10-Q

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 30, 2022.

OR

☐ 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 27, 2022 was 103,235,914.

Franklin Street Properties Corp.
Form 10-Q

Quarterly Report
September 30, 2022

Table of Contents

			Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
		Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	4
		Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended September 30, 2022 and 2021	5
		Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	6
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	7
		Notes to Consolidated Financial Statements	8-20
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	39
Part II.	Other Information
	Item 1.	Legal Proceedings	41
	Item 1A.	Risk Factors	41
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	Item 3.	Defaults Upon Senior Securities	42
	Item 4.	Mine Safety Disclosures	42
	Item 5.	Other Information	42
	Item 6.	Exhibits	43
Signatures			44

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

Franklin Street Properties Corp.

Consolidated Balance Sheets

(Unaudited)

	September 30,		December 31,
(in thousands, except share and par value amounts)	2022		2021
Assets:
Real estate assets:
Land	$	131,556	$	146,844
Buildings and improvements		1,397,303		1,457,209
Fixtures and equipment		10,656		11,404
		1,539,515		1,615,457
Less accumulated depreciation		420,532		424,487
Real estate assets, net		1,118,983		1,190,970
Acquired real estate leases, less accumulated amortization of $19,535 and $40,423, respectively		11,177		14,934
Cash, cash equivalents and restricted cash		8,717		40,751
Tenant rent receivables		1,309		1,954
Straight-line rent receivable		50,885		49,024
Prepaid expenses and other assets		6,961		4,031
Related party mortgage loan receivable, less allowance for credit loss of $1,857 and $0, respectively		22,143		24,000
Other assets: derivative asset		4,266		—
Office computers and furniture, net of accumulated depreciation of $1,099 and $1,198, respectively		170		198
Deferred leasing commissions, net of accumulated amortization of $20,826 and $21,099, respectively		37,459		38,311
Total assets	$	1,262,070	$	1,364,173
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	65,000	$	—
Term loans payable, less unamortized financing costs of $308 and $714, respectively		164,692		274,286
Series A & Series B Senior Notes, less unamortized financing costs of $535 and $658, respectively		199,465		199,342
Accounts payable and accrued expenses		50,371		89,493
Accrued compensation		3,159		4,704
Tenant security deposits		5,726		6,219
Lease liability		862		1,159
Other liabilities: derivative liabilities		—		5,239
Acquired unfavorable real estate leases, less accumulated amortization of $536 and $2,285, respectively		234		528
Total liabilities		489,509		580,970
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $.0001 par value, 180,000,000 shares authorized, 103,235,914 and 103,998,520 shares issued and outstanding, respectively		10		10
Additional paid-in capital		1,334,776		1,339,226
Accumulated other comprehensive income (loss)		4,266		(5,239)
Accumulated distributions in excess of accumulated earnings		(566,491)		(550,794)
Total stockholders’ equity		772,561		783,203
Total liabilities and stockholders’ equity	$	1,262,070	$	1,364,173

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

3

Franklin Street Properties Corp.

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Revenues:
Rental	$	40,366	$	50,326	$	122,994	$	164,671
Related party revenue:
Management fees and interest income from loans		466		419		1,393		1,246
Other		4		57		17		69
Total revenues		40,836		50,802		124,404		165,986
Expenses:
Real estate operating expenses		13,369		14,373		38,547		45,664
Real estate taxes and insurance		8,951		10,200		26,713		34,461
Depreciation and amortization		15,148		18,862		49,004		62,379
General and administrative		3,232		3,749		10,997		11,857
Interest		6,110		7,928		17,140		26,582
Total expenses		46,810		55,112		142,401		180,943
Loss on extinguishment of debt		(78)		(236)		(78)		(403)
Impairment and loan loss reserve		(717)		—		(1,857)		—
Gain on sale of properties, net		24,077		8,632		24,077		29,258
Income (loss) before taxes and equity in income of non-consolidated REITs		17,308		4,086		4,145		13,898
Tax expense		62		51		167		174
Equity in income of non-consolidated REITs		—		421		—		421
Net income	$	17,246	$	4,456	$	3,978	$	14,145
Weighted average number of shares outstanding, basic and diluted		103,236		106,905		103,372		107,196
Net income per share, basic and diluted	$	0.17	$	0.04	$	0.04	$	0.13

