Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Feb. 29, 2016 | Jun. 30, 2015 | |
Document and Entity Information | |||
Entity Registrant Name | FSP 303 East Wacker Drive Corp. | ||
Entity Central Index Key | 1,431,766 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 0 | ||
Entity Common Stock, Shares Outstanding | 1 | ||
Document Fiscal Year Focus | 2,015 | ||
Document Fiscal Period Focus | FY |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Real estate investments, at cost: | ||
Land | $ 26,200 | $ 26,200 |
Buildings and improvements | 154,014 | 150,628 |
Furniture and equipment | 738 | 590 |
Real estate investments, gross | 180,952 | 177,418 |
Less accumulated depreciation | 37,563 | 31,375 |
Real estate investments, net | 143,389 | 146,043 |
Acquired real estate leases, net of accumulated amortization of $1,016 and $1,529, respectively | 72 | 204 |
Acquired favorable real estate leases, net of accumulated amortization of $911 and $1,651, respectively | 59 | 182 |
Cash and cash equivalents | 23,810 | 19,981 |
Restricted cash | 7,668 | 2,519 |
Restricted investment | 5,998 | 15,999 |
Tenant rent and other receivables, net of allowance for doubtful accounts of $162 and $0, respectively | 95 | 624 |
Step rent receivable | 5,528 | 5,085 |
Deferred leasing costs, net of accumulated amortization of $2,119 and $1,428, respectively | 4,994 | 5,151 |
Deferred financing costs, net of accumulated amortization of $133 and $103, respectively | 171 | 201 |
Prepaid expenses and other assets | 47 | 66 |
Total assets | 191,831 | 196,055 |
Liabilities: | ||
Accounts payable and accrued expenses | 5,576 | 6,653 |
Tenant security deposits | 385 | 399 |
Loan payable | 35,000 | 35,000 |
Acquired unfavorable real estate leases, net of accumulated amortization of $110 and $135, respectively | 11 | 27 |
Total liabilities | $ 40,972 | $ 42,079 |
Commitments and Contingencies: | ||
Stockholders' Equity: | ||
Preferred Stock, $.01 par value, 2,210 shares authorized, issued and outstanding, aggregate liquidation preference $221,000 | ||
Common Stock, $.01 par value, 1 share authorized, issued and outstanding | ||
Additional paid-in capital | $ 197,162 | $ 197,162 |
Retained earnings and distributions in excess of earnings | (46,303) | (43,186) |
Total Stockholders' Equity | 150,859 | 153,976 |
Total Liabilities and Stockholders' Equity | $ 191,831 | $ 196,055 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Consolidated Balance Sheets | ||
Acquired real estate leases, accumulated amortization | $ 1,016 | $ 1,529 |
Acquired favorable real estate leases, accumulated amortization | 911 | 1,651 |
Tenant rent and other receivables, allowance for doubtful accounts | 162 | 0 |
Deferred leasing costs, accumulated amortization | 2,119 | 1,428 |
Deferred financing costs, accumulated amortization | 133 | 103 |
Acquired unfavorable real estate leases, accumulated amortization | $ 110 | $ 135 |
Preferred Stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred Stock, shares authorized (in shares) | 2,210 | 2,210 |
Preferred Stock, shares issued (in shares) | 2,210 | 2,210 |
Preferred Stock, shares outstanding (in shares) | 2,210 | 2,210 |
Preferred Stock, aggregate liquidation preference | $ 221,000 | $ 221,000 |
Common Stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common Stock, shares authorized (in shares) | 1 | 1 |
Common Stock, shares issued (in shares) | 1 | 1 |
Common Stock, shares outstanding (in shares) | 1 | 1 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Revenues: | ||
Rental | $ 15,575 | $ 14,276 |
Total revenue | 15,575 | 14,276 |
Expenses: | ||
Rental operating expenses | 6,080 | 5,666 |
Real estate taxes and insurance | 3,454 | 4,429 |
Depreciation and amortization | 7,466 | 6,124 |
Interest expense | 1,721 | 1,721 |
Total expenses | 18,721 | 17,940 |
Net loss before interest income | (3,146) | (3,664) |
Interest income | 29 | 36 |
Net loss attributable to preferred stockholders | $ (3,117) | $ (3,628) |
Weighted average number of preferred shares outstanding, basic and diluted | 2,210 | 2,210 |
Net loss per preferred share, basic and diluted | $ (1,410) | $ (1,642) |
Consolidated Statements of Chan
Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands | Additional Paid-in Capital | Retained Earnings and Distributions in Excess of Earnings | Total |
Balance at Dec. 31, 2013 | $ 197,162 | $ (39,558) | $ 157,604 |
Increase (Decrease) in Stockholders' Equity | |||
Net loss | (3,628) | (3,628) | |
Balance at Dec. 31, 2014 | 197,162 | (43,186) | 153,976 |
Increase (Decrease) in Stockholders' Equity | |||
Net loss | (3,117) | (3,117) | |
Balance at Dec. 31, 2015 | $ 197,162 | $ (46,303) | $ 150,859 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Cash flows from operating activities: | ||
Net loss | $ (3,117) | $ (3,628) |
Adjustments to reconcile net loss to net cash used for operating activities: | ||
Depreciation and amortization | 7,496 | 6,154 |
Amortization of favorable real estate leases | 123 | 478 |
Amortization of unfavorable real estate leases | (16) | (17) |
Increases in bad debt reserve | 162 | |
Changes in operating assets and liabilities: | ||
Restricted cash | (5,149) | (1,804) |
Tenant rent and other receivable | 367 | (485) |
Step rent receivable | (443) | (1,291) |
Prepaid expenses and other assets | 19 | 13 |
Accounts payable and accrued expenses | (136) | 463 |
Tenant security deposits | (14) | 1 |
Payments of deferred leasing costs | (989) | (1,845) |
Net cash used for operating activities | (1,697) | (1,961) |
Cash flows from investing activities: | ||
Purchase of real estate assets | (4,475) | (4,866) |
Redemptions of restricted investment | 10,001 | 7,998 |
Net cash provided by investing activities | 5,526 | 3,132 |
Net increase in cash and cash equivalents | 3,829 | 1,171 |
Cash and cash equivalents, beginning of year | 19,981 | 18,810 |
Cash and cash equivalents, end of year | 23,810 | 19,981 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 1,691 | 1,691 |
Disclosure of non-cash investing activities: | ||
Accrued costs for purchase of real estate assets | $ 237 | $ 1,178 |
Organization
Organization | 12 Months Ended |
Dec. 31, 2015 | |
Organization | |
Organization | 1. Organization FSP 303 East Wacker Drive Corp. (the “Company”) was organized on December 13, 2006 as a corporation under the laws of the State of Delaware to purchase, own, and operate a twenty-eight story Class “A” multi-tenant office tower containing approximately 860,000 rentable square feet of space located in downtown Chicago, Illinois (the “Property”). The Company acquired the Property and commenced operations on January 5, 2007. Franklin Street Properties Corp. (“Franklin Street”) (NYSE MKT: FSP) holds the sole share of the Company’s common stock, $.01 par value per share (the “Common Stock”). Between February 2007 and December 2007, FSP Investments LLC, a wholly-owned subsidiary of Franklin Street, completed the sale on a best efforts basis of 2,210 shares of the Company’s preferred stock, $.01 par value per share (the “Preferred Stock”). FSP Investments LLC sold the Preferred Stock in a private placement offering to “accredited investors” within the meaning of Regulation D under the Securities Act of 1933. All references to the Company refer to FSP 303 East Wacker Drive Corp. and its consolidated subsidiary, collectively, unless the context otherwise requires. