurred in connection with engaging in such hedging strategies.

The fair value of the Company’s derivative instruments are determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve and are adjusted to reflect credit or nonperformance risk. The risk is estimated by the Company using credit spreads and risk premiums that are observable in the market. These financial instruments were classified within Level 2 of the fair value hierarchy and were classified as an asset or liability on the ~~condensed~~ consolidated balance ~~sheets.~~sheet.

The Company’s derivatives are recorded at fair value in other ~~liabilities~~assets: derivative asset and other liabilities: derivative liability in the ~~condensed~~ consolidated balance ~~sheets. The~~sheets, and the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the ~~condensed~~ consolidated statements of ~~other~~ comprehensive income (loss) ~~and the ineffective portion of the derivatives’ fair value is recognized directly into earnings as Other in the condensed consolidated statements of income.~~ .

The interest rate swaps effectively fix the interest rate on the BAML Term Loan and BMO Term Loan; however, there is no floor on the variable interest rate of the swaps whereas the BAML Term Loan and BMO Term Loan are subject to a zero percent floor. As a result there is a mismatch and the ineffective portion of the derivatives’ changes in fair value are recognized directly into earnings.

During the three and nine months ended September 30, 2017, the Company recorded $0.1 million and $0.2 million, respectively, of hedge ineffectiveness in earnings. During the three and nine months ended September 30, 2016, the Company recorded ($0.6) million and $0.4 million, respectively, of hedge ineffectiveness in earnings. Hedge ineffectiveness is included in “Other” in the condensed consolidated statements of income.

In the event that LIBOR is negative, the Company will make payments to the hedge counterparty equal to the spread between LIBOR and zero, which will be included in interest expense in the condensed consolidated statements of income.

5. Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of Company shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or

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other contracts to issue shares were exercised or converted into shares. There were no potential dilutive shares outstanding at ~~September~~each of June 30, ~~2017~~2023 and ~~2016, respectively.~~2022.

6. Stockholders’ Equity

On August 16, 2016, the Company completed an underwritten public offering of 7,043,750 shares of its common stock (including 918,750 shares issued as a result of the full exercise of an overallotment option by the underwriter) at a price to the public of $12.35 per share. The proceeds from this public offering, net of underwriter discounts and offering costs, totaled approximately $82.9 million.

As of ~~September~~June 30, ~~2017,~~2023, the Company had ~~107,231,155~~103,430,353 shares of common stock outstanding. The Company declared and paid dividends as follows (in thousands, except per share amounts):

Dividends Per

Total

Quarter Paid

Share

Dividends

First quarter of 2017

$
0.19

$
20,374

Second quarter of 2017

$
0.19

$
20,374

Third quarter of 2017

$
0.19

$
20,374

First quarter of 2016

$
0.19

$
19,036

Second quarter of 2016

$
0.19

$
19,036

Third quarter of 2016

$
0.19

$
19,036


	Dividends Per		Total
Quarter Paid	Share		Dividends
First quarter of 2023	$	0.01	$	1,033
Second quarter of 2023	$	0.01	$	1,032

2022:
Special dividend declared in December 2021 and paid January 2022	$	0.32	$	33,280
First quarter of 2022	$	0.09	$	9,360
Second quarter of 2022	$	0.09	$	9,284

Equity-Based Compensation

On May 20, 2002, the stockholders of the Company approved the 2002 Stock Incentive Plan (the “Plan”). The Plan is an equity-based incentive compensation plan, and provides for the grants of up to a maximum of 2,000,000 shares of the Company’s common stock (“Awards”). All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted Awards. Awards under the Plan are made at the discretion of the Company’s Board of Directors, and have no vesting requirements. Upon granting an Award, the Company will recognize compensation cost equal to the fair value of the Company’s common stock, as determined by the Company’s Board of Directors, on the date of the grant.

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


	Shares Available		Compensation
	for Grant		Cost
Balance December 31, 2021		1,780,820		1,012,500
Shares granted 2022		(84,133)		393,750
Balance December 31, 2022		1,696,687	$	1,406,250
Shares granted 2023		(194,439)		314,991
Balance June 30, 2023		1,502,248	$	1,721,241

Repurchase of Common Stock

On June 23, 2021, the Board of Directors of the Company authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time. The Company repurchased 846,739 shares of common stock during the first quarter of 2022 at an aggregate cost of approximately $4.8 million at an average cost of approximately $5.72 per share, inclusive of brokerage commissions. The Company did not repurchase any shares of common stock during the remainder of 2022 or the first quarter of 2023. The excess of the purchase price over the par value of the shares repurchased is applied to reduce additional paid-in capital. On February 10, 2023, the Company announced it had discontinued the previous repurchase authorization made on June 23, 2021.

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


(Cost in thousands)	Shares Repurchased	Cost
Balance, December 31, 2021	4,413,741	$	37,019
Repurchase of shares	846,739		4,843
Balance, December 31, 2022	5,260,480	$	41,862

7. Income Taxes

General

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, the Company generally is entitled to a tax deduction for distributions paid to its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only. The Company must comply with a variety of restrictions to maintain its status as a REIT. These restrictions include the type of income it can earn, the type of assets it can hold, the number of shareholders it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed annually.

One such restriction is that the Company generally cannot own more than 10% of the voting power or value of the securities of any one issuer unless the issuer is itself a REIT or a taxable REIT subsidiary (“TRS”). In the case of TRSs, the Company’s ownership of securities in all TRSs generally cannot exceed ~~25%~~20% (25% of taxable years beginning on or before December 31, 2017) of the value of all of the Company’s assets and, when considered together with other non-real estate assets, cannot exceed 25% of the value of all of the Company’s assets. FSP Investments LLC and FSP Protective TRS Corp. are the Company’s taxable REIT subsidiaries operating as taxable corporations under the Code. The TRSs have gross amounts of net operating losses (“NOLs”) available to those taxable corporations of $4.9 million and $4.8 million as of December 31, 2022 and December 31, 2021, respectively. The NOLs created prior to 2018 will expire between 2030 and 2047 and the NOLs generated after 2017 will not expire. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured.

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Income taxes are recorded based on the future tax effects of the difference between the tax and financial reporting bases of the Company’s assets and liabilities. In estimating future tax consequences, potential future events are considered except for potential changes in income tax law or in rates.

The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The statute of limitations for the

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Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from ~~2013~~2019 and thereafter.

Net operating losses

Section 382 of the Code restricts a corporation’s ability to use NOLs to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Company’s prior sponsored REITs available for use by the Company in any particular future taxable year will be limited. To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years. NOLs generated prior to December 31, 2018 will expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured. The gross amount of NOLs available to the Company was $1.7 million and $1.7 million as of June 30, 2023 and December 31, 2022, respectively.

Income Tax Expense

The Company is subject to a business tax known as the Revised Texas Franchise Tax. Some of the Company’s leases allow reimbursement by tenants for these amounts because the Revised Texas Franchise Tax replaces a portion of the property tax for school districts. Because the tax base on the Revised Texas Franchise Tax is derived from an income based measure, it is considered an income tax. The Company recorded a provision for the Revised Texas Franchise Tax of ~~$261,000~~$142,000 and ~~$261,000~~$105,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

~~Net operating losses~~

Section 382 of the Code restricts a corporation’s ability to use net operating losses (“NOLs”) to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Sponsored REITs available for use by the Company in any particular future taxable year will be limited. To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years. NOLs expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured. The gross amount of NOLs available to the Company was $13,041,000 as of each of September 30, 2017 and December 31, 2016.

~~Income Tax Expense~~

The income tax expense reflected in the ~~condensed~~ consolidated statements of ~~income~~operations relates primarily to a franchise tax on ~~our~~the Company’s Texas properties. FSP Protective TRS Corp. provides taxable services to tenants at some of the Company’s properties and the tax expenses associated with these activities are reported as Other Taxes in the table below:


	For the Nine Months Ended September 30,

					For the Six Months Ended June 30,
(Dollars in thousands)	2017		2016		2023		2022

Revised Texas franchise tax	$	261	$	261

Revised Texas Franchise Tax					$	142	$	105
Other Taxes		36		65		—		—
Taxes on income	$	297	$	326
Tax expense					$	142	$	105

Taxes on income are a current tax expense. No deferred income taxes were provided as there were no material temporary differences between the financial reporting basis and the tax basis of the TRSs.

8. ~~Dispositions~~Leases

Leases as a Lessor:

The Company is a lessor of ~~properties~~commercial real estate with operations that include the leasing of office and industrial properties. Many of the leases with customers contain options to extend leases at a fair market rate and may also include options to terminate leases. The Company considers several inputs when evaluating the amount it expects to derive from its leased assets at the end of the lease terms, such as the remaining useful life, expected market conditions, fair value of lease payments, expected fair values of underlying assets, and expected deployment of the underlying assets. The Company’s strategy to address its risk for the residual value in its commercial real estate is to re-lease the commercial space.

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The Company has elected to apply the practical expedient to not separate non-lease components from the related lease component of real estate leases. This combined component is primarily comprised of fixed lease payments, early termination fees, common area maintenance cost reimbursements, and parking lease payments. The Company applies ASC 842-Leases to the combined lease and non-lease components.

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


Income relating to lease payments:
	Six Months Ended
(in thousands)	June 30, 2023		June 30, 2022
Income from leases (1)	$	74,316	$	79,671
	$	74,316	$	79,671
(1) Includes amounts recognized from variable lease payments of $21,382 and $24,396 for the six months ended June 30, 2023 and 2022, respectively.

9. Disposition of Properties and Asset Held for Sale

In 2021, the Company determined that further debt reduction would provide greater financial flexibility and potentially increase shareholder value. Accordingly, the Company adopted a strategy to dispose of certain properties where it believes valuation potential has been reached.

In 2022, the Company sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $102.5 million, at a gain of approximately $24.1 million. The Company sold an office property located in Evanston, Illinois on December 28, 2022 for a sales price of $27.8 million, at a gain of approximately $3.9 million. The Company used the proceeds of the dispositions principally to repay outstanding indebtedness.

In 2023, the Company sold one office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $29.1 million, at a gain of approximately $8.4 million. The Company used the proceeds of the disposition principally to repay a portion of outstanding indebtedness. During the three months ended June 30, ~~2017,~~2023, the Company ~~reached~~entered into an agreement to sell a ~~decision to classify~~property in Charlotte, North Carolina for a gross sales price of approximately $9.2 million and an office property located in Baltimore, Maryland as an asset held for sale. In evaluating the Baltimore, Maryland property, management considered various subjective factors, including the time, cost and likelihoodexpected loss of successfully leasing the property, the effect of the property’s results on its unencumbered asset value, which is part of the leverage ratio used to compare to a maximum leverage covenant in the JPM Term Loan, BMO Term Loan and the BAML Credit Facility, future capital costs to upgrade and reposition the multi-tenant property and to lease up the building, recent leasing and economic activity in the local area, and offers to purchase the property.$0.8 million. The Company ~~concluded that selling the~~reclassified $8.9 million of its office property was the more prudent decision and outweighed the potential future benefit of continuing to hold the property. The property was expected to sell within one year at a loss, which was recorded as a provision for loss on a property held for sale of $0.3 million and $20.7 million for the three and nine months ended September 30, 2017, respectively, net of applicable income taxes, and was classified as an asset held for sale as of June 30, 2023, which is comprised of $8.4 million of real estate assets, net of accumulated depreciation, $0.8 million of straight-line rents receivable, and $0.5 million of deferred leasing commissions, net of accumulated amortization. The Company recorded the property at ~~September~~the fair value less cost to sell, which was less than the carrying value and resulted in an impairment of $0.8 million in the three months ended June 30, ~~2017.~~2023. 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).

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During the three months ended December 31, 2016, we reached an agreement to sell an office property located in Milpitas, California. The property was classified as an asset held for sale at December 31, 2016 and was sold on January 6, 2017 at approximately a $2.3 million gain.

During the year ended December 31, 2016, the Company sold an office property located in Maryland Heights, Missouri on April 5, 2016, at a $4.2 million gain. During the three months ended June 30, 2016, the Company reached a decision to classify its office property located in Federal Way, Washington, as an asset held for sale. In evaluating the Federal Way, Washington property, management considered various subjective factors. The Company ~~concluded that selling~~reports the ~~property was the more prudent decision and outweighed the potential future benefit~~results of ~~continuing to hold the property. The property was expected to sell within one year at a loss,~~operations of its properties in its consolidated statements of operations, which ~~was recorded as a provision for loss on a property held for sale of $0.5 million and $5.3 million during the three and nine months ended September 30, 2016, respectively, net of applicable~~includes rental income, rental operating expenses, real estate taxes and was classified as an asset held for sale. The Company sold the property on December 16, 2016 for $7.3 million of net proceeds resulting in a total loss of $7.1 million, net of applicable income taxes. insurance and depreciation and amortization.

The disposals did not represent a strategic shift that has a major effect on the Company's operations and financial results. Accordingly, the properties remain classified within continuing operations for all periods presented.

9.10. Subsequent Events

On ~~October 6, 2017,~~July 7, 2023, the Board of Directors of the Company declared a cash distribution of ~~$0.19~~$0.01 per share of common stock payable on ~~November 9, 2017~~August 10, 2023 to stockholders of record on ~~October 20, 2017.~~July 21, 2023.

