UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended ~~March 31,~~September 30, 2021.

☐

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, MA 01880

(Address of principal executive offices)(Zip Code)

(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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 ☒

Non-accelerated Filer ☐		Smaller Reporting Company ☐

		Emerging 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 ☐ No ☒

The number of shares of common stock outstanding as of ~~April 30,~~October 29, 2021 was ~~107,328,199.~~105,632,725.

Table of Contents

Franklin Street Properties Corp.
Form 10-Q

Quarterly Report
~~March 31,~~September 30, 2021

Table of Contents


			Page
Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of ~~March 31,~~September 30, 2021 and December 31, 2020	3

		Consolidated Statements of Operations for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020	4

		Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020	5

		Consolidated Statements of Stockholders’ Equity for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020	6

		Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020	7

		Notes to Consolidated Financial Statements	~~8-18~~8-19

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3437

	Item 4.	Controls and Procedures	3538

Part II.	Other Information

	Item 1.	Legal Proceedings	3639

	Item 1A.	Risk Factors	3639

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3639

	Item 3.	Defaults Upon Senior Securities	3640

	Item 4.	Mine Safety Disclosures	3640

	Item 5.	Other Information	3640

	Item 6.	Exhibits	3741

Signatures			3842

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

Franklin Street Properties Corp.

Consolidated Balance Sheets

(Unaudited)

March 31,

December 31,

(in thousands, except share and par value amounts)

2021

2020

Assets:

Real estate assets:

Land

$
189,155

$
189,155

Buildings and improvements

1,954,838

1,938,629

Fixtures and equipment

13,308

12,949

2,157,301

2,140,733

Less accumulated depreciation

555,688

538,717

Real estate assets, net

1,601,613

1,602,016

Acquired real estate leases, less accumulated amortization of $53,670 and $55,447, respectively

25,836

28,206

Cash, cash equivalents and restricted cash

4,113

4,150

Tenant rent receivables

4,337

7,656

Straight-line rent receivable

69,743

67,789

Prepaid expenses and other assets

5,873

5,752

Related party mortgage loan receivables

21,000

21,000

Office computers and furniture, net of accumulated depreciation of $1,459 and $1,443, respectively

147

163

Deferred leasing commissions, net of accumulated amortization of $26,384 and $30,411, respectively

56,771

56,452

Total assets

$
1,789,433

$
1,793,184

Liabilities and Stockholders’ Equity:

Liabilities:

Bank note payable

$
27,500

$
3,500

Term loans payable, less unamortized financing costs of $2,332 and $2,677, respectively

717,668

717,323

Series A & Series B Senior Notes, less unamortized financing costs of $781 and $822, respectively

199,219

199,178

Accounts payable and accrued expenses

63,456

72,058

Accrued compensation

1,390

3,918

Tenant security deposits

8,041

8,677

Lease liability

1,444

1,536

Other liabilities: derivative liabilities

13,698

17,311

Acquired unfavorable real estate leases, less accumulated amortization of $3,959 and $4,031, respectively

1,433

1,592

Total liabilities

1,033,849

1,025,093

Commitments and contingencies

Stockholders’ Equity:

Preferred stock, $.0001 par value, 20,000,000 shares authorized, NaN issued or outstanding

—

—

Common stock, $.0001 par value, 180,000,000 shares authorized, 107,328,199 and 107,328,199 shares issued and outstanding, respectively

11

11

Additional paid-in capital

1,357,131

1,357,131

Accumulated other comprehensive loss

(13,698)

(17,311)

Accumulated distributions in excess of accumulated earnings

(587,860)

(571,740)

Total stockholders’ equity

755,584

768,091

Total liabilities and stockholders’ equity

$
1,789,433

$
1,793,184


	September 30,		December 31,
(in thousands, except share and par value amounts)	2021		2020
Assets:
Real estate assets:
Land	$	161,767	$	189,155
Buildings and improvements		1,630,729		1,938,629
Fixtures and equipment		11,727		12,949
		1,804,223		2,140,733
Less accumulated depreciation		459,531		538,717
Real estate assets, net		1,344,692		1,602,016
Acquired real estate leases, less accumulated amortization of $50,302 and $55,447, respectively		19,864		28,206
Cash, cash equivalents and restricted cash		9,731		4,150
Tenant rent receivables		2,681		7,656
Straight-line rent receivable		58,132		67,789
Prepaid expenses and other assets		5,547		5,752
Related party mortgage loan receivables		21,000		21,000
Office computers and furniture, net of accumulated depreciation of $1,180 and $1,443, respectively		153		163
Deferred leasing commissions, net of accumulated amortization of $24,013 and $30,411, respectively		44,729		56,452
Total assets	$	1,506,529	$	1,793,184

Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	—	$	3,500
Term loans payable, less unamortized financing costs of $1,352 and $2,677, respectively		473,648		717,323
Series A & Series B Senior Notes, less unamortized financing costs of $699 and $822, respectively		199,301		199,178
Accounts payable and accrued expenses		59,309		72,058
Accrued compensation		3,482		3,918
Tenant security deposits		6,169		8,677
Lease liability		1,256		1,536
Other liabilities: derivative liabilities		7,583		17,311
Acquired unfavorable real estate leases, less accumulated amortization of $3,377 and $4,031, respectively		708		1,592
Total liabilities		751,456		1,025,093

Commitments and contingencies

Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, NaN issued or outstanding		—		—
Common stock, $.0001 par value, 180,000,000 shares authorized, 105,632,725 and 107,328,199 shares issued and outstanding, respectively		11		11
Additional paid-in capital		1,349,225		1,357,131
Accumulated other comprehensive loss		(7,583)		(17,311)
Accumulated distributions in excess of accumulated earnings		(586,580)		(571,740)
Total stockholders’ equity		755,073		768,091
Total liabilities and stockholders’ equity	$	1,506,529	$	1,793,184

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

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Franklin Street Properties Corp.

Consolidated Statements of Operations

(Unaudited)

For the Three Months Ended March 31,

(in thousands, except per share amounts)

2021

2020


Revenues:

Rental

$
58,623

$
62,567

Related party revenue:

Management fees and interest income from loans

410

403

Other

6

13

Total revenues

59,039

62,983

Expenses:

Real estate operating expenses

15,939

17,298

Real estate taxes and insurance

12,366

11,762

Depreciation and amortization

24,381

22,338

General and administrative

4,146

3,525

Interest

8,600

9,063

Total expenses

65,432

63,986

Loss before taxes

(6,393)

(1,003)

Tax expense

67

68

Net loss

$
(6,460)

$
(1,071)

Weighted average number of shares outstanding, basic and diluted

107,328

107,269

Net loss per share, basic and diluted

$
(0.06)

$
(0.01)



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share amounts)	2021		2020		2021		2020

Revenues:
Rental	$	50,326	$	61,834	$	164,671	$	184,799
Related party revenue:
Management fees and interest income from loans		419		400		1,246		1,208
Other		57		13		69		31
Total revenues		50,802		62,247		165,986		186,038
Expenses:
Real estate operating expenses		14,373		16,730		45,664		49,498
Real estate taxes and insurance		10,200		12,279		34,461		36,348
Depreciation and amortization		18,862		22,076		62,379		66,659
General and administrative		3,749		3,817		11,857		11,159
Interest		7,928		8,953		26,582		26,996
Total expenses		55,112		63,855		180,943		190,660

Loss on extinguishment of debt		(236)		—		(403)		—
Gain on sale of properties, net		8,632		—		29,258		—
Income (loss) before taxes and equity in income of non-consolidated REITs		4,086		(1,608)		13,898		(4,622)
Tax expense		51		71		174		203
Equity in income of non-consolidated REITs		421		—		421		—

Net Income (loss)	$	4,456	$	(1,679)	$	14,145	$	(4,825)

Weighted average number of shares outstanding, basic and diluted		106,905		107,328		107,196		107,295

Net income (loss) per share, basic and diluted	$	0.04	$	(0.02)	$	0.13	$	(0.04)

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

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Franklin Street Properties Corp.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

For the

Three Months Ended

March 31,

(in thousands)

2021

2020

Net loss

$
(6,460)

$
(1,071)

Other comprehensive income (loss):

Unrealized gain (loss) on derivative financial instruments

3,613

(18,353)

Total other comprehensive income (loss)

3,613

(18,353)

Comprehensive loss

$
(2,847)

$
(19,424)


	For the				For the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020

Net income (loss)	$	4,456	$	(1,679)	$	14,145	$	(4,825)

Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments		1,842		2,801		9,728		(15,475)

Total other comprehensive income (loss)		1,842		2,801		9,728		(15,475)

Comprehensive income (loss)	$	6,298	$	1,122	$	23,873	$	(20,300)

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

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Franklin Street Properties Corp.

Consolidated Statements of 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, 2019

107,269

$
11

$
1,356,794

$
(4,682)

$
(565,727)

$
786,396

Comprehensive loss

—

—

—

(18,353)

(1,071)

(19,424)

Distributions $0.09 per
share of common stock

—

—

—

—

(9,654)

(9,654)

Balance, March 31, 2020

107,269

$
11

$
1,356,794

$
(23,035)

$
(576,452)

$
757,318

Balance, December 31, 2020

107,328

$
11

$
1,357,131

$
(17,311)

$
(571,740)

$
768,091

Comprehensive income (loss)

—

—

—

3,613

(6,460)

(2,847)

Distributions $0.09 per
share of common stock

—

—

—

—

(9,660)

(9,660)

Balance, March 31, 2021

107,328

$
11

$
1,357,131

$
(13,698)

$
(587,860)

$
755,584


						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, 2019	107,269	$	11	$	1,356,794	$	(4,682)	$	(565,727)	$	786,396
Comprehensive loss	—		—		—		(18,353)		(1,071)		(19,424)
Distributions $0.09 per share of common stock	—		—		—		—		(9,654)		(9,654)
Balance, March 31, 2020	107,269	$	11	$	1,356,794	$	(23,035)	$	(576,452)	$	757,318
Comprehensive income (loss)	—		—		—		77		(2,075)		(1,998)
Equity-based compensation	59		—		337						337
Distributions $0.09 per share of common stock	—		—		—		—		(9,654)		(9,654)
Balance, June 30, 2020	107,328	$	11	$	1,357,131	$	(22,958)	$	(588,181)	$	746,003
Comprehensive income (loss)	—		—		—		2,801		(1,679)		1,122
Distributions $0.09 per share of common stock	—		—		—		—		(9,660)		(9,660)
Balance, September 30, 2020	107,328	$	11	$	1,357,131	$	(20,157)	$	(599,520)	$	737,465

Balance, December 31, 2020	107,328	$	11	$	1,357,131	$	(17,311)	$	(571,740)	$	768,091
Comprehensive income (loss)	—		—		—		3,613		(6,460)		(2,847)
Distributions $0.09 per share of common stock	—		—		—		—		(9,660)		(9,660)
Balance, March 31, 2021	107,328	$	11	$	1,357,131	$	(13,698)	$	(587,860)	$	755,584
Comprehensive income	—		—		—		4,273		16,149		20,422
Equity-based compensation	67		—		338						338
Distributions $0.09 per share of common stock	—		—		—		—		(9,659)		(9,659)
Balance, June 30, 2021	107,395	$	11	$	1,357,469	$	(9,425)	$	(581,370)	$	766,685
Comprehensive income (loss)	—		—		—		1,842		4,456		6,298
Repurchased shares	(1,762)		—		(8,244)		—		—		(8,244)
Distributions $0.09 per share of common stock	—		—		—		—		(9,666)		(9,666)
Balance, September 30, 2021	105,633	$	11	$	1,349,225	$	(7,583)	$	(586,580)	$	755,073

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

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Franklin Street Properties Corp.

Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended March 31,
(in thousands)

2021

2020
Cash flows from operating activities:

Net loss

$
(6,460)

$
(1,071)
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization expense

25,088

23,086
Amortization of above and below market leases

(32)

(73)
Decrease in allowance for doubtful accounts
and write-off of accounts receivable

—

(13)
Changes in operating assets and liabilities:

Tenant rent receivables

3,319

255
Straight-line rents

(1,904)

(966)
Lease acquisition costs

(50)

(470)
Prepaid expenses and other assets

(532)

(644)
Accounts payable and accrued expenses

(9,564)

(8,215)
Accrued compensation

(2,528)

(2,065)
Tenant security deposits

(636)

269
Payment of deferred leasing commissions

(5,056)

(2,892)
Net cash provided by operating activities

1,645

7,201
Cash flows from investing activities:

Property improvements, fixtures and equipment

(16,022)

(20,054)
Net cash used in investing activities

(16,022)

(20,054)
Cash flows from financing activities:

Distributions to stockholders

(9,660)

(9,654)
Borrowings under bank note payable

36,500

35,000
Repayments of bank note payable

(12,500)

(5,000)
Net cash provided by financing activities

14,340

20,346
Net increase (decrease) in cash, cash equivalents and restricted cash

(37)

7,493
Cash, cash equivalents and restricted cash, beginning of year

4,150

9,790
Cash, cash equivalents and restricted cash, end of period

$
4,113

$
17,283

Supplemental disclosure of cash flow information:

Cash paid for:

Interest

$
5,870

$
5,899
Taxes

$
24

$
—
Non-cash investing activities:

Accrued costs for purchases of real estate assets

$
9,585

$
9,645


	For the Nine Months Ended September 30,
(in thousands)	2021		2020
Cash flows from operating activities:
Net income (loss)	$	14,145	$	(4,825)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense		64,390		68,859
Amortization of above and below market leases		(38)		(234)
Shares issued as compensation		338		337
Loss on extinguishment of debt		403		—
Gain on sale of properties, net		(29,258)		—
Equity in income of non-consolidated REITs		(421)		—
Distributions from non-consolidated REITs		421		—
Decrease in allowance for doubtful accounts and write-off of accounts receivable		—		(13)
Changes in operating assets and liabilities:
Tenant rent receivables		4,975		(143)
Straight-line rents		(3,103)		(2,636)
Lease acquisition costs		(1,666)		(1,516)
Prepaid expenses and other assets		(1,035)		(504)
Accounts payable and accrued expenses		(8,389)		2,527
Accrued compensation		(436)		234
Tenant security deposits		(2,508)		89
Payment of deferred leasing commissions		(10,857)		(6,168)
Net cash provided by operating activities		26,961		56,007
Cash flows from investing activities:
Property improvements, fixtures and equipment		(55,008)		(61,989)
Proceeds received on sales of real estate assets		319,357		—
Net cash provided by (used in) investing activities		264,349		(61,989)
Cash flows from financing activities:
Distributions to stockholders		(28,985)		(28,968)
Stock repurchases		(8,244)		—
Borrowings under bank note payable		76,500		85,000
Repayments of bank note payable		(80,000)		(55,000)
Repayment of term loan payable		(245,000)		—
Net cash provided by (used in) financing activities		(285,729)		1,032
Net increase (decrease) in cash, cash equivalents and restricted cash		5,581		(4,950)
Cash, cash equivalents and restricted cash, beginning of year		4,150		9,790
Cash, cash equivalents and restricted cash, end of period	$	9,731	$	4,840

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	22,995	$	22,716
Taxes	$	417	$	475
Non-cash investing activities:
Accrued costs for purchases of real estate assets	$	5,108	$	11,732

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

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Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(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. FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in 2 corporations organized to operate as real estate investment trusts (“REIT”). Collectively, the 2 REITs are referred to as the “Sponsored REITs”.

As of ~~March 31,~~September 30, 2021, the Company owned and operated a portfolio of real estate consisting of 3326 operating properties, 1 redevelopment property and 2 managed Sponsored REITs and held 1 promissory note secured by a mortgage on real estate owned by a Sponsored REIT. From time-to-time, the Company may acquire real estate or make additional secured loans. 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, or for geographic or property specific reasons.

Properties

The following table summarizes the Company’s number of operating properties and rentable square feet of real estate. As of ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020, the Company had 1 and 3 redevelopment properties, respectively, which are excluded from the table.


	As of March 31,		As of September 30,
	2021	2020	2021	2020
Operating Properties:
Number of properties	33	32	26	32
Rentable square feet	9,548,810	9,506,513	7,671,275	9,526,822

Basis of Presentation

The unaudited consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned 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, 2020, 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 months ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other period.

Financial Instruments

As disclosed in Note 4, the Company’s derivatives are recorded at fair value using Level 2 inputs. The Company estimates that the carrying values of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued expenses, accrued compensation, and tenant security deposits approximate their fair values based on their short-term

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

Cash, Cash 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.


	March 31,		March 31,		September 30,		September 30,
(in thousands)	2021		2020		2021		2020
Cash and cash equivalents	$	2,613	$	17,283	$	5,053	$	4,840
Restricted cash		1,500		—		4,678		—
Total cash, cash equivalents and restricted cash	$	4,113	$	17,283	$	9,731	$	4,840

Restricted cash consists of escrows arising from property sales. Cash held in escrow is paid when the related issue is resolved.

Recent Accounting Standards

In March 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ~~The~~ ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently assessing the potential impact that the adoption of ASU 2020-04 may have on its consolidated financial statements.

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

Investment in Sponsored REITs:

At each of ~~March 31,~~September 30, 2021 and December 31, 2020, the Company held a non-controlling common stock interest in 2 Sponsored REITs in which the Company no longer shares in economic benefit or risk.

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancellable with 30 days notice. Asset management fee income from non-consolidated entitiesamounted to approximately ~~$16,000~~$50,000 and ~~$21,000~~$59,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively.

From time to time the Company 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. The Company reviews the need for an allowance under CECL for Sponsored REIT Loans each reporting period. The Company regularly evaluates 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 are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. NaN of the Sponsored REIT loans have been impaired.

The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid at maturity or earlier from refinancing, long term financings of the underlying property, cash flows from the underlying property or some other capital event. The ~~Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two years.~~

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outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two years.

The following is a summary of the sole Sponsored REIT Loan outstanding as of ~~March 31,~~September 30, 2021:

Maximum

Amount

Interest

Maximum

Amount

Interest

(dollars in thousands, except footnotes)

Maturity

Amount

Outstanding

Rate at

Maturity

Amount

Outstanding

Rate at

Sponsored REIT

Location

Date

of Loan

31-Mar-21

Location

Date

of Loan

30-Sep-21

Mortgage loan secured by property

FSP Monument Circle LLC (1)

Indianapolis, IN

6-Dec-22

21,000

7.51

Indianapolis, IN

6-Dec-22

21,000

7.51

21,000

(1)	The interest rate is a fixed rate and this mortgage loan includes an origination fee of $164,000 and an exit fee of $38,000 when repaid by the borrower.

The Company recognized interest income and fees from the Sponsored REIT ~~Loans~~Loan of approximately ~~$394,000~~$1,196,000 and ~~$382,000~~$1,149,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively. The financial instrument was classified within Level 3 of the fair value hierarchy and had a fair value of approximately ~~$20.3~~$20.5 million as of ~~March 31,~~September 30, 2021.

On December 6, 2020, the Company entered into a second amendment to the Sponsored REIT Loan with FSP Monument Circle LLC which qualified as a troubled debt restructuring. The amendment extended the maturity date of the loan for two years and increased the interest rate from 7.19% to 7.51%. There were no commitments in this amendment to lend additional funds to ~~the~~such Sponsored REIT and the loan is fully collateralized by the mortgage held on the Sponsored REIT's property. Repayment of ~~the~~this Sponsored REIT Loan ~~outstanding with FSP Monument Circle LLC~~ is expected to be provided substantially through the ~~operation or~~ sale of the collateral.

3. Bank Note Payable, Term Loans Payable and Senior Notes

JPM Term Loan

On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which ~~provides~~provided a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”). On December 24, 2020, the Company repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, and $100 million ~~remains~~remained fully advanced and outstanding under the JPM Term Loan. ~~The JPM Term Loan matures~~On June 4, 2021, the Company repaid the remaining $100 million outstanding on the loan, which had been scheduled to mature on November 30, ~~2021. The Company has the right~~2021, and incurred a loss on extinguishment of debt of $0.1 million related to ~~extend the maturity date of the JPM Term Loan by 2 additional~~ six month periods, or until November 30, 2022, (subject to specified exceptions). The JPM Term Loan was previously evidenced by a Credit Agreement, dated November 30, 2016, among the Company, JPMorgan, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated October 18, 2017.

The JPM Term Loan bears interest at either (i) a number of basis points over a LIBOR-based rate depending on the Company’s credit rating (125.0 basis points over the LIBOR-based rate at March 31, 2021) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25.0 basis points over the base rate at March 31, 2021).unamortized deferred financing costs.

Although the interest rate on the JPM Term Loan iswas variable under the JPM Credit Agreement, the Company fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions. On March 7, 2019, the Company entered into ISDA Master Agreements with various financial institutions to hedge a $100 million portion of the future LIBOR-based rate risk under the JPM Credit Agreement. Effective March 29, 2019, the Company fixed the LIBOR-based rate at 2.44% per annum on a $100 million portion of the JPM Term Loan until November 30, 2021. ~~Accordingly, based upon the Company’s credit rating, as of March 31,~~On June 4, 2021, the ~~effective~~Company paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on ~~the remaining $100 million portion of the JPM Term Loan was 3.69% per annum.~~

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business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. 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, and minimum unsecured interest coverage. The JPM Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the JPM 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 JPM Credit Agreement immediately due and payable, and enforce any and all rights of the lenders or administrative agent under the JPM 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 was in compliance with the JPM Term Loan financial covenants as of March 31,November 30, 2021.

BMO Term Loan

On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal (“BMO”), as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $220 million (the “BMO

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Term Loan”) ~~that~~, of which $165 million remains fully advanced and outstanding. The BMO Term Loan ~~consists~~initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. ~~The~~On June 4, 2021, the Company repaid the tranche A term loan ~~matures~~that was scheduled to mature on November 30, 2021, and ~~the~~incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The $165 million tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that allows up to $100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions. The BMO Term Loan was previously evidenced by an Amended and Restated Credit Agreement, dated October 29, 2014, among the Company, BMO, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated July 21, 2016, and a Second Amendment, dated October 18, 2017.

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating ~~(125~~(165 basis points over LIBOR at ~~March 31,~~September 30, 2021) or (ii) a number of basis points over the base rate depending on the Company’s credit rating ~~(25~~(65 basis points over the base rate at ~~March 31,~~September 30, 2021).

Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate by entering into interest rate swap transactions. 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, which matured on August 26, 2020. On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of ~~March 31,~~September 30, 2021, the effective interest rate on the BMO Term Loan was ~~3.64%~~4.04% per annum. On June 4, 2021, the Company paid approximately $0.6 million to terminate the portion of the interest rate swap on the tranche A term loan, which was scheduled to mature on November 30, 2021.

The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. 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 minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest 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 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 the administrative agent under the BMO Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BMO Term Loan financial covenants as of ~~March 31,~~September 30, 2021.

