FRANKLIN STREET PROPERTIES CORP MA

Previous wording

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, 2023. 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 the impact of recessionary concerns, inflation, energy prices and interest rates, as well as those resulting from the COVID-19 pandemic, including the impact of work-from-home policies, and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, our inability to extend and/or refinance our debt or effect asset sales sufficient to repay such debt prior to the maturity dates thereof, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future potential property dispositions, expectations for future potential leasing activity, expectations for the potential payment of special dividends, changes in interest rates as a result of economic market conditions, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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, 2023. 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 the impact of recessionary concerns, inflation, energy prices and interest rates, as well as those resulting from the COVID-19 pandemic, and the impact of work-from-home and return-to-work policies, and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, our inability to extend and/or refinance our debt or effect asset sales sufficient to repay such debt prior to the maturity dates thereof, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future potential property dispositions, expectations for future potential leasing activity, expectations for the potential payment of special dividends, changes in interest rates as a result of economic market conditions, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

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

Current wording

As of September 30, 2024, approximately 4.8 million square feet, or approximately 92.8 % of our total owned and consolidated portfolio, was located in Dallas, Denver, Houston and Minneapolis.

Previous wording

For the six months ended June 30, 2024 and the year ended December 31, 2023, our disposition strategy resulted in aggregate gross sale proceeds of $35.0 million and $154.5 million, respectively. On July 8, 2024, we sold a property located in Glen Allen, Virginia for a gross selling price of $31.0 million.

Current wording

For the nine months ended September 30, 2024 and the year ended December 31, 2023, our disposition strategy resulted in aggregate gross sale proceeds of $66.0 million and $154.5 million, respectively.

Previous wording

The credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service from Ba1 to Ba3 on April 12, 2023, and from Ba3 to B3 on June 14, 2023, which continues to be the rating as of June 30, 2024. As of February 21, 2024, the interest rate applicable to borrowings under the Senior Notes are no longer based on the rating of our debt.

Current wording

The credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service from Ba1 to Ba3 on April 12, 2023, and from Ba3 to B3 on June 14, 2023, which continues to be the rating as of September 30, 2024. As of February 21, 2024, the interest rate applicable to borrowings under the Senior Notes ceased to be based on the rating of our debt.

Previous wording

Considerable uncertainty still surrounds the long-term impact of the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, and on the commercial real estate market and our business. Many of our tenants still do not fully occupy the space that they lease. The impact of the COVID-19 pandemic continues to present material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the impact of work-from-home policies, the potential negative impact to leasing efforts and occupancy at our properties, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, negative impacts on our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, making more difficult our ability to complete required capital expenditures in a timely manner and on budget, decreases in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. We are unable to estimate the full extent of the long-term impact that the COVID-19 pandemic will have on our future financial results at this time. See “Risk Factors” in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Considerable uncertainty still surrounds the long-term impact of the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, and on the commercial real estate market and our business. Many of our tenants still do not fully occupy the space that they lease. The impact of the COVID-19 pandemic continues to present material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the impact of work-from-home and return-to-work policies, the potential negative impact to leasing efforts and occupancy at our properties, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, negative impacts on our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, making more difficult our ability to complete required capital expenditures in a timely manner and on budget, decreases in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. We are unable to estimate the full extent of the long-term impact that the COVID-19 pandemic will have on our future financial results at this time. See “Risk Factors” in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

Although recent indicators suggest that economic activity has expanded at a modest pace, the global economy continues to experience significant disruptions as a result of various factors, including geopolitical events such as the ongoing wars between Russia and Ukraine and between Israel and Hamas, a U.S. designated Foreign Terrorist Organization, in the Gaza Strip and ongoing conflicts in various other parts of the Middle East, increasing tensions with China and Iran, the long-term impact of the COVID-19 pandemic and continuing supply chain difficulties. In addition, various economic factors, including but not limited to, inflation and interest rates, are contributing to recessionary concerns for the economy of the United States. Economic conditions directly affect the demand for office space, our primary income producing asset. In addition, the broad economic market conditions in the United States are typically affected by numerous other factors, including but not limited to, employment levels, energy prices, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, the regulatory environment and the availability of credit. During 2023, the Federal Reserve raised the federal funds rate target several times, most recently increasing it by 25 basis points on July 26, 2023, to a range of 5.25%

