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 ~~September~~June 30, ~~2019~~2020.

☐

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 ~~October 24, 2019~~July 30, 2020 was ~~107,231,155.~~107,328,199.

Table of Contents

Franklin Street Properties Corp.
Form 10-Q

Quarterly Report
~~September~~June 30, ~~2019~~2020

Table of Contents


			Page
Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	3

		Consolidated Statements of ~~Income~~Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	4

		Consolidated Statements of Comprehensive Income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	5

		Consolidated Statements of Stockholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	6

		Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	7

		Notes to Consolidated Financial Statements	~~8-21~~8-18

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2219

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3937

	Item 4.	Controls and Procedures	4138

Part II.	Other Information

	Item 1.	Legal Proceedings	4239

	Item 1A.	Risk Factors	4239

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4240

	Item 3.	Defaults Upon Senior Securities	4240

	Item 4.	Mine Safety Disclosures	4240

	Item 5.	Other Information	4241

	Item 6.	Exhibits	4342

Signatures			4443

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PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

Franklin Street Properties Corp.

Consolidated Balance Sheets

(Unaudited)


	September 30,		December 31,		June 30,		December 31,
(in thousands, except share and par value amounts)	2019		2018		2020		2019
Assets:
Real estate assets:
Land	$	191,578	$	191,578	$	191,578	$	191,578
Buildings and improvements		1,900,131		1,857,935		1,964,308		1,924,664
Fixtures and equipment		11,099		8,839		12,250		11,665
		2,102,808		2,058,352		2,168,136		2,127,907
Less accumulated depreciation		476,298		432,579		522,238		490,697
Real estate assets, net		1,626,510		1,625,773		1,645,898		1,637,210
Acquired real estate leases, less accumulated amortization of $68,542 and $101,897, respectively		45,066		59,595
Acquired real estate leases, less accumulated amortization of $60,469 and $60,749, respectively						34,022		40,704
Cash, cash equivalents and restricted cash		20,159		11,177		2,890		9,790
Tenant rent receivables		4,410		3,938		4,192		3,851
Straight-line rent receivable		64,111		54,006		69,062		66,881
Prepaid expenses and other assets		8,868		10,400		6,506		7,246
Related party mortgage loan receivables		21,265		70,660		21,000		21,000
Other assets: derivative asset		2,844		14,765		—		3,022
Office computers and furniture, net of accumulated depreciation of $1,355 and $1,512, respectively		136		197
Deferred leasing commissions, net of accumulated amortization of $27,433 and $24,318, respectively		49,781		47,591
Office computers and furniture, net of accumulated depreciation of $1,409 and $1,362, respectively						196		183
Deferred leasing commissions, net of accumulated amortization of $30,958 and $28,114, respectively						51,669		52,767
Total assets	$	1,843,150	$	1,898,102	$	1,835,435	$	1,842,654

Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	—	$	25,000	$	30,000	$	—
Term loans payable, less unamortized financing costs of $4,631 and $5,722, respectively		765,369		764,278
Series A & Series B Senior Notes, less unamortized financing costs of $1,026 and $1,150, respectively		198,974		198,850
Term loans payable, less unamortized financing costs of $3,507 and $4,267, respectively						766,493		765,733
Series A & Series B Senior Notes, less unamortized financing costs of $904 and $985, respectively						199,096		199,015
Accounts payable and accrued expenses		61,657		59,183		55,712		66,658
Accrued compensation		3,769		3,043		2,278		3,400
Tenant security deposits		9,008		6,319		9,155		9,346
Lease liability		1,976		—		1,716		1,890
Other liabilities: derivative liabilities		9,934		—		22,958		7,704
Acquired unfavorable real estate leases, less accumulated amortization of $4,907 and $6,605, respectively		2,810		3,795
Acquired unfavorable real estate leases, less accumulated amortization of $4,804 and $4,676, respectively						2,024		2,512
Total liabilities		1,053,497		1,060,468		1,089,432		1,056,258

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, 107,231,155 and 107,231,155 shares issued and outstanding, respectively		11		11
Common stock, $.0001 par value, 180,000,000 shares authorized, 107,328,199 and 107,269,201 shares issued and outstanding, respectively						11		11
Additional paid-in capital		1,356,457		1,356,457		1,357,131		1,356,794
Accumulated other comprehensive income (loss)		(7,090)		14,765
Accumulated other comprehensive loss						(22,958)		(4,682)
Accumulated distributions in excess of accumulated earnings		(559,725)		(533,599)		(588,181)		(565,727)
Total stockholders’ equity		789,653		837,634		746,003		786,396
Total liabilities and stockholders’ equity	$	1,843,150	$	1,898,102	$	1,835,435	$	1,842,654

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

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Franklin Street Properties Corp.

Consolidated Statements of ~~Income~~Operations

(Unaudited)



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share amounts)	2019		2018		2019		2018		2020		2019		2020		2019

Revenues:
Rental	$	68,108	$	67,436	$	196,952	$	198,473	$	60,398	$	65,485	$	122,965	$	128,844
Related party revenue:
Management fees and interest income from loans		426		1,261		3,100		3,793		405		1,322		808		2,674
Other		5		8		16		26		5		6		18		11
Total revenues		68,539		68,705		200,068		202,292		60,808		66,813		123,791		131,529
Expenses:
Real estate operating expenses		18,041		17,946		52,883		52,051		15,470		17,116		32,768		34,842
Real estate taxes and insurance		12,505		11,651		37,408		35,120		12,307		12,801		24,069		24,903
Depreciation and amortization		22,559		23,277		67,913		70,903		22,245		22,109		44,583		45,354
General and administrative		3,886		3,394		11,097		9,908		3,817		3,702		7,342		7,211
Interest		9,036		9,935		27,775		29,174		8,980		9,371		18,043		18,739
Total expenses		66,027		66,203		197,076		197,156		62,819		65,099		126,805		131,049

Income before taxes on income and equity in income of non-consolidated REITs		2,512		2,502		2,992		5,136
Income (loss) before taxes										(2,011)		1,714		(3,014)		480
Tax expense on income		113		74		165		231		64		81		132		52
Equity in income of non-consolidated REITs		—		7,180		—		6,793

Net income	$	2,399	$	9,608	$	2,827	$	11,698
Net income (loss)									$	(2,075)	$	1,633	$	(3,146)	$	428

Weighted average number of shares outstanding, basic and diluted		107,231		107,231		107,231		107,231		107,287		107,231		107,278		107,231

Net income per share, basic and diluted	$	0.02	$	0.09	$	0.03	$	0.11
Net income (loss) per share, basic and diluted									$	(0.02)	$	0.02	$	(0.03)	$	0.00

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				For the				For the				For the
	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(in thousands)	2019		2018		2019		2018		2020		2019		2020		2019

Net income	$	2,399	$	9,608	$	2,827	$	11,698
Net income (loss)									$	(2,075)	$	1,633	$	(3,146)	$	428

Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments		(3,603)		1,069		(21,855)		10,099		77		(11,461)		(18,276)		(18,252)

Total other comprehensive income (loss)		(3,603)		1,069		(21,855)		10,099		77		(11,461)		(18,276)		(18,252)

Comprehensive income (loss)	$	(1,204)	$	10,677	$	(19,028)	$	21,797
Comprehensive loss									$	(1,998)	$	(9,828)	$	(21,422)	$	(17,824)

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

Balance, December 31, 2017	107,231	$	11	$	1,356,457	$	12,166	$	(497,342)	$	871,292
Comprehensive income	—		—		—		6,575		1,425		8,000
Distributions $0.19 per share of common stock	—		—		—		—		(20,374)		(20,374)
Balance, March 31, 2018	107,231	$	11	$	1,356,457	$	18,741	$	(516,291)	$	858,918
Comprehensive income	—		—		—		2,455		665		3,120
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)
Balance, June 30, 2018	107,231	$	11	$	1,356,457	$	21,196	$	(525,277)	$	852,387
Comprehensive income	—		—		—		1,069		9,608		10,677
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)
Balance, September 30, 2018	107,231	$	11	$	1,356,457	$	22,265	$	(525,320)	$	853,413

Balance, December 31, 2018	107,231	$	11	$	1,356,457	$	14,765	$	(533,599)	$	837,634	107,231	$	11	$	1,356,457	$	14,765	$	(533,599)	$	837,634
Comprehensive loss	—		—		—		(6,791)		(1,205)		(7,996)	—		—		—		(6,791)		(1,205)		(7,996)
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)	—		—		—		—		(9,651)		(9,651)
Balance, March 31, 2019	107,231	$	11	$	1,356,457	$	7,974	$	(544,455)	$	819,987	107,231	$	11	$	1,356,457	$	7,974	$	(544,455)	$	819,987
Comprehensive income (loss)	—		—		—		(11,461)		1,633		(9,828)	—		—		—		(11,461)		1,633		(9,828)
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)	—		—		—		—		(9,651)		(9,651)
Balance, June 30, 2019	107,231	$	11	$	1,356,457	$	(3,487)	$	(552,473)	$	800,508	107,231	$	11	$	1,356,457	$	(3,487)	$	(552,473)	$	800,508

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)	—		—		—		(3,603)		2,399		(1,204)	—		—		—		77		(2,075)		(1,998)
Equity-based compensation												59		—		337						337
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)	—		—		—		—		(9,654)		(9,654)
Balance, September 30, 2019	107,231	$	11	$	1,356,457	$	(7,090)	$	(559,725)	$	789,653
Balance, June 30, 2020												107,328	$	11	$	1,357,131	$	(22,958)	$	(588,181)	$	746,003

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 Nine Months Ended September 30,				For the Six Months Ended June 30,
(in thousands)	2019		2018		2020		2019
Cash flows from operating activities:
Net income	$	2,827	$	11,698
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)					$	(3,146)	$	428
Adjustments to reconcile net income or loss to net cash provided by operating activities:
Depreciation and amortization expense		70,072		73,127		46,055		46,791
Amortization of above and below market leases		(305)		(405)		(147)		(193)
Equity in loss of non-consolidated REITs		—		(6,793)
Shares issued as compensation						337		—
Decrease in allowance for doubtful accounts and write-off of accounts receivable		(69)		(25)		(13)		(91)
Changes in operating assets and liabilities:
Tenant rent receivables		(403)		(58)		(328)		(2,337)
Straight-line rents		(6,950)		821		(1,343)		(4,829)
Lease acquisition costs		(3,155)		(683)		(838)		(2,603)
Prepaid expenses and other assets		1,261		(487)		21		2,392
Accounts payable and accrued expenses		2,849		(2,665)		(10,006)		(8,741)
Accrued compensation		726		(797)		(1,122)		(852)
Tenant security deposits		2,689		236		(191)		2,799
Payment of deferred leasing commissions		(9,485)		(11,051)		(3,682)		(8,114)
Net cash provided by operating activities		60,057		62,918		25,597		24,650
Cash flows from investing activities:
Property improvements, fixtures and equipment		(47,905)		(35,901)		(43,189)		(28,944)
Investment in non-consolidated REITs		—		74,931
Distributions in excess of earnings from non-consolidated REITs		—		710
Investment in related party mortgage loan receivable		(2,400)		—		—		(2,400)
Repayment of related party mortgage loan receivable		51,795		795		—		51,530
Proceeds received from liquidating trust		1,470		—		—		1,470
Net cash provided by investing activities		2,960		40,535
Net cash provided by (used in) investing activities						(43,189)		21,656
Cash flows from financing activities:
Distributions to stockholders		(28,953)		(39,676)		(19,308)		(19,302)
Borrowings under bank note payable		45,000		30,000		60,000		45,000
Repayments of bank note payable		(70,000)		(91,000)		(30,000)		(70,000)
Deferred financing costs		(82)		(2,162)		—		(81)
Net cash used in financing activities		(54,035)		(102,838)
Net increase in cash, cash equivalents and restricted cash		8,982		615
Net cash provided by (used in) financing activities						10,692		(44,383)
Net increase (decrease) in cash, cash equivalents and restricted cash						(6,900)		1,923
Cash, cash equivalents and restricted cash, beginning of year		11,177		9,819		9,790		11,177
Cash, cash equivalents and restricted cash, end of period	$	20,159	$	10,434	$	2,890	$	13,100

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	23,710	$	25,388	$	16,882	$	17,383
Taxes	$	377	$	485	$	470	$	377
Non-cash investing activities:
Accrued costs for purchases of real estate assets	$	6,903	$	9,465	$	9,985	$	11,201

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~~%100% of the interest in FSP Investments LLC, FSP Property Management LLC, FSP Holdings LLC and FSP Protective TRS ~~Corp.~~Corp. FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in 2 corporations organized to operate as real estate investment trusts (“REIT”). Collectively, the 2 REITs are referred to as the “Sponsored REITs”.