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BAML Credit Facility

On July 21, 2016, the Company entered into a First Amendment (the “BAML First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BAML 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., as administrative agent, L/C Issuer and Swing Line Lender (as amended by the BAML First Amendment and the BAML Second Amendment, the “BAML Credit Facility”) that continued an existing unsecured revolving line of credit (the “BAML Revolver”) and extended the maturity of an existing term loan (the “BAML Term Loan”).

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BAML Revolver Highlights

●

The BAML Revolver is for borrowings, at the Company's election, of up to $600 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 $600 million outstanding at any time.

●

Borrowings made pursuant to the BAML Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date of January 12, 2022. The Company has the right to extend the maturity date of the BAML Revolver by 2 additional six month periods, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions.

●

The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $500 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 ~~March 31,~~September 30, 2021, there were ~~$27.5 million of~~0 borrowings outstanding under the BAML Revolver. The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.20%~~(1.55% over LIBOR at ~~March 31,~~September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.20%~~(0.55% over the base rate at ~~March 31,~~September 30, 2021). 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. The facility fee is assessed against the total amount of the BAML Revolver, or $600 million ~~(0.25%~~(0.30% at ~~March 31,~~September 30, 2021).

Based upon the Company’s credit rating, as of ~~March 31,~~September 30, 2021, the interest rate on the BAML Revolver was ~~1.31~~1.63% per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 was approximately ~~1.31%~~1.32% per annum. As of December 31, 2020, there were $3.5 million of borrowings outstanding under the BAML Revolver. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2020 was approximately 1.65% per annum.

BAML Term Loan Highlights

●

The original principal amount of the BAML Term Loan ~~is for~~was $400 million. On September 30, 2021, the Company repaid a $90 million portion of the BAML Term Loan and incurred a loss on extinguishment of debt of $0.2 million related to unamortized deferred financing costs. As of September 30, 2021, $310 million remained outstanding under the BAML Term Loan.

●

The BAML Term Loan matures on January 12, 2023.

●

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

The BAML Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.35%~~(1.75% over LIBOR at ~~March 31,~~September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.35%~~(0.75% over the base rate at ~~March 31,~~September 30, 2021).

~~Although the~~The interest rate on the BAML Credit Facility iswas variable at September 30, 2021. Previously the Company had fixed the base LIBOR interest rate on the BAML Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BAML Term Loan at 1.12% per

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annum for the period beginning on September 27, 2017 and ~~ending~~ended on September 27, 2021. ~~Accordingly, based~~Based upon the Company’s credit rating, as of ~~March 31,~~September 30, 2021, the ~~effective~~ interest rate on the BAML Term Loan was ~~2.47%~~1.83% per annum. The weighted average variable interest rate on all amounts outstanding under the BAML Term Loan after the expiration of the interest rate swaps, from September 28 through September 30, 2021 was approximately 1.84% per annum.

BAML Credit Facility General Information

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business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. 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, and minimum unsecured interest coverage. The BAML Credit Facility provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BAML Credit Facility). 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 BAML Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BAML Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BAML Credit Facility and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BAML Credit Facility financial covenants as of ~~March 31,~~September 30, 2021.

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.

Senior Notes

On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes. Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $200 million of senior unsecured notes consisting of (i) ~~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 “Senior Notes”). On December 20, 2017, the Senior Notes were funded and the proceeds were used to reduce the outstanding balance of the BAML Revolver.

The Senior Notes bear interest depending on the Company’s credit rating. As of September 30, 2021, 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 BAML Credit Facility, the BMO Credit Agreement and the JPM 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, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Purchasers may, among other remedies, accelerate the payment of all obligations. The Company was in compliance with the Senior Notes financial covenants as of ~~March 31,~~September 30, 2021.

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4. Financial Instruments: Derivatives and Hedging

On July 22, 2016, the Company entered into interest rate swap tranactions that fixed the interest rate for the period beginning on September 27, 2017 and ~~ending~~ended on September 27, 2021 on the BAML Term Loan (the “2017 Interest Rate Swap”). On March 7, 2019, the Company entered into interest rate swap tranactions that fixed the interest rate for the period beginning on March 29, 2019 and ending on November 30, 2021 on a $100 million portion of the JPM Term Loan (the “2019 JPM Interest Rate Swap”). On February 20, 2019, the Company entered into interest rate swap tranactions that fixed the interest rate for the period beginning August 26, 2020 and ending January 31, 2024 on the BMO Term Loan (the “2019 BMO Interest Rate Swap”). The variable rates that were fixed under the 2017 Interest Rate Swap, the 2019 JPM Interest Rate Swap and the 2019 BMO Interest Rate Swap (collectively referred to as the “Interest Rate Swaps”) are described in Note 3.

On June 4, 2021, the Company paid approximately $1.2 million to terminate the 2019 JPM Interest Rate Swap that was scheduled to mature on November 30, 2021 and approximately $0.6 million to terminate a portion of the 2019 BMO Interest Rate Swap that was scheduled to mature on November 30, 2021. As a result of the terminations, approximately $1.9 million of the balance held in accumulated other comprehensive income (loss) was reclassified into earnings. The JPM Term Loan and a portion of the BMO Term Loan related to these interest rate swaps was also repaid on June 4, 2021, which is described in Note 3.

The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance 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 recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.

The following table summarizes the notional and fair value of the Company’s derivative financial instruments at ~~March~~September 30, 2021 and December 31, ~~2021.~~2020. The notional value is an indication of the extent of the Company’s involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.


		Notional		Strike		Effective	Expiration	Fair Value (2) at					Notional		Strike		Effective	Expiration	Fair Value (2) at
(in thousands)		Value		Rate		Date	Date	March 31, 2021		December 31, 2020			Value		Rate		Date	Date	September 30, 2021		December 31, 2020

2017 Interest Rate Swap		$	400,000	1.12	%	Sep-17	Sep-21	$	(1,981)	$	(2,947)		$	400,000	1.12	%	Sep-17	Sep-21	$	—	$	(2,947)
2019 JPM Interest Rate Swap		$	100,000	2.44	%	Mar-19	Nov-21	$	(1,540)	$	(2,102)		$	100,000	2.44	%	Mar-19	Nov-21	$	—	$	(2,102)
2019 BMO Interest Rate Swap (1)		$	220,000	2.39	%	Aug-20	Jan-24	$	(10,177)	$	(12,262)		$	165,000	2.39	%	Aug-20	Jan-24	$	(7,583)	$	(12,262)

(1) The Notional Value will decrease to $165 million on November 30, 2021.
(1) The Notional Value decreased to $165 million on June 4, 2021.												(1) The Notional Value decreased to $165 million on June 4, 2021.
(2) Classified within Level 2 of the fair value hierarchy.	(2) Classified within Level 2 of the fair value hierarchy.											(2) Classified within Level 2 of the fair value hierarchy.

On ~~March 31,~~September 30, 2021, the ~~2017 Interest Rate Swap, 2019 JPM Interest Rate Swap and~~ 2019 BMO Interest Rate Swap ~~were~~was reported as ~~liabilities~~a liability with ~~an aggregate~~a fair value of approximately ~~$13.7~~$7.6 million and ~~are~~is included in other liabilities: derivative liabilities in the consolidated balance sheet at ~~March 31,~~September 30, 2021.

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The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively, was as follows:


(in thousands)	Three Months Ended March 31,				Nine Months Ended September 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2021		2020		2021		2020

Amounts of gain (loss) recognized in OCI	$	807	$	(18,389)	$	2,410	$	(20,400)
Amounts of previously recorded gain/(loss) reclassified from OCI into Interest Expense	$	(2,806)	$	(36)	$	(7,318)	$	(4,925)

Total amount of Interest Expense presented in the consolidated statements of operations	$	8,600	$	9,063	$	26,582	$	26,996

Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified into earnings as an increase or reduction to interest expense in the same periods in which the hedged interest payments affect earnings. The Company estimates that approximately ~~$7.1~~$3.3 million of the current balance held in accumulated other comprehensive income (loss) will be reclassified into earnings within the next 12 months.

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

The BMO Term Loan, BAML Term Loan and JPM Term Loan hedging transactions used derivative instruments that involve 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 cause a significant loss of basis in either or both of the contracts. The Company requires its derivatives contracts to be with counterparties that have investment grade ratings. As a result, the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that the Company will be able to adequately protect against the foregoing risks or that it will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.

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

The Company’s derivatives are recorded at fair value in other assets: derivative asset and other liabilities: derivative liability in the consolidated balance sheets and the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the consolidated statements of comprehensive income (loss).

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 other contracts to issue shares were exercised or converted into shares. There were 0 potential dilutive shares outstanding at each of ~~March 31,~~September 30, 2021 and 2020.

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6. Stockholders’ Equity

As of ~~March 31,~~September 30, 2021, the Company had ~~107,328,199~~105,632,725 shares of common stock outstanding. The Company declared and paid dividends as follows (in thousands, except per share amounts):


	Dividends Per		Total		Dividends Per		Total
Quarter Paid	Share		Dividends		Share		Dividends

First quarter of 2021	$	0.09	$	9,660	$	0.09	$	9,660
Second quarter of 2021					$	0.09	$	9,659
Third quarter of 2021					$	0.09	$	9,666

First quarter of 2020	$	0.09	$	9,654	$	0.09	$	9,654
Second quarter of 2020					$	0.09	$	9,654
Third quarter of 2020					$	0.09	$	9,660

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 0 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.

On June 4, 2020, the Company granted 58,998 shares under the Plan to non-employee directors at a compensation cost of approximately ~~$337,000~~$337,500 and on May 20, 2021, the Company granted 66,564 shares under the Plan to non-employee directors at a compensation cost of approximately $337,500, which was recognized during the ~~year~~nine months ended ~~December 31,~~September 30, 2020 and 2021, respectively, and is included in general and administrative expenses for such ~~period.~~periods. Such shares were fully vested on the date of issuance. There are currently ~~1,847,384~~1,780,820 shares available for grant under the ~~Plan~~Plan.


	Shares Available		Compensation
	for Grant		Cost

Balance December 31, 2019		1,906,382	$	337,500
Shares granted 2020		(58,998)		337,500
Balance December 31, 2020		1,847,384	$	675,000
Shares granted 2021		(66,564)		337,500
Balance September 30, 2021		1,780,820	$	1,012,500

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 subsequently repurchased 1,762,038 shares of common stock during the third quarter of 2021 at an aggregate cost of approximately $8.2 million at an average cost of approximately $4.68 per share, inclusive of brokerage commissions. The excess of the purchase price over the par value of the shares repurchased is applied to reduce additional paid-in capital. The Company did not effect any repurchases during 2020.

~~Shares Available~~

~~Compensation~~

1516

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(in thousands)

for Grant

Cost

Balance December 31, 2019

1,906,382

337,000
Shares granted 2020

(58,998)

337,000
Balance December 31, 2020

1,847,384

$
674,000
Shares granted 2021

-

-
Balance March 31, 2021

1,847,384

$
674,000

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, 2020	1,017,498	$	18,775
Repurchase of shares	1,762,038		8,244
Balance, September 30, 2021	2,779,536	$	27,019

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 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 $4.6 million and $4.4 million as of each of December 31, 2020, and 2019 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.

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 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 2017 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 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 $13.0 million as of each of ~~March 31,~~September 30, 2021 and December 31, 2020.

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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 ~~$67,000~~$174,000 and ~~$68,000~~$203,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively.