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

4

Franklin Street Properties Corp.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	For the				For the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2022		2021		2022		2021
Net income	$	17,246	$	4,456	$	3,978	$	14,145
Other comprehensive income:
Unrealized gain on derivative financial instruments		2,315		1,842		9,504		9,728
Total other comprehensive income		2,315		1,842		9,504		9,728
Comprehensive income	$	19,561	$	6,298	$	13,482	$	23,873

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

5

Franklin Street Properties Corp.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

						Accumulated		Distributions
				Additional		other		in excess of		Total
	Common Stock			Paid-In		comprehensive		accumulated		Stockholders’
(in thousands, except per share amounts)	Shares	Amount		Capital		income (loss)		earnings		Equity
Balance, December 31, 2020	107,328	$	11	$	1,357,131	$	(17,311)	$	(571,740)	$	768,091
Comprehensive income (loss)	—		—		—		3,613		(6,460)		(2,847)
Distributions $0.09 per share of common stock	—		—		—		—		(9,660)		(9,660)
Balance, March 31, 2021	107,328	$	11	$	1,357,131	$	(13,698)	$	(587,860)	$	755,584
Comprehensive income	—		—		—		4,273		16,149		20,422
Equity-based compensation	67		—		338						338
Distributions $0.09 per share of common stock	—		—		—		—		(9,659)		(9,659)
Balance, June 30, 2021	107,395	$	11	$	1,357,469	$	(9,425)	$	(581,370)	$	766,685
Comprehensive income	—		—		—		1,842		4,456		6,298
Repurchased shares	(1,762)		—		(8,244)		—		—		(8,244)
Distributions $0.09 per share of common stock	—		—		—		—		(9,666)		(9,666)
Balance, September 30, 2021	105,633	$	11	$	1,349,225	$	(7,583)	$	(586,580)	$	755,073
Balance, December 31, 2021	103,999	$	10	$	1,339,226	$	(5,239)	$	(550,794)	$	783,203
Comprehensive income (loss)	—		—		—		5,044		(4,158)		886
Repurchased shares	(847)		—		(4,843)		—		—		(4,843)
Distributions $0.09 per share of common stock	—		—		—		—		(9,360)		(9,360)
Balance, March 31, 2022	103,152	$	10	$	1,334,383	$	(195)	$	(564,312)	$	769,886
Comprehensive income (loss)	—		—		—		2,146		(9,110)		(6,964)
Equity-based compensation	84		—		393						393
Distributions $0.09 per share of common stock	—		—		—		—		(9,283)		(9,283)
Balance, June 30, 2022	103,236	$	10	$	1,334,776	$	1,951	$	(582,705)	$	754,032
Comprehensive income	—		—		—		2,315		17,246		19,561
Distributions $0.01 per share of common stock	—		—		—		—		(1,032)		(1,032)
Balance, September 30, 2022	103,236	$	10	$	1,334,776	$	4,266	$	(566,491)	$	772,561

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

6

Franklin Street Properties Corp.