As of ~~September~~June 30, ~~2019,~~2020, the Company owned and operated a portfolio of real estate consisting of 32 operating properties, 3 redevelopment properties and 2 managed Sponsored REITs and held 21 promissory ~~notes~~note secured by ~~mortgages~~a mortgage on real estate owned by a Sponsored ~~REITs, including 1 mortgage loan and 1~~ ~~revolving line of credit.~~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 ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018,~~2019, the Company had 3 redevelopment properties, ~~and 1 redevelopment property,~~ respectively, which are excluded from the table.


	As of September 30,		As of June 30,
	2019	2018	2020	2019
Operating Properties:
Number of properties	32	34	32	32
Rentable square feet	9,503,964	9,760,699	9,508,226	9,498,858

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, ~~2018,~~2019, as filed with the Securities and Exchange Commission.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~2020 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.


	September 30,		September 30,		June 30,		June 30,
(in thousands)	2019		2018		2020		2019
Cash and cash equivalents	$	20,159	$	10,434	$	2,890	$	13,100
Restricted cash		—		—		—		—
Total cash, cash equivalents and restricted cash	$	20,159	$	10,434	$	2,890	$	13,100

Recent Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (“ASU 2016-02”); in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”); and in December 2018, the FASB issued ASU No. 2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors. ASU 2016-02 requires lessees to establish a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees will continue to recognize lease expenses on their income statements in a manner similar to previous accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This new standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter with early adoption permitted. The Company adopted these standards on January 1, 2019 and applied the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Additionally, the Company’s leases met the criteria in ASU 2018-11 to not separate non-lease components from the related lease component, therefore the accounting for these leases remained largely unchanged from the previous standard. The Company applied the optional transition method in ASU 2018-11, which allows entities to initially apply the new lease standard at the adoption date. The Company recorded a right-of-use asset of $2.1 million and a lease liability of $2.2 million upon adoption of this standard. The presentation and disclosure that is required to be presented under the new lease standard is provided in Note 8.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company’s Sponsored REIT Loan (as defined in Note 2 below) receivables are within the scope of this ~~standard.~~standard and our analysis was completed using a Probability of Default / Loss Given Default Model. The Company’s receivables associated with its real estate operating leases are not within the scope of this standard. The Company ~~is currently assessing the potential impact that the~~adopted this standard on January 1, 2020. The adoption of ~~ASU 2016-13 may~~this standard did not have a material impact on ~~its~~our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The amendment also eases the application of hedge accounting in certain situations, including eliminating the requirement to separately measure and report hedge ineffectiveness for cash flow hedges. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, and earlier adoption is permitted. The Company adopted this new standard in the first quarter of 2019 using the modified retrospective method, which requires the Company to account for ASU 2017-12 as of the date of adoption with any retrospective adjustments applicable to prior periods included as a cumulative-effect adjustment to accumulated other comprehensive loss and retained earnings. No adjustment was necessary to account for the cumulative effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the

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date of adoption because there was no cumulative ineffectiveness that had been recorded on the Company’s existing interest rate swaps as of December 31, 2018, and all trades were highly effective. The amended presentation and disclosure guidance which is required to be presented prospectively under this new standard is provided in Note 4.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The ASU is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for all entities for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. This ASU amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. ASU 2018-13 ~~will be~~is effective for the Company as of January 1, ~~2020, and earlier adoption is permitted.~~2020. The Company ~~is currently assessing the potential impact that the~~adopted this standard on January 1, 2020. The adoption of ~~ASU 2018-13 may~~this standard did not have a material impact on ~~its~~the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topics 326, Financial Instruments - Credit Losses, Topic 815 Derivatives and Hedging and Topic 825, Financial Instruments (“ASU 2019-04”). The ASU clarifies areas of guidance related to the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825). The new guidance is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on our consolidated financial statements.

In March 2020, the 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 ~~2019-04~~2020-04 may have on its consolidated financial statements.

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

Investment in Sponsored REITs:

At ~~September~~each of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company held a non-controlling common stock interest in 2 ~~and 3~~ Sponsored REITs ~~respectively. The Company previously held a non-controlling preferred stock investment~~ in ~~2 Sponsored REITs, FSP 303 East Wacker Drive Corp. (“East Wacker”) and FSP Grand Boulevard Corp. (“Grand Boulevard”), which were liquidated during the three months ended September 30, 2018.~~

~~In December 2007, the Company purchased 965.75 preferred shares or 43.7~~% of the outstanding preferred shares of one of its Sponsored REITs, East Wacker. On September 24, 2018, the property owned by East Wacker was sold and, thereafter, East Wacker declared and issued a liquidating distribution for its preferred shareholders, from which the Company ~~was entitled to $70 million. On September 27, 2018, the Company received $69 million~~no longer shares in ~~an initial cash distribution, and on April 3, 2019, the Company received a $1 million distribution. As a result of the sale, the Company recognized a gain on liquidation of $7.1 million.~~

~~In May 2009, the Company purchased 175.5 preferred shares~~economic benefit or ~~27.0~~% of the outstanding preferred shares of one of its Sponsored REITs, Grand Boulevard. On July 19, 2018, the property owned by Grand Boulevard was sold and, thereafter, Grand Boulevard declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $6.2 million. On August 17, 2018, the Company received $5.9 million in an initial cash distribution, and on February 2, 2019, the Company received a $0.2 million distribution. As a result of the sale, the Company recognized a loss on liquidation of $0.1 million. As of September 30, 2019, the Company held a beneficial interest in the Grand Boulevard liquidating trust in the amount of $0.1 million, which is included in other assets in the accompanying consolidated balance sheet.

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

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~~Equity in income of investments in non-consolidated REITs:~~

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

Nine Months Ended September 30,

(in thousands)

2019

2018

Equity in income of East Wacker

$
—

$
7,209

Equity in loss of Grand Boulevard

—

(107)

Impairment charge

—

(309)

Total

$
—

$
6,793

~~The Company received distributions of $710,000 from non-consolidated REITs during the nine months ended September 30, 2018.~~

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are ~~cancelable~~cancellable with 30 days notice. Asset management fee income from non-consolidated entitiesamounted to approximately ~~$152,000~~$45,000 and ~~$375,000~~$121,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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 ~~for impairment~~ 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 ~~loan~~property’s 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 ~~impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts recorded on the balance sheet.~~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 Company has evaluated the credit loss using a loss probability, loss given default model and determined that the expected credit loss on the Sponsored REIT ~~Loans have been impaired.~~Loan is immaterial.

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

The following is a summary of the Sponsored REIT Loans outstanding as of ~~September~~June 30, ~~2019:~~2020:

Maximum

Amount

Interest

Maximum

Amount

Interest

(dollars in thousands, except footnotes)

Maturity

Amount

Drawn at

Interest

Draw

Rate at

Maturity

Amount

Outstanding

Rate at

Sponsored REIT

Location

Date

of Loan

30-Sep-19

Rate (1)

Fee (2)

30-Sep-19

Location

Date

of Loan

30-Jun-20

Secured revolving line of credit

FSP Satellite Place Corp.

Duluth, GA

31-Dec-19

5,500

265

L+

4.4

0.5

6.48

Mortgage loan secured by property

FSP Monument Circle LLC (3)

Indianapolis, IN

6-Dec-20

21,000

7.19

n/a

7.19

FSP Monument Circle LLC (1)

Indianapolis, IN

6-Dec-20

21,000

7.19

26,500

21,265

21,000

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

~~(2)~~

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

~~(3)~~

~~This~~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 of approximately ~~$2,948,000~~$763,000 and ~~$3,418,000~~$2,553,000 for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018,~~ respectively.

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~~Non-consolidated REITs:~~

The balance sheet data below for 2019 and 2018 includes the 2 Sponsored REITs the Company held an interest in as of September 30, 2019 and 3 Sponsored REITs the Company held an interest in as of December 31, 2018. The operating data below for 2019 and 2018 include the operations of the 3 and 6 Sponsored REITs in which the Company held an interest in during the nine months ended September 30, 2019 and 2018, respectively.

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

September 30,

December 31,

(in thousands)

2019

2018

Balance Sheet Data (unaudited):

Real estate, net

$
44,440

$
97,034

Other assets

9,709

18,532

Total liabilities

(22,954)

(75,382)

Shareholders’ equity

$
31,195

$
40,184

For the Nine Months Ended

September 30,

(in thousands)

2019

2018

Operating Data (unaudited):

Rental revenues

$
7,819

$
35,714

Other revenues

—

1

Operating and maintenance expenses

(4,276)

(18,479)

Depreciation and amortization

(2,971)

(11,451)

Interest expense

(2,939)

(5,692)

Gain (loss) on sale

26,195

17,095

Net income (loss)

$
23,828

$
17,188

3. Bank Note Payable, Term Loans Payable and ~~Term Note Payable~~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 a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”) that remains fully advanced and outstanding. The JPM Term Loan matures on November 30, 2021. The JPM Term Loan was previously evidenced by a Credit Agreement, dated November 30, 2016, among the Company, JPMorgan, as

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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 ~~September~~June 30, ~~2019)~~2020) 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 ~~September~~June 30, ~~2019)~~2020).

Although the interest rate on the JPM Term Loan is 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,

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based upon the Company’s credit rating, as of ~~September~~June 30, ~~2019,~~2020, the effective interest rate on a $100 million portion of the JPM Term Loan was 3.69% per annum.

Based upon the Company’s credit rating, as of ~~September~~June 30, ~~2019,~~2020, the effective interest rate on the unhedged $50 million portion of the JPM Term Loan was ~~3.31~~1.44% per annum. The weighted average interest rate on the unhedged $50 million portion of the JPM Term Loan during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was approximately ~~3.68%~~2.36% per annum. The weighted average interest rate on the JPM Term Loan during the year ended December 31, ~~2018~~2019 was approximately ~~3.33%~~3.54% per annum.