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


	For the Three Months Ended March 31,				For the Nine Months Ended September 30,
(Dollars in thousands)	2021		2020		2021		2020

Revised Texas Franchise Tax	$	67	$	68	$	174	$	203
Other Taxes		—		—		—		—
Tax expense	$	67	$	68	$	174	$	203

Taxes on income are a current tax expense. NaN 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. Leases

Leases as a Lessor:

The Company is a lessor of 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.

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.

A minority of the Company’s leases are subject to annual changes in the Consumer Price Index (“CPI”). Although increases in the CPI are not estimated as part of the Company’s measurement of straight-line rent revenue, to the extent that the actual CPI is greater or less than the CPI at lease commencement, there could be changes to realized income or loss.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, the Company recognized the following amounts of income relating to lease payments:


Income relating to lease payments:
	Three Months Ended				Nine Months Ended
(in thousands)	March 31, 2021		March 31, 2020		September 30, 2021		September 30, 2020
Income from leases (1)	$	56,709	$	61,529	$	161,443	$	181,929
	$	56,709	$	61,529	$	161,443	$	181,929

(1) Amounts recognized from variable lease payments were $14,688 and $15,629 for the three months ended March 31, 2021 and 2020, respectively.
(1) Amounts recognized from variable lease payments were $42,298 and $45,281 for the nine months ended September 30, 2021 and 2020, respectively.

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9. Dispositions of properties

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 in 2021 where it believes its valuation objective has been met. The Company sold 3 office properties located in Atlanta, Georgia on May 27, 2021 with an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. The Company sold an office property in Dulles, Virginia on June 29, 2021 with a sales price of approximately $17.3 million, at a loss of $2.1 million. The Company sold an office property located in Indianapolis, Indiana on August 31, 2021 with a sales price of approximately $35 million, at a loss of approximately $1.7 million. The Company sold 2 office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. The Company used the proceeds of the dispositions principally to repay outstanding indebtedness.

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

The operating results for the properties that the Company disposed of are summarized below:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Rental revenue	$	2,820	$	10,759	$	20,813	$	31,365
Rental operating expenses		(801)		(3,465)		(6,292)		(9,778)
Real estate taxes and insurance		136		(1,632)		(2,814)		(4,980)
Depreciation and amortization		(769)		(4,050)		(6,047)		(12,181)
Income from dispositions	$	1,386	$	1,612	$	5,660	$	4,426

10. Subsequent Events

On ~~April~~October 5, 2021, the Company entered into a Purchase and Sale Agreement with a third-party buyer for the disposition of 2 properties located in Chantilly, Virginia for a purchase price of approximately $40 million. Assuming satisfaction of certain customary conditions to close, including successful completion by the buyer of a due diligence inspection period, the closing of the sale of the properties is expected to take place during the fourth quarter of 2021.

On October 8, 2021, the Board of Directors of the Company declared a cash distribution of $0.09 per share of common stock payable on ~~May 7,~~November 11, 2021 to stockholders of record on ~~April 16,~~October 22, 2021.

On ~~March 5,~~October 22, 2021, the Company ~~entered into a Purchase and Sale Agreement with a third-party buyer for~~sold the ~~disposition of 3 office properties~~999 Peachtreee property located in Atlanta Georgia for a ~~purchase~~sales price of approximately ~~$219.5~~$223.9 million, at a gain of approximately $86.8 million. ~~The buyer’s due diligence inspection period expired on April 15,~~On October 25, 2021, ~~and~~ the Company ~~had no assurance~~repaid $15.0 million of the ~~sale was probable as~~BAML Revolver and $200.0 million of ~~March 31, 2021. Assuming satisfaction of certain customary conditions to close,~~ the ~~closing of~~BAML Term Loan using proceeds from the sale of the ~~properties is expected~~property.

On October 29, 2021, the Company agreed to ~~take place on or about May 17, 2021; provided, however, that seller~~amend and ~~buyer each have a~~ ~~1-time right~~restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the ~~closing~~maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $21 million to $24 million. In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023. As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to cause the sale of the property owned by ~~up to thirty (30) days by providing notice to the other party at least three~~ ~~(3) business days prior to the then scheduled closing date.~~FSP Monument Circle LLC any time on or after January 1, 2023.

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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, 2020. Historical results and percentage relationships set forth in the 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 as a result of the COVID-19 pandemic 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 markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future property dispositions, uncertainty relating to the completion and timing of the disposition of the properties under agreement, expectations for potential repurchases of our common stock and the potential payment of special dividends, changes in interest rates as a result of economic market conditions or a downgrade in our credit rating, 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, ~~changes in energy prices,~~ 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 revenus 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, 2020 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

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 infill and central business district office properties in the United States sunbelt and mountain west regions as well as select opportunistic markets. We believe that the United States sunbelt and mountain west regions have macro-economic drivers that have the potential to increase occupancies and rents. We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income.

As of ~~March 31,~~September 30, 2021, approximately ~~7.8~~6.6 million square feet, or approximately ~~80%~~84.6% of our total owned portfolio, was located in Atlanta, Dallas, Denver, Houston and 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/market conditions. We look to acquire and/or develop quality properties in good locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.

~~In 2021, we determined~~We continue to believe that ~~further debt reduction would provide greater financial flexibility~~the current price of our common stock does not accurately reflect the value of our underlying real estate assets and ~~potentially~~intend to continue our strategy of seeking to increase shareholder ~~value. Accordingly, we have adopted a strategy to dispose~~value through the sale of ~~certain~~select properties ~~in 2021~~ where we believe that our short to intermediate term valuation ~~objective has~~objectives have been met. Pursuant to this strategy, we anticipate that dispositions in 2021 will result in estimated ~~aggregate~~ gross proceeds in the range of ~~$350~~approximately $563 million to ~~$450~~$600 million. As of October 25, 2021, we had disposed of real estate assets for aggregate gross proceeds of approximately $563 million and repaid approximately $508 million of debt. As we continue to execute this strategy, our revenue, ~~and~~ Funds From Operations, and capital expenditures are likely to decrease in the short term. Proceeds from ~~these potential~~ dispositions ~~would~~are intended to be used primarily for the repayment of debt, which will likely decrease our interest expense in the short term. Further to this strategy, we previously announced that we entered into a purchase and sale agreement with respect to the following properties: One and Two Ravinia Drive in Atlanta, Georgia; and One Overton Park in Atlanta, Georgia. Aggregate gross proceeds under the purchase and sale agreement would be approximately $219.5 million. The potential sale of One and Two Ravinia Drive and

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used for the repayment of debt, repurchases of our common stock, any special dividends required to meet REIT requirements, and other general corporate purposes.

Further to this strategy, on May 27, 2021, we sold One Ravinia, Two Ravinia and One Overton Park ~~remain subject~~in Atlanta Georgia for aggregate gross proceeds of approximately $219.5 million. On June 29, 2021, we sold Loudoun Technology Center in Sterling, Virginia for gross proceeds of approximately $17.25 million. On August 31, 2021, we sold River Crossing in Indianapolis, Indiana for gross proceeds of $35 million. On September 23, 2021, we sold Timberlake and Timberlake East, in Chesterfield, Missouri for aggregate gross proceeds of $67 million. During the three months ended June 30, 2021, we repaid approximately $155 million of term loan indebtedness and the approximately $47.5 million that had been drawn under our revolving line of credit. During the three months ended September 30, 2021, we repaid $90 million of term loan indebtedness.

On October 5, 2021, we entered into a Purchase and Sale Agreement with a third-party buyer for the disposition of two properties located in Chantilly, Virginia for a purchase price of approximately $40 million. Assuming satisfaction of certain customary conditions to ~~customary~~close, including successful completion by the buyer of a due diligence inspection period, the closing ~~conditions. These dispositions are~~of the sale of the properties is expected to ~~close~~take place during the fourth quarter of 2021.

On October 22, 2021, we sold 999 Peachtree in Atlanta Georgia for gross proceeds of approximately $223.9 million. On October 25, 2021, the ~~second quarter~~Company repaid $15.0 million of the BAML Revolver and $200.0 million of the BAML Term Loan using proceeds from the sale of the property.

On June 15, 2021, the credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service to Ba1 from Baa3. The interest rate applicable to borrowings under our credit facilities is based in part on the rating of our debt. We anticipate that as a result of this downgrade we will incur an additional approximately $0.8 million in additional interest costs over the balance of 2021 and $3.2 million in additional interest costs over a full twelve month period based on our borrowings as of September 30, 2021.

Trends and Uncertainties

COVID-19 Outbreak

Beginning in January 2020, there was a global outbreak of COVID-19, which continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. It has already disrupted global travel supply chains, adversely impacted global commercial activity, and its long-term economic impact remains uncertain. Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, as well as the availability and effectiveness of vaccines, therapeutics and any responses taken on a national and local level by government authorities and businesses. The travel restrictions, limits on hours of operations and/or closures of various businesses and other efforts to curb the spread of COVID-19 ~~have~~ significantly disrupted business activity globally, including in the markets where we own ~~properties, and we expect them to have an adverse impact on our business.~~properties. Many of our tenants ~~are~~have been subject to various quarantine restrictions, and do not fully occupy the ~~restrictions could be in place for an extended period of time.~~space that they lease. The pandemic has had an adverse impact on economic and market conditions ~~and triggered a global economic slowdown. The reduction~~ in economic activity worldwide has had a significant negative effect on energy prices, which, if sustained, could have an adverse impact on occupancy and rental rates in energy-influenced markets such as Dallas, Denver and Houston, where we have a significant concentrationvarious sectors of ~~properties.~~the economy. However, the evolving nature of the pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our business. Nevertheless, the COVID-19 pandemic presents 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 potential negative impact to leasing efforts and occupancy at our properties, the potential closure of certain of our assets for an extended period, 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, ~~a potential downgrade in our credit rating that could lead to increased borrowing costs or reduce our access to funding sources in credit and capital markets,~~ 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, our ability to complete required capital expenditures in a timely manner and on budget, decrease 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 impact the COVID-19 pandemic will have on our future financial results at this time. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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We have been following and directing our vendors to follow the guidelines from the Centers for Disease Control and other applicable authorities to minimize the spread of COVID-19 among our employees, tenants, vendors and visitors, as well as at our properties. ~~We have implemented working from home policies for our employees.~~ During the ~~three~~nine months ended ~~March 31, 2021 and as of April~~September 30, 2021, all of our properties remained open for business. ~~Although some~~Some of our tenants have requested rent concessions, and more tenants may request rent concessions or may not pay rent in the future ~~as of March 31, 2021, we had collected in excess of approximately 99% of rental receipts due in March 2021.~~. Future rent concession requests or nonpayment of rent could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, extended lease terms, increased tenant improvement capital expenditures, or reduced rental rates to maintain occupancies. We review each rent concession request on a case by case basis and may or may not provide rent concessions, depending on the specific circumstances involved. Cash, cash equivalents and restricted cash were ~~$4.1~~$9.7 million as of ~~March 31,~~September 30, 2021. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BAML Revolver ($~~572.5~~600 million as of ~~March 31,~~September 30, 2021) 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. 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 estate properties.

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Economic Conditions

The economy in the United States has been adversely impacted as a result of the COVID-19 pandemic. Economic conditions directly affect the demand for office space, our primary income producing asset. The broad economic market conditions in the United States are typically 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, monetary, trade and tax policies, changes in currency exchange rates, geopolitical events, the regulatory environment, the availability of credit, and interest rates. As of the date of this report, the impact of the COVID-19 pandemic and related fallout from containment and mitigation measures, such as work from home arrangements and the closing of various businesses, is adversely affecting current economic conditions in the United States.