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2015 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies BASIS OF PRESENTATION The accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. ESTIMATES AND ASSUMPTIONS The Company prepares its consolidated financial statements and related notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”). These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REAL ESTATE AND DEPRECIATION Real estate assets are stated at the lower of cost or fair value, as appropriate, less accumulated depreciation. Costs related to property acquisition and improvements are capitalized. Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations. Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred. Funding for repairs and maintenance items typically is provided by cash flows from operating activities. Depreciation is computed using the straight-line method over the assets’ estimated useful lives as follows: Category Years Building - Commercial 39 Building Improvements 15-39 Furniture & Equipment 5-7 Tenant Improvements shorter of estimated useful life or the term of the lease The Company reviews the Property to determine if the carrying amount will be recovered from future cash flows if certain indicators of impairment are identified at the Property. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its fair value based on discounting its estimated future cash flows. At December 31, 2015 and 2014, no impairment charges were recorded. Depreciation expense of $6,188,000 and $5,062,000 is included in Depreciation and Amortization in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively. ACQUIRED REAL ESTATE LEASES Acquired real estate leases represent the estimated value of legal and leasing costs related to acquired leases that were included in the purchase price when the Company acquired the Property. The Company segregates these costs from its investment in real estate. The Company subsequently amortizes these costs on a straight-line basis over the remaining lives of the related leases. Amortization expense of $132,000 and $449,000 is included in Depreciation and Amortization in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively. Acquired real estate lease costs included in the purchase price of the Property were $11,222,000. Detail of the acquired real estate leases is as follows: (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ The estimated annual amortization expense for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ ACQUIRED FAVORABLE REAL ESTATE LEASES Acquired favorable real estate leases represent the value related to the leases when the lease payments due under a tenant’s lease exceed the market rate of the lease at the date the Property was acquired. The Company reports this value separately from its investment in real estate. The Company subsequently amortizes this amount on a straight-line basis over the remaining life of the tenant’s lease. Amortization of $123,000 and $478,000 is shown as a reduction of rental income in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively. The acquired favorable real estate leases included in the purchase price of the property were $8,034,000. Detail of the acquired favorable real estate leases is as follows: (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ The estimated annual amortization for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ ACQUIRED UNFAVORABLE REAL ESTATE LEASES Acquired unfavorable real estate leases represent the value relating to leases with rents below the market rate at the time the Property was acquired. Amortization is computed using the straight-line method over the lives of the leases assumed. Amortization of $16,000 and $17,000 is included with rental revenue in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014. The acquired unfavorable real estate leases included in the purchase price of the property were $613,000. Details of the acquired unfavorable real estate leases are as follows: (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ The estimated annual amortization for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an initial maturity of three months or less to be cash equivalents. RESTRICTED CASH AND INVESTMENT The Company is required under the loan payable to hold proceeds from the loan payable in a restricted reserve account or accounts. These proceeds are classified as restricted cash or restricted investments on the Consolidated Balance Sheets, depending on the initial maturity of the respective instrument. Restricted cash at December 31, 2015 consists of amounts in a money market account and certificates of deposit totaling $7,668,000. Restricted investments at December 31, 2015 consists of investments in a U.S. Treasury Bill, which the Company has the ability and intent to hold until their maturity, with a total face value of $6,000,000 and a total carrying value of $5,998,000. Restricted cash at December 31, 2014 consists of amounts in a money market account totaling $2,519,000. Restricted investments at December 31, 2014 consists of investments in certificates of deposit and in a U.S. Treasury Bill, which the Company has the ability and intent to hold until their maturity, with a total face value of $16,000,000 and a total carrying value of $15,999,000. CONCENTRATION OF CREDIT RISKS Cash, cash equivalents and short-term investments are financial instruments that potentially subject the Company to a concentration of credit risk. The Company maintains its cash balances and short-term investments principally in banks which the Company believes to be creditworthy. The Company periodically assesses the financial condition of the banks and believes that the risk of loss is minimal. Cash balances held with various financial institutions frequently exceed the insurance limit of $250,000 provided by the Federal Deposit Insurance Corporation. For the years ended December 31, 2015 and 2014, rental income was derived from various tenants. As such, future receipts are dependent upon the financial strength of the lessees and their ability to perform under the lease agreements. The following tenants represent greater than 10% of rental revenue as of December 31, 2015 and 2014: 2015 2014 Maximus % % AECOM % % FINANCIAL INSTRUMENTS The Company estimates that the carrying value of cash and cash equivalents, restricted cash, restricted investment, and loan payable approximate their fair values based on their short-term maturity and prevailing interest rates. TENANT RENT AND OTHER RECEIVABLES Tenant rent and other receivables are reported at the amount the Company expects to collect on balances outstanding at year-end. The Company provides an allowance for doubtful accounts based on its estimate of a tenant’s ability to make future rent payments. The computation of this allowance is based in part on the tenant’s payment history and current credit status. Management monitors outstanding balances and tenant relationships and concluded that as of December 31, 2015 and 2014, the allowance for doubtful accounts was $162,000 and $0 respectively. STEP RENT RECEIVABLE Certain leases provide for fixed rental increases over the life of the lease. Rental revenue is recognized on the straight-line basis over the related lease term; however, billings by the Company are based on required minimum rentals in accordance with the lease agreements. Step rent receivable, which is the cumulative revenue recognized in excess of amounts billed by the Company, is $5,528,000 and $5,085,000 at December 31, 2015 and 2014, respectively. DEFERRED LEASING COSTS Deferred leasing commissions represent direct and incremental external