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. The Company was in compliance with the JPM Term Loan financial covenants as of ~~September~~June 30, ~~2019.~~2020.

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 amount of $220 million (the “BMO Term Loan”) that remains fully advanced and outstanding. The BMO Term Loan consists of a $55 million tranche A term loan and a $165 million tranche B term loan. The tranche A term loan matures on November 30, 2021 and the 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 basis points over LIBOR at ~~September~~June 30, ~~2019)~~2020) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (25 basis points over the base rate at ~~September~~June 30, ~~2019)~~2020).

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Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum until 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 ~~September~~June 30, ~~2019,~~2020, the effective interest rate on the BMO Term Loan was 3.57% per annum.

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

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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 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 ~~September~~June 30, ~~2019.~~

The Company may use the proceeds of the loans under the BMO Credit Agreement 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 BMO Credit Agreement.2020.

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”).

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 6six 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 ~~September~~June 30, ~~2019,~~2020, there were 0$30 million of 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% over LIBOR at ~~September~~June 30, ~~2019)~~2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.20% over the base rate at ~~September~~June 30, ~~2019)~~2020). 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% at ~~September~~June 30, ~~2019)~~2020).

Based upon the Company’s credit rating, as of ~~September~~June 30, ~~2019,~~2020, the interest rate on the BAML Revolver was ~~3.22~~1.36% per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~

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2020 was approximately ~~3.67%~~2.01% per annum. As of December 31, ~~2018,~~2019, there were 0 borrowings ~~of $25 million~~ outstanding under the BAML ~~Revolver at an interest rate of 3.63% per annum.~~Revolver. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, ~~2018~~2019 was approximately ~~3.09%~~3.67% per annum.

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BAML Term Loan Highlights

●

The BAML Term Loan is for $400 million.

●

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% over LIBOR at ~~September~~June 30, ~~2019)~~2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.35% over the base rate at ~~September~~June 30, ~~2019)~~2020).

Although the interest rate on the BAML Credit Facility is variable, the Company fixed the base LIBOR interest rate on the BAML Term Loan by entering into an interest rate swap ~~agreement.~~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 annum for the period beginning on September 27, 2017 and ending on September 27, 2021. Accordingly, based upon the Company’s credit rating, as of ~~September~~June 30, ~~2019,~~2020, the effective interest rate on the BAML Term Loan was 2.47% 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 ~~September~~June 30, ~~2019.~~2020.

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

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amount of $116 million (the “Series A Notes”) and (ii) 4.26% Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B Notes”) and, together with the Series A Notes, the ~~(“Senior~~“Senior Notes”). On

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

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 ~~September~~June 30, ~~2019.~~2020.

4. Financial Instruments: Derivatives and Hedging

On July 22, 2016, the Company fixed the interest rate for the period beginning on September 27, 2017 and ending on September 27, 2021 on the BAML Term Loan (the “2017 Interest Rate Swap”). On August 26, 2013, the Company fixed the interest rate until August 26, 2020 on the BMO Term Loan (the “2013 BMO 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 on a $100 million portion of the JPM Term Loan (the “2019 JPM Interest Rate Swap”). 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 (the “2019 BMO Interest Rate Swap”). The variable rates that were fixed under the 2017 Interest Rate Swap, the 2013 BMO 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.

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.

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The following table summarizes the notional and fair value of ~~our~~the Company’s derivative financial instruments at ~~September~~June 30, ~~2019.~~2020. The notional value is an indication of the extent of ~~our~~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		Notional		Strike		Effective	Expiration	Fair
(in thousands)	Value		Rate		Date	Date	Value		Value		Rate		Date	Date	Value

2017 Interest Rate Swap	$	400,000	1.12	%	Sep-17	Sep-21	$	2,844	$	400,000	1.12	%	Sep-17	Sep-21	$	(4,880)
2013 BMO Interest Rate Swap	$	220,000	2.32	%	Aug-13	Aug-20	$	(1,291)	$	220,000	2.32	%	Aug-13	Aug-20	$	(734)
2019 JPM Interest Rate Swap	$	100,000	2.44	%	Mar-19	Nov-21	$	(2,032)	$	100,000	2.44	%	Mar-19	Nov-21	$	(3,241)
2019 BMO Interest Rate Swap (1)	$	220,000	2.39	%	Aug-20	Jan-24	$	(6,611)	$	220,000	2.39	%	Aug-20	Jan-24	$	(14,103)

(1) The Notional Value will decrease to $165 million on November 30, 2021.

On ~~September~~June 30, ~~2019,~~2020, the 2017 Interest Rate Swap, ~~was reported as an asset at its fair value of approximately $2.8 million, which is included in other assets: derivative asset on the consolidated balance sheet at September 30, 2019. The~~ 2013 BMO Interest Rate Swap, 2019 JPM Interest Rate Swap and 2019 BMO Interest Rate Swap were reported as liabilities with an aggregate fair value of approximately ~~$9.9~~$23.0 million and are included in other liabilities: derivative liabilities in the consolidated balance sheet at ~~September~~June 30, 2019. Offsetting adjustments are reported as unrealized gains or losses on derivative financial instruments in accumulated other comprehensive income or loss of $21.9 million. During the nine months ended September 30, 2019, $4.0 million was reclassified out of other comprehensive income (“OCI”) and into interest expense.2020.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in ~~OCI~~other comprehensive income (loss) (OCI) and the accompanying consolidated statements of ~~income~~operations as a component of interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, was as follows:


(in thousands)	Nine Months Ended September 30,				Six Months Ended June 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2019		2018		2020		2019

Amounts of gain (loss) recognized in OCI	$	(17,852)	$	11,634
Amounts of loss recognized in OCI					$	(20,439)	$	(15,322)
Amounts of previously recorded gain/(loss) reclassified from OCI into Interest Expense	$	4,003	$	1,535	$	(2,163)	$	2,930

Total amount of Interest Expense presented in the consolidated statements of income	$	27,775	$	29,174
Total amount of Interest Expense presented in the consolidated statements of operations					$	18,043	$	18,739

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 ~~$2.5~~ $10.9 million of the current balance held in accumulated other comprehensive income (loss) will be reclassified into earnings within the next 12 months.

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. ~~We require our~~The Company requires its derivatives contracts to be with counterparties that have investment grade ratings. As a result, ~~we do~~the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that wethe Company will be able to adequately protect against the foregoing risks or that weit 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

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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.

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

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 ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

6. Stockholders’ Equity

As of ~~September~~June 30, ~~2019,~~2020, the Company had ~~107,231,155~~107,328,199 shares of common stock outstanding. The Company declared and paid dividends as follows (in thousands, except per share amounts):


	Dividends Per		Total
Quarter Paid	Share		Dividends

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

First quarter of 2019	$	0.09	$	9,651
Second quarter of 2019	$	0.09	$	9,651

Equity-Based Compensation

On May 20, 2002, the stockholders of the Company approved the 2002 Stock Incentive Plan (the “Plan”). The Plan is an equity-based incentive compensation plan, and provides for the grants of up to a maximum of 2,000,000 shares of the Company’s common stock (“Awards”). All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted Awards. Awards under the Plan are made at the discretion of the Company’s Board of Directors, and have no vesting requirements. Upon granting an Award, the Company will recognize compensation cost equal to the fair value of the Company’s common stock, as determined by the Company’s Board of Directors, on the date of the grant. The Company granted 55,572 shares under the Plan between 2002 and 2005, made no grants between 2006 and 2018 and granted 38,046 shares under the Plan in 2019.

Dividends Per

Total

Quarter Paid

Share

Dividends

First quarter of 2019

$
0.09

$
9,651

Second quarter of 2019

$
0.09

$
9,651

Third quarter of 2019

$
0.09

$
9,651

First quarter of 2018

$
0.19

$
20,374

Second quarter of 2018

$
0.09

$
9,651

Third quarter of 2018

$
0.09

$
9,651

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, which was recognized during the three months ended June 30, 2020 and is included in general and administrative expenses. Such shares were fully vested on the date of issuance. There are currently 1,847,384 shares available for grant under the Plan.


	Shares Available		Compensation
(in thousands)	for Grant		Cost

Balance, December 31, 2016, 2017 and 2018		1,944,428
Shares granted 2019		(38,046)	$	337,000
Balance December 31, 2019		1,906,382		337,000
Shares granted 2020		(58,998)		337,000
Balance June 30, 2020		1,847,384	$	674,000

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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 ~~beginning with calendar year 2018 and 25% for previous years~~ 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 ~~TRSs~~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 $4.4 million, $4.2 million and $4.0 million as of each of December 31, 2019, 2018 and 2017, 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

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potential changes in income tax law or in rates. ~~The Tax Cuts and Job Act of 2017 did not have a material impact on the Company’s income taxes.~~

~~Interest~~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 2016 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 June 30, 2020 and December 31, 2019.

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 ~~$277,000~~$132,000 and ~~$200,000~~$164,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

~~Net operating losses~~

~~Section 382~~Table of the Code restricts a corporation’s ability to use net operating losses (“NOLs”) to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Sponsored REITs available for use by the Company in any particular future taxable year will be limited. To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years. NOLs expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured. The Tax Cuts and Jobs Act of 2017 is not expected to have an impact on the Company’s ability to use NOLs or the valuation allowance. The gross amount of NOLs available to the Company was $13,041,000 as of each of September 30, 2019 and December 31, 2018.Contents

~~Income Tax Expense~~

The income tax expense reflected in the consolidated statements of ~~income~~operations relates primarily to a franchise tax on ~~our~~the Company’s Texas properties. FSP Protective TRS Corp. provides taxable services to tenants at some of the Company’s properties, and the tax expenses associated with these activities and a refund receivable of $0.1 million recorded during the ~~nine~~six months ended ~~September~~June 30, 2019 are reported as Other Taxes in the table below:


	For the Nine Months Ended September 30,				For the Six Months Ended June 30,
(Dollars in thousands)	2019		2018		2020		2019

Revised Texas Franchise Tax	$	277	$	200	$	132	$	164
Other Taxes		(112)		31		—		(112)
Tax expense	$	165	$	231	$	132	$	52

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 Lessee:~~

The Company entered into a noncancelable contract with a third party to obtain office space that commenced on September 1, 2010. The contract was amended on October 25, 2016 to extend the contract through September 30, 2024. As of September 30, 2019, the Company’s right-to-use asset was $1,890,000~~, which is included in prepaid and other assets on the consolidated balance sheet as of September 30, 2019.~~

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~~The Company has an option to extend the terms of its office space lease with 1 5-year~~ extension. As of September 30, 2019, the exercise of the extension option was not reasonably certain. Therefore, the extension option is not recognized as part of the Company’s right-of-use asset and lease liability.8. Leases

A discount rate equal to the Company’s incremental borrowing rate was applied to the future monthly contractual lease payments remaining as of September 30, 2019 to compute the lease liability. The incremental borrowing rate is the rate equal to the closest borrowing under the BAML Revolver at the time of the Company’s adoption of ASU 2016-02.