~~On October 18, 2017,~~Subsequent to June 30, 2023, the Company ~~recast~~executed purchase and sale agreements with three different unrelated purchasers for the ~~BAML Credit Facility to, among other things, (i) increase the BAML Revolver~~ ~~from $500 million to $600 million, (ii) extend the BAML Revolver~~ ~~maturity date from October 29, 2018 to January 12, 2022 (with two optional six month extensions), (iii) extend~~ the BAML Term Loan maturity date from September 27, 2021 to January 12, 2023, (iv) decrease the interest rate margins, (v) reset the minimum tangible net worth threshold, (vi) increase certain leverage ratios forpotential sale of three ~~fiscal quarters (instead~~properties that would result in aggregate gross proceeds of ~~two fiscal quarters) succeeding a significant acquisition, and (v) increase the accordion feature from $350 million to $500~~approximately $156 million. ~~The Company also simultaneously amended the BMO Credit Agreement and the JPM Credit Agreement~~ ~~to conform to certain provisions of the BAML Credit Facility, including updating financial covenants, certain~~ ~~definitions and making other conforming changes.~~

~~On October 20, 2017, the Company sold the office property in Baltimore, Maryland described in Note 8, “Dispositions of properties,” for approximately $31.6 million in net proceeds.~~

On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes. Under the Note Purchase Agreement, the Company will sell to the Purchasers an aggregate principal amount of $200,000,000 of senior unsecured notes consisting of (i) 3.99% Series A Senior Notes ~~due December 20, 2024 in an aggregate principal amount of $116 million (the “Series A Notes”) and (ii) 4.26% Series B Senior Notes~~ due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B Notes,” and, together with the Series A Notes, the “Notes”). The funding of the Notes is expected to occur on or about December 20, 2017, These transactions remain subject to customary closing ~~conditions. The Company intends~~conditions, including successful completion by the purchasers of due diligence inspection periods. If successful, these transactions are expected to ~~use~~close during the fourth quarter of 2023 and the proceeds ~~from~~are intended to be used primarily for the ~~private placement to reduce the outstanding balance~~repayment of ~~the BAML Revolver.~~ debt.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. Historical results and percentage relationships set forth in the ~~condensed~~ consolidated financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Quarterly Report on Form 10-Q may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, adverse changes in general economic or local market conditions, including the impact of recessionary concerns, inflation, energy prices and interest rates, as well as those resulting from the COVID-19 pandemic, including the impact of work-from-home policies, and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the ~~United States,~~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 Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 and Part II, Item 1A. “Risk Factors” below. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We may not update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.

Overview

~~Overview~~

FSP Corp., or we or the Company, operates in a single reportable segment: real estate operations. 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 ~~select urban~~ infill and central business district office properties ~~with primary emphasis on our five core markets of Atlanta, Dallas, Denver, Houston~~in the United States sunbelt and ~~Minneapolis.~~mountain west regions as well as select opportunistic markets. We believe that ~~our five core markets~~the United States sunbelt and mountain west regions have macro-economic drivers that have the potential to increase occupancies and rents. ~~We will also monitor other markets for opportunistic investments.~~ We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income.

As of ~~September~~June 30, ~~2017,~~2023, approximately ~~7.6~~5.3 million square feet, or approximately ~~75.5%~~84.9% of our total owned and consolidated portfolio, was located in ~~our five core markets. From time-to-time we may dispose of our smaller, suburban office assets~~Dallas, Denver, Houston and replace them with larger urban infill and central business district office assets located primarily in our five core markets. As we execute this strategy, short term operating results could be adversely impacted. However, we believe that the transformed portfolio has the potential to provide higher profit and asset value growth over a longer period of time. Minneapolis.

The main factor that affects our real estate operations is the broad economic market conditions in the United States. These market conditions affect the occupancy levels and the rent levels on both a national and local level. We have no influence on broader ~~economic/~~economic market conditions. We may look to acquire and/or develop quality properties in good locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.

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.

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For the year ended December 31, 2022, our disposition strategy resulted in gross sale proceeds of $130.3 million and we repaid $128.9 million of debt. Specifically, on August 31, 2022, we sold two office properties located in Broomfield, Colorado for aggregate gross proceeds of $102.5 million, at a gain of approximately $24.1 million. On September 6, 2022, we prepaid our $110 million term loan with Bank of America, N.A. as administrative agent and the other lending institutions party thereto (the “Former BofA Term Loan”). If we had not prepaid the Former BofA Term Loan in full, it would have matured by its own terms on January 12, 2023. In addition, on December 28, 2022, we sold one office property located in Evanston, Illinois for gross proceeds of $27.8 million, at a gain of $3.9 million. On December 29, 2022 and December 30, 2022, we repaid $7 million and $20 million, respectively, that had been drawn under our revolving line of credit with Bank of America, N.A. as administrative agent and the other lending institutions party thereto (the “BofA Revolver”).

In 2023, we sold one office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $29.1 million, at a gain of approximately $8.4 million. On March 13, 2023, we repaid $25 million that had been drawn under the BofA Revolver.

In July 2022, we adopted a variable quarterly dividend policy, which replaced our previous regular quarterly dividend policy. Under the new variable quarterly dividend policy, the Board of Directors will determine quarterly dividends based upon a variety of factors, including the Company’s estimates of its annual taxable income and the amount that the Company is required to distribute annually in the aggregate to enable the Company to continue to qualify as a real estate investment trust for federal income tax purposes.

On April 12, 2023, the credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service to Ba3 from Ba1 and on June 14, 2023, was downgraded to B3 from Ba3. On February 10, 2023, we entered into amendments to the BMO Term Loan and the BofA Revolver that, among other things, caused the interest rate applicable to those borrowings to no longer be based in part on the rating of our debt. The interest rate applicable to borrowings under the Senior Notes continues to be based in part on the rating of our debt. We anticipate that as a result of our below investment grade credit ratings, we will continue to incur approximately $1.0 million in additional interest costs from the Senior Notes over a full twelve-month period based on our borrowings as of July 27, 2023.

Trends and Uncertainties

Long-Term Impact of COVID-19 Pandemic

Considerable uncertainty still surrounds the long-term impact of the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, and on the commercial real estate market and our business. Many of our tenants still do not fully occupy the space that they lease. The 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 impact that the COVID-19 pandemic will have on our future financial results at this time. See “Risk Factors” in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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 conflict between Russia and Ukraine and increasing tensions with China, the long-term impact of the COVID-19 pandemic and continuing supply chain difficulties. In addition, various economic factors, including but not limited to, inflation and interest rates, are contributing to recessionary concerns for the economy of the United States. Economic conditions directly affect the demand for office space, our primary income producing asset. In addition, the broad economic market conditions in the

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United States are typically affected by numerous other factors, including but not limited to, inflation and employment levels, energy prices, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, the regulatory environment and the availability of credit. During 2022 and 2023 and as of July 27, 2023, the Federal Reserve raised the federal funds rate target several times, most recently 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. As of June 30, 2023, approximately 50.0% 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. As of the date of this report, the impact of current economic conditions and geopolitical events and the long-term impact of the COVID-19 pandemic are adversely affecting the demand for office space in the United States.

Real Estate Operations

As of June 30, 2023, our real estate portfolio was comprised of 20 owned properties, which we refer to as our owned properties, and a non-controlling common stock interest in the corporation that is the sole member of FSP Monument Circle LLC, which corporation was organized to operate as a real estate investment trust, which we refer to as the Sponsored REIT. The Sponsored REIT, which we also refer to as Monument Circle, was consolidated effective January 1, 2023. We refer to these 21 properties as our owned and consolidated properties. Our owned properties were approximately 75.7% leased as of June 30, 2023, an increase from 75.6% leased as of December 31, 2022. The 0.1% increase in leased space was primarily a result of new leasing, net of lease maturities that occurred during the six months ended June 30, 2023 and the impact on leased percentage from the disposition of one property on March 10, 2023. As of June 30, 2023, we had approximately 1,469,000 square feet of vacancy in our owned properties compared to approximately 1,524,000 square feet of vacancy at December 31, 2022. During the six months ended June 30, 2023, we leased approximately 445,000 square feet of office space in our owned properties, of which approximately 269,000 square feet were with existing tenants, at a weighted average term of 6.6 years. On average, tenant improvements for such leases were $20.90 per square foot, lease commissions were $10.27 per square foot and rent concessions were approximately five months of free rent. Average GAAP base rents under such leases were $29.14 per square foot, or 7.2% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2022.

Our owned and consolidated properties were approximately 73.3% leased as of June 30, 2023, compared to our owned properties at 75.7% leased as of June 30, 2023. The lower leased percentage is a result of the consolidation of Monument Circle effective January 1, 2023. As of June 30, 2023, Monument Circle was approximately 4.1% leased.

As of June 30, 2023, leases for approximately 2.8% and 9.9% of the square footage in our owned and consolidated properties are scheduled to expire during 2023 and 2024, respectively. As the third quarter of 2023 begins, we believe that our owned properties are stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the impact of geopolitical events, current economic conditions and the long-term impact of the COVID-19 pandemic may limit or delay new tenant leasing during at least the third quarter of 2023 and potentially in future periods.

While we cannot generally predict when an existing vacancy in our owned properties will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates. Also, we believe the potential exists for any of our tenants to default on its lease or to seek the protection of bankruptcy. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.

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Consolidation of Sponsored REIT

As of January 1, 2023, we consolidated Monument Circle into our financial statements. 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. In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023. As a result of our obtaining this right to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023. On June 26, 2023, the Sponsored REIT Loan maturity was extended to September 30, 2023.

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)” and Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report.

Dispositions of Properties and Asset Held for Sale

During 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $29.1 million, at a gain of approximately $8.4 million. During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina at an expected loss of $0.8 million, which was recorded as an impairment and we classified the property as an asset held for sale as of June 30, 2023 and expect to close on the sale of the property for $9.2 million in gross proceeds during the third quarter of 2023.

In addition, subsequent to June 30, 2023, we executed purchase and sale agreements with three different unrelated purchasers for the potential sale of three properties that would result in aggregate gross proceeds of approximately $156 million. These transactions remain subject to customary closing conditions, including successful completion by the purchasers of due diligence inspection periods. If successful, these transactions are expected to close during the fourth quarter of 2023 and the proceeds are intended to be used primarily for the repayment of debt.

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

The dispositions of these properties did not represent a strategic shift that has a major effect on our operations and financial results. Our current strategy is to continue to invest in the sunbelt and mountain west regions of the United States. 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. 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.

Critical Accounting ~~Policies~~Estimates

We have certain critical accounting policies that are subject to judgments and estimates by our management and uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to

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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, ~~2016.~~2022.

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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. We believe that our judgments and ~~assessments~~estimates are consistently applied and produce financial information that fairly presents our results of operations. ~~No changes to our critical accounting policies have occurred since the filing of our Annual Report on Form 10-K for the year ended December 31, 2016.~~

Recent Accounting Standards

In ~~May 2014,~~March 2020, the Financial Accounting Standards Board ~~(“FASB”)~~(FASB) issued ASU No. ~~2014-09, Revenue from Contracts with Customers~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“~~Topic 606”~~ASU 2020-04”)~~, which provides~~. The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance ~~for revenue recognition. The standard’s core principle~~in ASU 2020-04 is ~~that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which a company expects to~~optional and may be entitled in exchange for those goods or services. This update is effective for interim and annual reporting periods beginning after December 15, 2017. A substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from Topic 606.elected over time as reference rate reform activities occur. We ~~are continuing to evaluate Topic 606: however, we~~ do not ~~believe there~~anticipate that the adoption of ASU 2020-04 will behave a material impact on ~~the timing of our revenue recognition in the consolidated financial statements. We currently expect to adopt the standard using the modified retrospective approach.~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). ASU 2016-02 requires lessees to establish a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees will continue to recognize lease expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This new standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter with early adoption permitted. The Company is currently evaluating the potential changes from ASU 2016-02 to future financial reporting and disclosures. The Company expects that the adoption of this standard in 2019 will increase our assets and liabilities by approximately $3 million for the addition of right-of-use assets and lease liabilities related to an operating lease for office space; however, we do not expect the adoption of this standard to have a material impact to our results of operations or liquidity.

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~~Trends and Uncertainties~~

~~Economic Conditions~~

The economy in the United States is continuing to experience a period of slow to moderate economic growth, which directly affects the demand for office space, our primary income producing asset. The broad economic market conditions in the United States are affected by numerous factors, including but not limited to, inflation and employment levels, energy prices, the pace of economic growth and/or recessionary concerns, uncertainty about government fiscal and tax policy, changes in currency exchange rates, geopolitical events, the regulatory environment, the availability of credit and interest rates. In addition, the Federal Reserve Bank has indicated that it could raise interest rates further in 2017 and 2018. Any increase in interest rates could result in increased borrowing costs to us. However, we could also benefit from any further improved economic fundamentals and increasing levels of employment. We believe that the economy is in a cyclically-slower but prolonged broad-based upswing. However, future economic factors may negatively affect real estate values, occupancy levels and property income.

~~Real Estate Operations~~

~~Leasing~~

Our real estate portfolio was approximately 88.7% leased as of September 30, 2017, a decrease from 89.3% as of December 31, 2016. The 0.6% decrease in leased space was a result of lease expirations and terminations during the nine months ended September 30, 2017. As of September 30, 2017, we had approximately 1,141,000 square feet of vacancy in our portfolio compared to approximately 1,086,000 square feet of vacancy at December 31, 2016. During the nine months ended September 30, 2017, we leased approximately 936,000 square feet of office space, of which approximately 729,000 square feet were with existing tenants, at a weighted average term of 6.6 years. On average, tenant improvements for such leases were $22.43 per square foot, lease commissions were $8.83 per square foot and rent concessions were approximately three months of free rent. Average GAAP base rents under such leases were $29.61 per square foot, or 8.3% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2016.

In January 2016, our property at 801 Marquette Avenue in Minneapolis, Minnesota, with approximately 170,000 square feet of space, became vacant and we subsequently redeveloped the property. Interior demolition and construction work commenced during the three months ended September 30, 2016. As of September 30, 2017, we had incurred approximately $15.6 million in total redevelopment costs. Delivery of the substantially completed project was achieved at the end of the second quarter of 2017. Redevelopment of 801 Marquette Avenue has resulted in approximately 130,000 of net rentable square feet for the property. We anticipate the project, when leased, will attain rents of approximately $17 to $19 net rent per square foot compared to previously expired net rent of approximately $4.75 per square foot.

As of September 30, 2017, leases for approximately 1.4% and 12.7% of the square footage in our portfolio are scheduled to expire during 2017 and 2018, respectively. As the fourth quarter of 2017 begins, we believe that our property portfolio is well stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants. We believe that most of our largest property markets are now experiencing generally steady or improving rental conditions. We anticipate continued positive leasing activity within the portfolio in 2017.

While we cannot generally predict when an existing vacancy in our real estate portfolio will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates. Also, we believe the potential for any of our tenants to default on its lease or to seek the protection of bankruptcy exists. 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. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.