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended September 30,
(in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	3,978	$	14,145
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		50,472		64,390
Amortization of above and below market leases		(88)		(38)
Shares issued as compensation		394		338
Loss on extinguishment of debt		78		403
Impairment and loan loss reserve		1,857		—
Gain on sale of properties, net		(24,077)		(29,258)
Equity in income of non-consolidated REITs		—		(421)
Distributions from non-consolidated REITs		—		421
Changes in operating assets and liabilities:
Tenant rent receivables		645		4,975
Straight-line rents		(4,064)		(3,103)
Lease acquisition costs		(2,659)		(1,666)
Prepaid expenses and other assets		(1,670)		(1,035)
Accounts payable and accrued expenses		(6,388)		(8,389)
Accrued compensation		(1,545)		(436)
Tenant security deposits		(493)		(2,508)
Payment of deferred leasing commissions		(7,086)		(10,857)
Net cash provided by operating activities		9,354		26,961
Cash flows from investing activities:
Property improvements, fixtures and equipment		(38,035)		(55,008)
Proceeds received from sales of properties		102,007		319,357
Net cash provided by investing activities		63,972		264,349
Cash flows from financing activities:
Distributions to stockholders		(52,956)		(28,985)
Stock repurchases		(4,843)		(8,244)
Borrowings under bank note payable		80,000		76,500
Repayments of bank note payable		(15,000)		(80,000)
Repayment of term loans payable		(110,000)		(245,000)
Deferred financing costs		(2,561)		—
Net cash used in financing activities		(105,360)		(285,729)
Net increase (decrease) in cash, cash equivalents and restricted cash		(32,034)		5,581
Cash, cash equivalents and restricted cash, beginning of year		40,751		4,150
Cash, cash equivalents and restricted cash, end of period	$	8,717	$	9,731
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	13,692	$	22,995
Taxes	$	664	$	417
Non-cash investing activities:
Accrued costs for purchases of real estate assets	$	7,466	$	5,108

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

7

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

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

Organization

Franklin Street Properties Corp. (“FSP Corp.” or the “Company”) holds, directly and indirectly, 100% of the interest in FSP Investments LLC, FSP Property Management LLC, FSP Holdings LLC and FSP Protective TRS Corp. FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in one corporation organized to operate as a real estate investment trust (the “Sponsored REIT”).

As of September 30, 2022, the Company owned and operated a portfolio of real estate consisting of 22 operating properties, one managed Sponsored REIT and held one promissory note secured by a mortgage on real estate owned by the Sponsored REIT. From time-to-time, the Company may acquire real estate or make additional secured loans. The Company may also pursue, on a selective basis, the sale of its properties in order to take advantage of the value creation and demand for its properties, for geographic, property specific reasons or for other general corporate purposes.

Properties

The following table summarizes the Company’s number of operating properties, which we also refer to as our owned properties and rentable square feet of real estate.

	As of September 30,
	2022	2021
Operating Properties:
Number of properties	22	26
Rentable square feet	6,433,954	7,671,275

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, 2021, as filed with the Securities and Exchange Commission.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 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 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.

8

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,
(in thousands)	2022		2021
Cash and cash equivalents	$	6,367	$	5,053
Restricted cash		2,350		4,678
Total cash, cash equivalents and restricted cash	$	8,717	$	9,731

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

Variable Interest Entities (VIEs)

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

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

We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct a proposed sale of the property or merger of the company. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion upon a reconsideration event. As of September 30, 2022, our relationship with FSP Monument Circle LLC was considered a VIE for which we are not the primary beneficiary. Our maximum exposure to losses associated with this VIE is limited to the outstanding Sponsored REIT Loan (as defined in Note 2) net of the allowance for credit loss, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $24.0 million and $24.5 million at September 30, 2022 and December 31, 2021, respectively. The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and are approximately $1.8 million and $0.5 million at September 30, 2022 and December 31, 2021, respectively. The relationships and investments related to the entity in which we have a variable interest are summarized in Note 2.

Recent Accounting Standards

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

9

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

Investment in Sponsored REITs:

At September 30, 2022 and December 31, 2021, the Company held a non-controlling common stock interest in one and two Sponsored REITs, respectively, in which the Company no longer shares in economic benefit or risk.

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancellable with 30 days notice. Asset management fee income from non-consolidated entities amounted to approximately $26,000 and $50,000 for the nine months ended September 30, 2022 and 2021, respectively.