��
Lease Costs

For the

Nine Months Ended
(in thousands)

September 30, 2019
Operating lease cost

$
314

$
314

Other information

Cash paid for amounts included in the measurement of lease liabilities

$
308
Weighted average remaining lease terms in years - operating leases

5.0
Weighted average discount rate - operating leases

3.86%

Maturity analysis for liabilities

Total

Undiscounted
(in thousands)

Cash Flows
Discount rate at commencement

3.86%
Remainder of 2019

$
105
2020

421
2021

429
2022

438
2023

447
2024 and thereafter

340

$
2,180

Present value lease liability

$
1,976

Difference between undiscounted cash flows and discounted cash flows

$
204

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.

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For the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, the Company recognized the following amounts of income relating to lease payments:


Income relating to lease payments:	For the
	Nine Months Ended		Six Months Ended
(in thousands)	September 30, 2019		June 30, 2020		June 30, 2019
Income from leases (1)	$	189,698	$	121,474	$	123,821
	$	189,698	$	121,474	$	123,821

Undiscounted Cash Flows	Year ending
(in thousands)	December 31,
Remainder of 2019	$	43,023
2020		171,118
2021		165,230
2022		139,641
2023		123,630
2024 and thereafter		439,957
	$	1,082,599

(1) Amount from variable lease payments $48,259
(1) Amount from variable lease payments $29,945 and $32,085 for the six months ended June 30, 2020 and 2019, respectively.

9. Subsequent Events

On ~~October 11, 2019,~~July 6, 2020, the Board of Directors of the Company declared a cash distribution of $0.09 per share of common stock payable on ~~November 14, 2019~~August 6, 2020 to stockholders of record on ~~October 25, 2019.~~July 17, 2020.

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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, ~~2018.~~2019. 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 ~~United States,~~markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, 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, ~~uncertainties relating to the impact of the enactment of the Tax Cuts and Jobs Act of 2017,~~ 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, 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, ~~2018~~2019 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 ~~September~~June 30, ~~2019,~~2020, approximately ~~7.7~~7.8 million square feet, or approximately 78% of our total owned portfolio, was located in Atlanta, Dallas, Denver, Houston and Minneapolis. From time-to-time we may dispose of our smaller, suburban office assets and replace them with larger infill and central business district office assets. As we execute this strategy, short term operating results could be adversely impacted. However, we believe that the transformed portfolio has the potential to provide higher profit and asset value growth over a longer period of time.

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.

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

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and 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, as well as the effectiveness of 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. Many of our tenants are subject to various quarantine restrictions, and the restrictions could be in place for an extended period of time. 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 concentration of properties. 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 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 also Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. “Risk Factors” below.

We have been following and directing our vendors to follow the guidelines from the Centers for Disease Control (CDC) 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 months ended June 30, 2020 and as of August 4, 2020, all of our properties remained open for business. Although 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 July 31, 2020, we had collected approximately 97% of rental receipts due in July 2020. Future rent concession requests or nonpayment of rent could lead to increased customer delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions and, may in some instances, seek extended lease terms, or lower occupancy, and/or 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 $2.9 million as of June 30, 2020. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BAML Revolver ($570 million as of June 30, 2020) 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.

Economic Conditions

The economy in the United States is currently in an economic downturn with recessionary concerns 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 disproportionately affecting current economic conditions in the United States.

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Real Estate Operations

Leasing

As of June 30, 2020, our real estate portfolio was comprised of 32 operating properties, which we refer to as our operating properties, and 3 redevelopment properties, which we refer to as our redevelopment properties, that are in the process of being redeveloped, or are completed but not yet stabilized. We collectively refer to our operating and our redevelopment properties as our owned portfolio. Our 32 operating properties were approximately 84.5% leased as of June 30, 2020, a decrease from 87.6% leased as of December 31, 2019. The 3.1% decrease in leased space was a result of the impact of lease expirations and terminations, which exceeded leasing completed during the six months ended June 30, 2020. As of June 30, 2020, we had approximately 1,476,000 square feet of vacancy in our operating properties compared to approximately 1,175,000 square feet of vacancy at December 31, 2019. During the six months ended June 30, 2020, we leased approximately 324,000 square feet of office space, of which approximately 158,000 square feet were with existing tenants, at a weighted average term of 6.1 years. On average, tenant improvements for such leases were $22.91 per square foot, lease commissions were $7.85 per square foot and rent concessions were approximately four months of free rent. Average GAAP base rents under such leases were $31.28 per square foot, or 10.3% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2019.

As of June 30, 2020, our three redevelopment properties included an approximately 130,000 square foot redevelopment property known as 801 Marquette in Minneapolis, Minnesota, an approximately 213,000 square foot property known as Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property known as Forest Park in Charlotte, North Carolina. Given the length of the redevelopment and lease-up process, these properties are not classified as an operating property until, in some cases, years after we commence the project.

The redevelopment at 801 Marquette was substantially completed at the end of the second quarter of 2017 and is in the process of being leased up; however, it is not stabilized. As of June 30, 2020, we had leases signed and tenants occupying approximately 37.0% of the rentable square feet of the property. We expect to incur redevelopment and lease-up costs of $29.6 million, of which we had incurred approximately $23.1 million as of June 30, 2020.

The redevelopment of Blue Lagoon commenced in December 2018 following the maturity of a lease with a major tenant that occupied 100% 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. We expect to incur total restoration, redevelopment and lease-up costs of $39.6 million, which include work on the roof of the building, costs to make the space suitable for multiple tenants and to increase parking at the property. As of June 30, 2020, we had incurred approximately $13.3 million in total redevelopment costs. We anticipate completing the redevelopment by the end of 2020.

The redevelopment of Forest Park commenced in January 2019 following the maturity of a lease with a tenant that occupied 100% of the property through December 31, 2018. We expect to incur total redevelopment and lease-up costs of $5.7 million, which include interior work to make the space suitable for multiple tenants. As of June 30, 2020, we had incurred approximately $1.1 million in redevelopment costs. We completed the redevelopment during the three months ended June 30, 2020. We have a lease with one tenant for approximately 22,000 square feet or approximately 35.6% of the total rentable square feet, for an initial term of 11 years.

As of June 30, 2020, leases for approximately 1.8% and 9.0% of the square footage in our owned portfolio are scheduled to expire during 2020 and 2021, respectively. As the third quarter of 2020 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 third quarter of 2020 and potentially in future periods.

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bankruptcy exists. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.

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, ~~2018.~~2019.

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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. Except for the accounting for allowance for doubtful accounts impacted by ASC 842, no changes to our critical accounting policies have occurred since the filing of our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (“ASU 2016-02”), in July 2018; the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”); and in December 2018, the FASB issued ASU No. 2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors. ASU 2016-02 requires lessees to establish a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees will continue to recognize lease expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This new standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter with early adoption permitted. The Company adopted these standards on January 1, 2019 and applied the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Additionally, our leases met the criteria in ASU 2018-11 to not separate non-lease components from the related lease component, therefore the accounting for these leases remained largely unchanged from the previous standard. We applied the optional transition method in ASU 2018-11, which allows entities to initially apply the new lease standard at the adoption date. The Company recorded a right-of-use asset and a lease liability of $2.2 million upon adoption of this standard.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company’s Sponsored REIT Loan (as defined in Note 2 ~~to the~~of our consolidated financial ~~statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q)~~statements) receivables are within the scope of this standard. The Company’s receivables associated with its real estate operating leases are not within the scope of this ~~standard.~~standard and our analysis was completed using a Probability of Default / Loss Given Default Model. The Company ~~is currently assessing the potential impact that the~~adopted this standard on January 1, 2020. The adoption of ~~ASU 2016-13 may~~this standard did not have a material impact on ~~its~~our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The ASU is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for all entities for annual periods beginning after December 15, ~~2019, and interim periods within those fiscal years.~~2019. This ASU amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. ASU 2018-13 will be effective for the Company as of January 1, 2020, and earlier adoption is permitted. The Company ~~is currently assessing the potential impact that the~~adopted this standard on January 1, 2020. The adoption of ~~ASU 2018-13 may~~this standard did not have a material impact on ~~its~~our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The amendment also eases the application of hedge accounting in certain situations, including eliminating the requirement to separately measure and report hedge ineffectiveness for cash flow hedges. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, and earlier adoption is permitted. The Company adopted this new standard in the first quarter of 2019 using the modified retrospective method, which requires us to account for ASU 2017-12 as of the date of adoption with any retrospective adjustments applicable to prior periods included as a cumulative-effect adjustment to accumulated other comprehensive loss and retained earnings. No adjustment was necessary to account for the cumulative

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effect of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption because there was no cumulative ineffectiveness that had been recorded on the Company’s existing interest rate swaps as of December 31, 2018, and all trades were highly effective. The amended presentation and disclosure guidance which is required to be presented prospectively is provided in Note 4 to the consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~Trends and Uncertainties~~

~~Economic Conditions~~

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

~~Real Estate Operations~~

~~Leasing~~

As of September 30, 2019, our real estate portfolio was comprised of 32 operating properties, which we refer to as our operating properties, and 3 redevelopment properties that are in the process of being redeveloped, or are completed but not yet stabilized, which we refer to as our redevelopment properties. We collectively refer to our operating and our redevelopment properties as our owned portfolio. Our 32 operating properties were approximately 89.7% leased as of September 30, 2019, an increase from 89.0% as of December 31, 2018. The 0.7% increase in leased space was a result of the new leasing, which exceeded the impact of lease expirations and terminations during the nine months ended September 30, 2019. As of September 30, 2019, we had approximately 975,000 square feet of vacancy in our operating properties compared to approximately 1,046,000 square feet of vacancy at December 31, 2018. During the nine months ended September 30, 2019, we leased approximately 1,139,000 square feet of office space, of which approximately 695,000 square feet were with existing tenants, at a weighted average term of 8.6 years. On average, tenant improvements for such leases were $35.67 per square foot, lease commissions were $13.95 per square foot and rent concessions were approximately three months of free rent. Average GAAP base rents under such leases were $32.73 per square foot, or 11.9% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2018.

As of September 30, 2019, our three redevelopment properties included an approximately 130,000 square foot redevelopment property known as 801 Marquette in Minneapolis, Minnesota, an approximately 213,000 square foot property known as Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property known as Forest Park in Charlotte, North Carolina. Given the length of the redevelopment and lease-up process, these properties are not placed in service until, in some cases, years after we commence the redevelopment project.

The redevelopment at 801 Marquette was substantially completed at the end of the second quarter of 2017 and is in the process of being leased up; however, it is not stabilized. As of September 30, 2019, we had leases signed and tenants occupying approximately 37.0% of the rentable square feet of the property. We expect to incur redevelopment and lease-up costs of $28.8 million, of which we had incurred approximately $22.1 million as of September 30, 2019.

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The redevelopment of Blue Lagoon commenced in December 2018 following the maturity of a lease with a tenant that occupied 100% 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 rentable square feet at the property’s rentable square footage. We expect to incur restoration, redevelopment and lease-up costs of $38.9 million, which include work on the roof of the building, costs to make the space suitable for multiple tenants and to increase parking at the property. As of September 30, 2019, we had incurred approximately $4.6 million in total redevelopment costs. We anticipate completing the redevelopment by the end of 2020.