leasing costs incurred in the leasing of commercial space. These costs are capitalized and are amortized on a straight-line basis over the terms of the related lease agreements. Amortization expense was $1,146,000 and $613,000 for the years ended December 31, 2015 and 2014, respectively. REVENUE RECOGNITION The Company has retained substantially all of the risks and benefits of ownership of the Company’s commercial property and accounts for its leases as operating leases. Rental income from leases, which may include rent concession (including free rent and tenant improvement allowances) and scheduled increases in rental rates during the lease term, is recognized on a straight-line basis. The Company does not have any percentage rent arrangements with its commercial property tenants. Reimbursable costs are included in rental income in the year earned. A schedule showing the components of rental revenue is shown below. Year Ended Year Ended December 31, December 31, (in thousands) 2015 2014 Income from leases $ $ Straight-line rent adjustment Reimbursable expenses and parking Termination fees Amortization of favorable leases ) ) Amortization of unfavorable leases Total $ $ INTEREST INCOME Interest income is recognized when the earnings process is complete. INCOME TAXES The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally is entitled to a tax deduction for dividends paid to its stockholders, thereby effectively subjecting the distributed net income of the Company to taxation at the stockholder 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 stockholders it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed annually. NET INCOME PER SHARE Basic net income per share of Preferred Stock is computed by dividing net income by the weighted average number of shares of Preferred Stock outstanding during the period. Diluted net income per share of Preferred Stock reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were no potential dilutive shares outstanding at December 31, 2015 and 2014. Subsequent to the completion of the offering shares of Preferred Stock, the holder of Common Stock is not entitled to share in any income nor in any related dividend. FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is also an established fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Financial assets and liabilities recorded on the Consolidated Balance Sheets at fair value are categorized based on the inputs to the valuation techniques as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity or information. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. These inputs were considered and applied to the Company’s restricted investment, and Level 1 inputs were used to value the investment. SUBSEQUENT EVENTS In preparing these consolidated financial statements, the Company evaluated events that occurred through the date of issuance of these consolidated financial statements for potential recognition or disclosure. RECENT ACCOUNTING STANDARDS In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition. The update’s core principle is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 delaying the effective date of option. This update is now effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, “ Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. This update is effective for interim and annual reporting periods beginning after December 15, 2015 and requires retrospective application. The implementation of this update is not expected to cause any material changes to the consolidated financial statements other than the reclassification of debt issuance costs from assets to contra liabilities on the consolidated balance sheets. As of December 31, 2015 and December 31, 2014, $171,000 and $201,000, respectively, would be reclassified from assets to contra liabilities on the consolidated balance sheets. In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”, which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. This update modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. The Company is currently assessing the potential impact that the adoption of ASU No. 2015-02 will have on the consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Company is currently assessing the potential impact that the adoption of ASU 2016-01 will have on its consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessee and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Topic 842 affects any entity that enters into a lease with some specified scope exemptions. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the potential impact that the adoption of ASU No. 2016-02 will have on the consolidated financial statements. |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2015 | |
Income Taxes | |
Income Taxes | 3. Income Taxes The Company files as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. In order to qualify as a REIT, the Company is required to distribute at least 90% of its taxable income to stockholders and to meet certain asset and income tests as well as certain other requirements. The Company will generally not be liable for federal income taxes, provided it satisfies these requirements. Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property. 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 files income tax returns in the U.S. federal jurisdiction and the State of Illinois jurisdiction. 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 2012 and thereafter. During the years 2006 to 2015, the Company incurred a net operating loss for income tax purposes of approximately $12,665,000 which can be carried forward until it expires between 2027 and 2035. The gross amount of net operating losses available to the Company was $12,665,000 and $11,410,000 as of December 31, 2015 and 2014, respectively. At December 31, 2015, the Company’s net tax basis of its real estate assets was $163,131,000. The following schedule reconciles net loss to taxable loss subject to dividend requirements: Year Ended Year Ended December 31, December 31, (in thousands) 2015 2014 Net loss $ ) $ ) Adjustments: Book depreciation and amortization Amortization of favorable real estate leases Deferred rent ) Allowance for bad debt expenses — Tax depreciation and amortization ) ) Amortization of unfavorable real estate leases ) ) Straight-line rent adjustment ) ) Taxable loss $ ) $ ) There were no distributions paid for the years ended December 31, 2015 and 2014. |
Loan Payable
Loan Payable | 12 Months Ended |
Dec. 31, 2015 | |
Loan Payable | |