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~~Real Estate Acquisition and Investment Activity~~

~~During 2017:~~

~~on January 6, we received approximately $6.2 million in proceeds from the sale of a property located in Milpitas, California;~~

~~on June 7, we received approximately $9.0 million in cash from FSP 1441 Main Street Corp. as repayment in full of a Sponsored REIT Loan;~~

~~during the nine months ended September 30, we received approximately $0.8 million in cash from FSP Satellite Place Corp., as partial prepayment of a Sponsored REIT Loan;~~

~~on October 20, we received approximately $31.6 million in proceeds from the sale of a property located in Baltimore, Maryland; and~~

~~we have continued to actively explore additional potential real estate investment opportunities and anticipate further real estate investments in the future.~~

~~During 2016:~~

~~on January 19, we received approximately $37.5 million in cash from FSP 385 Interlocken Development Corp. as repayment in full of a Sponsored REIT Loan;~~

~~on April 5, we received approximately $20.2 million in proceeds from the sale of a property located in Maryland Heights, Missouri;~~

~~on June 6, we acquired an office property with approximately 325,800 rentable square feet for $82 million located in Minneapolis, Minnesota;~~

~~on August 10, we acquired an office property with approximately 160,000 rentable square feet for $45.5 million located in Atlanta, Georgia;~~

~~on December 1, we acquired an office property with approximately 613,000 rentable square feet for $154.2 million located in Denver, Colorado;~~

~~on December 16, we received approximately $7.5 million in proceeds from the sale of a property located in Federal Way, Washington; and~~

~~during the year ended December 31, we received approximately $2.3 million in cash from FSP Satellite Place Corp., as partial prepayment of a Sponsored REIT Loan~~.

~~Dispositions of Properties and Asset Held for Sale~~

During the three months ended June 30, 2017, we reached a decision to classify our office property located in Baltimore, Maryland as an asset held for sale. In evaluating the Baltimore, Maryland property, management considered various subjective factors, including the time, cost and likelihood of successfully leasing the property, the effect of the property’s results on its unencumbered asset value, which is part of the leverage ratio used to compare to a maximum leverage covenant in the JPM Term Loan, BMO Term Loan and the BAML Credit Facility, future capital costs to upgrade and reposition the multi-tenant property and to lease up the building, recent leasing and economic activity in the local area, and offers to purchase the property. We concluded that selling the property was the more prudent decision and outweighed the potential future benefit of continuing to hold the property. The property was expected to sell within one year at a loss, which was recorded as a provision for loss on a property held for sale of $0.3 million and $20.7 million for the three and nine months ended September 30, 2017, respectively, net of applicable income taxes, and was classified as an asset held for sale at September 30, 2017. This property was sold on October 20, 2017 for approximately $31.6 million in net proceeds.

During the year ended December 31, 2016, we sold an office property located in Maryland Heights, Missouri on April 5, 2016, at a $4.2 million gain. During the three months ended June 30, 2016, we reached a decision to classify its office property located in Federal Way, Washington, as an asset held for sale. In evaluating the Federal Way, Washington property,

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management considered various subjective factors. We concluded that selling the property was the more prudent decision and outweighed the potential future benefit of continuing to hold the property. The property was expected to sell within one year at a loss, which was recorded as a provision for loss on a property held for sale net of applicable income taxes and was classified as an asset held for sale. We sold the property on December 16, 2016 for $7.3 million of net proceeds resulting in a total loss of $7.1 million, net of applicable income taxes.

We will continue to evaluate our portfolio, and in the future may decide to dispose of additional properties from time-to-time in the ordinary course of business. We believe that the current property sales environment continues to improve in many markets relative to both liquidity and pricing. We believe that both improving office property fundamentals as well as attractive financing availability will likely be required to continue improvement in the marketplace for potential property dispositions. As an important part of our total return strategy, we intend to be active in property dispositions when we believe that market conditions warrant such activity and, as a consequence, we continuously review and evaluate our portfolio of properties for potentially advantageous dispositions.

Results of Operations

The following table shows financial results for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~2022:


	Three months ended September 30,

							Three months ended June 30,
(in thousands)	2017		2016		Change		2023		2022		Change
Revenues:
Rental	$	67,339	$	61,925	$	5,414	$	36,257	$	40,831	$	(4,574)
Related party revenue:
Management fees and interest income from loans		1,278		1,338		(60)		—		467		(467)
Other		9		17		(8)		9		6		3
Total revenues		68,626		63,280		5,346		36,266		41,304		(5,038)
Expenses:
Real estate operating expenses		17,898		16,905		993		12,140		12,344		(204)
Real estate taxes and insurance		11,882		10,218		1,664		7,169		9,043		(1,874)
Depreciation and amortization		24,988		23,298		1,690		14,645		18,186		(3,541)
Selling, general and administrative		3,286		3,419		(133)
General and administrative								3,767		3,981		(214)
Interest		8,258		6,767		1,491		6,084		5,664		420
Total expenses		66,312		60,607		5,705		43,805		49,218		(5,413)

Income before equity in losses of non-consolidated REITs, other, gain (loss) on sale of properties and properties held for sale, less applicable income tax and taxes		2,314		2,673		(359)
Equity in losses of non-consolidated REITs		(121)		(196)		75
Other		67		621		(554)
Loss on sale of properties and properties held for sale, less applicable income tax		(257)		(523)		266

Income before taxes on income		2,003		2,575		(572)
Taxes on income		100		117		(17)

Net income	$	1,903	$	2,458	$	(555)

Impairment and loan loss reserve								—		(1,140)		1,140
Gain on sale of properties and impairment of asset held for sale, net								(806)		—		(806)
Loss before taxes								(8,345)		(9,054)		709
Tax expense								75		56		19
Net loss							$	(8,420)	$	(9,110)	$	690

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Comparison of the three months ended ~~September~~June 30, ~~2017~~2023 to the three months ended ~~September~~June 30, ~~2016:~~2022:

Revenues

Total revenues ~~increased~~decreased by ~~$5.3~~$5.0 million to ~~$68.6~~$36.3 million for the three months ended ~~September~~June 30, ~~2017,~~2023, as compared to the three months ended ~~September~~June 30, ~~2016.~~2022. The ~~increase~~decrease was primarily a result of:

●

~~An increase~~A decrease in rental revenue of approximately ~~$5.4~~$4.6 million arising primarily from the sale of three properties during 2022 and one property in 2023 and other losses of rental ~~revenue for properties that we acquired on each of June 6, 2016, August 10, 2016 and December 1, 2016, which was~~income from lease

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expirations during the periods presented. These decreases were partially offset by ~~the loss of revenue~~rental income earned from ~~the disposition of three other properties during 2016 and 2017. We sold a property on each of April 5, 2016, December 16, 2016 and January 6, 2017. In addition, our~~leases commencing after June 30, 2022. Our leased space ~~decreased 0.6%~~in our owned and consolidated properties was 73.3% at June 30, 2023 and 76.3% at June 30, 2022.

●

A decrease in interest income from loans of approximately $0.5 million, due to ~~88.7% at September 30, 2017 compared to 89.3% at December 31, 2016.~~

the consolidation of Monument Circle in our financial results as of January 1, 2023.

Expenses

Total expenses ~~increased~~decreased by ~~$5.7~~$5.4 million to ~~$66.3~~$43.8 million for the three months ended ~~September~~June 30, ~~2017,~~2023, as compared to the three months ended ~~September~~June 30, ~~2016.~~2022. The ~~increase~~decrease was primarily a result of:

●

~~An increase~~A decrease in real estate operating expenses and real estate taxes and insurance of approximately ~~$2.6~~$2.1 million ~~and an increase~~primarily attributable to the property dispositions noted above.

●

A decrease in depreciation and amortization of approximately ~~$1.7~~$3.5 million ~~which were~~primarily attributable to the ~~acquisition~~property dispositions noted above.

●

A decrease in general and administrative expenses of ~~properties on June 6, 2016, August 10, 2016~~$0.2 million primarily attributable to lower personnel costs and ~~December 1, 2016, and were partially offset by decreases as a result of the disposition of three properties during 2016 and 2017.~~

professional fees.

These decreases were partially offset by:

●

An increase in interest expense of approximately ~~$1.5 million~~$0.4 million. The increase was primarily due to ~~$8.3 million for~~higher interest expense as a result of higher interest rates under the ~~three months ended September 30, 2017~~loan amendments we entered into on February 10, 2023 described above and was partially offset by a lower principal amount of debt outstanding compared to the same period in 2016. The increase was primarily attributable to higher interest rates, additional borrowings under the JPM Term Loan (as defined below) we entered into on November 30, 2016 and an increase in amortization of deferred financing costs during the three months ended September 30, 2017 as compared to the same period in 2016.

2022.

~~A decrease in selling, general and administrative expenses of $0.1 million primarily as a result of a decrease in acquisition costs. We had 39 employees as of each of September 30, 2017 and 2016.~~

~~Equity in losses of non-consolidated REITs~~

Equity in losses from non-consolidated REITs decreased approximately $0.1 million during the three months ended September 30, 2017 compared to the same period in 2016. The decrease was primarily attributable to equity in the loss from our preferred stock investment in a Sponsored REIT, FSP 303 East Wacker Drive Corp., which we refer to as East Wacker, which decreased during the three months ended September 30, 2017 compared to the same period in 2016.

~~Other~~

Other expense decreased by $0.6 million for each of the three months ended September 30, 2017 and the three months ended September 30, 2016, which is attributable to hedge ineffectiveness from our derivatives’ fair value. The ineffective portion of the derivatives’ fair value are recognized directly into earnings each quarter as hedge ineffectiveness.

~~Gain on sale of property and provision~~Provision for loss on ~~property~~asset held for sale

During the three months ended June 30, ~~2017,~~2023, we ~~reached a decision to classify our office property located in Baltimore, Maryland as~~entered into an ~~asset held for sale. The property was expected~~agreement to sell ~~within one year~~a property in Charlotte, North Carolina at aan expected loss of $0.8 million, which was recorded as ~~a provision for loss on a~~an impairment and we classified the property ~~held for sale of $0.3 million and $20.7 million for the three and nine months~~

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~~ended September 30, 2017, respectively, net of applicable income taxes, and was classified~~ as an asset held for sale ~~at September~~as of June 30, ~~2017. This~~2023 and expect to close on the sale of the property ~~was sold on October 20, 2017,~~ for ~~approximately $31.6~~$9.2 million in ~~net proceeds.~~ gross proceeds during the third quarter of 2023.

During the three months ended June 30, 2016, we reached a decision to classify our office property located in Federal Way, Washington, as an asset held for sale. The property was expected to sell within one year at a loss, which was recorded as a provision for loss on a property held for sale of $0.5 million and $5.3 million for the three and nine months ended September 30, 2016, respectively, net of applicable income taxes and was classified as an asset held for sale. The Company sold the property on December 16, 2016 for $7.3 million of net proceeds resulting in a total loss of $7.1 million, net of applicable income taxes.

~~During the three months ended September 30, 2016, we sold an office property located in Maryland Heights, Missouri on April 5, 2016, at a $4.2 million gain.~~

~~Taxes~~Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which ~~decreased $1,000 and other income taxes, which decreased by $16,000~~was $75,000 during the three months ended ~~September~~June 30, ~~2017, respectively,~~2023 compared to $56,000 during the three months ended ~~September~~June 30, ~~2016.~~ 2022.

Net loss

Net ~~income~~

~~Net income~~loss for the three months ended ~~September~~June 30, ~~2017~~2023 was ~~$1.9~~$8.4 million compared to ~~net income of $2.5~~$9.1 million for the three months ended ~~September~~June 30, ~~2016,~~2022, for the reasons described above.

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The following table shows financial results for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~2022:


	Nine months ended September 30,

							Six months ended June 30,
(in thousands)	2017		2016		Change		2023		2022		Change
Revenues:
Rental	$	201,710	$	179,738	$	21,972	$	74,024	$	82,628	$	(8,604)
Related party revenue:
Management fees and interest income from loans		4,014		4,108		(94)		—		927		(927)
Other		29		54		(25)		9		13		(4)
Total revenues		205,753		183,900		21,853		74,033		83,568		(9,535)
Expenses:
Real estate operating expenses		52,492		47,126		5,366		24,830		25,178		(348)
Real estate taxes and insurance		35,880		29,522		6,358		14,142		17,762		(3,620)
Depreciation and amortization		75,599		68,095		7,504		29,372		33,856		(4,484)
Selling, general and administrative		9,806		10,443		(637)
General and administrative								7,584		7,765		(181)
Interest		23,730		19,617		4,113		11,890		11,030		860
Total expenses		197,507		174,803		22,704		87,818		95,591		(7,773)

Income before equity in losses of non-consolidated REITs, other, gain (loss) on sale of properties and properties held for sale, less applicable income tax and taxes		8,246		9,097		(851)
Equity in losses of non-consolidated REITs		(719)		(568)		(151)
Other		218		(388)		606
Gain (loss) on sale of properties and properties held for sale, less applicable income tax		(18,460)		(1,166)		(17,294)

Income (loss) before taxes on income		(10,715)		6,975		(17,690)
Taxes on income		297		326		(29)


Loss on extinguishment of debt								(67)		—		(67)
Gain on consolidation of Sponsored REIT								394		—		394
Impairment and loan loss reserve								—		(1,140)		1,140
Gain on sale of properties and impairment of asset held for sale, net								7,586		—		7,586
Loss before taxes								(5,872)		(13,163)		7,291
Tax expense								142		105		37
Net income (loss)	$	(11,012)	$	6,649	$	(17,661)	$	(6,014)	$	(13,268)	$	7,254

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 to the ~~nine~~six months ended ~~September~~June 30, ~~2016:~~2022:

Revenues

Total revenues ~~increased~~decreased by ~~$21.9~~$9.5 million to ~~$205.8~~$74.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. The ~~increase~~decrease was primarily a result of:

●

~~An increase~~A decrease in rental revenue of approximately ~~$22.0~~$8.6 million arising primarily from the sale of three properties during 2022 and one property in 2023 and other losses of rental ~~revenue for properties that we acquired on each of June 6, 2016, August 10, 2016 and December 1, 2016, which was~~income from lease expirations during the periods presented. These decreases were partially offset by ~~the loss of revenue~~rental income earned from ~~the disposition of three other properties during 2016 and 2017. We sold a property on each of April 5, 2016, December 16, 2016 and January 6, 2017. In addition, our~~leases commencing after June 30, 2022. Our leased space ~~decreased 0.6% to 88.7%~~in our owned and consolidated properties was 73.3% at ~~September~~June 30, ~~2017 compared to 89.3%~~2023 and 76.3% at ~~December 31, 2016.~~

June 30, 2022.