The redevelopment of Forest Park commenced in January 2019 following the maturity of a lease with a tenant that occupied 100% of the property through December 31, 2018. We expect to incur redevelopment and lease-up costs of $3.8 million, which include interior work to make the space suitable for multiple tenants. As of September 30, 2019, we had incurred approximately $0.7 million in total redevelopment costs. We anticipate completing the redevelopment by the end of 2019.

As of September 30, 2019, leases for approximately 3.2% and 9.7% of the square footage in our owned portfolio are scheduled to expire during 2019 and 2020, respectively. As the fourth quarter of 2019 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. We believe that most of our largest property markets are now experiencing generally steady or improving rental conditions. We are seeing increased potential leasing activity in the energy influenced markets of Houston and Denver compared to the last several years. We anticipate positive leasing activity within our operating properties during the remainder of 2019 and throughout 2020.

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 for any of our tenants to default on its lease or to seek the protection of bankruptcy exists. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.

~~Real Estate Acquisition and Investment Activity~~

~~During 2019:~~

●

during the nine months ended September 30, 2019, we received approximately $0.8 million in cash from FSP Satellite Place Corp., as partial prepayment of a Sponsored REIT Loan and we received approximately $51 million as full repayment of a Sponsored REIT Loan with FSP Energy Tower I Corp.; and

●

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

~~During 2018:~~

●

~~we received approximately $1.1 million in cash from FSP Satellite Place Corp., as partial prepayment of a Sponsored REIT Loan;~~

●

on July 19, 2018, an office property owned by a Sponsored REIT, Grand Boulevard, was sold to a third party. The Company held an equity investment in Grand Boulevard and received a liquidating distribution of its investment of $6.2 million on July 20, 2018. The Company received an initial cash distribution of $5.9 million from the liquidating trust of Grand Boulevard on August 17, 2018, and anticipates receiving additional liquidating distributions of approximately $0.3 million in the aggregate as the trust is liquidated;

●

on September 24, 2018, an office property owned by a Sponsored REIT, East Wacker, was sold to a third party. The Company held an equity investment in East Wacker and received a liquidating distribution of its investment of $70.0 million on September 25, 2018. The Company received an initial cash distribution of $69.0 million from the liquidating trust of East Wacker on September 27, 2018, and anticipates receiving additional liquidating distributions of approximately $1.0 million in the aggregate as the trust is liquidated; and

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●

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

Results of Operations

The following table shows financial results for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Three months ended September 30,						Three months ended June 30,
(in thousands)	2019		2018		Change		2020		2019		Change
Revenues:
Rental	$	68,108	$	67,436	$	672	$	60,398	$	65,485	$	(5,087)
Related party revenue:
Management fees and interest income from loans		426		1,261		(835)		405		1,322		(917)
Other		5		8		(3)		5		6		(1)
Total revenues		68,539		68,705		(166)		60,808		66,813		(6,005)
Expenses:
Real estate operating expenses		18,041		17,946		95		15,470		17,116		(1,646)
Real estate taxes and insurance		12,505		11,651		854		12,307		12,801		(494)
Depreciation and amortization		22,559		23,277		(718)		22,245		22,109		136
General and administrative		3,886		3,394		492		3,817		3,702		115
Interest		9,036		9,935		(899)		8,980		9,371		(391)
Total expenses		66,027		66,203		(176)		62,819		65,099		(2,280)

Income before taxes on income and equity in income of non-consolidated REITs		2,512		2,502		10
Income (loss) before taxes								(2,011)		1,714		(3,725)
Tax expense on income		113		74		39		64		81		(17)
Equity in income of non-consolidated REITs		—		7,180		(7,180)

Net income	$	2,399	$	9,608	$	(7,209)
Net income (loss)							$	(2,075)	$	1,633	$	(3,708)

Comparison of the three months ended ~~September~~June 30, ~~2019~~2020 to the three months ended ~~September~~June 30, ~~2018:~~2019:

Revenues

Total revenues decreased by ~~$0.2~~$6.0 million to ~~$68.5~~$60.8 million for the three months ended ~~September~~June 30, ~~2019,~~2020, as compared to the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease was primarily a result of:

●

A decrease in rental revenue of approximately ~~$0.8~~$5.1 million arising primarily from the loss of rental income from leases that expired after June 30, 2019 during the three months ended June 30, 2020 compared to the same period in 2019. These decreases were partially offset by rental income earned from leases commencing after June 30, 2019. Our leased space in our operating properties was 84.5% at June 30, 2020 and 88.1% at June 30, 2019.

●

A decrease of approximately $0.9 million in interest income from Sponsored REIT Loans primarily as a result of repayment of approximately $51 million of these loans in June 2019.

~~This decrease was partially offset by:~~

●

An increase in rental revenue of approximately $0.6 million arising primarily from rental income earned from leases commencing after September 30, 2018, which was partially offset by the loss of rental income from leases that expired after September 30, 2018. Our leased space in our operating properties was 89.7% at September 30, 2019 and 90.5% at September 30, 2018.

Expenses

Total expenses decreased by ~~$0.2~~$2.3 million to ~~$66.0~~$62.8 million for the three months ended ~~September~~June 30, ~~2019,~~2020, as compared to the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease was primarily a result of:

●

A decrease in real estate operating expenses and real estate taxes and insurance of approximately $2.1 million.

●

A decrease in interest expense of approximately $0.4 million. The decrease was primarily attributable to lower interest rates during the three months ended June 30, 2020 compared to the same period in 2019.

These increases were partially offset by:

●

An increase to depreciation and amortization of approximately ~~$0.7~~$0.1 million.

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●

A decrease in interest expense of approximately $0.9 million. The decrease was primarily attributable to lower debt outstanding, which was partially offset by higher interest rates during the three months ended September 30, 2019 compared to the same period in 2018.

~~These decreases were partially offset by:~~

●

~~An increase in real estate operating expenses and real estate taxes and insurance of approximately $0.9 million.~~

●

An increase in general and administrative expenses of ~~$0.5~~$0.1 million, which was primarily ~~attributable to~~from personnel ~~related expenses and lease acquisition~~ costs.

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 $47,000, and federal and other income taxes, which~~ decreased ~~by $8,000,~~$17,000 during the three months ended ~~September~~June 30, ~~2019~~2020 compared to the three months ended ~~September~~June 30, ~~2018.~~2019.

~~Equity in income of non-consolidated REITs~~Net loss

~~Equity in~~Net loss for the three months ended June 30, 2020 was $2.1 million compared to a net income ~~from non-consolidated REITs was $7.2~~of $1.6 million for the three months ended ~~September~~June 30, 2018. Our investments in non-consolidated REITs were liquidated during 2018. The equity in income during the three months ended September 30, 2018 consisted of equity in income from our preferred stock investment in East Wacker of $7.3 million, which sold its property on September 24, 2018, and was partially offset by equity in loss from our preferred stock investment in Grand Boulevard of $0.1 million, which sold its property on July 19, 2018.

~~Net income~~

~~Net income for the three months ended September 30,~~ 2019, ~~was $2.4 million compared to net income of $9.6 million for the three months ended September 30, 2018,~~ for the reasons described above.

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The following table shows financial results for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:


	Nine months ended September 30,						Six months ended June 30,
(in thousands)	2019		2018		Change		2020		2019		Change
Revenues:
Rental	$	196,952	$	198,473	$	(1,521)	$	122,965	$	128,844	$	(5,879)
Related party revenue:
Management fees and interest income from loans		3,100		3,793		(693)		808		2,674		(1,866)
Other		16		26		(10)		18		11		7
Total revenues		200,068		202,292		(2,224)		123,791		131,529		(7,738)
Expenses:
Real estate operating expenses		52,883		52,051		832		32,768		34,842		(2,074)
Real estate taxes and insurance		37,408		35,120		2,288		24,069		24,903		(834)
Depreciation and amortization		67,913		70,903		(2,990)		44,583		45,354		(771)
General and administrative		11,097		9,908		1,189		7,342		7,211		131
Interest		27,775		29,174		(1,399)		18,043		18,739		(696)
Total expenses		197,076		197,156		(80)		126,805		131,049		(4,244)

Income before taxes on income and equity in income of non-consolidated REITs		2,992		5,136		(2,144)
Income (loss) before taxes on income								(3,014)		480		(3,494)
Tax expense on income		165		231		(66)		132		52		80
Equity in income of non-consolidated REITs		—		6,793		(6,793)

Net income	$	2,827	$	11,698	$	(8,871)
Net income (loss)							$	(3,146)	$	428	$	(3,574)

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 to the ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:

Revenues

Total revenues decreased by ~~$2.2~~$7.7 million to ~~$200.1~~$123.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease was primarily a result of:

●

A decrease in rental revenue of approximately ~~$1.5~~$5.9 million arising primarily from the loss of rental income from leases that expired after June 30, 2019 during the six months ended June 30, 2020 compared the same period in ~~2019 and 2018. The decrease was~~2019. These decreases were partially offset by rental income earned from leases commencing ~~in 2019 and 2018.~~after June 30, 2019. Our leased space in our operating properties was ~~89.7%~~84.5% at ~~September~~June 30, ~~2019~~2020 and ~~90.5%~~88.1% at ~~September~~June 30, ~~2018.~~2019.

●

A decrease of approximately $1.8 million in interest income from Sponsored REIT ~~loans of approximately $0.7 million~~Loans primarily as a result of repayment of approximately $51 million of these loans in June 2019.

Expenses

Total expenses decreased by ~~$0.1~~$4.2 million to ~~$197.1~~$126.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase was primarily a result of:

●

A decrease in real estate operating expenses and real estate taxes and insurance of approximately $2.9 million.

●

A decrease in depreciation and amortization of approximately ~~$3.0~~$0.7 million.

●

A decrease in interest expense of approximately ~~$1.4~~$0.7 million. The decrease was primarily attributable to lower ~~debt outstanding, which was partially offset by higher~~ interest rates during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the same period in ~~2018.~~2019.

These decreases were partially offset by:

●

An increase in ~~real estate operating~~general and administrative expenses ~~and real estate taxes and insurance~~ of ~~approximately $3.1 million.~~$0.1 million, which was primarily from personnel costs.

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●

~~An increase in general and administrative expenses of $1.2 million, which was primarily attributable to personnel related expenses and lease acquisition costs.~~

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 $77,000,~~decreased $32,000, and benefits from federal and other income taxes, which decreased by ~~$143,000,~~$112,000, during the ~~nine~~six months ended ~~September 30,2019~~June 30, 2019 compared to the ~~nine~~six months ended ~~September 30,2018,~~June 30, 2020, primarily as a result of a refund arising due to the provisions of the Tax Cuts and Jobs Act of ~~2017.~~

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

~~Equity in income from non-consolidated REITs was $6.8 million for~~2017 during the ~~nine~~six months ended ~~September~~June 30, 2018. Our investments in non-consolidated REITs were liquidated during 2018. The equity in income during the nine months ended September 30, 2018 consisted of equity in income from our preferred stock investment in East Wacker of $7.2 million, which sold its property on September 24, 2018, and was partially offset by equity in loss from our preferred stock investment in Grand Boulevard of $0.1 million, which sold its property on July 19, 2018. In addition, during the nine months ended September 30, 2018, we recognized an impairment charge of $0.3 million, which represented the other-than-temporary decline in the fair value below the carrying value of the Company’s investments in non-consolidated REITs.2019.