Loan Payable | 4. Loan Payable On August 3, 2011, the Company entered into a mortgage note in favor of John Hancock Life Insurance Company (U.S.A.) (the “Lender”) to evidence a loan (the “Loan”) in the original principal amount of $35,000,000 that matures on September 1, 2021. The proceeds of the Loan are being held by the Lender for the Company’s benefit in a restricted reserve account or accounts to be drawn upon by the Company from time to time for tenant improvement costs and leasing commissions at the Property upon satisfaction of certain conditions. The Loan bears interest at the fixed rate of 4.83% per annum. The Company is obligated to make monthly payments of interest only for the initial 60 months of the Loan. Thereafter, the Company is obligated to make monthly payments of principal and interest for the remaining 60 months, based on a 25-year amortization schedule, until the maturity date, when all outstanding amounts become due. Commencing on October 1, 2016, the Loan is payable in monthly payments of $201,155 including interest at 4.83% per annum. The Company may prepay the Loan with a prepayment premium, as defined in the Loan agreement. The Loan is secured, in part, by a mortgage, assignment of leases and rents and security agreement (the “Mortgage”) from the Company in favor of the Lender. The Mortgage constitutes a lien against the Property and has been recorded in the land records of Cook County, Illinois. Subject to customary exceptions, the Loan is nonrecourse to the Company. As of December 31, 2015, the Company had made aggregate draw requests under the Loan of $21,359,000. Interest expense from the Loan for each of the years ended December 31, 2015 and 2014 was $1,691,000. The documents evidencing and securing the Loan include restrictions on property liens and requires compliance with various financial covenants. Non-financial covenants include the requirement that the Company provide annual reporting. The Company was in compliance with the Loan covenants as of December 31, 2015 and December 31, 2014. As of December 31, 2015, scheduled principal payments under the Loan for the next five years are as follows: (in thousands) 2016 $ 2017 2018 2019 2020 Fees paid associated with the Loan were $304,000 and are being amortized on the straight-line basis over the term of the Loan. Amortization expense for the years ended December 31, 2015 and 2014 is $30,000 for both years and is included in interest expense in the Company’s Consolidated Statements of Operations. |
Capital Stock
Capital Stock | 12 Months Ended |
Dec. 31, 2015 | |
Capital Stock | |
Capital Stock | 5. Capital Stock PREFERRED STOCK Generally, each holder of shares of Preferred Stock is entitled to receive ratably all dividends, if any, declared by the Board of Directors out of funds legally available. The right to receive dividends is non-cumulative, and no right to dividends shall accrue by reason of the fact that no dividend has been declared in any prior year. Each holder of shares of Preferred Stock will be entitled to receive, to the extent that funds are available therefor, $100,000 per share of Preferred Stock, before any payment to the holder of Common Stock, out of distributions to stockholders upon liquidation, dissolution or the winding up of the Company; the balance of any such funds available for distribution will be distributed among the holders of shares of Preferred Stock and the holder of Common Stock, pro rata based on the number of shares held by each; provided, however, that for these purposes, one share of Common Stock will be deemed to equal one-tenth of a share of Preferred Stock. In addition to certain rights to remove and replace directors with or without cause, the holders of a majority of the then outstanding shares of Preferred Stock shall have the further right to approve or disapprove a proposed sale of the Property, the merger of the Company with any other entity and amendments to the corporate charter. A vote of the holders of not less than 66.67% of the then outstanding shares of Preferred Stock is required for the issuance of any additional shares of capital stock. Holders of shares of Preferred Stock have no redemption or conversion rights. COMMON STOCK Franklin Street is the sole holder of the Company’s Common Stock. Franklin Street has the right to vote to elect the directors of the Company and to vote on all matters, subject to the voting rights of the Preferred Stock set forth above. Subsequent to the completion of the offering of the shares of Preferred Stock in December 2007, Franklin Street, as the holder of Common Stock, was not, and is not entitled to share in any earnings or any related dividend with respect to the Common Stock. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2015 | |
Related Party Transactions | |
Related Party Transactions | 6. Related Party Transactions Asset Management Agreement The Company has in the past engaged in and currently engages in transactions with a related party, Franklin Street, and its subsidiaries, FSP Investments LLC and FSP Property Management LLC (collectively “FSP”). The Company expects to continue to have related party transactions with FSP in the form of management fees paid to FSP to manage the Company on behalf of its stockholders. FSP Property Management LLC currently provides the Company with asset management and financial reporting services. The asset management agreement between the Company and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one-half of one percent (.5%) of the gross revenues of the Property. The asset management agreement between the Company and FSP Property Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’ written notice. For the years ended December 31, 2015 and 2014, management fees paid were approximately $78,000 and $70,000, respectively. Investor Services Agreement On August 14, 2012, the Company entered into an Investor Services Agreement (the “FSPI Agreement”) with FSP Investments LLC for the provision of investor services to holders of the Company’s preferred stock. FSP Investments LLC is a wholly-owned subsidiary of Franklin Street, which is the sole holder of the Company’s one share of Common Stock that is issued and outstanding. FSP Investments LLC acted as a real estate investment firm and broker/dealer with respect to (a) the Company’s organization, (b) the Company’s acquisition of the Property and (c) the sale of the Company’s equity interests. The FSPI Agreement requires the Company to pay a monthly service fee of $500 for services performed under the FSPI Agreement, and to reimburse FSP Investments LLC for its reasonable out-of-pocket expenses incurred in connection with the FSPI Agreement. The FSPI Agreement may be terminated by either party with thirty days written notice or immediately upon certain events of default set forth in the FSPI Agreement. For the years ended December 31, 2015 and 2014, investor services fees and expenses paid were approximately $14,000 and $15,000, respectively. Ownership of Preferred Stock and Common Stock On December 27, 2007, Franklin Street purchased 965.75 shares of Preferred Stock (approximately 43.7% of the issued and outstanding shares of Preferred Stock) for consideration totaling $82,813,000. Prior to purchasing any shares of the Preferred Stock, Franklin Street agreed to vote any shares of Preferred Stock held by it on any matter presented to the holders of the Preferred Stock in a manner that approximates as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin Street and its affiliates. For purposes of determining how Franklin Street votes its shares of the Preferred Stock, abstentions and non-votes by stockholders other than Franklin Street are not considered. Franklin Street is entitled to distributions that are declared on the Preferred Stock. Franklin Street is the sole holder of the Company’s one share of Common Stock that is issued and outstanding. Subsequent to the completion of the private placement of the Preferred Stock in December 2007, Franklin Street has not been entitled to share in earnings or any dividend related to the Common Stock. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2015 | |
Commitments and Contingencies | |
Commitments and Contingencies | 7. Commitments and Contingencies The Company, as lessor, has minimum future rentals due under non-cancelable operating leases as follows: Year Ending (in thousands) December 31, Amount 2016 $ 2017 2018 2019 2020 Thereafter $ In addition, the lessees are liable for real estate taxes and certain operating expenses of the Property pursuant to lease agreements. |