~~This increase was partially offset by:~~

●

A decrease in interest income from loans ~~to Sponsored REITs~~ of approximately ~~$0.1~~$0.9 million due to the consolidation of Monument Circle in our financial results as ~~a result~~ of ~~repayments of Sponsored REIT Loans, which was partially offset by higher interest rates in 2017 compared to 2016 and the funding of an advance on a Sponsored REIT Loan we made in December 2016.~~

January 1, 2023.

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Expenses

~~Expenses~~

Total expenses ~~increased~~decreased by ~~$22.7~~$7.8 million to ~~$197.5~~$87.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022. The ~~increase~~decrease was primarily a result of:

●

~~An increase~~A decrease in real estate operating expenses and real estate taxes and insurance of approximately ~~$11.7~~$4.0 million ~~and an increase~~primarily attributable to the property dispositions noted above.

●

A decrease in depreciation and amortization of approximately ~~$7.5~~$4.5 million ~~which were~~primarily attributable to the ~~acquisition~~property dispositions noted above.

●

A decrease in general and administrative expenses of ~~properties on June 6, 2016, August 10, 2016~~$0.2 million primarily attributable to lower personnel costs and ~~December 1, 2016, and which were partially offset by decreases as a result of the disposition of three properties during 2016 and 2017.~~

professional fees.

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These decreases were partially offset by:

●

An increase in interest expense of approximately ~~$4.1 million~~$0.9 million. The increase was primarily due to ~~$23.7 million for~~higher interest expense as a result of higher interest rates under the ~~nine months ended September 30, 2017~~loan amendments we entered into on February 10, 2023 described above and was partially offset by a lower principal amount of debt outstanding compared to the same period in 2016. The increase was primarily attributable to higher interest rates, additional borrowings under the JPM Term Loan (as defined below) we entered into on November 30, 2016 and an increase in amortization of deferred financing costs during the nine months ended September 30, 2017 as compared to the same period in 2016.

2022.

A decrease in selling, general and administrative expenses of $0.6 million as a result of decreases in personnel expenses, acquisition costs, professional expenses and franchise taxes. We had 39 employees as of each of September 30, 2017 and 2016.

Loss on extinguishment of debt

~~Equity in losses of non-consolidated REITs~~

~~Equity in losses from non-consolidated REITs increased approximately $0.2 million during~~During the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared~~2023, we repaid debt and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs on the ~~same period in 2016. The increase was primarily attributable to equity in~~date of the repayment.

Gain on consolidation of Sponsored REIT

During the six months ended June 30, 2023, we recorded a gain on consolidation of Sponsored REIT as a result of reducing the Monument Circle loan loss ~~from our preferred stock investment~~reserve, which resulted in a ~~Sponsored REIT, FSP Grand Boulevard Corp., which increased during the nine months ended September 30, 2017 compared to the same period in 2016.~~

~~Other~~

~~Other expense was reduced by $0.6 million to $0.2 million during the nine months ended September 30, 2017 and was~~ $0.4 million for the nine months ended September 30, 2016, which are attributable to hedge ineffectiveness from our derivatives’ fair value. The ineffective portion of the derivatives’ fair value are recognized directly into earnings each quarter as hedge ineffectiveness. gain.

Gain on sale of ~~property~~properties and provision for loss on ~~property~~asset held for sale

During the three months ended March 31, 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $29.1 million, at a gain of approximately $8.4 million. During the three months ended June 30, ~~2017,~~2023, we ~~reached a decision to classify our office property located in Baltimore, Maryland as~~entered into an ~~asset held for sale. The property was expected~~agreement to sell ~~within one year~~a property in Charlotte, North Carolina at aan expected loss of $0.8 million, which was recorded as ~~a provision for loss on a~~an impairment and we classified the property ~~held for sale of $0.3 million and $20.7 million for the three and nine months ended September 30, 2017, respectively, net of applicable income taxes and was classified~~ as an asset held for sale ~~at September~~as of June 30, ~~2017. The~~2023 and expect to close on the sale of the property ~~was sold on October 20, 2017~~ for ~~approximately $31.6~~$9.2 million in ~~net proceeds.~~ gross proceeds during the third quarter of 2023.

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~~Company sold the property on December 16, 2016 for $7.3 million of net proceeds resulting in a total loss of $7.1 million, net of applicable income taxes.~~

~~During the nine months ended September 30, 2016, we sold an office property located in Maryland Heights, Missouri on April 5, 2016, at a $4.2 million gain.~~

~~Taxes~~Tax expense on income

Included in income taxes is ~~federal and other income taxes,~~the Revised Texas Franchise Tax, which ~~decreased $29,000~~is a tax on revenues from Texas properties, which was $142,000 during the six months ended June 30, 2023 compared to $105,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022.

Net ~~income (loss)~~loss

Net loss for ~~the nine~~six months ended ~~September~~June 30, ~~2017~~2023 was ~~$11.0~~$6.0 million compared to ~~net income of $6.6~~$13.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, for the reasons described above.

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Non-GAAP Financial Measures

Funds From Operations

The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, hedge ineffectiveness, ~~and~~ acquisition costs of newly acquired properties that are not capitalized and lease acquisition costs that are not capitalized plus depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges on properties or investments in non-consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs.

FFO should not be considered as an alternative to net income or loss (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs.

Other real estate companies and the National Association of Real Estate Investment Trusts, or NAREIT, may define this term in a different manner. We have included the NAREIT FFO definition as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the NAREIT definition or may interpret the current NAREIT definition differently than we do.

We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be examined in connection with net income or loss and cash flows from operating, investing and financing activities in the consolidated financial statements.

The calculations of FFO are shown in the following table:

For the

For the

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands):

2017

2016

2017

2016

Net income (loss)

$
1,903
$

2,458

$
(11,012)
$

6,649

(Gain) loss on sale of properties and properties held for sale,
  less applicable income tax

257

523

18,460

1,166

Equity in losses of non-consolidated REITs

121

196

719

568

FFO from non-consolidated REITs

874

787

2,465

2,327

Depreciation and amortization

24,903

23,112

74,658

67,991

NAREIT FFO

28,058

27,076

85,290

78,701

Hedge ineffectiveness

(67)

(621)

(218)

388

Acquisition costs of new properties

—

215

18

349

Funds From Operations

$
27,991

$
26,670

$
85,090

$
79,438


	For the					For the
	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands):	2023			2022		2023			2022
Net loss	$	(8,420)	$		(9,110)	$	(6,014)	$		(13,268)
Gain on consolidation of Sponsored REIT		—			—		(394)			—
Impairment and loan loss reserve		—			1,140		—			1,140
Gain on sale of properties and impairment of asset held for sale, net		806			—		(7,586)			—
Depreciation and amortization		14,633			18,141		29,342			33,802
NAREIT FFO		7,019			10,171		15,348			21,674
Lease Acquisition costs		91			86		169			165

Funds From Operations	$	7,110		$	10,257	$	15,517		$	21,839

Net Operating Income (NOI)

The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus selling, general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on the sale of assets and excludes non-property specific income and expenses. The information presented includes footnotes and the data is shown by region with properties owned and consolidated in the periods presented, which we call Same Store. The comparative Same Store results include properties held for the periods

~~Table of Contents~~

presented and exclude acquired properties or properties that ~~are non-operating, being developed or redeveloped,~~have been placed in service, but that do not

Table of Contents

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. NOI should not be considered an alternative to net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions. The calculations of NOI are shown in the following table:

Net Operating Income (NOI)*


	Rentable
	Square
	Feet	Three Months Ended				Six Months Ended		Three Months Ended				Six Months Ended		Inc		%
(in thousands)	or RSF	31-Mar-23		30-Jun-23		30-Jun-23		31-Mar-22		30-Jun-22		30-Jun-22		(Dec)		Change
Region
East	362	$	478	$	553	$	1,031	$	497	$	474	$	971	$	60	6.2	%
MidWest	758		2,239		1,718		3,957		2,478		3,038		5,516		(1,559)	(28.3)	%
South	2,797		7,933		8,128		16,061		5,817		5,611		11,428		4,633	40.5	%
West	2,140		6,422		6,412		12,834		8,070		6,609		14,679		(1,845)	(12.6)	%
Property NOI* from Owned Properties	6,057		17,072		16,811		33,883		16,862		15,732		32,594		1,289	4.0	%
Disposition and Acquisition Properties (a)	214		668		(240)		428		2,719		3,386		6,105		(5,677)	(15.3)	%
Property NOI*	6,271	$	17,740	$	16,571	$	34,311	$	19,581	$	19,118	$	38,699	$	(4,388)	(11.3)	%

Same Store		$	17,072	$	16,811	$	33,883	$	16,862	$	15,732	$	32,594	$	1,289	4.0	%

Less Nonrecurring
Items in NOI* (b)			1,292		301		1,593		273		1,258		1,531		62	(0.0)	%

Comparative
Same Store		$	15,780	$	16,510	$	32,290	$	16,589	$	14,474	$	31,063	$	1,227	4.0	%


							Six Months Ended						Six Months Ended
		Three Months Ended					Ended	Three Months Ended					Ended
Reconciliation to Net Income (Loss)		31-Mar-23			30-Jun-23		30-Jun-23	31-Mar-22			30-Jun-22		30-Jun-22
Net income (loss)		$	2,406	$	(8,420)	$	(6,014)	$	(4,158)	$	(9,110)	$	(13,268)
Add (deduct):
Loss on extinguishment of debt			67		—		67		—		—		—
Gain on consolidation of Sponsored REIT			(394)		—		(394)		—		—		—
Impairment and loan loss reserve			—		—		—		—		1,140		1,140
Gain on sale of properties and impairment of asset held for sale, net			(8,392)		806		(7,586)		—		—		—
Management fee income			(374)		(427)		(801)		(291)		(267)		(558)
Depreciation and amortization			14,727		14,645		29,372		15,670		18,185		33,855
Amortization of above/below market leases			(18)		(12)		(30)		(9)		(45)		(54)
General and administrative			3,817		3,768		7,585		3,784		3,981		7,765
Interest expense			5,806		6,084		11,890		5,366		5,664		11,030
Interest income			—				—		(451)		(455)		(906)
Non-property specific items, net			95		127		222		(330)		25		(305)


Property NOI*		$	17,740	$	16,571	$	34,311	$	19,581	$	19,118	$	38,699

Rentable

Nine

Nine

Square

Months

Months

Feet

Three Months Ended

Ended

Three Months Ended

Ended

Inc

%

(in thousands)

or RSF

31-Mar-17

30-Jun-17

30-Sep-17

30-Sep-17

31-Mar-16

30-Jun-16

30-Sep-16

30-Sep-16

(Dec)

Change

Region

East

1,007

$
3,917

$
3,941

$
3,926

$
11,784

$
3,944

$
3,920

$
3,954

$
11,818

$
(34)

(0.3)
%
MidWest

1,224

3,017

2,479

2,989

8,485

2,958

3,102

2,974

9,034

(549)

(6.1)
%
South

4,437

16,211

15,613

15,763

47,587

17,200

17,441

16,380

51,021

(3,434)

(6.7)
%
West

2,010

8,189

8,999

8,519

25,707

8,190

8,355

7,926

24,471

1,236

5.1
%
Same Store

8,678

31,334

31,032

31,197

93,563

32,292

32,818

31,234

96,344

(2,781)

(2.9)
%

Acquisitions

1,083

4,914

5,325

5,073

15,312

—

166

1,893

2,059

13,253

13.5
%
Property NOI* from the continuing portfolio

9,761

36,248

36,357

36,270

108,875

32,292

32,984

33,127

98,403

10,472

10.6
%
Dispositions, Non-Operating, Development or Redevelopment

325

625

467

568

1,660

1,175

925

917

3,017

(1,357)

(1.7)
%
Property NOI*

10,086

$
36,873

$
36,824

$
36,838

$
110,535

$
33,467

$
33,909

$
34,044

$
101,420

$
9,115

9.0
%

Same Store

$
31,334

$
31,032

$
31,197

$
93,563

$
32,292

$
32,818

$
31,234

$
96,344

$
(2,781)

(2.9)
%

Less Nonrecurring

Items in NOI* (a)

65

1,178

1,103

2,346

413

586

146

1,145

1,201

(1.3)
%

Comparative

Same Store

$
31,269

$
29,854

$
30,094

$
91,217

$
31,879

$
32,232

$
31,088

$
95,199

$
(3,982)

(4.2)
%

Nine

Nine

Months

Months

Three Months Ended

Ended

Three Months Ended

Ended

Reconciliation to Net Income (Loss)

31-Mar-17

30-Jun-17

30-Sep-17

30-Sep-17

31-Mar-16

30-Jun-16

30-Sep-16

30-Sep-16

Net income (loss)

$
4,480

$
(17,395)

$
1,903

$
(11,012)

$
2,579

$
1,612

$
2,458

$
6,649

Add (deduct):

(Gain) loss on sale of properties and properties held for sale, less applicable income taxes

(2,289)

20,492

257

18,460

—

643

523

1,166

Hedge ineffectiveness

(22)

(129)

(67)

(218)

—

1,009

(621)

388

Management fee income

(794)

(768)

(791)

(2,353)

(660)

(688)

(727)

(2,075)

Depreciation and amortization

25,332

25,279

24,988

75,599

22,445

22,352

23,298

68,095

Amortization of above/below market leases

(168)

(687)

(86)

(941)

81

—

(185)

(104)

Selling, general and administrative

3,443

3,077

3,286

9,806

3,530

3,494

3,419

10,443

Interest expense

7,579

7,893

8,258

23,730

6,433

6,417

6,767

19,617

Interest income

(1,214)

(1,206)

(1,134)

(3,554)

(1,279)

(1,171)

(1,184)

(3,634)

Equity in losses of non-consolidated REITs

397

201

121

719

286

86

196

568

Non-property specific items, net

129

67

103

299

52

155

100

307

Property NOI*

$
36,873

$
36,824

$
36,838

$
110,535

$
33,467

$
33,909

$
34,044

$
101,420

(a)	~~(a)~~ We define Disposition and Acquisition Properties as properties that were sold or acquired or consolidated and do not have operating activity for all periods presented.

(b)

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.