Net ~~income~~loss

Net ~~income~~loss for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$2.8~~$3.1 million compared to a net income of ~~$11.7~~$0.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, 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 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					For the
	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	September 30,					September 30,					June 30,					June 30,
(in thousands):	2019			2018		2019			2018		2020			2019		2020			2019
Net income	$	2,399	$		9,608	$	2,827	$		11,698
Equity in income of non-consolidated REITs		—			(7,180)		—			(6,793)
FFO from non-consolidated REITs		—			649		—			2,511
Net income (loss)											$	(2,075)	$		1,633	$	(3,146)	$		428
Depreciation and amortization		22,448			23,081		67,609			70,499		22,170			22,028		44,435			45,161
NAREIT FFO		24,847			26,158		70,436			77,915		20,095			23,661		41,289			45,589
Lease Acquisition costs		61			—		351			—		99			108		197			290

Funds From Operations	$	24,908		$	26,158	$	70,787		$	77,915	$	20,194		$	23,769	$	41,486		$	45,879

Net Operating Income (NOI)

The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus selling, general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on the sale of assets and excludes non-property specific income and expenses. The information presented includes footnotes and the data is shown by region with properties owned 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 non-operating, being developed or redeveloped, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI, as defined by the Company, may not

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be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to

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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							Nine Months								Nine Months						Square					Six Months						Six Months
	Feet	Three Months Ended						Ended		Three Months Ended						Ended		Inc		%		Feet	Three Months Ended				Ended		Three Months Ended				Ended		Inc		%
(in thousands)	or RSF	31-Mar-19		30-Jun-19		30-Sep-19		30-Sep-19		31-Mar-18		30-Jun-18		30-Sep-18		30-Sep-18		(Dec)		Change		or RSF	31-Mar-20		30-Jun-20		30-Jun-20		31-Mar-19		30-Jun-19		30-Jun-19		(Dec)		Change
Region
East	944	$	3,185	$	3,301	$	3,001	$	9,487	$	3,802	$	3,990	$	3,868	$	11,660	$	(2,173)	(18.6)	%	944	$	2,664	$	2,746	$	5,410	$	3,185	$	3,301	$	6,486	$	(1,076)	(16.6)	%
MidWest	1,553		5,163		5,174		5,297		15,634		6,257		4,955		5,104		16,316		(682)	(4.2)	%	1,557		5,485		5,088		10,573		5,163		5,174		10,337		236	2.3	%
South	4,387		14,272		15,196		17,456		46,924		14,449		14,246		14,903		43,598		3,326	7.6	%	4,387		13,290		13,025		26,315		14,272		15,196		29,468		(3,153)	(10.7)	%
West	2,620		10,559		11,240		11,134		32,933		10,958		11,061		11,324		33,343		(410)	(1.2)	%	2,620		11,463		11,211		22,674		10,559		11,240		21,799		875	4.0	%
Property NOI* from Operating Properties	9,504		33,179		34,911		36,888		104,978		35,466		34,252		35,199		104,917		61	0.1	%	9,508		32,902		32,070		64,972		33,179		34,911		68,090		(3,118)	(4.6)	%
Dispositions and Redevelopment Properties	405		(205)		(215)		(21)		(441)		1,250		1,072		1,914		4,236		(4,677)	(4.4)	%	405		(28)		126		98		(205)		(215)		(420)		518	0.8	%
Property NOI*	9,909	$	32,974	$	34,696	$	36,867	$	104,537	$	36,716	$	35,324	$	37,113	$	109,153	$	(4,616)	(4.2)	%	9,913	$	32,874	$	32,196	$	65,070	$	32,974	$	34,696	$	67,670	$	(2,600)	(3.8)	%

Same Store		$	33,179	$	34,911	$	36,888	$	104,978	$	35,466	$	34,252	$	35,199	$	104,917	$	61	0.1	%		$	32,902	$	32,070	$	64,972	$	33,179	$	34,911	$	68,090	$	(3,118)	(4.6)	%

Less Nonrecurring
Items in NOI* (a)			35		706		3,434		4,175		761		1,141		2,504		4,406		(231)	0.2	%			26		810		836		35		706		741		95	(0.2)	%

Comparative
Same Store		$	33,144	$	34,205	$	33,454	$	100,803	$	34,705	$	33,111	$	32,695	$	100,511	$	292	0.3	%		$	32,876	$	31,260	$	64,136	$	33,144	$	34,205	$	67,349	$	(3,213)	(4.8)	%


									Nine Months								Nine Months											Six Months						Six Months
		Three Months Ended							Ended	Three Months Ended							Ended						Three Months Ended					Ended	Three Months Ended					Ended
Reconciliation to Net Income (Loss)		31-Mar-19			30-Jun-19		30-Sep-19		30-Sep-19	31-Mar-18			30-Jun-18		30-Sep-18		30-Sep-18						31-Mar-20			30-Jun-20		30-Jun-20	31-Mar-19			30-Jun-19		30-Jun-19
Net income (loss)		$	(1,205)	$	1,633	$	2,399	$	2,827	$	1,425	$	665	$	9,608	$	11,698
Net loss																							$	(1,071)	$	(2,075)	$	(3,146)	$	(1,205)	$	1,633	$	428
Add (deduct):
Management fee income			(677)		(645)		(634)		(1,956)		(746)		(746)		(712)		(2,204)							(478)		(446)		(924)		(677)		(645)		(1,322)
Depreciation and amortization			23,245		22,109		22,559		67,913		24,035		23,591		23,277		70,903							22,338		22,245		44,583		23,245		22,109		45,354
Amortization of above/below market leases			(112)		(81)		(112)		(305)		(85)		(123)		(196)		(404)							(73)		(75)		(148)		(112)		(81)		(193)
General and administrative			3,509		3,703		3,886		11,098		3,432		3,082		3,394		9,908							3,525		3,817		7,342		3,509		3,703		7,212
Interest expense			9,368		9,371		9,036		27,775		9,486		9,753		9,935		29,174							9,063		8,980		18,043		9,368		9,371		18,739
Interest income			(1,294)		(1,259)		(395)		(2,948)		(1,120)		(1,141)		(1,157)		(3,418)							(382)		(381)		(763)		(1,294)		(1,259)		(2,553)
Equity in (income) loss of non-consolidated REITs			—		—		—		—		105		282		(7,180)		(6,793)
Non-property specific items, net			140		(135)		128		133		184		(39)		144		289							(48)		131		83		140		(135)		5


Property NOI*		$	32,974	$	34,696	$	36,867	$	104,537	$	36,716	$	35,324	$	37,113	$	109,153						$	32,874	$	32,196	$	65,070	$	32,974	$	34,696	$	67,670

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

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

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The information presented below provides the weighted average GAAP rent per square foot for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 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									Weighted
						Occupied		Weighted							Occupied		Weighted
			Year Built		Weighted	Percentage as of		Average				Year Built		Weighted	Percentage as of		Average
			or	Net Rentable	Occupied	September 30,		Rent per Occupied				or	Net Rentable	Occupied	June 30,		Rent per Occupied
Property Name	City	State	Renovated	Square Feet	Sq. Ft.	2019 (a)		Square Feet (b)		City	State	Renovated	Square Feet	Sq. Ft.	2020 (a)		Square Feet (b)

Meadow Point	Chantilly	VA	1999	138,537	138,537	100.0	%	$	25.70	Chantilly	VA	1999	138,537	113,864	82.2	%	$	23.19
Innsbrook	Glen Allen	VA	1999	298,183	170,799	57.3	%		19.28	Glen Allen	VA	1999	298,183	170,680	57.2	%		18.91
Loudoun Tech Center	Dulles	VA	1999	136,658	133,269	97.5	%		18.80	Dulles	VA	1999	136,658	135,209	98.9	%		18.27
Stonecroft	Chantilly	VA	2008	111,469	111,469	100.0	%		28.14	Chantilly	VA	2008	111,469	-	—	%		—
Emperor Boulevard	Durham	NC	2009	259,531	259,531	100.0	%		33.65	Durham	NC	2009	259,531	259,531	100.0	%		32.37
East total				944,378	813,605	86.2	%		26.09				944,378	679,284	71.9	%		24.64
Northwest Point	Elk Grove Village	IL	1999	177,095	177,095	100.0	%		32.76	Elk Grove Village	IL	1999	177,095	177,095	100.0	%		27.79
909 Davis Street	Evanston	IL	2002	195,098	175,939	90.2	%		36.43	Evanston	IL	2002	195,098	182,104	93.3	%		41.14
River Crossing	Indianapolis	IN	1998	205,059	193,740	94.5	%		23.63	Indianapolis	IN	1998	205,729	201,553	98.0	%		24.40
Timberlake	Chesterfield	MO	1999	234,496	228,774	97.6	%		27.79	Chesterfield	MO	1999	234,496	224,319	95.7	%		27.24
Timberlake East	Chesterfield	MO	2000	117,036	117,036	100.0	%		26.56	Chesterfield	MO	2000	117,036	117,036	100.0	%		26.67
121 South 8th Street	Minneapolis	MN	1974	297,209	241,869	81.4	%		23.30	Minneapolis	MN	1974	297,209	263,208	88.6	%		22.76
Plaza Seven	Minneapolis	MN	1987	326,757	286,010	87.5	%		35.12	Minneapolis	MN	1987	330,096	291,904	88.4	%		31.24
Midwest total				1,552,750	1,420,463	91.5	%		29.52				1,556,759	1,457,219	93.6	%		28.60
One Overton Park	Atlanta	GA	2002	387,267	306,212	79.1	%		22.35	Atlanta	GA	2002	387,267	320,928	82.9	%		24.30
Park Ten	Houston	TX	1999	157,460	145,824	92.6	%		28.50	Houston	TX	1999	157,460	112,962	71.7	%		26.01
Addison Circle	Addison	TX	1999	289,302	210,612	72.8	%		30.88	Addison	TX	1999	289,302	216,571	74.9	%		33.03
Collins Crossing	Richardson	TX	1999	300,887	299,172	99.4	%		25.72	Richardson	TX	1999	300,887	239,265	79.5	%		26.79
Eldridge Green	Houston	TX	1999	248,399	248,399	100.0	%		30.93	Houston	TX	1999	248,399	248,399	100.0	%		29.81
Park Ten Phase II	Houston	TX	2006	156,746	83,358	53.2	%		26.78	Houston	TX	2006	156,746	135,068	86.2	%		28.16
Liberty Plaza	Addison	TX	1985	216,834	155,969	71.9	%		22.58	Addison	TX	1985	216,847	157,149	72.5	%		23.20
Legacy Tennyson Center	Plano	TX	1999/2008	207,049	186,261	90.0	%		26.77	Plano	TX	1999/2008	207,049	190,154	91.8	%		29.90
One Legacy Circle	Plano	TX	2008	214,110	214,110	100.0	%		36.39	Plano	TX	2008	214,110	95,257	44.5	%		36.72

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						Weighted									Weighted
						Occupied		Weighted							Occupied		Weighted
			Year Built		Weighted	Percentage as of		Average				Year Built		Weighted	Percentage as of		Average
			or	Net Rentable	Occupied	September 30,		Rent per Occupied				or	Net Rentable	Occupied	June 30,		Rent per Occupied
Property Name	City	State	Renovated	Square Feet	Sq. Ft.	2019 (a)		Square Feet (b)		City	State	Renovated	Square Feet	Sq. Ft.	2020 (a)		Square Feet (b)