From time to time the Company may make secured loans (“Sponsored REIT Loans”) to the Sponsored REIT 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 the current expected credit loss model (“CECL”) for Sponsored REIT Loans each reporting period. The measurement of expected credit losses is based upon historical experiences, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company has elected to apply the practical expedient for financial assets secured by collateral in instances where the borrower is experiencing financial difficulty and repayment of the Sponsored REIT Loan is expected to be provided substantially through operation or sale of the collateral. The Company uses the fair value of the collateral at the reporting date and an adjustment to the allowance for expected credit losses is recorded when the amortized cost basis of the financial asset exceeds the fair value of the collateral, less costs to sell.

The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s fair value, operating results and existing cash balances are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.

The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid through operation or sale of the property. The outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and the balances within the borrower’s cash accounts. The Sponsored REIT Loan matures on June 30, 2023.

The following is a summary of the sole Sponsored REIT Loan outstanding as of September 30, 2022:

			Maximum		Amount		Interest
(dollars in thousands, except footnotes)		Maturity	Amount		Outstanding		Rate at
Sponsored REIT	Location	Date	of Loan		30-Sep-22		30-Sep-22
Mortgage loan secured by property
FSP Monument Circle LLC (1)	Indianapolis, IN	30-Jun-23	$	24,000	$	24,000	7.51	%
			$	24,000	$	24,000

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

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $1,367,000 and $1,196,000 for the nine months ended September 30, 2022 and 2021, respectively.

10

On October 29, 2021, the Company agreed to amend and restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $21 million to $24 million. In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023. As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to vote their shares in favor of any sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023. There were no commitments to lend additional funds to the Sponsored REIT and the loan is collateralized by the mortgage held on the Sponsored REIT’s property and by cash accounts, as of September 30, 2022.

As of December 31, 2021, we did not have an allowance for credit losses recorded on our consolidated balance sheets. We recorded a $1.9 million increase in our provision for credit losses during the nine months ended September 30, 2022. The change in the allowance for credit losses during the nine months ended September 30, 2022 is primarily due to the deterioration within the current real estate market, changes to key assumptions applied within our financial model to reflect these market changes, such as the exit cap and the discount rate, and due to an increase in the accrued interest receivable balance. The following table presents a roll-forward of our allowance for credit losses.

	For the Nine Months Ended September 30,
(Dollars in thousands)		2022		2021
Beginning allowance for credit losses	$	—	$	—
Additional increases to the allowance for credit losses		1,857		—
Ending allowance for credit losses	$	1,857	$	—

The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the Sponsored REIT Loan measured at fair value on a nonrecurring basis:

	Fair Value (1) at			Significant	Range				Weighted
Description	September 30, 2022		Valuation Technique	Unobservable Input	Min		Max		Average (2)
		(in thousands)
Sponsored REIT Loan	$	22,143	Discounted Cash Flows	Exit Cap Rate	7.50	%	7.50	%	7.50	%
				Discount Rate	8.75	%	8.75	%	8.75	%
(1) Classified within Level 3 of the fair value hierarchy.
(2) Unobservable inputs were weighted based on the fair value of the related instrument.

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

JPM Term Loan

On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which provided a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”). On December 24, 2020, the Company repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, and $100 million remained fully advanced and outstanding under the JPM Term Loan. On June 4, 2021, the Company repaid the remaining $100 million

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outstanding on the loan, which had been scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs.

Although the interest rate on the JPM Term Loan was 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. On June 4, 2021, the Company paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.

BMO Term Loan

On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal (“BMO”), as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $220 million (the “BMO Term Loan”), of which $165 million remains fully advanced and outstanding. The BMO Term Loan initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. On June 4, 2021, the Company repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The $165 million tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that allows up to $100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions. The BMO Term Loan was previously evidenced by an Amended and Restated Credit Agreement, dated October 29, 2014, among the Company, BMO, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated July 21, 2016, and a Second Amendment, dated October 18, 2017.

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (165 basis points over LIBOR at September 30, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (65 basis points over the base rate at September 30, 2022).

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 BMO that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum, which matured on August 26, 2020. On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of September 30, 2022, the effective interest rate on the BMO Term Loan was 4.04% per annum. On June 4, 2021, the Company paid approximately $0.6 million to terminate the portion of the interest rate swap on the tranche A term loan, which was scheduled to mature on November 30, 2021.