Real Estate Operations

As of ~~March 31,~~September 30, 2021, our real estate portfolio was comprised of 3326 operating properties, which we refer to as our operating properties, and one redevelopment property, which we refer to as our redevelopment property, that is in the process of being redeveloped. We collectively refer to our operating and our redevelopment properties as our owned portfolio. Our 3326 operating properties were approximately ~~81.9%~~80.0% leased as of ~~March 31,~~September 30, 2021, a decrease from 85.0% leased as of December 31, 2020. The ~~3.1%~~5.0% decrease in leased space was a result of the impact from the disposition of four properties in the second quarter of 2021, the disposition of three properties in the third quarter of 2021 and of lease expirations and terminations, which exceeded leasing completed during the ~~three~~nine months ended ~~March 31,~~September 30, 2021. As of ~~March 31,~~September 30, 2021, we had approximately ~~1,725,000~~1,536,000 square feet of vacancy in our operating properties compared to approximately 1,397,000 square feet of vacancy at December 31, 2020. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, we leased approximately ~~377,000~~892,000 square feet of office space, of which approximately ~~370,000~~622,000 square feet were with existing tenants, at a weighted average term of ~~9.3~~7.8 years. On average, tenant improvements for such leases were ~~$18.67~~$25.08 per square foot, lease commissions were ~~$10.23~~$11.61 per square foot and rent concessions were approximately ~~nine~~eight months of free rent. Average GAAP base rents under such leases were ~~$28.46~~$30.10 per square foot, or ~~1.7% lower~~2.0% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2020.

We reclassify redevelopment properties as operating properties when the property redevelopment is complete and leasing has ~~stabilitized.~~stabilized. Given the length of the redevelopment and lease-up process, the reclassification of a property may take a significant amount of time.

As of ~~March 31,~~September 30, 2021, our sole redevelopment property was an approximately 111,000 square foot property known as Stonecroft in Chantilly, Virginia. The redevelopment of Stonecroft commenced in August 2020. We expect to incur ~~total~~ redevelopment ~~and~~costs (excluding lease-up ~~costs~~costs) of ~~$18.5~~$5.1 million, which includes significant interior work to make the space suitable for multiple ~~tenants, or to accommodate a tenant with accredited security requirements.~~tenants. As of ~~March 31,~~September 30, 2021, we had incurred approximately ~~$2.3~~$3.6 million in redevelopment costs. We anticipate completing the redevelopment during the fourth quarter of 2021. On October 5, 2021, we entered into a

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Purchase and Sale Agreement with a third-party buyer for the disposition of Stonecroft and our other office property located in Chantilly, Virginia for a purchase price of approximately $40 million. Assuming satisfaction of certain customary conditions to close, including successful completion by ~~July 31,~~the buyer of a due diligence inspection period, the closing of the sale of the properties is expected to take place during the fourth quarter of 2021. We expect to incur the remaining redevelopment costs of approximately $1.6 million prior to the anticipated closing of the sale of the property in the fourth quarter of 2021. If the expected sale of Stonecroft does not occur, we expect to incur additional lease-up and stabilization costs prior to the property becoming an operating property.

Our property known as Blue Lagoon in Miami, Florida, was substantially completed during the first quarter of 2021, and had previously been classified as a redevelopment property. As of ~~March 31,~~September 30, 2021, the property had leases signed and a tenant occupying approximately 73.1% of the rentable square feet of the property. ~~On September 13, 2019, we entered into a lease agreement with a new tenant with an initial term of 16 years for approximately 156,000 square feet, or 73.1% of the property’s rentable square feet.~~

As of ~~March 31,~~September 30, 2021, leases for approximately ~~4.9%~~0.9% and ~~8.8%~~7.9% of the square footage in our owned portfolio are scheduled to expire during 2021 and 2022, respectively. As the ~~second~~fourth quarter of 2021 begins, we believe that our operating properties are ~~well~~ 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 COVID-19 pandemic and related containment and mitigation measures may limit or delay new tenant leasing during at least the ~~second~~fourth quarter of 2021 and potentially in future periods.

While we cannot generally predict when an existing vacancy in our owned 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 exists for any of our tenants to default on its lease or to seek the protection

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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.

Dispositions of Properties

We sold three office properties located in Atlanta, Georgia on May 27, 2021 with an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021 with a sales price of approximately $35 million, at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. On October 22, 2021, the Company sold 999 Peachtree in Atlanta Georgia for a sales price of approximately $223.9 million, at a gain of approximately $86.8 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. Atlanta, Georgia is in the sunbelt region of the United States, and our current strategy is to continue to invest in this region. Accordingly, the properties sold remained classified within continuing operations for all periods presented.

Critical Accounting Policies

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 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, 2020.

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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 are consistently applied and produce financial information that fairly presents our results of operations.

Recent Accounting Standards

In March 2020, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently assessing the potential impact that the adoption of ASU 2020-04 may have on its consolidated financial statements.

Results of Operations

The following table shows financial results for the three months ended ~~March 31,~~September 30, 2021 and 2020:


	Three months ended March 31,						Three months ended September 30,
(in thousands)	2021		2020		Change		2021		2020		Change
Revenues:
Rental	$	58,623	$	62,567	$	(3,944)	$	50,326	$	61,834	$	(11,508)
Related party revenue:
Management fees and interest income from loans		410		403		7		419		400		19
Other		6		13		(7)		57		13		44
Total revenues		59,039		62,983		(3,944)		50,802		62,247		(11,445)
Expenses:
Real estate operating expenses		15,939		17,298		(1,359)		14,373		16,730		(2,357)
Real estate taxes and insurance		12,366		11,762		604		10,200		12,279		(2,079)
Depreciation and amortization		24,381		22,338		2,043		18,862		22,076		(3,214)
General and administrative		4,146		3,525		621		3,749		3,817		(68)
Interest		8,600		9,063		(463)		7,928		8,953		(1,025)
Total expenses		65,432		63,986		1,446		55,112		63,855		(8,743)

Loss before taxes		(6,393)		(1,003)		(5,390)
Loss on extinguishment of debt								(236)		—		(236)
Gain on sale of properties, net								8,632		—		8,632
Income (loss) before taxes and equity in income of non-consolidated REITs								4,086		(1,608)		5,694
Tax expense		67		68		(1)		51		71		(20)
Equity in income of non-consolidated REITs								421		—		421

Net loss	$	(6,460)	$	(1,071)	$	(5,389)
Net income (loss)							$	4,456	$	(1,679)	$	6,135

~~Table of Contents~~

Comparison of the three months ended ~~March 31,~~September 30, 2021 to the three months ended ~~March 31,~~September 30, 2020:

Revenues

Total revenues decreased by ~~$3.9~~$11.5 million to ~~$59.0~~$50.8 million for the three months ended ~~March 31,~~September 30, 2021, as compared to the three months ended ~~March 31,~~September 30, 2020. The decrease was primarily a result of:

●

A decrease in rental revenue of approximately ~~$3.9~~$11.5 million arising primarily from the sale of ~~a property~~eight properties in the last twelve months and a tenant bankruptcy in December 2020 and other losses of rental income from leases that expired after ~~March 31,~~September 30, 2020 and during the three months ended ~~March 31,~~September 30, 2021, compared to the three months ended ~~March 31,~~September 30, 2020. These decreases were partially offset by rental income earned from leases commencing after ~~March 31,~~September 30, 2020. Our

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leased space in our operating properties was ~~81.9%~~80.0% at ~~March 31.~~September 30, 2021 and ~~85.4%~~85.6% at ~~March 31,~~September 30, 2020.

Expenses

Total expenses ~~increased~~decreased by ~~$1.4~~$8.7 million to ~~$65.4~~$55.1 million for the three months ended ~~March 31,~~September 30, 2021, as compared to the three months ended ~~March 31,~~September 30, 2020. The ~~increase~~decrease was primarily a result of:

●

~~An increase to depreciation and amortization of approximately $2.0 million.~~

●

~~An increase in general and administrative expenses of $0.6 million, which was primarily from higher professional fees and personnel costs.~~

~~These increases were partially offset by:~~

●

A decrease in real estate operating expenses and real estate taxes and insurance of approximately ~~$0.8 million.~~$4.4 million primarlity attributable to the property dispositions noted above.

●

A decrease in depreciation and amortization of approximately $3.2 million primarlity attributable to the property dispositions noted above.

��

A decrease in general and administrative expenses of $0.1 million, which was primarily from lower professional fees.

●

A decrease to interest expense of approximately ~~$0.4~~$1.0 million. The decrease was primarily from lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset by higher interest rates during the three months ended ~~March 31,~~September 30, 2021 compared to the same period in 2020.

Loss on extinguishment of debt

During the three months ended September 30, 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.2 million related to unamortized deferred financing costs on the date of the repayment.

Gain on sale of properties, net

During the three months ended September 30, 2021, we sold an office property located in Indianapolis, Indiana on August 31, 2021, with a sales price of approximately $35 million at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. There were no property sales during the three months ended September 30, 2020.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which ~~increased $1,000~~decreased $20,000 during the three months ended ~~March 31,~~September 30, 2021 compared to the three months ended ~~March 31,~~September 30, 2020.

Net ~~loss~~income (loss)

Net ~~loss~~income for the three months ended ~~March 31,~~September 30, 2021 was ~~$6.5~~$4.5 million compared to a net loss of ~~$1.1~~$1.7 million for the three months ended ~~March 31,~~September 30, 2020, for the reasons described above.

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The following table shows financial results for the nine months ended September 30, 2021 and 2020:


	Nine months ended September 30,
(in thousands)	2021		2020		Change
Revenues:
Rental	$	164,671	$	184,799	$	(20,128)
Related party revenue:
Management fees and interest income from loans		1,246		1,208		38
Other		69		31		38
Total revenues		165,986		186,038		(20,052)
Expenses:
Real estate operating expenses		45,664		49,498		(3,834)
Real estate taxes and insurance		34,461		36,348		(1,887)
Depreciation and amortization		62,379		66,659		(4,280)
General and administrative		11,857		11,159		698
Interest		26,582		26,996		(414)
Total expenses		180,943		190,660		(9,717)

Loss on extinguishment of debt		(403)		—		(403)
Gain on sale of properties, net		29,258		—		29,258
Income (loss) before taxes on income and equity in income of non-consolidated REITs		13,898		(4,622)		18,520
Tax expense on income		174		203		(29)
Equity in income of non-consolidated REITs		421		—		421

Net income (loss)	$	14,145	$	(4,825)	$	18,970

Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020:

Revenues

Total revenues decreased by $20.1 million to $166.0 million for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The decrease was primarily a result of:

●

A decrease in rental revenue of approximately $20.1 million arising primarily from the sale of eight properties in the last twelve months and a tenant bankruptcy in December 2020 and other loss of rental income from leases that expired after September 30, 2020 during the nine months ended September 30, 2021 compared the same period in 2020. These decreases were partially offset by rental income earned from leases commencing after September 30, 2020. Our leased space in our operating properties was 80.0% at September 30, 2021 and 85.6% at September 30, 2020.

Expenses

Total expenses decreased by $9.7 million to $180.9 million for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The decrease was primarily a result of:

●

A decrease in real estate operating expenses and real estate taxes and insurance of approximately $5.7 million primarlity attributable to the property dispositions noted above.

●

A decrease in depreciation and amortization of approximately $4.3 million primarlity attributable to the property dispositions noted above.

●

A decrease in interest expense of approximately $0.4 million. The decrease was primarily from lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset

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by higher interest rates during the nine months ended September 30, 2021 compared to the same period in 2020.

These decreases were partially offset by:

●

An increase general and administrative expenses of approximately $0.7 million, which was primarily from professional fees.