Table of Contents

The information presented below provides the weighted average GAAP rent per square foot for the ~~nine~~six months ~~ending September~~ended June 30, ~~2017~~2023 for our owned and consolidated properties and weighted occupancy square feet and percentages. GAAP rent includes the impact of tenant concessions and reimbursements. ~~This table does not include information about properties held by our investments in nonconsolidated REITs or those to which we have provided Sponsored REIT Loans.~~


						Weighted
						Occupied		Weighted
			Year Built		Weighted	Percentage as of		Average
			or	Net Rentable	Occupied	June 30,		Rent per Occupied
Property Name	City	State	Renovated	Square Feet	Sq. Ft.	2023 (a)		Square Feet (b)

Forest Park (c)	Charlotte	NC	1999/2020	64,198	50,331	78.4	%	$	23.48
Innsbrook	Glen Allen	VA	1999	298,183	142,383	47.8	%		18.84
East total				362,381	192,714	53.2	%		20.05
120 Monument Circle	Indianapolis	IN	1992	213,760	8,721	4.1	%		31.56
121 South 8th Street	Minneapolis	MN	1974	298,121	248,514	83.4	%		24.99
801 Marquette Ave	Minneapolis	MN	1923/2017	129,691	119,108	91.8	%		24.14
Plaza Seven	Minneapolis	MN	1987	330,096	223,706	67.8	%		30.50
Midwest total				971,668	600,049	61.8	%		26.97
Blue Lagoon Drive	Miami	FL	2002/2021	213,182	156,795	73.6	%		43.41
Park Ten	Houston	TX	1999	157,609	118,301	75.1	%		28.81
Addison Circle	Addison	TX	1999	289,333	240,175	83.0	%		35.25
Collins Crossing	Richardson	TX	1999	300,887	290,085	96.4	%		26.54
Eldridge Green	Houston	TX	1999	248,399	248,399	100.0	%		26.76
Park Ten Phase II	Houston	TX	2006	156,746	148,924	95.0	%		29.15
Liberty Plaza	Addison	TX	1985	217,841	157,630	72.4	%		24.34
Legacy Tennyson Center	Plano	TX	1999/2008	209,461	102,552	49.0	%		30.09
One Legacy Circle	Plano	TX	2008	214,110	138,808	64.8	%		38.34
Westchase I & II	Houston	TX	1983/2008	629,025	368,106	58.5	%		26.92
Pershing Park Plaza	Atlanta	GA	1989	160,145	127,796	79.8	%		38.65
South Total				2,796,738	2,097,571	75.0	%		30.73
1999 Broadway	Denver	CO	1986	682,639	431,155	63.2	%		34.35
1001 17th Street	Denver	CO	1977/2006	648,861	453,424	69.9	%		38.12
600 17th Street	Denver	CO	1982	612,135	475,507	77.7	%		34.74
Greenwood Plaza	Englewood	CO	2000	196,236	130,006	66.3	%		27.80
West Total				2,139,871	1,490,092	69.6	%		35.05

Total Owned & Consolidated Properties				6,270,658	4,380,426	69.9	%	$	31.21

Weighted



Occupied

Weighted

Year Built

Weighted

Percentage as of

Average

or

Net Rentable

Occupied

September 30,

Rent per Occupied

Property Name

City

State

Renovated

Square Feet

Sq. Ft.

2017 (a)

Square Feet (b)

Forest Park

Charlotte

NC

1999

62,212

62,212

100.0
%
$
13.91

Meadow Point

Chantilly

VA

1999

138,537

138,537

100.0
%

26.17

Innsbrook

Glen Allen

VA

1999

298,456

298,456

100.0
%

18.10

East Baltimore

Baltimore

MD

1989

325,445

246,752

75.8
%

22.56

Loudoun Tech Center

Dulles

VA

1999

136,658

127,461

93.3
%

18.14

Stonecroft

Chantilly

VA

2008

111,469

111,469

100.0
%

37.62

Emperor Boulevard

Durham

NC

2009

259,531

259,531

100.0
%

34.05

East total

1,332,308

1,244,418

93.4
%

24.75

Northwest Point

Elk Grove Village

IL

1999

177,095

177,095

100.0
%

19.17

909 Davis Street

Evanston

IL

2002

196,581

152,901

77.8
%

27.79

River Crossing

Indianapolis

IN

1998

205,059

194,868

95.0
%

23.07

Timberlake

Chesterfield

MO

1999

234,496

234,496

100.0
%

26.27

Timberlake East

Chesterfield

MO

2000

117,036

117,036

100.0
%

24.88

121 South 8th Street

Minneapolis

MN

1974

293,422

189,727

64.7
%

21.25

Plaza Seven

Minneapolis

MN

326,445

311,298

95.4
%

32.41

Midwest total

1,550,134

1,377,420

88.9
%

25.65

Blue Lagoon Drive

Miami

FL

2002

212,619

212,619

100.0
%

22.66

One Overton Park

Atlanta

GA

2002

387,267

276,547

71.4
%

25.01

Park Ten

Houston

TX

1999

157,460

103,247

65.6
%

31.23

Addison Circle

Addison

TX

1999

288,794

249,258

86.3
%

33.17

Collins Crossing

Richardson

TX

1999

300,887

300,887

100.0
%

24.78

Eldridge Green

Houston

TX

1999

248,399

248,399

100.0
%

31.96

~~Table of Contents~~

The information presented below provides the weighted average GAAP rent per square foot for the nine months ending September 30, 2017 for our properties and weighted occupancy square feet and percentages. GAAP rent includes the impact of tenant concessions and reimbursements. This table does not include information about properties held by our investments in nonconsolidated REITs or those to which we have provided Sponsored REIT Loans.

Weighted




Occupied

Weighted

Year Built

Weighted

Percentage as of

Average

or

Net Rentable

Occupied

September 30,

Rent per Occupied

Property Name

City

State

Renovated

Square Feet

Sq. Ft.

2017 (a)

Square Feet (b)

Park Ten Phase II

Houston

TX

2006

156,746

69,752

44.5
%
$
29.20

Liberty Plaza

Addison

TX

1985

218,934

183,642

83.9
%

21.59

Legacy Tennyson Center

Plano

TX

1999/2008

202,600

132,865

65.6
%

20.97

One Legacy Circle

Plano

TX

2008

214,110

211,669

98.9
%

36.83

One Ravinia Drive

Atlanta

GA

1985

386,603

346,512

89.6
%

25.24

Two Ravinia Drive

Atlanta

GA

1987

411,047

314,574

76.5
%

26.66

Westchase I & II

Houston

TX

1983/2008

629,025

525,865

83.6
%

32.34

Pershing Park Plaza

Atlanta

GA

1989

160,145

155,917

97.4
%

35.86

999 Peachtree

Atlanta

GA

1987

621,946

599,556

96.4
%

30.08

South Total

4,596,582

3,931,310

85.5
%

28.74

380 Interlocken

Broomfield

CO

2000

240,358

199,209

82.9
%

30.90

1999 Broadway

Denver

CO

1986

676,379

508,908

75.2
%

31.97

1001 17th Street

Denver

CO

1977/2006

655,413

591,510

90.3
%

36.98

600 17th Street

Denver

CO

1982

596,728

534,907

89.6
%

33.18

Greenwood Plaza

Englewood

CO

2000

196,236

196,236

100.0
%

25.02

390 Interlocken

Broomfield

CO

2002

241,751

233,411

96.6
%

29.64

West Total

2,606,865

2,264,180

86.9
%

32.63

Grand Total

10,085,889

8,817,328

87.4
%
$
28.69

(a)

~~(a)~~

Based on weighted occupied square feet for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, including month-to-month tenants, divided by the ~~Property’s~~applicable property’s net rentable square footage.

(b)

~~(b)~~

Represents annualized GAAP rental revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023, per weighted occupied square foot.

(c)	Property is classified as an asset held for sale as of June 30, 2023.

Table of Contents

Liquidity and Capital Resources

Cash and cash equivalents were ~~$12.6~~$6.7 million and ~~$9.3~~$6.6 million at ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. The increase of ~~$3.3~~$0.1 million is attributable to ~~$69.3~~$0.5 million provided by operating activities, ~~less $24.9~~plus $12.8 million ~~used in~~provided by investing activities less ~~$41.1~~$13.2 million used in financing activities. Management believes that existing cash, cash anticipated to be generated internally by operations, including property dispositions, and our existing ~~debt financing~~availability under the BofA Revolver ($70 million available as of July 27, 2023), will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate ~~operations.~~operations and property dispositions. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income from our real ~~properties.~~properties, property dispositions and our interest costs.

Operating Activities

Cash provided by ~~our~~ operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 of ~~$69.3~~$0.5 million is primarily attributable to a net loss of ~~$11.0~~$6.0 million, ~~excluding~~plus the impairment of a property held for sale of $0.8 million, less the gain on sale of a property of ~~$2.3~~$8.4 million, ~~and a provision for loss~~less the gain on ~~a property held for sale~~consolidation of ~~$20.7~~Sponsored REIT of $0.4 million, plus the add-back of ~~$75.0~~$29.6 million of non-cash ~~expenses. These amounts were partially offset by an increase in payments of deferred leasing commissions of $8.2 million, an increase in prepaid and other assets of $1.9 million,~~expenses, less a decrease in accounts payable and accrued ~~expenses~~compensation of ~~$1.2~~$10.1 million, an increase in ~~tenant rent receivables~~payment of ~~$0.9~~deferred leasing commissions of $4.1 million, ~~and~~ an increase in lease acquisition costs of ~~$0.9~~$0.8 million and an increase in prepaid expenses of $0.3 million plus a decrease in tenant rent receivables of $0.2 million.

Investing Activities

Cash ~~used in~~provided by investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 of ~~$24.9~~$12.8 million is primarily attributable to ~~the~~proceeds from an asset sale of $28.1 million and an increase of investment in a mortgage receivable of $3.1 million from cash recorded in consolidation of Monument Circle, which was partially offset by purchases of other real estate assets and office equipment investments of ~~approximately $41.9~~$18.4 million. These uses were partially offset by net proceeds received from the sale of a property on January 6, 2017 of $6.2 million, repayments received from two related party mortgages receivable of $9.8 million and distributions received from non-consolidated REITs of $1.0 million.

Financing Activities

Cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 of ~~$41.1~~$13.2 million is primarily attributable to the repayment of a portion of the BMO Term Loan of $40.0 million, repayment of a portion of the BofA Revolver of $35.0 million, payment of distributions ~~paid~~ to stockholders of ~~$61.1~~$2.1 million, and payment of deferred financing costs of $2.3 million, which was partially offset by net borrowings on the ~~BAML~~BofA Revolver ~~(as defined below)~~ of ~~$20.0 million.~~

~~JPM Term Loan~~

~~On November 30, 2016, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender,~~$62.0 million and the ~~other lending institutions party thereto (“JPM Credit Agreement”),~~proceeds from the termination of interest rate swap of $4.2 million.

Liquidity beyond the next 12 months

Our ability to ~~provide a single unsecured bridge loan~~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. 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.

We intend to operate our properties from the cash flows generated by our properties. However, our expenses are affected by various factors, including inflation. See Part II, Item 1A, Risk Factors for additional factors. Increases in operating expenses are predominantly borne by our tenants. To the ~~aggregate principal~~extent that increases cannot be passed on to our tenants through rent reimbursements, such expenses would reduce the amount of ~~$150 million (the “JPM Term Loan”) that remains fully advanced and outstanding.~~available cash flow, which can adversely affect the market value of the applicable property.

We have used a variety of sources to fund our cash needs in addition to our free cash flow generated from our investments in real estate. In the past, we considered borrowing on our unsecured line of credit facility, adding or refinancing existing term debt or raising capital through public offerings or At The ~~JPM Term Loan has a two year term that matures on November 30, 2018.~~

~~The JPM Term Loan bears interest at either (i) a number~~Market (ATM) programs of basis points over the Eurodollar Rate depending on the Company’s credit rating (135.0 basis points over the Eurodollar Rate at September 30, 2017) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (35.0 basis points over the base rate at September 30, 2017).

Based upon the Company’s credit rating, as of September 30, 2017, the weighted average interest rate on the JPM Term Loan was 2.60% per annum. The weighted average interest rate on the JPM Term Loan during the nine months ended September 30, 2017 was approximately 2.38% per annum. The weighted average interest rate on the JPM Term Loan during the year ended December 31, 2016 was approximately 1.99% per annum.

our common stock. We

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

The JPM Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type. The JPM Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a minimum fixed charge coverage ratio, a maximum secured leverage ratio, a maximum leverage ratio, a maximum unencumbered leverage ratio, a minimum unsecured interest coverage and a maximum ratio of certain investments to total assets. The Company was in compliance with the JPM

BMO Term Loan ~~financial covenants as of September 30, 2017.~~

~~The Company used the net proceeds of the JPM Term Loan to acquire the property located at 600 17th Street, Denver, Colorado on December 1, 2016 and for other general business purposes.~~

On ~~October 18, 2017,~~February 10, 2023, the Company entered into a First Amendment to the ~~JPM Credit Agreement to conform to certain provisions of the BAML Credit Facility as amended by the BAML~~ Second ~~Amendment (each as described further, below), including updating financial covenants, certain definitions and making other conforming changes.~~

~~BMO Term Loan~~

~~On July 21, 2016, the Company entered into a First Amendment (the “BMO First Amendment”) to the~~ Amended and Restated Credit Agreement ~~dated October 29, 2014 (among the Company,~~with the lending institutions party thereto and Bank of Montreal, as administrative agent ~~( as~~(the “BMO First Amendment”). The BMO First Amendment amended the Second Amended and Restated Credit Agreement dated September 27, 2018, among the Company and the lending institutions party thereto (as amended by the BMO First Amendment, the “BMO Credit Agreement”) to, among other things, extend the maturity date from January 31, 2024 to October 1, 2024 and change the interest rate from a number of basis points over LIBOR depending on the Company’s credit rating to 300 basis points over SOFR (Secured Overnight Financing Rate). The BMO Credit Agreement ~~provides~~initially provided for ~~a single,~~an unsecured term loan borrowing in the amount of $220 million (the “BMO Term Loan”). In connection with the BMO First Amendment, the Company repaid a $40 million portion of the BMO Term Loan, so that $125 million remains ~~fully advanced and outstanding.~~outstanding as of March 31, 2023. On or before April 1, 2024, we are required to repay an additional $25 million of the BMO Term Loan. The remaining balance of the BMO Term Loan matures on ~~August 26, 2020. The~~October 1, 2024.