Current wording

Although recent indicators suggest that economic activity has expanded at a modest pace, the global economy continues to experience significant disruptions as a result of various factors, including geopolitical events such as the ongoing wars between Russia and Ukraine, between Israel and Hamas, a U.S. designated foreign Terrorist Organization, in the Gaza Strip, and between Israel and Hezbollah, a U.S. designated Foreign Terrorist Organization, in Lebanon and ongoing conflicts in various other parts of the Middle East, increasing tensions with China and Iran, the long-term impact of the COVID-19 pandemic and continuing supply chain difficulties. In addition, various economic factors, including but not limited to, inflation and interest rates, are contributing to recessionary concerns for the economy of the United States. Economic conditions directly affect the demand for office space, our primary income producing asset. In addition, the broad economic market conditions in the United States are typically affected by numerous other factors, including but not limited to, employment levels, energy prices, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, the regulatory environment and the availability of credit. During 2023 and 2024, the Federal Reserve adjusted the federal funds rate target several times, most recently decreasing it by 50 basis points on September 18, 2024, to a

Previous wording

to 5.50%. If interest rates continue to increase, then the interest costs on our unhedged variable rate debt would be adversely affected, which could in turn adversely affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders. As of June 30, 2024, approximately 50.6% of our total debt constituted unhedged variable rate debt. Increasing interest rates could also decrease the amount third parties are willing to pay for our assets and limit our ability to incur new debt or refinance existing debt when it matures. As of the date of this report, the impact of current economic conditions and geopolitical events and the long-term impact of the COVID-19 pandemic are adversely affecting the demand for office space in the United States.

Current wording

range of 4.75% to 5.0%. If interest rates increase, then the interest costs on our unhedged variable rate debt would be adversely affected, which could in turn adversely affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders. As of September 30, 2024, approximately 50.6% of our total debt constituted unhedged variable rate debt. Increased interest rates could also decrease the amount third parties are willing to pay for our assets and limit our ability to incur new debt or refinance existing debt when it matures. As of the date of this report, the impact of current economic conditions and geopolitical events and the long-term impact of the COVID-19 pandemic are adversely affecting the demand for office space in the United States.

Previous wording

As of June 30, 2024, our real estate portfolio was comprised of 16 owned properties, which we refer to as our owned properties, and a non-controlling common stock interest in the corporation that is the sole member of FSP Monument Circle LLC, which corporation was organized to operate as a real estate investment trust, which we refer to as the Sponsored REIT. The Sponsored REIT, which we also refer to as Monument Circle, was consolidated effective January 1, 2023. We refer to these 17 properties as our owned and consolidated properties. Our owned properties were approximately 72.3% leased as of June 30, 2024, a decrease from 74.0% leased as of December 31, 2023. The 1.7% decrease in leased space was primarily a result of lease maturities that occurred during the six months ended June 30, 2024, and the impact on leased percentage from the disposition of one property on January 26, 2024. These decreases were partially offset by new leasing during the six months ended June 30, 2024. As of June 30, 2024, we had approximately 1,456,000 square feet of vacancy in our owned properties compared to approximately 1,445,000 square feet of vacancy at December 31, 2023. During the six months ended June 30, 2024, we leased approximately 272,000 square feet of office space in our owned properties, of which approximately 180,000 square feet were with existing tenants, at a weighted average term of 6.1 years. On average, tenant improvements for such leases were $28.18 per square foot, lease commissions were $8.57 per square foot and rent concessions were approximately four months of free rent. Average GAAP base rents under such leases were $28.10 per square foot, or 12.0% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2023.

Current wording

As of September 30, 2024, our real estate portfolio was comprised of 15 owned properties, which we refer to as our owned properties, and a non-controlling common stock interest in the corporation that is the sole member of FSP Monument Circle LLC, which corporation was organized to operate as a real estate investment trust, which we refer to as the Sponsored REIT. The Sponsored REIT, which we also refer to as Monument Circle, was consolidated effective January 1, 2023. We refer to these 16 properties as our owned and consolidated properties. Our owned properties were approximately 70.4% leased as of September 30, 2024, a decrease from 74.0% leased as of December 31, 2023. The 3.6% decrease in leased space was primarily a result of lease maturities that occurred during the nine months ended September 30, 2024, and the impact on leased percentage from the disposition of a properties on January 26, 2024 and July 8, 2024, respectively. These decreases were partially offset by new leasing during the nine months ended September 30, 2024. As of September 30, 2024, we had approximately 1,469,000 square feet of vacancy in our owned properties compared to approximately 1,445,000 square feet of vacancy at December 31, 2023. During the nine months ended September 30, 2024, we leased approximately 364,000 square feet of office space in our owned properties, of which approximately 242,000 square feet were with existing tenants, at a weighted average term of 5.4 years. On average, tenant improvements for such leases were $25.30 per square foot, lease commissions were $7.83 per square foot and rent concessions were approximately four months of free rent. Average GAAP base rents under such leases were $29.94 per square foot, or 10.9% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2023.