Segment Reporting
Segment Reporting | 12 Months Ended |
Dec. 31, 2015 | |
Segment Reporting | |
Segment Reporting | 8. Segment Reporting The Company operates in one industry segment, which is real estate ownership of commercial property. At December 31, 2015 and 2014, the Company owned and operated the Property in that one segment. |
Accounts Payable and Accrued Ex
Accounts Payable and Accrued Expenses | 12 Months Ended |
Dec. 31, 2015 | |
Accounts Payable and Accrued Expenses | |
Accounts Payable and Accrued Expenses | 9. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the components shown below: December 31, (in thousands) 2015 2014 Accrued property tax $ $ Deferred rental income Accrued capital expenditures Accounts payable and other accrued expenses Due to tenant - tenant improvements Total $ $ |
SCHEDULE III Real Estate and Ac
SCHEDULE III Real Estate and Accumulated Depreciation | 12 Months Ended |
Dec. 31, 2015 | |
SCHEDULE III Real Estate and Accumulated Depreciation | |
SCHEDULE III Real Estate and Accumulated Depreciation | SCHEDULE III FSP 303 East Wacker Drive Corp. Real Estate and Accumulated Depreciation December 31, 2015 (in thousands) Initial Cost Historical Costs Costs Description Encumbrances Land Buildings Improvements and Equipment Capitalized (Disposals) Subsequent to Acquisition Land Buildings Improvements and Equipment Total (1) Accumulated Depreciation Total Costs, Net of Accumulated Depreciation Depreciable Life (Years) Date of Acquisition (in thousands) 303 East Wacker, Chicago, Illinois $ $ $ $ $ $ $ $ $ 5- 39 2007 (1) The aggregate cost for Federal Income Tax purposes is $199,595. FSP 303 East Wacker Drive Corp. The following table summarizes the changes in the Company’s real estate investments and accumulated depreciation: December 31, December 31, (in thousands) 2015 2014 Real estate investments, at cost: Balance, beginning of year $ $ Improvements Dispositions — ) Balance, end of year $ $ Accumulated depreciation: Balance, beginning of year $ $ Depreciation Dispositions — ) Balance, end of year $ $ |
Summary of Significant Accoun17
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Summary of Significant Accounting Policies | |
BASIS OF PRESENTATION | BASIS OF PRESENTATION The accompanying consolidated financial statements include all of the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. |
ESTIMATES AND ASSUMPTIONS | ESTIMATES AND ASSUMPTIONS The Company prepares its consolidated financial statements and related notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”). These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. |
REAL ESTATE AND DEPRECIATION | REAL ESTATE AND DEPRECIATION Real estate assets are stated at the lower of cost or fair value, as appropriate, less accumulated depreciation. Costs related to property acquisition and improvements are capitalized. Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations. Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred. Funding for repairs and maintenance items typically is provided by cash flows from operating activities. Depreciation is computed using the straight-line method over the assets’ estimated useful lives as follows: Category Years Building - Commercial 39 Building Improvements 15-39 Furniture & Equipment 5-7 Tenant Improvements shorter of estimated useful life or the term of the lease The Company reviews the Property to determine if the carrying amount will be recovered from future cash flows if certain indicators of impairment are identified at the Property. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset’s current carrying value and its fair value based on discounting its estimated future cash flows. At December 31, 2015 and 2014, no impairment charges were recorded. Depreciation expense of $6,188,000 and $5,062,000 is included in Depreciation and Amortization in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively. |
ACQUIRED REAL ESTATE LEASES | ACQUIRED REAL ESTATE LEASES Acquired real estate leases represent the estimated value of legal and leasing costs related to acquired leases that were included in the purchase price when the Company acquired the Property. The Company segregates these costs from its investment in real estate. The Company subsequently amortizes these costs on a straight-line basis over the remaining lives of the related leases. Amortization expense of $132,000 and $449,000 is included in Depreciation and Amortization in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively. Acquired real estate lease costs included in the purchase price of the Property were $11,222,000. Detail of the acquired real estate leases is as follows: (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ The estimated annual amortization expense for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ |
ACQUIRED FAVORABLE REAL ESTATE LEASES | ACQUIRED FAVORABLE REAL ESTATE LEASES Acquired favorable real estate leases represent the value related to the leases when the lease payments due under a tenant’s lease exceed the market rate of the lease at the date the Property was acquired. The Company reports this value separately from its investment in real estate. The Company subsequently amortizes this amount on a straight-line basis over the remaining life of the tenant’s lease. Amortization of $123,000 and $478,000 is shown as a reduction of rental income in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014, respectively. The acquired favorable real estate leases included in the purchase price of the property were $8,034,000. Detail of the acquired favorable real estate leases is as follows: (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ The estimated annual amortization for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ |
ACQUIRED UNFAVORABLE REAL ESTATE LEASES | ACQUIRED UNFAVORABLE REAL ESTATE LEASES Acquired unfavorable real estate leases represent the value relating to leases with rents below the market rate at the time the Property was acquired. Amortization is computed using the straight-line method over the lives of the leases assumed. Amortization of $16,000 and $17,000 is included with rental revenue in the Company’s Consolidated Statements of Operations for the years ended December 31, 2015 and 2014. The acquired unfavorable real estate leases included in the purchase price of the property were $613,000. Details of the acquired unfavorable real estate leases are as follows: (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ The estimated annual amortization for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ |
CASH AND CASH EQUIVALENTS | CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an initial maturity of three months or less to be cash equivalents. |
RESTRICTED CASH AND INVESTMENT | RESTRICTED CASH AND INVESTMENT The Company is required under the loan payable to hold proceeds from the loan payable in a restricted reserve account or accounts. These proceeds are classified as restricted cash or restricted investments on the Consolidated Balance Sheets, depending on the initial maturity of the respective instrument. Restricted cash at December 31, 2015 consists of amounts in a money market account and certificates of deposit totaling $7,668,000. Restricted investments at December 31, 2015 consists of investments in a U.S. Treasury Bill, which the Company has the ability and intent to hold until their maturity, with a total face value of $6,000,000 and a total carrying value of $5,998,000. Restricted cash at December 31, 2014 consists of amounts in a money market account totaling $2,519,000. Restricted investments at December 31, 2014 consists of investments in certificates of deposit and in a U.S. Treasury Bill, which the Company has the ability and intent to hold until their maturity, with a total face value of $16,000,000 and a total carrying value of $15,999,000. |