One Ravinia Drive	Atlanta	GA	1985	386,602	338,122	87.5	%	$	23.94	Atlanta	GA	1985	386,602	334,140	86.4	%	$	27.27
Two Ravinia Drive	Atlanta	GA	1987	411,047	292,994	71.3	%		26.78	Atlanta	GA	1987	411,047	276,224	67.2	%		27.19
Westchase I & II	Houston	TX	1983/2008	629,025	495,672	78.8	%		31.26	Houston	TX	1983/2008	629,025	351,814	55.9	%		29.46
Pershing Park Plaza	Atlanta	GA	1989	160,145	156,013	97.4	%		36.99	Atlanta	GA	1989	160,145	158,047	98.7	%		32.22
999 Peachtree	Atlanta	GA	1987	621,946	517,832	83.3	%		31.82	Atlanta	GA	1987	621,946	534,625	86.0	%		33.17
South Total				4,386,819	3,650,550	83.2	%		28.79				4,386,832	3,370,603	76.8	%		29.12
380 Interlocken	Broomfield	CO	2000	240,359	218,318	90.8	%		31.44	Broomfield	CO	2000	240,359	173,996	72.4	%		33.30
1999 Broadway	Denver	CO	1986	677,378	507,627	74.9	%		32.75	Denver	CO	1986	677,377	539,125	79.6	%		32.56
1001 17th Street	Denver	CO	1977/2006	655,420	631,563	96.4	%		36.31	Denver	CO	1977/2006	655,420	642,770	98.1	%		36.79
600 17th Street	Denver	CO	1982	609,112	522,557	85.8	%		33.07	Denver	CO	1982	609,353	527,151	86.5	%		32.20
Greenwood Plaza	Englewood	CO	2000	196,236	196,236	100.0	%		26.07	Englewood	CO	2000	196,236	196,236	100.0	%		25.10
390 Interlocken	Broomfield	CO	2002	241,512	237,141	98.2	%		32.38	Broomfield	CO	2002	241,512	238,107	98.6	%		33.73
West Total				2,620,017	2,313,442	88.3	%		33.07				2,620,257	2,317,385	88.4	%		33.20

Total Operating Properties				9,503,964	8,198,060	86.3	%		29.86				9,508,226	7,824,491	82.3	%		29.84

Redevelopment Properties (c)
Forest Park	Charlotte	NC	1999	62,212	—	—	%		—	Charlotte	NC	1999	62,212	—	—	%		—
Blue Lagoon Drive	Miami	FL	2002	213,182	—	—	%		—	Miami	FL	2002	213,182	—	—	%		—
801 Marquette Ave	Minneapolis	MN	1923/2017	129,821	32,754	25.2	%		19.23	Minneapolis	MN	1923/2017	129,821	48,021	37.0	%		28.37
Total Redevelopment Properties				405,215	32,754	8.1	%		19.23				405,215	48,021	11.9	%		28.37

Grand Total				9,909,179	8,230,814	83.1	%	$	29.81				9,913,441	7,872,512	79.4	%	$	29.83

(a)	Based on weighted occupied square feet for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, including month-to-month tenants, divided by the Property’s net rentable square footage.

(b)Represents annualized GAAP rental revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, per weighted occupied square foot.

(c)Redevelopment Properties include properties in the process of being redeveloped, or are completed but not yet stabilized.

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Liquidity and Capital Resources

Cash, cash equivalents and restricted cash were ~~$20.2~~$2.9 million and ~~$11.2~~$9.8 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The ~~increase~~decrease of ~~$9.0~~$6.9 million is attributable to ~~$60.0~~$25.6 million provided by operating activities, less $43.2 million used for investing activities plus ~~$3.0~~$10.7 million provided by ~~investing activities less $54.0 million used 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. 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 ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 of ~~$60.0~~$25.6 million is primarily attributable to a net ~~income~~loss of ~~$2.8~~$3.1 million plus the add-back of ~~$62.7~~$44.8 million of non-cash expenses, ~~an increase to~~less a decrease in accounts payable ~~accrued expenses~~ and accrued compensation of ~~$3.6~~$11.1 million, ~~a decrease in tenant security deposits of $2.7 million and a decrease in prepaid and other assets of $1.3 million. These amounts were partially offset by~~ an increase in ~~payments~~payment of deferred leasing commissions of ~~$9.5~~$3.7 million, an increase in lease acquisition costs of ~~$3.2~~$0.8 million, ~~and~~ an increase in tenant rent receivables of ~~$0.4~~$0.3 million and a decrease in tenant security deposits of $0.2 million.

Investing Activities

Cash ~~provided by~~used for investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 of ~~$3.0~~$43.2 million is primarily attributable to ~~the repayment of two Sponsored REIT Loans in the aggregate of $51.8 million and proceeds received from a liquidating trust of $1.5 million. These sources were partially offset by~~ purchases of other real estate assets and office equipment investments of approximately ~~$47.9 million and an investment in related party mortgage loan receivable of $2.4~~$43.2 million.

Financing Activities

Cash ~~used in~~provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 of ~~$54.0~~$10.7 million is primarily attributable to ~~distributions paid to stockholders of $28.9 million,~~ net ~~repayments~~borrowings on the BAML Revolver (as defined below) of ~~$25.0~~$30.0 million and ~~deferred financing costs incurred~~was partially offset by distributions paid to stockholders of ~~$0.1~~$19.3 million.

JPM Term Loan

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Based upon the Company’s credit rating, as of ~~September~~June 30, ~~2019,~~2020, the effective interest rate on the unhedged $50 million portion of the JPM Term Loan was ~~3.31%~~1.44% per annum. The weighted average interest rate on the unhedged $50 million portion of the JPM Term Loan during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was approximately ~~3.68%~~2.36% per annum. The weighted average interest rate on the JPM Term Loan during the year ended December 31, ~~2018~~2019 was approximately ~~3.33%~~3.54% per annum.

2020.

BMO Term Loan

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 until 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 ~~September~~June 30, ~~2019,~~2020, the effective interest rate on the BMO Term Loan was 3.57% per annum.

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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 ~~September~~June 30, ~~2019.~~

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 6six month periods, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions.

●

As of ~~September~~June 30, ~~2019,~~2020, there were no borrowings of $30 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% over LIBOR at ~~September~~June 30, ~~2019)~~2020) or (ii) a margin over the base rate depending on the Company’s credit rating (0.20% over the base rate at ~~September~~June 30, ~~2019)~~2020). 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% at ~~September~~June 30, ~~2019)~~2020).

Based upon the Company’s credit rating, as of ~~September~~June 30, ~~2019~~2020, the interest rate on the BAML Revolver was ~~3.22%~~1.36% per annum. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was approximately ~~3.67%~~2.01% per annum. As of December 31, ~~2018,~~2019, there were no borrowings ~~of $25 million~~ outstanding under the BAML ~~Revolver at an interest rate of 3.63% per annum.~~Revolver. The weighted average interest rate on all

~~Table of Contents~~

amounts outstanding on the BAML Revolver during the year ended December 31, ~~2018~~2019 was approximately ~~3.09%~~3.67% per annum.

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BAML Term Loan Highlights

●

The BAML Term Loan is for $400 million.

●

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.

BAML Credit Facility General Information

Senior Notes

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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,”~~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.

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Equity Securities

As of ~~September~~June 30, ~~2019,~~2020, we had an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission relating to the offer and sale, from time to time, of an indeterminate amount of our debt securities, common stock, preferred stock or depository shares. From time to time, we expect to issue debt securities, common stock, preferred stock or depository shares under our existing automatic shelf registration statements or a different registration statement to fund the acquisition of additional properties, to pay down any existing debt financing and for other corporate purposes.

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 ~~September~~June 30, ~~2019,~~2020, we ~~were committed to fund up to $26.5~~had one loan outstanding for $21 million ~~to two~~principal amount with one Sponsored ~~REITs~~REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other ~~purposes, of which $21.3 million has been drawn and is outstanding.~~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 other capital event.

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

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purposes. We anticipate that ~~each Sponsored REIT Loan~~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 ~~some other~~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. ~~The currently outstanding mortgage loan bears interest at a fixed rate and advances under the secured revolving line~~

Table of ~~credit bear interest at a rate equal to the 30-day LIBOR rate plus an agreed upon amount of basis points and also require a 50 basis point draw fee.~~Contents

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 and national market conditions. These factors are subject to change and we do not apply a formula or assign relative weights to the factors. Instead, we make a subjective determination after considering such factors collectively.

Additional information about our Sponsored REIT Loans outstanding as of ~~September~~June 30, ~~2019,~~2020, including a summary table of our Sponsored REIT Loans, is incorporated herein by reference to Part I,1, Item 1, Note 2, “Related Party Transactions and Investments in Non-Consolidated ~~Entities”~~Entities - Management fees and interest income from loans”, 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~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, the rental income exceeded the expenses for each individual property, with the exception of one property located in Chantilly, Virginia for each of the three and six months ended June 30, 2020 and one property located in Minneapolis, Minnesota for each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2018, respectively, and one~~2019.

Our property located in ~~Houston, Texas for~~Chantilly, Virginia (“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 $274,000 during the three ~~and nine~~ months ended ~~September~~June 30, ~~2018.~~2020. We had no rental income and operating expenses of $446,000 during the six months ended June 30, 2020.

Our property located at 801 Marquette Avenue in Minneapolis, Minnesota (“801 Marquette Avenue”) had approximately 170,000 square feet of rentable space and became vacant in January 2016. On June 30, 2016, we commenced a redevelopment plan for the property and substantially completed the redevelopment in the second quarter of 2017. Redevelopment of 801 Marquette Avenue resulted in approximately 129,800 of net rentable square feet for the property. As of ~~September~~June 30, ~~2019,~~2020, we have signed leases with two tenants that now occupy 48,000 square feet, or 37% of rentable square feet at the property. As a result, werental income exceeded operating expenses during the three and six months ended June 30, 2020. We had rental income of ~~$259,000~~$129,000 and operating expenses of $277,000 during the three months ended ~~September~~June 30, ~~2019. We had~~2019 and rental income of ~~$472,000~~$214,000 and operating expenses of ~~$839,000~~$563,000 during the ~~nine~~six months ended ~~September~~June 30, 2019. We had no rental income and operating expenses of $27,000 during the three months ended September 30, 2018. We had no rental income and operating expenses of $116,000 during the nine months ended September 30, 2018.

~~The property located~~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 ~~Houston, Texas has approximately 157,000 square feet of rentable space and became substantially vacant~~our Annual Report on ~~April 30, 2017 when two tenants vacated 155,000 square feet of space. The property signed leases that commenced in 2019~~Form 10-K for ~~approximately 105,000 square feet, or 66.9% of~~ the ~~square feet of the property. We had rental income of $3,000 and had operating expenses of $337,000 during the three months~~year ended ~~September 30, 2018. We had rental income of $14,000 and had operating expenses of $1,075,000 during the nine months ended September 30, 2018.~~December 31, 2019.