Previous wording

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

Current wording

Our owned and consolidated properties were approximately 67.7% and 72.4% leased, as of September 30, 2024 and September 30, 2023, respectively.

Previous wording

As of June 30, 2024, leases for approximately 3.1% and 8.7% of the square footage in our owned and consolidated properties are scheduled to expire during 2024 and 2025, respectively. As the third quarter of 2024 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the impact of geopolitical events, current economic conditions and the long-term impact of the COVID-19 pandemic may limit or delay new tenant leasing during at least the third quarter of 2024 and potentially in future periods.

Current wording

As of September 30, 2024, leases for approximately 1.5% and 8.4 % of the square footage in our owned and consolidated properties are scheduled to expire during 2024 and 2025, respectively. As the fourth quarter of 2024 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the impact of geopolitical events, current economic conditions and the long-term impact of the COVID-19 pandemic may limit or delay new tenant leasing during at least the fourth quarter of 2024 and potentially in future periods.

Previous wording

As of January 1, 2023, we consolidated Monument Circle into our financial statements. On October 29, 2021, we agreed to amend and restate our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan. The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023, increased the aggregate principal amount of the loan from $21 million to $24 million, and included certain other modifications. In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023. As a result of our obtaining this right

Current wording

As of January 1, 2023, we consolidated Monument Circle into our financial statements. On October 29, 2021, we agreed to amend and restate our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan. The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023, increased the aggregate principal amount of the loan from $21 million to $24 million, and included certain other modifications. In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any

Previous wording

to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023. On June 26, 2023, the Sponsored REIT Loan maturity was initially extended to September 30, 2023 and on September 26, 2023 was further extended to September 30, 2024.

Current wording

sale of the property owned by Monument Circle any time on or after January 1, 2023. As a result of our obtaining this right to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023. On June 26, 2023, the Sponsored REIT Loan maturity was initially extended to September 30, 2023 and on September 26, 2023 was further extended to September 30, 2024. On September 27, 2024, the Sponsored REIT Loan maturity was extended to September 30, 2025.

Previous wording

During 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023, for a sales price of $29.1 million, at a gain of approximately $8.4 million. During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina at an expected loss of $0.8 million, which was recorded as an impairment, and we classified the property as an asset held for sale as of June 30, 2023. The property was sold on August 9, 2023, for a sales price of $9.2 million, at a loss of $0.8 million, which had been our expected loss. During the three months ended September 30, 2023, we recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project. In addition, during the three months ended September 30, 2023, we executed purchase and sale agreements with four different unrelated purchasers for the potential sale of four properties. Three of these potential dispositions were classified as assets held for sale as of September 30, 2023. On October 26, 2023, we completed the sale of one of the assets held for sale as of September 30, 2023, an office building located in Plano, Texas for a sales price of $48.0 million at a gain of approximately $10.6 million. On December 6, 2023, we sold another of the assets held for sale, an office property located in Miami, Florida for a sales price of $68.0 million at a loss of approximately $18.9 million. The one remaining asset held for sale was expected to sell for a sales price of $40.0 million at a loss of approximately $20.5 million, which was recorded as an impairment as of September 30, 2023; however on November 15, 2023, we received notice from the buyer indicating that the buyer was terminating the transaction and directing the deposit and interest be disbursed to us. During the three months ended December 31, 2023, we executed a purchase and sale agreement to sell a property located in Richardson, Texas for $35 million at an expected loss of approximately $2.1 million, which had been recorded as an impairment as of December 31, 2023.