CONCENTRATION OF CREDIT RISKS | CONCENTRATION OF CREDIT RISKS Cash, cash equivalents and short-term investments are financial instruments that potentially subject the Company to a concentration of credit risk. The Company maintains its cash balances and short-term investments principally in banks which the Company believes to be creditworthy. The Company periodically assesses the financial condition of the banks and believes that the risk of loss is minimal. Cash balances held with various financial institutions frequently exceed the insurance limit of $250,000 provided by the Federal Deposit Insurance Corporation. For the years ended December 31, 2015 and 2014, rental income was derived from various tenants. As such, future receipts are dependent upon the financial strength of the lessees and their ability to perform under the lease agreements. The following tenants represent greater than 10% of rental revenue as of December 31, 2015 and 2014: 2015 2014 Maximus % % AECOM % % |
FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS The Company estimates that the carrying value of cash and cash equivalents, restricted cash, restricted investment, and loan payable approximate their fair values based on their short-term maturity and prevailing interest rates. |
TENANT RENT AND OTHER RECEIVABLES | TENANT RENT AND OTHER RECEIVABLES Tenant rent and other receivables are reported at the amount the Company expects to collect on balances outstanding at year-end. The Company provides an allowance for doubtful accounts based on its estimate of a tenant’s ability to make future rent payments. The computation of this allowance is based in part on the tenant’s payment history and current credit status. Management monitors outstanding balances and tenant relationships and concluded that as of December 31, 2015 and 2014, the allowance for doubtful accounts was $162,000 and $0 respectively. |
STEP RENT RECEIVABLE | STEP RENT RECEIVABLE Certain leases provide for fixed rental increases over the life of the lease. Rental revenue is recognized on the straight-line basis over the related lease term; however, billings by the Company are based on required minimum rentals in accordance with the lease agreements. Step rent receivable, which is the cumulative revenue recognized in excess of amounts billed by the Company, is $5,528,000 and $5,085,000 at December 31, 2015 and 2014, respectively. |
DEFERRED LEASING COSTS | DEFERRED LEASING COSTS Deferred leasing commissions represent direct and incremental external leasing costs incurred in the leasing of commercial space. These costs are capitalized and are amortized on a straight-line basis over the terms of the related lease agreements. Amortization expense was $1,146,000 and $613,000 for the years ended December 31, 2015 and 2014, respectively. |
REVENUE RECOGNITION | REVENUE RECOGNITION The Company has retained substantially all of the risks and benefits of ownership of the Company’s commercial property and accounts for its leases as operating leases. Rental income from leases, which may include rent concession (including free rent and tenant improvement allowances) and scheduled increases in rental rates during the lease term, is recognized on a straight-line basis. The Company does not have any percentage rent arrangements with its commercial property tenants. Reimbursable costs are included in rental income in the year earned. A schedule showing the components of rental revenue is shown below. Year Ended Year Ended December 31, December 31, (in thousands) 2015 2014 Income from leases $ $ Straight-line rent adjustment Reimbursable expenses and parking Termination fees Amortization of favorable leases ) ) Amortization of unfavorable leases Total $ $ |
INTEREST INCOME | INTEREST INCOME Interest income is recognized when the earnings process is complete. |
INCOME TAXES | INCOME TAXES The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally is entitled to a tax deduction for dividends paid to its stockholders, thereby effectively subjecting the distributed net income of the Company to taxation at the stockholder 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 stockholders it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed annually. |
NET INCOME PER SHARE | NET INCOME PER SHARE Basic net income per share of Preferred Stock is computed by dividing net income by the weighted average number of shares of Preferred Stock outstanding during the period. Diluted net income per share of Preferred Stock reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were no potential dilutive shares outstanding at December 31, 2015 and 2014. Subsequent to the completion of the offering shares of Preferred Stock, the holder of Common Stock is not entitled to share in any income nor in any related dividend. |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is also an established fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Financial assets and liabilities recorded on the Consolidated Balance Sheets at fair value are categorized based on the inputs to the valuation techniques as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity or information. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. These inputs were considered and applied to the Company’s restricted investment, and Level 1 inputs were used to value the investment. |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS In preparing these consolidated financial statements, the Company evaluated events that occurred through the date of issuance of these consolidated financial statements for potential recognition or disclosure. |
RECENT ACCOUNTING STANDARDS | RECENT ACCOUNTING STANDARDS In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition. The update’s core principle is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 delaying the effective date of option. This update is now effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact the adoption of this ASU will have on the consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, “ Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. This update is effective for interim and annual reporting periods beginning after December 15, 2015 and requires retrospective application. The implementation of this update is not expected to cause any material changes to the consolidated financial statements other than the reclassification of debt issuance costs from assets to contra liabilities on the consolidated balance sheets. As of December 31, 2015 and December 31, 2014, $171,000 and $201,000, respectively, would be reclassified from assets to contra liabilities on the consolidated balance sheets. In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”, which affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. This update modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. The Company is currently assessing the potential impact that the adoption of ASU No. 2015-02 will have on the consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Company is currently assessing the potential impact that the adoption of ASU 2016-01 will have on its consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessee and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Topic 842 affects any entity that enters into a lease with some specified scope exemptions. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the potential impact that the adoption of ASU No. 2016-02 will have on the consolidated financial statements. |