~~The~~First Amendment, the BMO Term Loan bears interest at either (i) 300 basis points over one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively, or (ii) 200 basis points over the base rate. Prior to February 10, 2023, the BMO Term Loan bore interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (165 basis points over LIBOR at ~~September 30, 2017)~~December 31, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (65 basis points over the base rate at ~~September~~December 31, 2022).

As of June 30, ~~2017).~~2023, the interest rate on the BMO Term Loan was 8.26% 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 June 30, 2023 was approximately 7.75% per annum.

Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate that previously applied to the BMO Term Loan by entering into an interest rate swap ~~agreement.~~transactions. On ~~August 26, 2013,~~February 20, 2019, the Company entered into an ISDA Master ~~Agreement~~Agreements with ~~Bank~~a group of ~~Montreal~~banks that fixed the base LIBOR interest rate on the BMO Term Loan at ~~2.32%~~2.39% per annum for ~~seven years, until~~ the period beginning on August 26, 2020 ~~maturity date.~~and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of ~~September 30, 2017,~~both December 31, 2022 and February 8, 2023, the effective interest rate on the BMO Term Loan was ~~3.97%~~4.04% per annum. On February 8, 2023, we terminated all outstanding 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, of which approximately $0.1 million related to interest receivable.

The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this ~~type.~~type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments and repurchases and redemptions of the Company’s common stock; going concern qualifications to our financial statements; and the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. In addition, the BMO Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $0.01 per share of the Company’s common stock; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest ~~coverage~~coverage.

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the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or administrative agent under the BMO Credit Agreement and related documents. For certain ~~investments~~events of default related to ~~total assets. The~~bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company ~~was~~will become immediately due and payable. We were in compliance with the BMO Term Loan financial covenants as of ~~September~~June 30, ~~2017.~~2023.

BofA Revolver

On February 10, 2023, the Company entered into a First Amendment to Credit Agreement with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto (the “BofA First Amendment”), for a revolving line of credit for borrowings, at the Company’s election, of up to $150 million (the “BofA Revolver”). The BofA First Amendment amended the Credit Agreement, dated January 10, 2022, among the Company and the lending institutions party thereto (as amended by the BofA First Amendment, the “BofA Credit Agreement”) to among other things, extend the maturity date from January 12, 2024 to October 1, 2024, reduce availability for borrowings, at the Company’s election, from up to $237.5 million to up to $150 million, and to change the interest rate from a number of basis points over SOFR depending on the Company’s credit rating to 300 basis points over SOFR. Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $150 million outstanding at any time. Effective October 1, 2023, availability under the BofA Revolver will be reduced to $125 million and, effective April 1, 2024, availability under the BofA Revolver will be further reduced to $100 million. As of June 30, 2023 and July 27, 2023, there were borrowings of $75 million and $80 million drawn and outstanding under the BofA Revolver, respectively, which borrowings include $40 million that the Company borrowed on February 10, 2023 to repay a portion of the BMO Term Loan. Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on October 1, 2024.

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BofA Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $0.01 per share of the Company’s common stock; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The Company was in compliance with the BofA Revolver financial covenants as of June 30, 2023.

The Company may use the net proceeds of the ~~loans under the BMO Credit Agreement to finance the acquisition of real properties and~~BofA Revolver for ~~other~~ permitted ~~investments; to finance~~ investments ~~associated with Sponsored REITs, to refinance or retire indebtedness~~ and for working capital and other general business purposes, including for building improvements, tenant improvements and leasing commissions, in each case to the extent permitted under the ~~BMO~~BofA Credit Agreement.

~~On October 18, 2017, the Company entered into a Second Amendment to the BMO Credit Agreement to conform to certain provisions of the BAML~~Former BofA Credit Facility ~~as amended by the BAML Second Amendment (each as described further, below), including updating financial covenants, certain definitions and making other conforming changes.~~

~~BAML Credit Facility~~

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Amendment and the BofA Second Amendment, the ~~“BAML~~“Amended Former BofA Credit Facility”) that continued an existing unsecured revolving line of credit (the ~~“BAML~~“Former BofA Revolver”) and ~~extended the maturity of a~~an existing term loan (the ~~“BAML~~“Former BofA Term Loan”). Effective simultaneously with the closing of the Amended Former BofA Credit Facility on January 10, 2022, the Company delivered a notice to BofA terminating the aggregate lender commitments under the Former BofA Revolver in their entirety. There were no amounts drawn on the Former BofA Revolver as of December 31, 2021 and January 10, 2022.

~~BAML~~

Former BofA Revolver Highlights ~~as of September 30, 2017 (prior to the BAML Second Amendment (as defined below))~~

●

The ~~BAML~~Former BofA Revolver was ~~for borrowings,~~terminated at the Company’s election ~~of up to $500 million. Borrowings made pursuant to the BAML Revolver may be revolving loans, swing line loans or letters of credit, the combined sum of which could not exceed $500 million~~ ~~outstanding at any time.~~

effective January 10, 2022.

●

~~Borrowings made pursuant to~~As of December 31, 2021 and January 10, 2022, there were no borrowings under the ~~BAML~~Former BofA Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date, which was October 29, 2018. The Company had the right to extend the initial maturity date of the BAML Revolver by an additional 12 months, or until October 29, 2019, upon payment of a fee and satisfaction of certain customary conditions.

The BAML Credit Facility includes an accordion feature that allowed for an aggregate amount of up to $350 million of additional borrowing capacity applicable to the BAML Revolver and/or the BAML Term Loan subject to receipt of lender commitments and satisfaction of certain customary conditions.

~~As of September 30, 2017, there were borrowings of $300 million outstanding under the BAML Revolver. As of September 30, 2017, the BAML~~The Former BofA Revolver bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.25%~~(1.550% over LIBOR at ~~September 30, 2017)~~December 31, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.25%~~(0.550% over the base rate at ~~September 30, 2017)~~December 31, 2021). ~~As of September 30, 2017, the BAML~~The Former BofA Credit Facility also obligated the Company to pay an annual facility fee in an amount that is also based on the Company’s credit ~~rating (0.25% at September 30, 2017).~~rating. The facility fee was assessed against the total amount of the ~~BAML~~Former BofA Revolver, or ~~$500~~$600 million as(0.30% at December 31, 2021). The amount of ~~September 30, 2017.~~

~~Based upon~~any applicable facility fee, and the margin over LIBOR rate or base rate was determined based on the Company’s credit rating aspursuant to a pricing grid.

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

Table of $280 million outstanding. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the nine months ended September 30, 2017 was approximately 2.26% per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2016 was approximately 1.73% per annum.Contents

~~BAML~~Former BofA Term Loan Highlights ~~as of September 30, 2017 (prior to the BAML Second Amendment (as defined below))~~

●

The ~~BAML~~Former BofA Term Loan ~~is for~~was repaid in its entirety on September 6, 2022.

●

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

~~The BAML~~ On September 30, 2021, the Company repaid a $90 million portion and on October 25, 2021, the Company repaid a $200 million portion of the Former BofA Term Loan and incurred a loss on extinguishment of debt of $0.7 million related to unamortized deferred financing costs. On September 6, 2022, the Company prepaid the remaining $110 million balance of the Former BofA Term Loan in full and incurred a loss of extinguishment of debt of $0.1 million related to unamortized deferred financing costs.

●

If the Company had not prepaid the Former BofA Term Loan in full on September 6, 2022, the Former BofA Term Loan would have matured on ~~September 27, 2021.~~

January 12, 2023.

The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $350 million of additional borrowing capacity applicable to the BAML Revolver and/or the BAML Term Loan, subject to receipt of lender commitments and satisfaction of certain customary conditions.

~~On September 27, 2012, the Company drew down the entire $400 million and such amount remains fully advanced and outstanding under the BAML Credit Facility.~~

~~As of September 30, 2017, the BAML~~The Former BofA Term Loan bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.45%~~(1.75% over LIBOR at the date of repayment on September ~~30, 2017)~~6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.45%~~(0.750% over the base rate at the date of repayment on September ~~30, 2017)~~6, 2022). The margin over LIBOR rate or base rate was determined based on the Company’s credit rating pursuant to a pricing grid.

~~Although the~~The interest rate on the ~~BAML Credit Facility is~~Former BofA Term Loan was variable through the date of repayment on September 6, 2022. Previously the Company had fixed the base LIBOR interest rate on the ~~BAML~~Former BofA Term Loan by entering into an interest rate swap agreement. On September 27, 2012, the Company entered into an ISDA Master Agreement with Bank of America, N.A. that fixed the base LIBOR interest rate on the BAML Term Loan at 0.75% per annum until September 27, 2017.transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the ~~BAML~~Former BofA Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ~~ending~~ended on September 27, 2021. ~~Accordingly, based upon the Company’s credit rating, as of September 30, 2017, the effective~~The weighted average variable interest rate on all amounts outstanding under the ~~BAML~~Former BofA Term Loan through the date of repayment on September 6, 2022 was ~~2.57%~~approximately 2.65% per annum.

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Senior Notes

~~BAML Credit Facility General Information~~

The BAML Credit Facility contains customary affirmative and negative covenants for credit facilities of this type. The BAML Credit Facility also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, minimum unsecured interest coverage and a maximum ratio of certain investments to total assets. The Company was in compliance with the BAML Credit Facility financial covenants as of September 30, 2017.

~~Second Amendment to BAML Credit Facility~~

On October 18, 2017, the Company recast the BAML Credit Facility by entering into a Second Amendment (the “BAML Second Amendment”) to, among other things, (i) increase the BAML Revolver from $500 million to $600 million, (ii) extend the BAML Revolver maturity date from October 29, 2018 to January 12, 2022 (with two optional six month extensions), (iii) extend the BAML Term Loan maturity date from September 27, 2021 to January 12, 2023, (iv) decrease the interest rate margins (as described further below), (v) reset the minimum tangible net worth threshold, (vi) increase certain leverage ratios for three fiscal quarters (instead of two fiscal quarters) succeeding a significant acquisition, and (v) increase the accordion feature from $350 million to $500 million.

Pursuant to the BAML Second Amendment, the BAML Revolver bears interest at either (i) a margin over LIBOR (or a comparable or successor rate) depending on the Company’s credit rating (1.20% over LIBOR at October 31, 2017) or (ii) a margin over the base rate depending on the Company’s credit rating (0.20% over the base rate at October 31, 2017). The BAML Credit Facility also obligates the Company to pay an annual facility fee in an amount that is also based on the Company’s credit rating (0.25% at October 31, 2017). The facility fee is assessed against the total amount of the BAML Revolver as increased pursuant to the BAML Second Amendment, or $600 million. The BAML Term Loan bears interest at either (i) a margin over LIBOR (or a comparable or successor rate) depending on the Company’s credit rating (1.35% over LIBOR at October 31, 2017) or (ii) a margin over the base rate depending on the Company’s credit rating (0.35% over the base rate at October 31, 2017).

~~Equity Offering~~

As of September 30, 2017, we had an automatic shelf registration statement on Form S-3 on file with the Securities and Exchange Commission relating to the offer and sale, from time to time, of an indeterminate amount of our debt securities, common stock, preferred stock or depository shares. From time to time, we expect to issue debt securities, common stock, preferred stock or depository shares under our existing automatic shelf registration statements or a different registration statement to fund the acquisition of additional properties, to pay down any existing debt financing and for other corporate purposes.

~~Note Private Placement~~

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amount of $116 million (the “Series A Notes”) and (ii) ~~4.26%~~ Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B ~~Notes,”~~Notes”, and, together with the Series A Notes, the ~~“Notes”~~“Senior Notes”). ~~The funding of the Notes is expected to occur on or about~~On December 20, 2017, ~~subject~~the Senior Notes were funded and proceeds were used to ~~customary closing conditions.~~ reduce the outstanding balance of the Former BofA Revolver.

The Senior Notes bear interest depending on the Company’s credit rating. As of June 30, 2023, the Series A Notes bear interest at 4.49% per annum and the Series B Notes bear interest at 4.76% per annum.

The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA Credit Agreement and the BMO Credit Agreement. The Senior Notes financial covenants require, among other things, the maintenance of a fixed charge coverage ratio of at least 1.50; a maximum leverage ratio and an unsecured leverage ratio of no more than 60% (65% if there were a significant acquisition for a short period of time). In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material indebtedness or certain other private placements of debt of the Company and its subsidiaries. The Note Purchase Agreement contains customary events of ~~default. The Company intends to use proceeds from~~default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and

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bankruptcy events. In the ~~private placement to reduce~~case of an event of default, the ~~outstanding balance~~Purchasers may, among other remedies, accelerate the payment of all obligations. We were in compliance with the ~~BAML Revolver.~~ Senior Notes financial covenants as of June 30, 2023.

~~Contingencies~~Equity Offering

From time to time, we may ~~provide~~issue debt securities, common stock, preferred stock or depository shares under a registration statement to fund the acquisition of additional properties, to pay down any existing debt financing and for other corporate purposes.

Stock Repurchase Program

On June 23, 2021, we announced that our Board of Directors had authorized the repurchase of up to ~~Sponsored REITs~~$50 million of the Company’s common stock from time to time in the ~~form~~open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time. On February 10, 2023, we disclosed in a Current Report on Form 8-K that our Board of a construction loan and/or a revolving line of credit secured by a mortgage. As of September 30, 2017, we were committed to fund up to $79.5 million to three Sponsored REITs under such arrangements forDirectors had discontinued the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes, of which $72.0 million has been drawn and is outstanding. We anticipate that advances made under these facilities will be repaid at their maturity date or earlier from long term financings of the underlying properties, cash flows from the underlying properties or another other capital event.repurchase authorization.

Contingencies

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.

Related Party Transactions

WeTo the extent permitted by the BofA Credit Agreement, we intend to draw on the ~~BAML Credit Facility~~BofA Revolver in the future for a variety of corporate purposes, including ~~the acquisition of properties that we acquire directly~~ for ~~our portfolio and for~~the Sponsored REIT ~~Loans~~Loan as described below.