Current wording

In the three months ended March 31, 2023, we sold an office property located in Elk Grove, Illinois for a sales price of $29.1 million, at a gain of approximately $8.4 million. During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina at an expected loss of $0.8 million, which was recorded as an impairment, and we classified the property as an asset held for sale as of June 30, 2023. The property was sold on August 9, 2023, for a sales price of $9.2 million, at a loss of $0.8 million, which had been our expected loss. During the three months ended September 30, 2023, we recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project. In addition, during the three months ended September 30, 2023, we executed purchase and sale agreements with four different unrelated purchasers for the potential sale of four properties. Three of these potential dispositions were classified as assets held for sale as of September 30, 2023. On October 26, 2023, we completed the sale of one of the assets held for sale as of September 30, 2023, an office building located in Plano, Texas for a sales price of $48.0 million at a gain of approximately $10.6 million. On December 6, 2023, we sold another of the assets held for sale, an office property located in Miami, Florida for a sales price of $68.0 million at a loss of approximately $18.9 million. The one remaining asset held for sale was expected to sell for a sales price of $40.0 million at a loss of approximately $20.5 million, which was recorded as an impairment as of September 30, 2023; however, on November 15, 2023, we received notice from the buyer indicating that the buyer was terminating the transaction and directing the deposit and interest be disbursed to us. During the three months September 30, 2024, the expected loss on this property was increased by $6.6 million after the Company entered into a new agreement to sell the property for a gross sales price of $34.0 million. The property was sold on October 23, 2024. During the three months ended December 31, 2023, we executed a purchase and sale agreement to sell a property located in Richardson, Texas for $35 million at an expected loss of approximately $2.1 million, which had been recorded as an impairment as of December 31, 2023.

Previous wording

During the three months ended June 30, 2024, the Company entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately $31.0 million and an expected loss of $13.2 million, which was recorded as an impairment as of June 30, 2024. The property was sold on July 8, 2024. On July 10, 2024, the Company used proceeds of $25.3 million, or 90% of the net proceeds from the disposition, to repay outstanding indebtedness.

Current wording

During the three months ended June 30, 2024, the Company entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately $31.0 million and an expected loss of $13.2 million, which was recorded as an impairment as of June 30, 2024. The property was sold on July 8, 2024. During the three months ended September 30, 2024, the Company used proceeds of $25.3 million, or 90% of the net proceeds from the disposition, to repay outstanding indebtedness.

Previous wording

Total revenues decreased by $5.4 million to $30.8 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The decrease was primarily a result of:

Current wording

Total revenues decreased by $7.2 million to $29.7 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily a result of:

Previous wording

Total expenses decreased by $4.9 million to $38.9 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The decrease was primarily a result of:

Current wording

Total expenses decreased by $4.9 million to $37.9 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily a result of:

Previous wording

During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina for a sales price of $9.2 million, at an expected loss of $0.8 million, which was recorded as an impairment. We classified the property as an asset held for sale as of June 30, 2023. The property was sold on August 9, 2023.

Current wording

During the three months ended September 30, 2023, we sold an office property located in Charlotte, North Carolina for a sales price of $9.2 million at a loss of approximately $0.8 million, which had been recorded as an impairment during the three months ended June 30, 2023. During the three months ended September 30, 2023, we recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project and increased the loss on sale of the office property located in Charlotte, North Carolina known as Forest Park by $38,000 as a result of final sales adjustments.

Previous wording

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $48,000 during the three months ended June 30, 2024, compared to $75,000 during the three months ended June 30, 2023.

Current wording

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $56,000 during the three months ended September 30, 2024, compared to $70,000 during the three months ended September 30, 2023.

Previous wording

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

Current wording

Net loss for the three months ended September 30, 2024 was $15.6 million, compared to a net loss of $45.7 million for the three months ended September 30, 2023, for the reasons described above.

Previous wording

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

Current wording

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

Previous wording

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

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Comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023:

Previous wording

Total revenues decreased by $12.0 million to $62.1 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The decrease was primarily a result of:

Current wording

Total revenues decreased by $19.2 million to $91.7 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease was primarily a result of:

Previous wording

Total expenses decreased by $9.3 million to $78.5 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The decrease was primarily a result of:

Current wording

Total expenses decreased by $14.2 million to $116.4 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease was primarily a result of:

Previous wording

During the six months ended June 30, 2024 and June 30, 2023, we repaid debt and incurred a loss on extinguishment of debt of $0.1 million and $0.1 million, respectively, related to unamortized deferred financing costs on the dates of the repayments.

Current wording

During the nine months ended September 30, 2024 and September 30, 2023, we repaid debt and incurred a loss on extinguishment of debt of $0.6 million and $0.1 million, respectively, related to unamortized deferred financing costs on the dates of the repayments.