Loss on extinguishment of debt

During the nine months ended September 30, 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.4 million related to unamortized deferred financing costs on the date of the repayment.

Gain on sale of properties, net

During the nine months ended September 30, 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 with an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021, with a sales price of approximately $35 million at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. There were no property sales during the nine months ended September 30, 2020.

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 $29,000 during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Net income (loss)

Net income for the nine months ended September 30, 2021 was $14.1 million compared to a net loss of $4.8 million for the nine months ended September 30, 2020, 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, 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 mortgage loans, 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					For the
	Three Months Ended					Three Months Ended					Nine Months Ended
	March 31,					September 30,					September 30,
(in thousands):	2021			2020		2021			2020		2021			2020
Net loss	$	(6,460)	$		(1,071)
Gain on sale of property		—			—
Net income (loss)						$	4,456	$		(1,679)	$	14,145	$		(4,825)
Gain on sale of properties							(8,632)			—		(29,258)			—
Equity in income of non-consolidated REITs							(421)			—		(421)			—
FFO from non-consolidated REITs							421			—		421			—
Depreciation and amortization		24,349			22,265		18,861			21,989		62,340			66,424
NAREIT FFO		17,889			21,194		14,685			20,310		47,227			61,599
Lease Acquisition costs		116			98		112			136		297			333

Funds From Operations	$	18,005		$	21,292	$	14,797		$	20,446	$	47,524		$	61,932

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 extinguishment of debt, 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 in the periods presented, which we call Same Store. The comparative Same Store results include properties held for the periods presented and exclude properties that are redevelopment properties. We also

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exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI

~~Table of Contents~~

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									Rentable
	Square									Square							Nine Months								Nine Months
	Feet	Three Months Ended		Three Months Ended		Inc		%		Feet	Three Months Ended						Ended		Three Months Ended						Ended		Inc		%
(in thousands)	or RSF	31-Mar-21		31-Mar-20		(Dec)		Change		or RSF	31-Mar-21		30-Jun-21		30-Sep-21		30-Sep-21		31-Mar-20		30-Jun-20		30-Sep-20		30-Sep-20		(Dec)		Change
Region
East	573	$	949	$	1,325	$	(376)	(28.4)	%	437	$	592	$	685	$	642	$	1,919	$	896	$	1,218	$	591	$	2,705	$	(786)	(29.1)	%
MidWest	1,557		5,378		5,485		(107)	(2.0)	%	1,000		3,139		3,184		3,470		9,793		3,412		3,062		3,000		9,474		319	3.4	%
South	4,387		12,423		13,290		(867)	(6.5)	%	3,202		9,555		9,207		8,482		27,244		10,312		9,975		10,387		30,674		(3,430)	(11.2)	%
West	2,624		10,369		11,463		(1,094)	(9.5)	%	2,625		10,369		9,901		10,144		30,414		11,463		11,211		10,975		33,649		(3,235)	(9.6)	%
Property NOI* from Operating Properties	9,141		29,119		31,563		(2,444)	(7.7)	%	7,264		23,655		22,977		22,738		69,370		26,083		25,466		24,953		76,502		(7,132)	(9.3)	%
Dispositions and Redevelopment Properties (a)	519		642		1,311		(669)	(1.8)	%	519		6,106		5,023		2,625		13,754		6,791		6,730		7,244		20,765		(7,011)	(5.2)	%
Property NOI*	9,660	$	29,761	$	32,874	$	(3,113)	(9.5)	%	7,783	$	29,761	$	28,000	$	25,363	$	83,124	$	32,874	$	32,196	$	32,197	$	97,267	$	(14,143)	(14.5)	%

Same Store		$	29,119	$	31,563	$	(2,444)	(7.7)	%		$	23,655	$	22,977	$	22,738	$	69,370	$	26,083	$	25,466	$	24,953	$	76,502	$	(7,132)	(9.3)	%

Less Nonrecurring
Items in NOI* (b)			32		26		6	(0.1)	%			32		34		281		347		26		810		351		1,187		(840)	0.9	%

Comparative
Same Store		$	29,087	$	31,537	$	(2,450)	(7.8)	%		$	23,623	$	22,943	$	22,457	$	69,023	$	26,057	$	24,656	$	24,602	$	75,315	$	(6,292)	(8.4)	%


																		Nine Months								Nine Months
		Three Months Ended		Three Months Ended							Three Months Ended							Ended	Three Months Ended							Ended
Reconciliation to Net Income (Loss)		31-Mar-21		31-Mar-20							31-Mar-21			30-Jun-21		30-Sep-21		30-Sep-21	31-Mar-20			30-Jun-20		30-Sep-20		30-Sep-20
Net loss		$	(6,460)	$	(1,071)
Net income (loss)											$	(6,460)	$	16,149	$	4,456	$	14,145	$	(1,071)	$	(2,075)	$	(1,679)	$	(4,825)
Add (deduct):
Loss on extinguishment of debt												—		167		236		403		—		—		—		—
Gain on sale of properties, net												—		(20,626)		(8,632)		(29,258)		—		—		—		—
Management fee income			(465)		(478)							(465)		(403)		(380)		(1,248)		(478)		(446)		(484)		(1,408)
Depreciation and amortization			24,381		22,338							24,381		19,136		18,861		62,378		22,338		22,245		22,076		66,659
Amortization of above/below market leases			(32)		(73)							(32)		(6)		—		(38)		(73)		(75)		(86)		(234)
General and administrative			4,146		3,525							4,146		3,962		3,749		11,857		3,525		3,817		3,817		11,159
Interest expense			8,600		9,063							8,600		10,054		7,928		26,582		9,063		8,980		8,953		26,996
Interest income			(394)		(382)							(394)		(399)		(404)		(1,197)		(382)		(381)		(386)		(1,149)
Equity in income of non-consolidated REITs												—		—		(421)		(421)		—						—
Non-property specific items, net			(15)		(48)							(15)		(34)		(30)		(79)		(48)		131		(14)		69


Property NOI*		$	29,761	$	32,874						$	29,761	$	28,000	$	25,363	$	83,124	$	32,874	$	32,196	$	32,197	$	97,267

(a)	We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized. We also include properties that have been placed in service, but that 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.

2529

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The information presented below provides the weighted average GAAP rent per square foot for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 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 non-consolidated 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

March 31,

Rent per Occupied

Property Name

City

State

Renovated

Square Feet

Sq. Ft.

2021 (a)

Square Feet (b)

Forest Park

Charlotte

NC

1999/2020

64,198

22,136

34.5
%
$
25.93

Meadow Point

Chantilly

VA

1999

138,537

97,419

70.3
%

24.72

Innsbrook

Glen Allen

VA

1999

298,183

170,680

57.2
%

18.65

Loudoun Tech Center

Dulles

VA

1999

136,658

135,209

98.9
%

20.73

Stonecroft (c)

Chantilly

VA

2008

111,469

—

—
%

—

East total

749,045

425,444

56.8
%

21.08

Northwest Point

Elk Grove Village

IL

1999

177,095

177,095

100.0
%

29.90

909 Davis Street

Evanston

IL

2002

195,098

182,104

93.3
%

40.68

River Crossing

Indianapolis

IN

1998

205,729

204,700

99.5
%

25.16

Timberlake

Chesterfield

MO

1999

234,496

224,319

95.7
%

32.88

Timberlake East

Chesterfield

MO

2000

117,036

97,866

83.6
%

26.99

121 South 8th Street

Minneapolis

MN

1974

297,209

249,269

83.9
%

23.75

801 Marquette Ave

Minneapolis

MN

1923/2017

129,821

48,021

37.0
%

35.11

Plaza Seven

Minneapolis

MN

1987

330,096

283,024

85.7
%

32.61

Midwest total

1,686,580

1,466,398

86.9
%

30.49

Blue Lagoon Drive

Miami

FL

2002/2021

213,182

103,862

48.7
%

26.23

One Overton Park

Atlanta

GA

2002

387,267

361,010

93.2
%

21.58

Park Ten

Houston

TX

1999

157,460

112,962

71.7
%

31.29

Addison Circle

Addison

TX

1999

289,325

242,194

83.7
%

31.40

Collins Crossing

Richardson

TX

1999

300,887

251,241

83.5
%

27.42

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The information presented below provides the weighted average GAAP rent per square foot for the three months ended March 31, 2021 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 non-consolidated 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

March 31,

Rent per Occupied

Property Name

City

State

Renovated

Square Feet

Sq. Ft.

2021 (a)

Square Feet (b)

Eldridge Green

Houston

TX

1999

248,399

248,399

100.0
%
$
29.01

Park Ten Phase II

Houston

TX

2006

156,746

148,924

95.0
%

29.14

Liberty Plaza

Addison

TX

1985

216,952

157,898

72.8
%

23.12

Legacy Tennyson Center

Plano

TX

1999/2008

207,049

125,741

60.7
%

15.28

One Legacy Circle

Plano

TX

2008

214,110

120,672

56.4
%

38.79

One Ravinia Drive

Atlanta

GA

1985

386,602

306,537

79.3
%

26.49

Two Ravinia Drive

Atlanta

GA

1987

411,047

276,594

67.3
%

27.24

Westchase I & II

Houston

TX

1983/2008

629,025

329,609

52.4
%

28.03

Pershing Park Plaza

Atlanta

GA

1989

160,145

158,447

98.9
%

33.67

999 Peachtree

Atlanta

GA

1987

621,946

524,363

84.3
%

34.52

South Total

4,600,142

3,468,453

75.4
%

28.45

380 Interlocken

Broomfield

CO

2000

240,359

175,703

73.1
%

33.73

1999 Broadway

Denver

CO

1986

680,255

480,940

70.7
%

33.20

1001 17th Street

Denver

CO

1977/2006

655,420

627,958

95.8
%

37.08

600 17th Street

Denver

CO

1982

610,730

526,877

86.3
%

32.26

Greenwood Plaza

Englewood

CO

2000

196,236

196,236

100.0
%

25.21

390 Interlocken

Broomfield

CO

2002

241,512

239,990

99.4
%

33.03

West Total

2,624,512

2,247,704

85.6
%

33.39

Total Owned Properties

9,660,279

7,607,999

78.8
%
$
29.89


						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.	2021 (a)		Square Feet (b)