~~Loans to Sponsored REITs~~

~~Sponsored REIT Loans~~

From time to time we may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. We anticipate that each Sponsored REIT Loan ~~will be repaid at maturity or earlier from long term financings of the underlying properties, cash flows from the underlying properties or some other capital event. Each~~

The Sponsored REIT Loan is secured by a mortgage on the underlying property and has a current term of ~~approximately~~less than one ~~to three years. Except for two mortgage loans which bear interest at a fixed rate, advances under each~~year. We anticipate that the Sponsored REIT Loan ~~bear interest~~will be repaid through cash flow from property operations or sale of the underlying property, although the actual amount and timing of any repayment is uncertain and will likely depend on prevailing market conditions at ~~a rate equal to~~ the ~~30-day LIBOR rate plus an agreed upon amount~~time of ~~basis points and also require a 50 basis point draw fee.~~any such sale.

~~Our~~The Sponsored REIT ~~Loans subject~~Loan subjects us to credit risk. However, we believe that our position as asset manager of ~~each of~~ the Sponsored ~~REITs~~REIT helps mitigate that risk by providing us with unique insight and the ability to rely on qualitative analysis of the Sponsored ~~REITs.~~REIT. Before making athe Sponsored REIT Loan, we ~~consider~~considered a variety of subjective factors, including the quality of the underlying real estate, leasing, the financial condition of the ~~applicable~~ Sponsored REIT and local and national market conditions. These factors are subject to change and we do not apply a formula or assign relative weights to the factors. Instead, we make a subjective determination after considering such factors collectively.

Additional information about ~~our~~the Sponsored REIT ~~Loans~~Loan outstanding as of ~~September~~June 30, ~~2017, including a summary table of our Sponsored REIT Loans,~~2023, is incorporated herein by reference to ~~Part I, Item 1,~~ Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to ~~Condensed~~ Consolidated Financial Statements included in this report.

Other Considerations

~~Other Considerations~~

We generally pay the ordinary annual operating expenses of our owned and consolidated properties from the rental revenue generated by the properties. ~~The~~For the three and six months ended June 30, 2023 and 2022, respectively, the rental income exceeded the expenses for each individual property, with the exception of ~~one property located in Minneapolis, Minnesota~~Monument Circle for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~Pershing Park for the three and ~~one property located in Houston, Texas~~six months ended June 30, 2022.

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Monument Circle has approximately 214,000 square feet of rentable space comprised of both office and street level retail space. The office component comprises approximately 95% of the rentable space and was net leased to a single corporate tenant, through December 31, 2018. The retail component comprises the remaining approximately 5% of the property’s rentable space. Monument Circle had approximately $68,000 of rental income and $310,000 of operating expenses for the three months ended June 30, 2023. Monument Circle had approximately $138,000 of rental income and $526,000 of operating expenses for the six months ended June 30, 2023, and was 4.1% leased to two retail tenants as of June 30, 2023.

Pershing Park has approximately 160,000 square feet of rentable space, which was 12.4% leased at June 30, 2021 due to a large tenant departure on May 31, 2021. During the three months ended September 30, ~~2017.~~

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~~Our property located at 801 Marquette Avenue in Minneapolis, Minnesota has approximately 170,000 square feet of rentable space and became vacant in January 2016. On June 30, 2016,~~2021, we ~~commenced~~signed a ~~redevelopment plan for the property. As~~lease with a result of the vacancy, we had no rental income and had operating expenses of $26,000 and $27,000 during the three and nine months ended September 30, 2017, respectively. We had no rental income and had operating expenses of $4,000 and $288,000 during the three and nine months ended September 30, 2016, respectively.

Our property located at 16290 Katy Freeway in Houston, Texas has approximately 157,000 square feet of rentable space and became substantially vacant on April 30, 2017 when two tenants vacated 155,000 square feet of space. We had no rental income and had operating expenses of $371,000 duringnew tenant. During the three months ended ~~September~~March 31, 2022, we signed an expansion of space with that same tenant. The new lease inclusive of the expansion space is for approximately 101,000 square feet and has commenced. Pershing Park had $167,000 of rental income and $461,000 of operating expenses for the three months ended June 30, ~~2017.~~ 2022. The property had $354,000 of rental income and $1,017,000 of operating expenses for the six months ended June 30, 2022, and was 78.1% leased as of June 30, 2022.

Off-Balance Sheet Arrangements and Contractual Obligations

There have been no material changes to our contractual obligations and off-balance-sheet arrangements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Rate Risk

We are exposed to changes in interest rates primarily from our floating rate borrowing arrangements. We ~~use~~have used interest rate derivative instruments to manage exposure to interest rate changes. As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, if market rates on our outstanding borrowings under ~~our BAML~~the BofA Revolver subject to a floating rate increased by 10% at maturity, or approximately 2583 and 2162 basis points, respectively, over the current variable rate, the increase in interest expense would decrease future earnings and cash flows by ~~$1.1~~approximately $0.6 million and ~~$0.9~~$0.3 million, ~~annually,~~ respectively. ~~Based upon our credit rating, the~~The interest rate on the ~~BAML~~BofA Revolver as of ~~September~~June 30, ~~2017~~2023 was ~~LIBOR~~SOFR plus ~~125~~an adjustment of 0.11448% plus 300 basis points, or ~~2.49%~~8.26% per ~~annum. Based upon our credit rating, the interest rate on the JPM Term Loan~~annum, and as of ~~September 30, 2017~~December 31, 2022 was ~~the Eurodollar Rate~~SOFR plus ~~135~~an adjustment of 0.11448% plus 175 basis points, or ~~2.60%~~4.358% per ~~annum .~~annum. There was $75 million and $48 million drawn on the BofA Revolver as of June 30, 2023 and December 31, 2022, respectively. We do not believe that the interest rate risk on the ~~BAML~~BofA Revolver ~~and the JPM Term Loan~~ is material as of ~~September~~June 30, ~~2017.~~2023.

Although the interest ~~rates~~rate on the BMO Term Loan ~~and the BAML Term Loan are~~is variable, the Company fixed the base LIBOR interest rates on the BMO Term Loan and the BAML Term Loan by entering into interest rate swap agreements. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BAML Term Loan at 1.12% per annum for the period beginning September 27, 2017 and ending September 27, 2021 (the “2017 Interest Rate Swap”). On August 26, 2013, the Company entered into an ISDA Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan ~~at 2.32% per annum until~~by entering into interest rate swap agreements. On February 20, 2019, the Company fixed the interest rate for the period beginning August 26, 2020 ~~(the “BMO Interest Rate Swap”). On September 27, 2012,~~and ending January 31, 2024 on the ~~Company entered into an ISDA Master Agreement~~BMO Term Loan with ~~Bank of America, N.A. that fixed the base LIBOR~~ interest rate ~~on the BAML Term Loan at 0.75% per annum until September 27, 2017~~swap agreements (the ~~“BAML~~“2019 BMO Interest Rate Swap”). Accordingly, based upon our credit rating, as of ~~September 30, 2017, the interest rate on the BAML Term Loan was 2.57% per annum and~~December 31, 2022, the interest rate on the BMO Term Loan was ~~3.97%~~4.04% per annum. The fair value of ~~the 2017 Interest Rate Swap and the BMO Interest Rate Swap~~these interest rate swaps are affected by changes in market interest rates. ~~We believe that we have mitigated~~This interest rate ~~risk with respect to the BAML Term Loan through the 2017 Interest Rate Swap from September 27, 2017 until September 27, 2021. We believe~~swap was our only derivative instrument as of December 31, 2022. On February 8, 2023, we ~~have mitigated~~terminated all outstanding interest rate ~~risk with respect~~swaps applicable to the BMO Term Loan ~~through~~and, on February 10, 2023, we received an aggregate of approximately $4.3 million as a result of such terminations, of which approximately $0.1 million related to interest receivable. As of June 30, 2023, if market rates on our outstanding borrowings under the BMO ~~Interest Rate Swap until August 26, 2020.~~Term Loan subject to a floating rate increased by 10% at maturity, or approximately 83 basis points over the current variable rate, the increase in interest expense would decrease future earnings and cash flows by approximately $1.0 million. The ~~2017 Interest Rate Swap and~~interest rate on the BMO ~~Interest Rate Swap were our only derivative instruments~~Term Loan as of ~~September~~June 30, ~~2017.~~2023 was SOFR plus an adjustment of 0.11448% plus 300 basis points, or 8.26% per annum.

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The table below ~~lists~~includes our derivative ~~instruments,~~instrument, which ~~are hedging~~hedged variable cash flows related to interest on our ~~BAML Term Loan and our~~ BMO Term Loan as of ~~September 30, 2017~~December 31, 2022 (in thousands):

Notional

Strike

Effective

Expiration

Fair Value (1) at

(in thousands)

Value

Rate

Date

June 30, 2023

December 31, 2022

2019 BMO Interest Rate Swap

165,000

2.39

Aug-20

Jan-24

—

4,358

(1) Classified within Level 2 of the fair value hierarchy.

Our ~~BAML Term Loan and our~~ BMO Term Loan hedging ~~transactions~~transaction used derivative instruments that ~~involve~~involved certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates ~~will~~would cause a significant loss of basis in ~~either or both of~~ the ~~contracts.~~contract. We require our derivatives contracts to be with counterparties that have investment grade ratings. ~~The counterparties to the 2017 Interest Rate Swap are a group of banks and the counterparty to the BMO Interest Rate Swap is Bank of Montreal, both of which~~

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~~have investment grade ratings.~~ As a result, we dodid not anticipate that ~~either~~any counterparty ~~will~~would fail to meet its obligations. However, there ~~can be~~was no assurance that we ~~will~~would be able to adequately protect against the foregoing risks or that we ~~will~~would ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.

The Company’s derivatives ~~are~~were recorded at fair value in other assets and ~~other~~ liabilities in the consolidated balance sheets, the effective portion of the derivatives’ fair value iswere recorded to other comprehensive income in the consolidated statements of other comprehensive income (loss) ~~and the ineffective portion of the derivatives’ fair value is recognized directly into earnings as other in the consolidated statements of income.~~ .

The interest rate swaps effectively fix the interest rate on the BAML Term Loan and BMO Term Loan; however, there is no floor on the variable interest rate of the swap whereas the current BAML Term Loan and BMO Term Loan are subject to a zero percent floor. As a result there is a mismatch and the ineffective portion of the derivatives’ changes in fair value are recognized directly into earnings.

During the three and nine months ended September 30, 2017, we recorded $0.1 million and $0.2 million, respectively, of hedge ineffectiveness in earnings, which is included in “Other” in the condensed consolidated statements of income. During the three and nine months ended September 30, 2016, we recorded ($0.6) million and $0.4 million, respectively, of hedge ineffectiveness in earnings. Hedge ineffectiveness is included in other expense in the condensed consolidated statements of income.

The following table presents, as of ~~September~~June 30, ~~2017,~~2023, our contractual variable rate borrowings under our ~~BAML~~BofA Revolver, ~~which matured on October 29, 2018, under our JPM Term Loan,~~ which matures on ~~November 30, 2018, under our BAML Term Loan, which matured on September 27, 2021 and~~October 1, 2024, under our BMO Term Loan Tranche B, which matures on ~~August 26, 2020. As of September 30, 2017, we had the right,~~October 1, 2024, under ~~the BAML Revolver, to extend the initial maturity date by an additional 12 months, or until October 29, 2019, upon payment of a fee~~our Series A Notes, which mature on December 20, 2024, and ~~satisfaction of certain customary conditions. Pursuant to the BAML Second Amendment executed~~under our Series B Notes, which mature on October 18, 2017, the Company extended the BAML Revolver maturity date from October 29, 2018 to January 12, 2022 (with two optional six month extensions) and extended the BAML Term Loan maturity date from September 27, 2021 to January 12, 2023.December 20, 2027.

Payment due by period

(in thousands)


Total

2017

2018

2019

2020

2021

Thereafter

BAML Revolver

$
300,000

$
—

$
300,000

$
—

$
—

$
—

$
—

JPM Term Loan

150,000

—

150,000

—

—

—

—

BAML Term Loan

400,000

—

—

—

—

400,000

—

BMO Term Loan

220,000

—

—

—

220,000

—

—

Total

$
1,070,000

$
—

$
450,000

$
—

$
220,000

$
400,000

$
—


	Payment due by period
	(in thousands)
	Total		2023		2024		2025		2026		2027		Thereafter
BofA Revolver	$	75,000	$	—	$	75,000	$	—	$	—	$	—	$	—
BMO Term Loan Tranche B		125,000		—		125,000		—		—		—		—
Series A Notes		116,000		—		116,000		—		—		—		—
Series B Notes		84,000		—		—		—		—		84,000		—
Total	$	400,000	$	—	$	316,000	$	—	$	—	$	84,000	$	—

Item 4. Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2017.~~2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ~~or the Exchange Act,~~(the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well

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designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2023, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended ~~September~~June 30, ~~2017~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to 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, cash flows or results of operations.

Item 1A. Risk Factors

As of September 30, 2017, there have been no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company did not make any repurchases of any equity securities during the three months ended June 30, 2023.

~~None.~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

~~None.~~None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered by this report.

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Item 6. ~~Exhibits~~Exhibits


Exhibit No.		Description
~~Exhibit No.~~		~~Description~~

3.1 (1)		Articles of ~~Incorporation.~~Incorporation, as amended

3.2 (2)		Amended and Restated ~~By-laws~~By-laws..

~~10.1 (3)~~		Second Amendment, dated as of October 18, 2017, to Second Amended and Restated Credit Agreement, dated October 29, 2014, as amended, among Franklin Street Properties Corp., Bank of America, N.A., and the other parties thereto, as amended as of July 21, 2016.

~~10.2 (3)~~		Second Amendment, dated as of October 18, 2017, to Amended and Restated Credit Agreement, dated October 29, 2014, as amended, among Franklin Street Properties Corp., Bank of Montreal, and the other parties thereto, as amended as of July 21, 2016.

~~10.3 (3)~~		~~First Amendment, dated as of October 18, 2017, to Credit Agreement, dated November 30, 2016, among Franklin Street Properties Corp., JPMorgan Chase Bank, N.A., and the other parties thereto.~~

~~10.4 (3)~~		~~Note Purchase Agreement, dated as of October 24, 2017, by and among Franklin Street Properties Corp. and the other parties named therein as Purchasers.~~

31.1*		Certification of FSP Corp.’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of FSP Corp.’s Chief Financial Officer pursuant to Section 302 of the ~~Sarbanes- Oxley~~Sarbanes-Oxley Act of 2002.