Summary of Significant Accoun18
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Summary of Significant Accounting Policies | |
Schedule of estimated useful lives of real estate assets | Category Years Building - Commercial 39 Building Improvements 15-39 Furniture & Equipment 5-7 Tenant Improvements shorter of estimated useful life or the term of the lease |
Schedule of acquired real estate leases | (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ |
Schedule of estimated annual amortization expense for acquired real estate leases | The estimated annual amortization expense for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ |
Schedule of acquired favorable real estate leases | (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ |
Schedule of estimated annual amortization expense for acquired favorable real estate leases | The estimated annual amortization for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ |
Schedule of acquired unfavorable real estate leases | (in thousands) December 31, 2015 2014 Cost $ $ Accumulated amortization ) ) Book value $ $ |
Schedule of estimated annual amortization for acquired unfavorable real estate leases | The estimated annual amorti zation for the year succeeding December 31, 2015 is as follows: (in thousands) 2016 $ |
Schedule of tenants that represent greater than 10% of rental revenue | 2015 2014 Maximus % % AECOM % % |
Schedule of components of rental revenue | Year Ended Year Ended December 31, December 31, (in thousands) 2015 2014 Income from leases $ $ Straight-line rent adjustment Reimbursable expenses and parking Termination fees Amortization of favorable leases ) ) Amortization of unfavorable leases Total $ $ |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Income Taxes | |
Schedule of reconciliation of net loss to taxable loss subject to dividend requirements | Year Ended Year Ended December 31, December 31, (in thousands) 2015 2014 Net loss $ ) $ ) Adjustments: Book depreciation and amortization Amortization of favorable real estate leases Deferred rent ) Allowance for bad debt expenses — Tax depreciation and amortization ) ) Amortization of unfavorable real estate leases ) ) Straight-line rent adjustment ) ) Taxable loss $ ) $ ) |
Loan Payable (Tables)
Loan Payable (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Loan Payable | |
Schedule of principal payments under the Loan for the next five years | As of December 31, 2015, scheduled principal payments under the Loan for the next five years are as follows: (in thousands) 2016 $ 2017 2018 2019 2020 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Commitments and Contingencies | |
Schedule of minimum future rentals due under non-cancelable operating leases, as lessor | Year Ending (in thousands) December 31, Amount 2016 $ 2017 2018 2019 2020 Thereafter $ |
Accounts Payable and Accrued 22
Accounts Payable and Accrued Expenses (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Accounts Payable and Accrued Expenses | |
Schedule of components of accounts payable and accrued expenses | December 31, (in thousands) 2015 2014 Accrued property tax $ $ Deferred rental income Accrued capital expenditures Accounts payable and other accrued expenses Due to tenant - tenant improvements Total $ $ |
Organization (Details)
Organization (Details) | 12 Months Ended | ||
Dec. 31, 2015ft²item$ / shares | Dec. 31, 2014$ / shares | Dec. 31, 2007$ / sharesshares | |
Organization | |||
Number of stories in the multi-tenant office tower operated by the entity | item | 28 | ||
Rentable square feet area | ft² | 860,000 | ||
Organization | |||
Common Stock, par value (in dollars per share) | $ 0.01 | $ 0.01 | |
Franklin Street | |||
Organization | |||
Common Stock, par value (in dollars per share) | $ 0.01 | ||
FSP Investments LLC | |||
Organization | |||
Preferred stock, underwritten shares issued (in shares) | shares | 2,210 | ||
Preferred stock, par value of underwritten shares (in dollars per share) | $ 0.01 |
Summary of Significant Accoun24
Summary of Significant Accounting Policies - Acquired Real Estate, Depreciation and Amortization and Useful Lives (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
REAL ESTATE AND DEPRECIATION | ||
Impairment charges | $ 0 | $ 0 |
Depreciation expense | 6,188,000 | 5,062,000 |
ACQUIRED REAL ESTATE LEASES | ||
Amortization expense | 132,000 | 449,000 |
Acquired real estate lease costs included in the purchase price of the Property | 11,222,000 | |
Cost | 1,088,000 | 1,733,000 |
Accumulated amortization | (1,016,000) | (1,529,000) |
Book value | 72,000 | 204,000 |
Estimated annual amortization expense for acquired real estate leases | ||
2,016 | 72,000 | |
ACQUIRED FAVORABLE REAL ESTATE LEASES | ||
Amortization of favorable real estate leases | 123,000 | 478,000 |
Acquired favorable real estate lease costs included in the purchase price of the Property | 8,034,000 | |
Cost | 970,000 | 1,833,000 |
Accumulated amortization | (911,000) | (1,651,000) |
Book value | 59,000 | 182,000 |
Estimated annual amortization expense for acquired favorable real estate leases | ||
2,016 | 59,000 | |
ACQUIRED UNFAVORABLE REAL ESTATE LEASES | ||
Amortization of unfavorable real estate leases | 16,000 | 17,000 |
Acquired unfavorable real estate lease costs included in the purchase price of the Property | 613,000 | |
Cost | 121,000 | 162,000 |
Accumulated amortization | (110,000) | (135,000) |
Book value | 11,000 | $ 27,000 |
Estimated annual amortization expense for acquired unfavorable real estate leases | ||
2,016 | $ 11,000 | |
Building - Commercial | ||
REAL ESTATE AND DEPRECIATION | ||
Estimated useful lives | 39 years | |
Building Improvements | Minimum | ||
REAL ESTATE AND DEPRECIATION | ||
Estimated useful lives | 15 years | |
Building Improvements | Maximum | ||
REAL ESTATE AND DEPRECIATION | ||
Estimated useful lives | 39 years | |
Furniture and Equipment | Minimum | ||
REAL ESTATE AND DEPRECIATION | ||
Estimated useful lives | 5 years | |
Furniture and Equipment | Maximum | ||
REAL ESTATE AND DEPRECIATION | ||
Estimated useful lives | 7 years |
Summary of Significant Accoun25
Summary of Significant Accounting Policies - Restricted Cash and Investments (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Restricted Cash and Investment | ||
Restricted cash | $ 7,668,000 | $ 2,519,000 |
Face value of U.S. treasury bill | 6,000,000 | 16,000,000 |
Carrying value of U.S. treasury bill | $ 5,998,000 | $ 15,999,000 |
Summary of Significant Accoun26
Summary of Significant Accounting Policies - Other Receivables, Costs and Concentrations (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
TENANT RENT AND OTHER RECEIVABLES | ||
Tenant rent and other receivables, allowance for doubtful accounts | $ 162,000 | $ 0 |
STEP RENT RECEIVABLE | ||
Step rent receivable | 5,528,000 | 5,085,000 |
DEFERRED LEASING COSTS | ||
Amortization expense related to deferred leasing costs | 1,146,000 | 613,000 |
REVENUE RECOGNITION | ||
Income from leases | 10,347,000 | 9,403,000 |
Straight-line rent adjustment | 181,000 | 606,000 |
Reimbursable expenses and parking | 5,134,000 | 4,669,000 |
Termination fees | 20,000 | 59,000 |