Previous wording

During the six months ended June 30, 2023, we recorded a gain on consolidation of Sponsored REIT as a result of reducing the Monument Circle loan loss reserve, which resulted in a $0.4 million gain.

Current wording

During the nine months ended September 30, 2023, we recorded a gain on consolidation of Sponsored REIT as a result of reducing the Monument Circle loan loss reserve, which resulted in a $0.4 million gain.

Previous wording

During the three months ended March 31, 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023 for a sales price of $29.1 million, at a gain of approximately $8.4 million. During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina for a sales price of $9.2 million, at an expected loss of $0.8 million, which was recorded as an impairment. We classified the property as an asset held for sale as of June 30, 2023. The property was sold on August 9, 2023.

Current wording

During the three months ended September 30, 2023, we sold an office property located in Charlotte, North Carolina for a sales price of $9.2 million at a loss of approximately $0.8 million. During the three months ended September 30, 2023, we also recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project and increased the loss on sale of Forest Park by $38,000 as a result of final sales adjustments.

Previous wording

During the six months ended June 30, 2024, we sold an office property located in Richardson, Texas on January 26, 2024, for a sales price of $35.0 million at a loss of approximately $2.1 million, The property was classified as held for sale as of December 31, 2023 and an impairment of $2.1 million was recorded during the year ended December 31, 2023. An additional $5,000 of costs related to the sale were recorded during the six months ended June 30, 2024.

Current wording

During the nine months ended September 30, 2024, we sold an office property located in Richardson, Texas on January 26, 2024, for a sales price of $35.0 million at a loss of approximately $2.1 million, The property had been classified as held for sale as of December 31, 2023 and an impairment of $2.1 million had been recorded during the year ended December 31, 2023. An additional $5,000 of costs related to the sale were recorded during the six months ended June 30, 2024.

Previous wording

During the six months ended June 30, 2024, we invested disposition proceeds in an interest-bearing account and earned $1.4 million in interest income. On February 21, 2024, we used $102.0 million of disposition proceeds to repay debt.

Current wording

During the nine months ended September 30, 2024, we invested disposition proceeds in an interest-bearing account and earned $1.7 million in interest income. On February 21, 2024, we used $102.0 million of disposition proceeds to repay debt.

Previous wording

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $106,000 during the six months ended June 30, 2024, compared to $142,000 during the six months ended June 30, 2023.

Current wording

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $162,000 during the nine months ended September 30, 2024, compared to $212,000 during the nine months ended September 30, 2023.

Previous wording

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

Current wording

Net loss for the nine months ended September 30, 2024 was $44.2 million, compared to a net loss of $51.7 million for the nine months ended September 30, 2023, for the reasons described above.

Previous wording

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

Current wording

The information presented below provides the weighted average GAAP rent per square foot for the nine months ended September 30, 2024 for our owned and consolidated properties and weighted occupancy square feet and percentages. GAAP rent includes the impact of tenant concessions and reimbursements.

Previous wording

Cash and cash equivalents were $31.5 million and $127.9 million at June 30, 2024 and December 31, 2023, respectively. The decrease of $96.4 million is attributable to $7.7 million used in operating activities, plus $21.1 million provided by investing activities less $109.8 million used in financing activities. Management believes that existing cash and cash anticipated to be generated internally by operations, including property dispositions, will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. 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 and property dispositions. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income from our real properties, property dispositions and our interest costs.

Current wording

Cash and cash equivalents were $42.4 million and $127.9 million at September 30, 2024 and December 31, 2023, respectively. The decrease of $85.5 million is attributable to $6.7 million provided by operating activities, plus $43.8 million provided by investing activities less $136.0 million used in financing activities. Management believes that existing cash and cash anticipated to be generated internally by operations, including property dispositions, will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. 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 and property dispositions. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income from our real properties, property dispositions and our interest costs.

Previous wording

Cash used in operating activities for the six months ended June 30, 2024 of $7.7 million is primarily attributable to a net loss of $28.6 million. excluding $13.2 million of impairment charges on an asset held for sale, plus the add-back of $25.1 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $13.9 million, an increase in payment of deferred leasing commissions of $2.7 million, an increase in lease acquisition costs of $0.3 million, an increase in prepaid expenses of $0.4 million and an increase in tenant receivables of $0.2 million.