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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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, if market rates on our outstanding borrowings under the BAML Revolver and the floating rate portion of the JPM Term Loan increased by 10% at maturity, or approximately 3214 and 3831 basis points, respectively, over the current variable rate, the increase in interest expense would decrease future earnings and cash flows by ~~$0.2~~$0.1 million and ~~$0.7~~$0.2 million annually, respectively. Based upon our credit rating, the interest rate on the BAML Revolver as of ~~September~~June 30, ~~2019~~2020 was LIBOR

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plus 120 basis points, or ~~3.22%~~1.36% per annum. Based upon our credit rating, the interest rate on the $50 million portion of the JPM Term Loan that is not subject to interest rate swap transactions as of ~~September~~June 30, ~~2019~~2020 was the LIBOR-based rate plus 125 basis points, or ~~3.68%~~1.44% per annum. We do not believe that the interest rate risk on the BAML Revolver and the JPM Term Loan is material as of ~~September~~June 30, ~~2019.~~2020.

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 a $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 on September 27, 2021 on the BAML Term Loan with multiple interest rate swap agreements (the “2017 Interest Rate Swap”). On August 26, 2013, the Company fixed the interest rate until August 26, 2020 on the BMO Term Loan with an interest rate swap agreement (the “2013 BMO 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 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”). Accordingly, based upon our credit rating, as of ~~September~~June 30, ~~2019,~~2020, the interest rate on the BAML Term Loan was 2.47% per annum, the interest rate on the BMO Term Loan was 3.57% per annum, and the interest rate on $100 million of the JPM Term Loan was 3.69% 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 2013 BMO Interest Rate Swap and the 2019 BMO Interest Rate Swap until January 31, 2024. We believe that we have mitigated the interest rate risk on a $100 million portion of the JPM Term Loan until November 30, 2021 with the 2019 JPM Interest Rate Swap. These interest rate swaps were our only derivative instruments as of ~~September~~June 30, ~~2019.~~2020.

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 ~~September~~June 30, ~~2019~~2020 (in thousands):


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

2017 Interest Rate Swap	$	400,000	1.12	%	Sep-17	Sep-21	$	2,844	$	400,000	1.12	%	Sep-17	Sep-21	$	(4,880)
2013 BMO Interest Rate Swap	$	220,000	2.32	%	Aug-13	Aug-20	$	(1,291)	$	220,000	2.32	%	Aug-13	Aug-20	$	(734)
2019 JPM Interest Rate Swap	$	100,000	2.44	%	Mar-19	Nov-21	$	(2,032)	$	100,000	2.44	%	Mar-19	Nov-21	$	(3,241)
2019 BMO Interest Rate Swap (1)	$	220,000	2.39	%	Aug-20	Jan-24	$	(6,611)	$	220,000	2.39	%	Aug-20	Jan-24	$	(14,103)

(1) The Notional Value will decrease to $165 million on November 30, 2021.

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

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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.

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 ~~other~~ comprehensive income (loss) ~~and the ineffective portion of the derivatives’ fair value is recognized directly into earnings as Other in the consolidated statements of income.~~.

The following table presents, as of ~~September~~June 30, ~~2019,~~2020, 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

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BAML Term Loan, which matures on January 12, 2023, under our BMO Term Loan ~~for~~Tranche A, which ~~tranche A~~ matures on November 30, 2021, ~~and tranche~~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, we have the right to extend the initial maturity date with two additional six month extensions, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions.


	Payment due by period														Payment due by period
	(in thousands)														(in thousands)
	Total		2019		2020		2021		2022		2023		Thereafter		Total		2020		2021		2022		2023		2024		Thereafter
BAML Revolver	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	30,000	$	—	$	—	$	30,000	$	—	$	—	$	—
JPM Term Loan		150,000		—		—		150,000		—		—		—		150,000		—		150,000		—		—		—		—
BAML Term Loan		400,000		—		—		—		—		400,000		—		400,000		—		—		—		400,000		—		—
BMO Term Loan Tranche A		55,000		—		—		55,000		—		—		—		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	$	970,000	$	—	$	—	$	205,000	$	—	$	400,000	$	365,000	$	1,000,000	$	—	$	205,000	$	30,000	$	400,000	$	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 ~~September~~June 30, ~~2019.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ~~or the Exchange Act,~~(the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2019,~~2020, 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 ~~September~~June 30, ~~2019,~~2020, 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

AsThe following additional risk factor relating to COVID-19 should be read in conjunction with the risk factors set forth under Part I, “Item 1A. Risk Factors” of ~~September 30,~~our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”). The developments described in this additional risk factor have heightened, or in some cases manifested, certain of the risks disclosed in the risk factor section of the 2019 Form 10-K, and such risk factors are further qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q, including in the additional risk factor below. Except as described herein, there have been no material changes to the risk factors disclosed in ~~Part I, “Item 1A. Risk Factors” of our Annual Report on~~the 2019 Form ~~10-K for the year ended December 31, 2018.~~10-K. In addition to the other information set forth in this report, you should carefully consider the ~~risk factors~~risks discussed below and in the ~~Annual Report on~~2019 Form 10-K, ~~for the year ended December 31, 2018,~~ which could materially affect our business, financial condition or future results. The risks described below and in ~~our Annual Report on~~the 2019 Form 10-K ~~for the year ended December 31, 2018~~ 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.

The COVID-19 pandemic has caused severe disruptions in the U.S. and global economies and is expected to have an adverse impact on our financial condition and results of operations. This impact could be materially adverse to the extent that the current COVID-19 pandemic, or future pandemics, cause tenants to be unable to pay their rent or reduce the demand for commercial real estate, or cause other impacts described below.

The COVID-19 pandemic in many countries, including the United States, continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the pandemic has been evolving and many countries, including the United States, have reacted by instituting quarantines and restrictions on travel.

Many U.S. cities and states, including cities and states where our properties are located, have also reacted by instituting quarantines, restrictions on travel, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue. There can be no assurances as to the length of time these restrictions will remain in place.

The effects of the COVID-19 pandemic or another future pandemic could adversely affect us and/or our tenants due to, among other factors:

●

the unavailability of personnel, including our executive officers and other leaders that are part of our management team, and the inability to recruit, attract and retain skilled personnel;

●

difficulty accessing debt and equity capital on attractive terms, or at all—a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our and our tenants’ ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis on attractive terms, and may adversely affect the valuation of financial assets and liabilities, any of which could affect our ability to meet liquidity and capital expenditure requirements or have a material adverse effect on our business, financial condition, results of operations and cash flows;

●

an inability to operate in affected areas, or delays in the supply of products or services from the vendors that are needed to operate effectively, including without limitation, the ability to complete construction on time and on budget;

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●

a reduction in demand for oil as a result of decreased economic activity and travel restrictions which, if sustained, could have an adverse impact on occupancy and rental rates in the markets where we own properties, including energy-influenced markets such as Dallas, Denver and Houston, where we have a significant concentration of properties;

●

tenants’ inability to pay rent on their leases or our inability to re-lease space that is or becomes vacant, which inability, if extreme, could cause us to: (i) no longer be able to maintain our current level of dividends in order to preserve liquidity and (ii) be unable to meet our debt obligations to lenders, which could cause us to be unable to meet debt covenants, which could trigger a default or defaults and cause us to have to sell properties or refinance debt on unattractive terms; and

●

our inability to maintain an investment grade corporate credit rating could lead to increased borrowing costs and adversely affect our access to funding sources and the terms of any available funding sources.

COVID-19 has impacted our properties and operating results and will continue to do so to the extent it reduces occupancy, increases the cost of operation, results in limited hours, results in decreased rental receipts, results in increased borrowings or necessitates the closure of such properties. In addition, quarantines, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of our properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our properties and operating results .

Some of our existing tenants and potential tenants operate in industries that are being adversely affected by the disruption to business caused by this pandemic. Tenants have been, and may in the future be, required to suspend operations at our properties for an extended periods of time. For example, some of our retail tenants have been, and may continue to be, closed for an extended period of time or only open certain hours of the day. Some of our tenants have requested rent concessions and more tenants may request rent concessions or may not pay rent in the future. This could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, increased tenant improvement capital expenditures, or reduced rental rates to maintain occupancies. Our operations could be materially negatively affected if the economic downturn is prolonged, which could adversely affect our operating results, ability to pay dividends, our ability to repay or refinance our existing indebtedness, and the price of our common stock.

The continuing evolution of this situation precludes any prediction as to the ultimate impact of the COVID-19 pandemic. The full extent of the impact and effects of the COVID-19 pandemic on our future financial performance, as a whole, and, specifically, on our real estate property holdings are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions, and the uncertainty with respect to the duration of the global economic slowdown. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, results of operations, cash flows, and the price of our common stock.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

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Item 5. Other Information

~~None.~~On July 30, 2020, our Board of Directors approved an amendment and restatement of the Company’s Amended and Restated Bylaws (as amended and restated, the “Amended Bylaws”) to add a new Article XIV designating the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division as the exclusive forum for certain legal actions related to the Company. The Amended Bylaws also provide that the federal district courts are, to the fullest extent permitted by law, the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. The Amended Bylaws were effective immediately upon approval by our Board of Directors.

This description of the changes effected to the Amended Bylaws is qualified in its entirety by reference to the full text of the Amended Bylaws, a copy of which is attached hereto as Exhibit 3.2 and incorporated herein by reference.

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Item 6. Exhibits


Exhibit No.		Description

3.1 (1)		Articles of Incorporation, as amended

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

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 ~~September~~June 30, ~~2019,~~2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of ~~Income;~~Operations; (iii) the Consolidated Statements of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; ~~(iv)~~(v) the Consolidated Statements of ~~Other~~ Comprehensive ~~Income;~~Income (Loss); and ~~(v)~~(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 3.2 to FSP Corp.’s Current Report on Form 8-K, filed on May 14, 2019 (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: ~~October 29, 2019~~August 4, 2020	/s/ George J. Carter	Chief Executive Officer and Director
	George J. Carter	(Principal Executive Officer)


Date: ~~October 29, 2019~~August 4, 2020	/s/ John G. Demeritt	Chief Financial Officer
	John G. Demeritt	(Principal Financial Officer)

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	For the Nine Months Ended
	September 30,
(in thousands)	2019		2018

Operating Data (unaudited):
Rental revenues	$	7,819	$	35,714
Other revenues		—		1
Operating and maintenance expenses		(4,276)		(18,479)
Depreciation and amortization		(2,971)		(11,451)
Interest expense		(2,939)		(5,692)
Gain (loss) on sale		26,195		17,095
Net income (loss)	$	23,828	$	17,188


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Lease Costs	For the
	Nine Months Ended
(in thousands)	September 30, 2019
Operating lease cost	$	314
	$	314

Other information
Cash paid for amounts included in the measurement of lease liabilities	$	308
Weighted average remaining lease terms in years - operating leases		5.0
Weighted average discount rate - operating leases		3.86%

Maturity analysis for liabilities	Total
	Undiscounted
(in thousands)	Cash Flows
Discount rate at commencement		3.86%
Remainder of 2019	$	105
2020		421
2021		429
2022		438
2023		447
2024 and thereafter		340
	$	2,180

Present value lease liability	$	1,976

Difference between undiscounted cash flows and discounted cash flows	$	204