Forest Park	Charlotte	NC	1999/2020	64,198	31,534	49.1	%	$	25.29
Meadow Point	Chantilly	VA	1999	138,537	97,419	70.3	%		26.15
Innsbrook	Glen Allen	VA	1999	298,183	170,680	57.2	%		18.66
Stonecroft (c)	Chantilly	VA	2008	111,469	—	—	%		—
East total				612,387	299,633	48.9	%		21.79
Northwest Point	Elk Grove Village	IL	1999	177,095	177,095	100.0	%		30.27
909 Davis Street	Evanston	IL	2002	195,098	182,105	93.3	%		41.83
121 South 8th Street	Minneapolis	MN	1974	298,121	256,056	85.9	%		23.33
801 Marquette Ave	Minneapolis	MN	1923/2017	129,821	71,713	55.2	%		15.72
Plaza Seven	Minneapolis	MN	1987	330,096	282,529	85.6	%		33.27
Midwest total				1,130,231	969,498	85.8	%		30.41
Blue Lagoon Drive	Miami	FL	2002/2021	213,182	138,611	65.0	%		26.21
Park Ten	Houston	TX	1999	157,609	113,195	71.8	%		30.25
Addison Circle	Addison	TX	1999	289,325	242,194	83.7	%		32.30
Collins Crossing	Richardson	TX	1999	300,887	251,241	83.5	%		27.40
Eldridge Green	Houston	TX	1999	248,399	248,399	100.0	%		27.89
Park Ten Phase II	Houston	TX	2006	156,746	148,924	95.0	%		29.20
Liberty Plaza	Addison	TX	1985	217,191	160,396	73.9	%		21.84
Legacy Tennyson Center	Plano	TX	1999/2008	207,049	98,638	47.6	%		23.75
One Legacy Circle	Plano	TX	2008	214,110	120,672	56.4	%		38.46
Westchase I & II	Houston	TX	1983/2008	629,025	330,364	52.5	%		28.05
Pershing Park Plaza	Atlanta	GA	1989	160,145	96,824	60.5	%		33.58
999 Peachtree	Atlanta	GA	1987	621,946	524,425	84.3	%		34.60
South Total				3,415,614	2,473,883	72.4	%		29.99
380 Interlocken	Broomfield	CO	2000	240,359	155,440	64.7	%		33.00
1999 Broadway	Denver	CO	1986	680,255	461,825	67.9	%		33.69
1001 17th Street	Denver	CO	1977/2006	655,420	625,205	95.4	%		37.02
600 17th Street	Denver	CO	1982	610,730	518,937	85.0	%		32.90
Greenwood Plaza	Englewood	CO	2000	196,236	196,236	100.0	%		25.13
390 Interlocken	Broomfield	CO	2002	241,512	239,991	99.4	%		32.99
West Total				2,624,512	2,197,634	83.7	%		33.56

Total Owned Properties				7,782,744	5,940,648	76.3	%	$	30.97

(a)	Based on weighted occupied square feet for the ~~three~~nine months ended ~~March 31,~~September 30 2021, including month-to-month tenants, divided by the Property’s net rentable square footage.

(b)	Represents annualized GAAP rental revenue for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, per weighted occupied square foot.

(c)	We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized.

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Liquidity and Capital Resources

Cash, cash equivalents and restricted cash were ~~$4.1~~$9.7 million and $4.2 million at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively. The ~~decrease~~increase of ~~$0.1~~$5.6 million is attributable to ~~$1.6~~$26.9 million provided by operating activities, plus $264.3 million provided by investing activities less ~~$16.0~~$285.7 million used ~~for investing activities plus $14.3 million provided by~~in financing activities. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing debt financing will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. We have extension options on our ~~JPM Term Loan and~~ BAML Revolver (discussed below), which management expects to exercise, or we may seek to replace this indebtedness with new loans or extend the current loans. 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. 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 estate properties.

Operating Activities

Cash provided by operating activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 of ~~$1.6~~$26.9 million is primarily attributable to a net ~~loss~~income of ~~$6.5~~$14.1 million less $29.3 million of gains on sale of properties, net, plus the add-back of ~~$23.1~~$61.6 million of non-cash expenses, plus a decrease in tenant rent receivables of ~~$3.3~~$5.0 million and proceeds received from a liquidating distribution from a non-consoldiated REIT of $0.4 million. These increases were partially offset by an increase in payment of deferred leasing commissions of $10.9 million, a decrease in accounts payable and accrued compensation of ~~$12.1 million, an increase in payment of deferred leasing commissions of $5.1~~$8.8 million, an increase in tenant security deposits of ~~$0.6~~$2.5 million, an increase in lease acquisition costs of $1.7 million and an increase in prepaid expenses and other assets of ~~$0.5~~$1.0 million.

Investing Activities

Cash ~~used for~~provided by investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 of ~~$16.0~~$264.3 million is primarily attributable to proceeds from the sale of seven properties of $319.3 million less purchases of other real estate assets and office equipment ~~investments.~~investments of $55.0 million.

Financing Activities

Cash ~~provided by~~used in financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 of ~~$14.3~~$285.7 million is primarily attributable to repayment of the JPM Term Loan (as defined below) of $100.0 million, repayment of a tranche of the BMO Term Loan (as defined below) of $55.0 million, repayment of a portion of the BAML Term Loan (as defined below) of $90 million, net ~~borrowings~~repayments on the BAML Revolver (as defined below) of ~~$24.0~~$3.5 million, stock repurchases of $8.2 million and ~~was partially offset by~~ distributions paid to stockholders of ~~$9.7~~$29.0 million.

JPM Term Loan

On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which ~~provides~~provided a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”). On December 24, 2020, the Company repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, ~~so that~~and $100 million ~~remains~~remained fully advanced and outstanding under the JPM Term Loan. ~~The JPM Term Loan matures~~On June 4, 2021, the Company repaid the remaining $100 million outstanding on the loan, which had been scheduled to mature on November 30, 2021, ~~which maturity date may be extended by two additional six-month periods, or until November 30, 2022 (subject~~and incurred a loss on extinguishment of debt of $0.1 million related to ~~specified exceptions).~~unamortized deferred financing costs. The ~~JPM Term Loan~~repayment was ~~previously evidenced by~~made with a ~~Credit Agreement, dated November 30, 2016, among~~portion of the ~~Company, JPMorgan, as administrative agent and lender, and~~proceeds from the ~~other lending institutions party thereto, as amended by a First Amendment, dated October 18, 2017.~~

~~The JPM Term Loan bears interest at either (i) a number~~May 27, 2021 sales of ~~basis points over a LIBOR-based rate depending on~~ the Company’s credit rating (125.0 basis points over the LIBOR-based rate at March 31, 2021) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25.0 basis points over the base rate at March 31, 2021).three Atlanta properties.

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Although the interest rate on the JPM Term Loan iswas variable under the JPM Credit Agreement, the Company fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions. On March 7, 2019, the Company entered into ISDA Master Agreements with various financial institutions to hedge a $100 million portion of the future LIBOR-based rate risk under the JPM Credit Agreement. Effective March 29, 2019, the Company fixed the LIBOR-based rate at 2.44% per annum on ~~the~~a $100 million ~~remaining~~ portion of the JPM Term Loan until November 30, 2021. ~~Accordingly, based upon the Company’s credit rating, as of March 31,~~On June 4, 2021, the ~~effective~~Company paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on ~~the JPM Term Loan was 3.69% per annum.~~November 30, 2021.

Based upon the Company’s credit rating, as of December 31, 2020, the weighted average interest rate on the unhedged $50 million portion of the JPM Term Loan during the year ended December 31, 2020 was approximately 1.90% per annum. The $50 million portion of the JPM Term Loan was repaid on December 24, 2020.

The JPM 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, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. 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, and minimum unsecured interest coverage. The JPM Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the JPM 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 JPM Credit Agreement immediately due and payable, and enforce any and all rights of the lenders or administrative agent under the JPM 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. We were in compliance with the JPM Term Loan financial covenants as of March 31, 2021.

BMO Term Loan

On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal, as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $220 million (the “BMO Term Loan”) ~~that~~, of which $165 million remains fully advanced and outstanding. The BMO Term Loan ~~consists~~initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. ~~The~~On June 4, 2021, the Company repaid the tranche A term loan ~~matures~~that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The repayment was made with a portion of the proceeds from the May 27, 2021 sales of the three Atlanta properties. The $165 million tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that allows up to $100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions.

Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate by entering into interest rate swap transactions. 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, which ~~expired~~matured on August 26, 2020. On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of ~~March 31,~~September 30, 2021, the effective interest rate on the BMO Term Loan was ~~3.64%~~4.04% per annum. On June 4, 2021, the Company paid approximately $0.6 million to terminate the portion of the interest rate swap on tranche A, which was scheduled to mature on November 30, 2021.

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ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest 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 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 events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. We were in compliance with the BMO Term Loan financial covenants as of ~~March 31,~~September 30, 2021.

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BAML Credit Facility

BAML Revolver Highlights

●

Borrowings made pursuant to the BAML Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date of January 12, 2022. The Company has the right to extend the maturity date of the BAML Revolver by two additional six month periods, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions.

●

As of ~~March 31,~~September 30, 2021, there were no borrowings ~~of $27.5 million~~ outstanding under the BAML Revolver. The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating ~~(1.20%~~(1.55% over LIBOR at ~~March 31,~~September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating ~~(0.20%~~(0.55% over the base rate at ~~March 31,~~September 30, 2021). 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. The facility fee is assessed against the total amount of the BAML Revolver, or $600 million ~~(0.25%~~(0.30% at ~~March 31,~~September 30, 2021).

Based upon the Company’s credit rating, as of ~~March 31,~~September 30, 2021, the interest rate on the BAML Revolver ~~was 1.31%~~would have been 1.63% per ~~annum.~~annum had any borrowings been outstanding. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 was approximately ~~1.31%~~1.32% per annum. As of December 31, 2020, there were $3.5 million of borrowings outstanding under the BAML Revolver. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2020 was approximately 1.65% per annum.

BAML Term Loan Highlights

●

The original principal amount of the BAML Term Loan ~~is for~~was $400 million. On September 30, 2021, the Company repaid a $90 million portion of the BAML Term Loan. As of September 30, 2021, $310 million remained outstanding under the BAML Term Loan.

●

The BAML Term Loan matures on January 12, 2023.

●

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●

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

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the BAML Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ~~ending~~ended on September 27, 2021. ~~Accordingly, based~~Based upon the Company’s credit rating, as of ~~March 31,~~September 30, 2021, the ~~effective~~ interest rate on the BAML Term Loan was ~~2.47%~~1.83% per annum. The weighted average variable interest rate on all amounts outstanding under the BAML Term Loan after the expiration of the interest rate swaps, from September 28 through September 30, 2021 was approximately 1.84% per annum.

BAML Credit Facility General Information

The BAML Credit Facility 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, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. 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, and minimum unsecured interest coverage. The BAML Credit Facility provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BAML Credit Facility). 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 BAML Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BAML Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BAML Credit Facility and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BAML Credit Facility financial covenants as of ~~March 31,~~September 30, 2021.

Senior Notes

On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes. Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $200 million of senior unsecured notes consisting of (i) ~~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 “Senior Notes”). On December 20, 2017, the Senior Notes were funded and proceeds were used to reduce the outstanding balance of the BAML Revolver.

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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

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indebtedness or certain 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 Senior Notes financial covenants as of ~~March 31,~~September 30, 2021.

Stock Repurchase Program

On June 23, 2021, we announced a share repurchase program under which we are authorized to repurchase up to $50 million of our common stock. The share repurchase program may be suspended or discontinued at any time. During the three months ended September 30, 2021, we repurchased 1,762,038 shares of common stock at an average price per share of $4.68. As of September 30, 2021, $41.8 million remained authorized for repurchase under the program. Future repurchases of common stock will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors.

Equity Securities

From time to time, we expect to 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.

Contingencies

From time to time, we may provide financing to Sponsored REITs in the form of a construction loan and/or a revolving line of credit secured by a mortgage. As of ~~March 31,~~September 30, 2021, we had one secured loan outstanding for $21 million principal amount with one Sponsored REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes. We anticipate that ~~advances made under these facilities~~the outstanding amounts of this loan will be repaid ~~at their maturity date or earlier~~ from ~~refinancing, long term financings~~sale of the ~~underlying properties, cash flows from the underlying properties or another other capital event.~~collateral.

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

We intend to draw on the BAML Credit Facility in the future for a variety of corporate purposes, including the acquisition of properties that we acquire directly for our portfolio and for Sponsored REIT Loans 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 advances made under these facilities will be repaid at their maturity date or earlier from refinancing, long term financings of the underlying properties, cash flows from the underlying properties or another capital event. Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two to three years.