Amortization of favorable leases | (123,000) | (478,000) |
Amortization of unfavorable leases | 16,000 | 17,000 |
Total | $ 15,575,000 | $ 14,276,000 |
NET INCOME PER SHARE | ||
Potential dilutive shares outstanding | 0 | 0 |
Rental revenue | Customer concentration risk | Maximus | ||
Concentration of credit risks | ||
Concentration risk percentage | 25.20% | 27.00% |
Rental revenue | Customer concentration risk | AECOM | ||
Concentration of credit risks | ||
Concentration risk percentage | 9.30% | 10.00% |
Summary of Significant Accoun27
Summary of Significant Accounting Policies - Recent Accounting Standards (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
RECENT ACCOUNTING STANDARDS | ||
Assets | $ (191,831,000) | $ (196,055,000) |
Liabilities | (40,972,000) | (42,079,000) |
ASU No. 2015-03 | Pro forma adjustment | ||
RECENT ACCOUNTING STANDARDS | ||
Assets | 171,000 | 201,000 |
Liabilities | $ 171,000 | $ 201,000 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 12 Months Ended | 120 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | |
Income Taxes | |||
Statute of limitations for income tax returns | 3 years | ||
Cumulative net operating loss incurred | $ 12,665,000 | ||
Net operating loss | $ 12,665,000 | $ 11,410,000 | 12,665,000 |
Net tax basis of real estate assets | 163,131,000 | $ 163,131,000 | |
Reconciliation of net income to taxable income subject to dividend requirements | |||
Net loss | (3,117,000) | (3,628,000) | |
Adjustments: | |||
Book depreciation and amortization | 7,496,000 | 6,154,000 | |
Amortization of favorable real estate leases | 123,000 | 478,000 | |
Deferred rent | 9,000 | (6,000) | |
Allowance for bad debt expenses | 162,000 | ||
Tax depreciation and amortization | (5,526,000) | (4,997,000) | |
Amortization of unfavorable real estate leases | (16,000) | (17,000) | |
Straight-line rent adjustment | (386,000) | (711,000) | |
Taxable loss | (1,255,000) | (2,727,000) | |
Tax components of the distributions paid | |||
Distributions paid | $ 0 | $ 0 |
Loan Payable (Details)
Loan Payable (Details) - Loan Payable. - USD ($) | Oct. 01, 2016 | Aug. 03, 2011 | Dec. 31, 2015 | Dec. 31, 2014 |
Loan payable | ||||
Principal amount of loan | $ 35,000,000 | |||
Debt fixed interest rate (as a percent) | 4.83% | 4.83% | ||
Number of monthly interest only payments | 60 months | |||
Number of remaining monthly principal and interest repayments | 60 months | |||
Debt amortization schedule term | 25 years | |||
Frequency of periodic payment | monthly | |||
Monthly payment | $ 201,155 | |||
Aggregate draw requests from the restricted reserve account(s) | $ 21,359,000 | |||
Interest expense on loan | 1,691,000 | $ 1,691,000 | ||
Fees paid associated with the loan | $ 304,000 | |||
Amortization expense included in interest expense | 30,000 | $ 30,000 | ||
Principal payments under the Loan for the next five years: | ||||
2,016 | 182,000 | |||
2,017 | 749,000 | |||
2,018 | 786,000 | |||
2,019 | 824,000 | |||
2,020 | $ 865,000 |
Capital Stock (Details)
Capital Stock (Details) | 12 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Capital Stock | |
Dividend declared in prior years (in dollars per share) | $ 0 |
Liquidation preference value | $ 100,000 |
Portion of shares of Preferred Stock, which is equal to one share of common stock | shares | 0.1 |
Minimum percentage of outstanding preferred shares to be held by voters | 66.67% |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) | Aug. 14, 2012 | Dec. 27, 2007 | Dec. 31, 2015 | Dec. 31, 2014 |
Related party transactions | ||||
Common Stock, shares issued (in shares) | 1 | 1 | ||
Common Stock, shares outstanding (in shares) | 1 | 1 | ||
Franklin Street | ||||
Related party transactions | ||||
Common Stock, shares issued (in shares) | 1 | |||
Common Stock, shares outstanding (in shares) | 1 | |||
Number of shares of preferred stock purchased by the related party | 965.75 | |||
Percentage of issued preferred stock purchased by related party | 43.70% | |||
Percentage of outstanding preferred stock purchased by related party | 43.70% | |||
Consideration paid by related party for purchase of preferred stock | $ 82,813,000 | |||
FSP Property Management LLC | ||||
Related party transactions | ||||
Percentage of gross revenues of property | 0.50% | |||
Management fees paid | $ 78,000 | $ 70,000 | ||
FSP Property Management LLC | Minimum | ||||
Related party transactions | ||||
Notice period for termination of agreement | 30 days | |||
FSP Investments LLC | ||||
Related party transactions | ||||
Monthly service fees payable under the agreement | $ 500 | |||
Service fees and expenses paid | $ 14,000 | $ 15,000 | ||
FSP Investments LLC | Minimum | ||||
Related party transactions | ||||
Notice period for termination of agreement | 30 days |
Commitments and Contingencies32
Commitments and Contingencies (Details) $ in Thousands | Dec. 31, 2015USD ($) |
Minimum future rentals due under non-cancelable operating leases | |
2,016 | $ 10,079 |
2,017 | 8,499 |
2,018 | 8,620 |
2,019 | 7,908 |
2,020 | 7,705 |
Thereafter | 15,991 |
Total | $ 58,802 |
Segment Reporting (Details)
Segment Reporting (Details) - segment | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Segment Reporting | ||
Number of industry segments | 1 | 1 |
Accounts Payable and Accrued 34
Accounts Payable and Accrued Expenses (Details) - USD ($) $ in Thousands | Dec. 31, 2015 | Dec. 31, 2014 |
Accounts Payable and Accrued Expenses | ||
Accrued property tax | $ 3,909 | $ 3,858 |
Deferred rental income | 759 | 907 |
Accrued capital expenditures | 163 | 1,104 |
Accounts payable and other accrued expenses | 671 | 710 |
Due to tenant - tenant improvements | 74 | 74 |
Total | $ 5,576 | $ 6,653 |
SCHEDULE III Real Estate and 35
SCHEDULE III Real Estate and Accumulated Depreciation - Rollforward (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Real Estate and Accumulated Depreciation | |||
Historical Costs, Accumulated Depreciation | $ 37,563 | $ 31,375 | $ 26,375 |
Historical Costs, Total Costs, Net of Accumulated Depreciation | 143,389 | $ 146,043 | |
303 East Wacker, Chicago, Illinois | |||
Real Estate and Accumulated Depreciation | |||
Initial Cost, Encumbrances | 35,000 | ||
Initial Cost, Land | 26,200 | ||
Initial Cost, Buildings Improvements and Equipment | 128,502 | ||
Initial Cost, Costs Capitalized (Disposals) Subsequent to Acquisition | 26,250 | ||
Historical Costs, Land | 26,200 | ||
Historical Costs, Buildings Improvements and Equipment | 154,752 | ||
Historical Costs, Total | 180,952 | ||
Historical Costs, Accumulated Depreciation | 37,563 | ||
Historical Costs, Total Costs, Net of Accumulated Depreciation | 143,389 | ||
Aggregate cost for Federal Income Tax purposes | $ 199,595 | ||
303 East Wacker, Chicago, Illinois | Minimum | |||
Real Estate and Accumulated Depreciation | |||
Depreciable Life | 5 years | ||
303 East Wacker, Chicago, Illinois | Maximum | |||
Real Estate and Accumulated Depreciation | |||
Depreciable Life | 39 years |
SCHEDULE III Real Estate and 36
SCHEDULE III Real Estate and Accumulated Depreciation - Real Estate Investments and Accumulated Depreciation (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Real estate investments, at cost: | ||
Balance, beginning of year | $ 177,418 | $ 171,657 |
Improvements | 3,534 | 5,823 |
Dispositions | (62) | |
Balance, end of year | 180,952 | 177,418 |
Accumulated depreciation: | ||
Balance, beginning of year | 31,375 | 26,375 |
Depreciation | 6,188 | 5,062 |
Dispositions | (62) | |
Balance, end of year | $ 37,563 | $ 31,375 |