32.1*		Certification of FSP Corp.’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of FSP Corp.’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following materials from FSP Corp.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2023, formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) the ~~Condensed~~ Consolidated Balance Sheets; (ii) the ~~Condensed~~ Consolidated Statements of ~~Income;~~Operations; (iii) the ~~Condensed~~Consolidated Statements of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; ~~(iv)~~(v) the ~~Condensed~~ Consolidated Statements of ~~Other~~ Comprehensive ~~Income;~~Income (Loss); and ~~(v)~~(vi) the Notes to ~~Condensed~~ Consolidated Financial Statements.

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~~Footnotes~~104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


Footnotes		Description

(1)		Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Quarterly Report on Form ~~8-A,~~10-Q, filed on ~~April 5, 2005~~July 30, 2019 (File No. 001-32470).

(2)		Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Current Report on Form 8-K, filed on February ~~15, 2013~~3, 2023 (File No. 001-32470).

~~(3)~~		~~Incorporated by reference to FSP Corp.’s Current Report on Form 8-K, filed on October 24, 2017 (File No. 001-32470).~~

*		Filed herewith.

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	FRANKLIN STREET PROPERTIES CORP.


Date	Signature	Title
~~Date~~	~~Signature~~	~~Title~~

Date: ~~October 31, 2017~~August 1, 2023	/s/ George J. Carter	Chief Executive Officer and Director
	George J. Carter	(Principal Executive Officer)


Date: ~~October 31, 2017~~August 1, 2023	/s/ John G. Demeritt	Chief Financial Officer
	John G. Demeritt	(Principal Financial Officer)

4342


	September 30,		December 31,
(in thousands, except share and par value amounts)	2017		2016
Assets:
Real estate assets:
Land	$	191,578	$	196,178
Buildings and improvements		1,800,831		1,822,183
Fixtures and equipment		5,017		4,136
		1,997,426		2,022,497
Less accumulated depreciation		361,720		337,228
Real estate assets, net		1,635,706		1,685,269
Acquired real estate leases, less accumulated amortization of $105,997 and $112,441, respectively		96,282		125,491
Investment in non-consolidated REITs		73,405		75,165
Asset held for sale		31,615		3,871
Cash and cash equivalents		12,647		9,335
Restricted cash		63		31
Tenant rent receivables, less allowance for doubtful accounts of $125 and $100, respectively		3,990		3,113
Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively		52,272		50,930
Prepaid expenses and other assets		6,282		5,231
Related party mortgage loan receivables		71,985		81,780
Other assets: derivative asset		10,771		12,907
Office computers and furniture, net of accumulated depreciation of $1,390 and $1,277, respectively		319		313
Deferred leasing commissions, net of accumulated amortization of $20,842 and $18,301, respectively		36,348		34,697
Total assets	$	2,031,685	$	2,088,133

Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	300,000	$	280,000
Term loans payable, less unamortized financing costs of $3,817 and $4,783, respectively		766,183		765,217
Accounts payable and accrued expenses		57,593		57,259
Accrued compensation		3,000		3,784
Tenant security deposits		5,431		5,355
Other liabilities: derivative liabilities		3,721		5,551
Acquired unfavorable real estate leases, less accumulated amortization of $7,397 and $8,422, respectively		6,371		8,923
Total liabilities		1,142,299		1,126,089

Commitments and contingencies

Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $.0001 par value, 180,000,000 shares authorized, 107,231,155 and 107,231,155 shares issued and outstanding, respectively		11		11
Additional paid-in capital		1,356,457		1,356,457
Accumulated other comprehensive loss		4,954		5,478
Accumulated distributions in excess of accumulated earnings		(472,036)		(399,902)
Total stockholders’ equity		889,386		962,044
Total liabilities and stockholders’ equity	$	2,031,685	$	2,088,133



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share amounts)	2017		2016		2017		2016

Revenues:
Rental	$	67,339	$	61,925	$	201,710	$	179,738
Related party revenue:
Management fees and interest income from loans		1,278		1,338		4,014		4,108
Other		9		17		29		54
Total revenues		68,626		63,280		205,753		183,900
Expenses:
Real estate operating expenses		17,898		16,905		52,492		47,126
Real estate taxes and insurance		11,882		10,218		35,880		29,522
Depreciation and amortization		24,988		23,298		75,599		68,095
Selling, general and administrative		3,286		3,419		9,806		10,443
Interest		8,258		6,767		23,730		19,617
Total expenses		66,312		60,607		197,507		174,803

Income before equity in losses of non-consolidated REITs, other and gain (loss) on sale of properties and properties held for sale, less applicable income tax and taxes		2,314		2,673		8,246		9,097
Equity in losses of non-consolidated REITs		(121)		(196)		(719)		(568)
Other		67		621		218		(388)
Gain (loss) on sale of properties and properties held for sale, less applicable income tax		(257)		(523)		(18,460)		(1,166)

Income (loss) before taxes on income		2,003		2,575		(10,715)		6,975
Taxes on income		100		117		297		326

Net income (loss)	$	1,903	$	2,458	$	(11,012)	$	6,649

Weighted average number of shares outstanding, basic and diluted		107,231		103,709		107,231		101,370

Net income (loss) per share, basic and diluted	$	0.02	$	0.02	$	(0.10)	$	0.07


	For the				For the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2017		2016		2017		2016

Net income (loss)	$	1,903	$	2,458	$	(11,012)	$	6,649

Other comprehensive income (loss):
Unrealized loss on derivative financial instruments		14		1,641		(524)		(5,151)

Total other comprehensive loss		14		1,641		(524)		(5,151)

Comprehensive income (loss)	$	1,917	$	4,099	$	(11,536)	$	1,498


	As of September 30,
	2017	2016
Commercial real estate:
Number of properties	35	36
Rentable square feet	10,085,889	9,683,846


			Maximum		Amount							Interest
(dollars in thousands)		Maturity	Amount		Drawn at		Interest			Draw		Rate at
Sponsored REIT	Location	Date	of Loan		30-Sep-17		Rate (1)			Fee (2)		30-Sep-17

Secured revolving lines of credit
FSP Satellite Place Corp.	Duluth, GA	31-Dec-19	$	5,500	$	2,385	L+	4.4	%	0.5	%	5.63	%
FSP Energy Tower I Corp. (3)	Houston, TX	30-Jun-19		20,000		15,600	L+	5.0	%	0.5	%	6.23	%

Mortgage loan secured by property
FSP Monument Circle LLC (4)	Indianapolis, IN	7-Dec-18		21,000		21,000		4.90	%	n/a		4.90	%
FSP Energy Tower I Corp. (3) (5)	Houston, TX	30-Jun-19		33,000		33,000		6.41	%	n/a		6.41	%

			$	79,500	$	71,985


	For the Nine Months Ended
	September 30,
(in thousands)	2017		2016

Operating Data (unaudited):
Rental revenues	$	40,775	$	40,453
Other revenues		5		36
Operating and maintenance expenses		(21,219)		(21,892)
Depreciation and amortization		(14,220)		(13,663)
Interest expense		(6,256)		(6,380)
Gain (loss) on sale, less applicable income tax		(702)		26,397
Net income (loss)	$	(1,617)	$	24,951


	Notional		Strike		Effective	Expiration	Fair
(in thousands)	Value		Rate		Date	Date	Value

2017 Interest Rate Swap	$	400,000	1.12	%	Sep-17	Sep-21	$	10,771
BMO Interest Rate Swap	$	220,000	2.32	%	Aug-13	Aug-20	$	(3,721)


	Dividends Per		Total
Quarter Paid	Share		Dividends

First quarter of 2017	$	0.19	$	20,374
Second quarter of 2017	$	0.19	$	20,374
Third quarter of 2017	$	0.19	$	20,374

First quarter of 2016	$	0.19	$	19,036
Second quarter of 2016	$	0.19	$	19,036
Third quarter of 2016	$	0.19	$	19,036


	Rentable							Nine								Nine
	Square							Months								Months
	Feet	Three Months Ended						Ended		Three Months Ended						Ended		Inc		%
(in thousands)	or RSF	31-Mar-17		30-Jun-17		30-Sep-17		30-Sep-17		31-Mar-16		30-Jun-16		30-Sep-16		30-Sep-16		(Dec)		Change
Region
East	1,007	$	3,917	$	3,941	$	3,926	$	11,784	$	3,944	$	3,920	$	3,954	$	11,818	$	(34)	(0.3)	%
MidWest	1,224		3,017		2,479		2,989		8,485		2,958		3,102		2,974		9,034		(549)	(6.1)	%
South	4,437		16,211		15,613		15,763		47,587		17,200		17,441		16,380		51,021		(3,434)	(6.7)	%
West	2,010		8,189		8,999		8,519		25,707		8,190		8,355		7,926		24,471		1,236	5.1	%
Same Store	8,678		31,334		31,032		31,197		93,563		32,292		32,818		31,234		96,344		(2,781)	(2.9)	%

Acquisitions	1,083		4,914		5,325		5,073		15,312		—		166		1,893		2,059		13,253	13.5	%
Property NOI* from the continuing portfolio	9,761		36,248		36,357		36,270		108,875		32,292		32,984		33,127		98,403		10,472	10.6	%
Dispositions, Non-Operating, Development or Redevelopment	325		625		467		568		1,660		1,175		925		917		3,017		(1,357)	(1.7)	%
Property NOI*	10,086	$	36,873	$	36,824	$	36,838	$	110,535	$	33,467	$	33,909	$	34,044	$	101,420	$	9,115	9.0	%

Same Store		$	31,334	$	31,032	$	31,197	$	93,563	$	32,292	$	32,818	$	31,234	$	96,344	$	(2,781)	(2.9)	%

Less Nonrecurring
Items in NOI* (a)			65		1,178		1,103		2,346		413		586		146		1,145		1,201	(1.3)	%

Comparative
Same Store		$	31,269	$	29,854	$	30,094	$	91,217	$	31,879	$	32,232	$	31,088	$	95,199	$	(3,982)	(4.2)	%

									Nine								Nine
									Months								Months
		Three Months Ended							Ended	Three Months Ended							Ended
Reconciliation to Net Income (Loss)			31-Mar-17		30-Jun-17		30-Sep-17		30-Sep-17		31-Mar-16		30-Jun-16		30-Sep-16		30-Sep-16
Net income (loss)		$	4,480	$	(17,395)	$	1,903	$	(11,012)	$	2,579	$	1,612	$	2,458	$	6,649
Add (deduct):
(Gain) loss on sale of properties and properties held for sale, less applicable income taxes			(2,289)		20,492		257		18,460		—		643		523		1,166
Hedge ineffectiveness			(22)		(129)		(67)		(218)		—		1,009		(621)		388
Management fee income			(794)		(768)		(791)		(2,353)		(660)		(688)		(727)		(2,075)
Depreciation and amortization			25,332		25,279		24,988		75,599		22,445		22,352		23,298		68,095
Amortization of above/below market leases			(168)		(687)		(86)		(941)		81		—		(185)		(104)
Selling, general and administrative			3,443		3,077		3,286		9,806		3,530		3,494		3,419		10,443
Interest expense			7,579		7,893		8,258		23,730		6,433		6,417		6,767		19,617
Interest income			(1,214)		(1,206)		(1,134)		(3,554)		(1,279)		(1,171)		(1,184)		(3,634)
Equity in losses of non-consolidated REITs			397		201		121		719		286		86		196		568
Non-property specific items, net			129		67		103		299		52		155		100		307


Property NOI*		$	36,873	$	36,824	$	36,838	$	110,535	$	33,467	$	33,909	$	34,044	$	101,420


						Weighted
						Occupied		Weighted
			Year Built		Weighted	Percentage as of		Average
			or	Net Rentable	Occupied	September 30,		Rent per Occupied
Property Name	City	State	Renovated	Square Feet	Sq. Ft.	2017 (a)		Square Feet (b)

Forest Park	Charlotte	NC	1999	62,212	62,212	100.0	%	$	13.91
Meadow Point	Chantilly	VA	1999	138,537	138,537	100.0	%		26.17
Innsbrook	Glen Allen	VA	1999	298,456	298,456	100.0	%		18.10
East Baltimore	Baltimore	MD	1989	325,445	246,752	75.8	%		22.56
Loudoun Tech Center	Dulles	VA	1999	136,658	127,461	93.3	%		18.14
Stonecroft	Chantilly	VA	2008	111,469	111,469	100.0	%		37.62
Emperor Boulevard	Durham	NC	2009	259,531	259,531	100.0	%		34.05
East total				1,332,308	1,244,418	93.4	%		24.75
Northwest Point	Elk Grove Village	IL	1999	177,095	177,095	100.0	%		19.17
909 Davis Street	Evanston	IL	2002	196,581	152,901	77.8	%		27.79
River Crossing	Indianapolis	IN	1998	205,059	194,868	95.0	%		23.07
Timberlake	Chesterfield	MO	1999	234,496	234,496	100.0	%		26.27
Timberlake East	Chesterfield	MO	2000	117,036	117,036	100.0	%		24.88
121 South 8th Street	Minneapolis	MN	1974	293,422	189,727	64.7	%		21.25
Plaza Seven	Minneapolis	MN		326,445	311,298	95.4	%		32.41
Midwest total				1,550,134	1,377,420	88.9	%		25.65
Blue Lagoon Drive	Miami	FL	2002	212,619	212,619	100.0	%		22.66
One Overton Park	Atlanta	GA	2002	387,267	276,547	71.4	%		25.01
Park Ten	Houston	TX	1999	157,460	103,247	65.6	%		31.23
Addison Circle	Addison	TX	1999	288,794	249,258	86.3	%		33.17
Collins Crossing	Richardson	TX	1999	300,887	300,887	100.0	%		24.78
Eldridge Green	Houston	TX	1999	248,399	248,399	100.0	%		31.96


	Payment due by period
	(in thousands)
	Total		2017		2018		2019		2020		2021		Thereafter
BAML Revolver	$	300,000	$	—	$	300,000	$	—	$	—	$	—	$	—
JPM Term Loan		150,000		—		150,000		—		—		—		—
BAML Term Loan		400,000		—		—		—		—		400,000		—
BMO Term Loan		220,000		—		—		—		220,000		—		—
Total	$	1,070,000	$	—	$	450,000	$	—	$	220,000	$	400,000	$	—