Current wording

Cash provided by operating activities for the nine months ended September 30, 2024, of $6.7 million is primarily attributable to a net loss of $44.2 million. excluding $20.5 million of losses on asset sales and impairments on an asset held for sale, plus the add-back of $38.0 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $4.8 million, an increase in payment of deferred leasing commissions of $3.2 million, an increase in lease acquisition costs of $0.7 million plus a decrease in tenant receivables of $0.8 million and a decrease in prepaid expenses of $0.3 million.

Previous wording

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

Current wording

Cash provided by investing activities for the nine months ended September 30, 2024, of $43.8 million is primarily attributable to proceeds from an asset sale of $62.9 million, which was partially offset by purchases of other real estate assets and office equipment investments of $19.1 million.

Previous wording

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

Current wording

Cash used in financing activities for the nine months ended September 30, 2024 of $136.0 million is primarily attributable to the repayment of a portion of the BMO Term Loan of $36.2 million, repayment of a portion of the BofA Revolver (defined below) of $22.6 million, repayment of a portion of the BofA Term Loan (defined below) of $5.6 million, repayment of a portion of the Senior Notes (defined below) of $62.9 million, payment of deferred financing costs of $5.6 million and payment of distributions to stockholders of $3.1 million.

Previous wording

We have a term loan borrowing in the aggregate principal amount of approximately $86.0 million as of June 30, 2024, which we refer to as the BMO Term Loan, with Bank of Montreal, as administrative agent, and the other lending institutions party thereto, that matures on April 1, 2026. On February 21, 2024, we amended the BMO Term Loan by entering into a Second Amendment to Second Amended and Restated Credit Agreement with Bank of Montreal and the other lending institutions party thereto, which we refer to as the BMO Second Amendment. The BMO Second Amendment amended the Second Amended and Restated Credit Agreement dated September 27, 2018, which we refer to as the Original BMO Credit Agreement, as amended by the First Amendment to Second Amended and Restated Credit Agreement dated February 10, 2023, which we refer to as the BMO First Amendment, to, among other things: (1) extend the maturity date from October 1, 2024 to April 1, 2026; (2) change the interest rate from either 300 basis points over SOFR (Secured Overnight Financing Rate) or 200 basis points over the base rate to either 300 basis points over SOFR with a floor on SOFR of 500 basis points or 200 basis points over the base rate with a floor on the base rate of 600 basis points; (3) provide that, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan (defined below) and the Senior Notes (defined below) exceeds $200 million, the spread over SOFR or the base rate, as applicable, will permanently increase by 100 basis points, from 300 basis points to 400 basis points in the case of SOFR, and from 200 basis points to 300 basis points in the case of the base rate; (4) require mandatory prepayments of the BMO Term Loan, the BofA Term Loan and the Senior Notes with net cash proceeds from the disposition of property, assets and equity issuances as follows: (a) 25.55556% to the BMO Term Loan; (b) 20.00000% to the BofA Term Loan; (c) 44.44444% to the Senior Notes; and (d) the remaining 10% to be retained by us; (5) require that, within 90 days of the February 21, 2024 effective date of the BMO Second Amendment, certain of our subsidiaries guarantee the BMO Term Loan; (6) require that, within 90 days of the February 21, 2024 effective date of the BMO Second Amendment, we pledge our equity interests in certain of our subsidiaries as collateral for the BMO Term Loan; (7) reduce our minimum fixed charge coverage ratio from 1.50x to 1.25x; and (8) reduce our minimum unsecured interest coverage ratio from 1.75x to 1.25x. We refer to the Original BMO Credit Agreement, as amended by the BMO First Amendment and the BMO Second Amendment, as the BMO Credit Agreement.