Our Sponsored REIT Loans subject us to credit risk. However, we believe that our position as asset manager of each of the Sponsored REITs helps mitigate that risk by providing us with unique insight and the ability to rely on qualitative analysis of the Sponsored REITs. Before making a Sponsored REIT Loan, we consider a variety of subjective factors, including the quality of the underlying real estate, leasing, the financial condition of the applicable Sponsored REIT and local

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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.

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Additional information about our Sponsored REIT Loans outstanding as of ~~March 31,~~September 30, 2021, including a summary table of our Sponsored REIT Loans, is incorporated herein by reference to Part 1, Item 1, Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans” and Note 10 “Subsequent Events”, in the Notes to Consolidated Financial Statements included in this report.

Other Considerations

We generally pay the ordinary annual operating expenses of our properties from the rental revenue generated by the properties. For the three and nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively, the rental income exceeded the expenses for each individual property, with the exception of ~~Stonecroft~~801 Marquette for the three and nine months ended September 30, 2021, Pershing Park for the three months ended ~~March~~September 30, 2021 and Stonecroft for the three and nine months ended September 30, 2020.

801 Marquette has approximately 130,000 square feet of rentable space, which is 91.8% leased as of September 30, 2021. During the three months ended September 30, 2021, we determined that a lease was not collectible and wrote off related rents and receivables against rental income. The tenant continues to occupy the space and is on a cash basis for revenue recognition. The property had $22,000 in rental income and $334,000 of operating expenses for the three months ended September 30, 2021 and had $852,000 of rental income and $1,026,000 or operating expenses for the nine months ended September 30, 2021.

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, ~~2020.~~2021. During the three months ended September 30, 2021, we signed a lease with a new tenant for approximately 100,000 square feet that has not commenced. The property had $178,000 of rental income and $510,000 of operating expenses for the three months ended September 30, 2021.

Stonecroft had approximately 111,000 square feet of rentable space and became vacant in December 2019. We had no rental income and operating expenses of ~~$172,000~~$69,000 related to this property during the three months ended ~~March 31,~~September 30, 2020. We had no rental income and operating expenses of $514,000 related to this property during the nine months ended September 30, 2020.

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, 2020.

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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 interest rate derivative instruments to manage exposure to interest rate changes. As of ~~March 31,~~September 30, 2021 and December 31, 2020, if market rates on our outstanding borrowings under the BAML Revolver and the BAML Term Loan not subject to an interest rate swap increased by 10% at maturity, or approximately 1318 and 13 basis points, respectively, over the current variable rate, the increase in interest expense would decrease future earnings and cash flows by ~~$36,000~~$0.6 million and $5,000 annually, respectively. Based upon our credit rating, the interest rate on the BAML Revolver as of ~~March 31,~~September 30, 2021 had amounts been outstanding would have been LIBOR plus 155 basis points, or 1.63% per annum. Based upon our credit rating, the interest rate on the BAML Term Loan as of September 30, 2021 was LIBOR plus ~~120~~175 basis points, or ~~1.31%~~1.83% per annum. No amounts were drawn on the BAML Revolver and $310 million was outstanding on the BAML Term Loan as of September 30, 2021. We do not believe that the interest rate risk on the BAML Revolver isand the BAML Term Loan are material as of ~~March 31,~~September 30, 2021.

Although the interest rates on the BMO Term Loan, the BAML Term Loan and the JPM Term Loan are variable, the Company fixed the base LIBOR interest rates on the BMO Term Loan and the BAML Term Loan, and the LIBOR-based rate on the remaining $100 million portion of the JPM Term Loan, by entering into interest rate swap agreements. On July 22, 2016, the Company fixed the interest rate for the period beginning on September 27, 2017 and ~~ending~~ended on September 27, 2021 on the BAML Term Loan with multiple interest rate swap agreements (the “2017 Interest Rate Swap”). On March 7, 2019, the Company fixed the interest rate for the period beginning on March 29, 2019 and ending on November 30, 2021 for the notional value of $100 million on the JPM Term Loan with interest rate swap agreements (the “2019 JPM Interest Rate Swap”). On June 4, 2021, the Company paid approximately $1.2 million to terminate the 2019 JPM Interest Rate Swap, which was scheduled to mature on November 30, 2021. On February 20, 2019, the Company fixed the interest rate for the period beginning August 26, 2020 and ending January 31, 2024 on the BMO Term Loan with interest rate swap agreements (the “2019 BMO Interest Rate Swap”). On June 4, 2021, the Company paid approximately $0.6 million to terminate $55 million in Notional Value on the 2019 BMO Interest Rate Swap, which was scheduled to mature on November 30, 2021. Accordingly, based upon our credit rating, as of ~~March 31,~~September 30, 2021, ~~the interest rate on the BAML Term Loan was 2.47% per annum,~~ the interest rate on the BMO Term Loan was ~~3.64% per annum, and the interest rate on $100 million of the JPM Term Loan was 3.69%~~4.04% per annum. The fair value of these interest rate swaps are affected by changes in market interest rates. We believe that we have mitigated 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 that we have mitigated interest rate risk with respect to the~~ BMO Term Loan through the 2019 BMO Interest Rate Swap until January 31, 2024. ~~We believe that we have mitigated the~~This interest rate ~~risk on the remaining $100 million portion of the JPM Term Loan until November 30, 2021 with the 2019 JPM Interest Rate Swap. These interest rate swaps were~~swap was our only derivative ~~instruments~~instrument as of ~~March 31,~~September 30, 2021.

The table below lists our derivative instruments, which are hedging variable cash flows related to interest on our BAML Term Loan, BMO Term Loan and a portion of the JPM Term Loan as of ~~March~~September 30, 2021 and December 31, ~~2021~~2020 (in thousands):


	Notional		Strike		Effective	Expiration	Fair Value (2) at March 31,				Notional		Strike		Effective	Expiration	Fair Value (2) at
(in thousands)	Value		Rate		Date	Date	2021			2020	Value		Rate		Date	Date	September 30, 2021		December 31, 2020

2017 Interest Rate Swap	$	400,000	1.12	%	Sep-17	Sep-21	$	(1,981)	$	(4,902)	$	400,000	1.12	%	Sep-17	Sep-21	$	—	$	(2,947)
2019 JPM Interest Rate Swap	$	100,000	2.44	%	Mar-19	Nov-21	$	(1,540)	$	(3,529)	$	100,000	2.44	%	Mar-19	Nov-21	$	—	$	(2,102)
2019 BMO Interest Rate Swap (1)	$	220,000	2.39	%	Aug-20	Jan-24	$	(10,177)	$	(12,988)	$	165,000	2.39	%	Aug-20	Jan-24	$	(7,583)	$	(12,262)
2013 BMO Interest Rate Swap	$	220,000	2.32	%	Aug-13	Aug-20	$	—	$	(1,616)

(1) The Notional Value will decrease to $165 million on November 30, 2021.
(1) The Notional Value was $220 million and decreased to $165 million on June 4, 2021.
(2) Classified within Level 2 of the fair value hierarchy.

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Our BMO Term Loan, BAML Term Loan and JPM Term Loan hedging transactions used derivative instruments that involve 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 cause a significant loss of basis in either or both of the contracts. We require our derivatives contracts to be with counterparties that have investment grade ratings. As a result, we do not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that we will be able to adequately protect against the foregoing risks or that we will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.

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The Company’s derivatives are recorded at fair value in other assets and liabilities in the consolidated balance sheets, the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the consolidated statements of comprehensive income (loss).

The following table presents, as of ~~March 31,~~September 30, 2021, our contractual variable rate borrowings under our BAML Revolver, which matures on January 12, 2022, under our ~~JPM Term Loan, which matures on November 30, 2021, under our~~ BAML Term Loan, which matures on January 12, 2023, ~~under our BMO Term Loan Tranche A, which matures on November 30, 2021,~~ under our BMO Term Loan Tranche B, which matures on January 31, 2024, under our Series A Notes, which mature on December 20, 2024, and under our Series B Notes, which mature on December 20, 2027. Under the BAML Revolver, ~~and the JPM Term Loan,~~ we have the right to extend the initial maturity date with two additional six month extensions, or until January 12, 2023, ~~and November 30, 2022, respectively,~~ upon payment of a fee and satisfaction of certain customary conditions.


	Payment due by period														Payment due by period
	(in thousands)														(in thousands)
	Total		2021		2022		2023		2024		2025		Thereafter		Total		2021		2022		2023		2024		2025		Thereafter
BAML Revolver	$	27,500	$	—	$	27,500	$		$	—	$	—	$	—	$	—	$	—	$	—	$		$	—	$	—	$	—
JPM Term Loan		100,000		100,000		—		—		—		—		—
BAML Term Loan		400,000		—		—		400,000		—		—		—		310,000		—		—		310,000		—		—		—
BMO Term Loan Tranche A		55,000		55,000		—		—		—		—		—
BMO Term Loan Tranche B		165,000		—		—		—		165,000		—		—		165,000		—		—		—		165,000		—		—
Series A Notes		116,000		—		—		—		116,000		—		—		116,000		—		—		—		116,000		—		—
Series B Notes		84,000		—		—		—		—		—		84,000		84,000		—		—		—		—		—		84,000
Total	$	947,500	$	155,000	$	27,500	$	400,000	$	281,000	$	—	$	84,000	$	675,000	$	—	$	—	$	310,000	$	281,000	$	—	$	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 ~~March 31,~~September 30, 2021. 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 (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 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 ~~March 31,~~September 30, 2021, 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.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended ~~March 31,~~September 30, 2021, 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 March 31, 2021, 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, 2020.~~ 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, 2020, 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, 2020 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

~~None.~~On June 23, 2021, FSP Corp. announced that the Board of Directors of FSP Corp. had authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time.

The following table provides information about purchases by Franklin Street Properties Corp. during the quarter ended September 30, 2021 of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934:

Issuer Purchases of Equity Securities


Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2021 through July 31, 2021	0	N/A	0	$50,000,000
August 1, 2021 through August 31, 2021	681,158	$4.81	681,158	$46,725,733
September 1, 2021 through September 30, 2021	1,080,880	$4.60	1,080,880	$41,755,544
Total:	1,762,038	$4.68	1,762,038	$41,755,544

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit No.		Description

3.1 (1)		Articles of Incorporation, as amended

3.2 (2)		Amended and Restated By-laws.

~~10.1 (3)~~10.1*		Purchase and Sale Agreement dated ~~March 5,~~September 29, 2021, by and ~~among~~between FSP ~~One Ravinia Drive LLC, FSP Two Ravinia Drive LLC, FSP One Overton Park~~999 Peachtree Street LLC and ~~CP ACQUISITION III LLC, as amended by First Amendment to Purchase and Sale Agreement dated April 8, 2021, as amended by Second Amendment to Purchase and Sale Agreement dated April 15, 2021.~~Piedmont Operating Partnership, LP.

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 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 ~~March 31,~~September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Comprehensive Income (Loss); and (vi) the Notes to Consolidated Financial Statements.

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 10-Q, filed on 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 April 16, 2021 (File No. 001-32470).
~~(3)~~		~~Incorporated by reference to Exhibit 10.1 to FSP Corp.’s Current Report on Form 8-K, filed April 20, 2021 (File No. 001-32470).~~

*		Filed herewith.

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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: ~~May 4,~~November 8, 2021	/s/ George J. Carter	Chief Executive Officer and Director
	George J. Carter	(Principal Executive Officer)


Date: ~~May 4,~~November 8, 2021	/s/ John G. Demeritt	Chief Financial Officer
	John G. Demeritt	(Principal Financial Officer)

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