Current wording

We have a term loan borrowing in the aggregate principal amount of approximately $78.8 million as of September 30, 2024, which we refer to as the BMO Term Loan, with Bank of Montreal, as administrative agent, and the other lending institutions party thereto, that matures on April 1, 2026. On February 21, 2024, we amended the BMO Term Loan by entering into a Second Amendment to Second Amended and Restated Credit Agreement with Bank of Montreal and the other lending institutions party thereto, which we refer to as the BMO Second Amendment. The BMO Second Amendment amended the Second Amended and Restated Credit Agreement dated September 27, 2018, which we refer to as the Original BMO Credit Agreement, as amended by the First Amendment to Second Amended and Restated Credit Agreement dated February 10, 2023, which we refer to as the BMO First Amendment, to, among other things: (1) extend the maturity date from October 1, 2024 to April 1, 2026; (2) change the interest rate from either 300 basis points over SOFR (Secured Overnight Financing Rate) or 200 basis points over the base rate to either 300 basis points over SOFR with a floor on SOFR of 500 basis points or 200 basis points over the base rate with a floor on the base rate of 600 basis points; (3) provide that, if, as of March 31, 2025, the aggregate principal amount outstanding under the BMO Term Loan, the BofA Term Loan (defined below) and the Senior Notes (defined below) exceeds $200 million, the spread over SOFR or the base rate, as applicable, will permanently increase by 100 basis points, from 300 basis points to 400 basis points in the case of SOFR, and from 200 basis points to 300 basis points in the case of the base rate; (4) require mandatory prepayments of the BMO Term Loan, the BofA Term Loan and the Senior Notes with net cash proceeds from the disposition of property, assets and equity issuances as follows: (a) 25.55556% to the BMO Term Loan; (b) 20.00000% to the BofA Term Loan; (c) 44.44444% to the Senior Notes; and (d) the remaining 10% to be retained by us; (5) require that, within 90 days of the February 21, 2024 effective date of the BMO Second Amendment, certain of our subsidiaries guarantee the BMO Term Loan; (6) require that, within 90 days of the February 21, 2024 effective date of the BMO Second Amendment, we pledge our equity interests in certain of our subsidiaries as collateral for the BMO Term Loan; (7) reduce our minimum fixed charge coverage ratio from 1.50x to 1.25x; and (8) reduce our minimum unsecured interest coverage ratio from 1.75x to 1.25x. We refer to the Original BMO Credit Agreement, as amended by the BMO First Amendment and the BMO Second Amendment, as the BMO Credit Agreement.

Previous wording

The BMO Credit Agreement initially provided for an unsecured term loan borrowing in the amount of $220 million. The BMO Term Loan initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. On June 4, 2021, we repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. On February 10, 2023, we repaid a $40 million portion of the tranche B term loan. On August 10, 2023, we repaid an additional $10 million portion of the tranche B term loan. On February 21, 2024, as part of the BMO Second Amendment, we repaid an approximately $29.0 million portion of the tranche B term loan. The tranche B term loan matures on April 1, 2026.

Current wording

The BMO Credit Agreement initially provided for an unsecured term loan borrowing in the amount of $220 million. The BMO Term Loan initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. On June 4, 2021, we repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. On February 10, 2023, we repaid a $40 million portion of the tranche B term loan. On August 10, 2023, we repaid an additional $10 million portion of the tranche B term loan. On February 21, 2024, as part of the BMO Second Amendment, we repaid an approximately $29.0 million portion of the tranche B term loan. On July 10, 2024, we repaid an approximately $7.2 million portion of the BMO Term Loan from asset sale proceeds of a property located in Glen Allen, Virginia. The tranche B term loan matures on April 1, 2026.

Previous wording

As of June 30, 2024, the interest rate on the BMO Term Loan was 8.45% per annum. The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.45% for the six months ended June 30, 2024. As of December 31, 2023, the interest rate on the BMO Term Loan was 8.47% per annum. The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan from February 8, 2023, which is when the Company terminated its outstanding interest rate swaps applicable to the BMO Term Loan as described below, through December 31, 2023 was approximately 8.11% per annum.

Current wording

As of September 30, 2024, the interest rate on the BMO Term Loan was 8.00% per annum. The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.44% for the nine months ended September 30, 2024. As of December 31, 2023, the interest rate on the BMO Term Loan was 8.47% per annum. The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan from February 8, 2023, which is when the Company terminated its outstanding interest rate swaps applicable to the BMO Term Loan as described below, through December 31, 2023 was approximately 8.11% per annum.

Previous wording

Although the interest rate on the BMO Term Loan is currently variable under the BMO Credit Agreement, we previously fixed the base LIBOR interest rate that previously applied to the BMO Term Loan by entering into interest rate swap transactions. On February 20, 2019, we entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending

Current wording

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

Previous wording

January 31, 2024. On February 8, 2023, we terminated all remaining interest rate swaps applicable to the BMO Term Loan and, on February 10, 2023, we received an aggregate of approximately $4.3 million as a result of such terminations.

Current wording

swap transactions. On February 20, 2019, we entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. On February 8, 2023, we terminated all remaining interest rate swaps applicable to the BMO Term Loan and, on February 10, 2023, we received an aggregate of approximately $4.3 million as a result of such terminations.