The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or the administrative agent under the BMO Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all

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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 30, 2022.

BofA Revolver

On January 10, 2022, the Company entered into a Credit Agreement (the “BofA Credit Agreement”) with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto, for a new revolving line of credit for borrowings, at the Company’s election, of up to $217.5 million (the “BofA Revolver”). On February 10, 2022, the Company increased its BofA Revolver availability by $20.0 million to $237.5 million as part of the accordion feature that is available to increase borrowing capacity. Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $237.5 million outstanding at any time. As of September 30, 2022, there were borrowings of $65.0 million drawn and outstanding under the BofA Revolver. Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on January 12, 2024. The Company has the right to request an extension of the maturity date, subject to acceptance by the lenders and satisfaction of certain other customary conditions. The BofA Revolver includes an accordion feature that allows the Company to request an increase in borrowing capacity to an amount not exceeding $750 million in the aggregate, subject to receipt of lender commitments and satisfaction of certain customary conditions.

Borrowings under the BofA Revolver bear interest at a margin over either (i) the daily simple Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively. In addition, under certain circumstances, such as if SOFR is not able to be determined, the BofA Revolver will instead bear interest at a margin over a specified base rate. The margin over SOFR or, if applicable, the base rate varies depending on the Company’s leverage ratio (1.95% over SOFR and 0.95% over the base rate at September 30, 2022). The Company is also obligated to pay an annual facility fee and, if applicable, letter of credit fees in amounts that are also based on the Company’s leverage ratio. The facility fee is assessed against the aggregate amount of lender commitments regardless of usage (0.35% at September 30, 2022).

Based upon the Company’s credit rating, as of September 30, 2022, the interest rate on the BofA Revolver was 5.11% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through September 30, 2022 was approximately 1.84% per annum.

The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BofA Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio and a minimum unsecured interest coverage ratio. The BofA Credit Agreement also restricts the Company’s ability to make dividend distributions that exceed 95% of the Company’s good faith estimate of projected funds from operations for the applicable fiscal year; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The Company was in compliance with the BofA Revolver financial covenants as of September 30, 2022.

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

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The Company may use the net proceeds of the BofA Revolver 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 BofA Credit Agreement.

BofA Credit Facility

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

BofA Term Loan Highlights

● The original principal amount of the BofA Term Loan was $400 million. On September 30, 2021, the Company repaid a $90 million portion and on October 25, 2021, the Company repaid a $200 million portion of the BofA Term Loan and incurred a loss on extinguishment of debt of $0.7 million related to unamortized deferred financing costs. On September 6, 2022, the Company prepaid the remaining $110 million balance of the BofA Term Loan in full and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. As of September 30, 2022, there was no balance outstanding under the BofA Term Loan.

● If the Company had not prepaid the BofA Term Loan on September 6, 2022, the BofA Term Loan would have matured by its own terms on January 12, 2023.

The BofA Term Loan bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.75% over LIBOR at the date of repayment on September 6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating (0.75% over the base rate at the date of repayment on September 6, 2022).

The interest rate on the BofA Term Loan was variable through the date of prepayment on September 6, 2022. Previously the Company had fixed the base LIBOR interest rate on the BofA Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BofA Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ended on September 27, 2021. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan through the date of repayment on September 6, 2022, was approximately 2.65% per annum.

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) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $116 million (the “Series A Notes”) and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B Notes” and, together with the Series A Notes, the “Senior Notes”). On December 20, 2017, the Senior Notes were funded and the proceeds were used to reduce the outstanding balance of the Former BofA Revolver.

The Senior Notes bear interest depending on the Company’s credit rating. As of September 30, 2022, the Series A Notes bear interest at 4.49% per annum and the Series B Notes bear interest at 4.76% per annum.

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The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA Credit 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 30, 2022.

4.  Financial Instruments: Derivatives and Hedging

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

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

The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.

The following table summarizes the notional and fair value of the Company’s derivative financial instrument at September 30, 2022 and December 31, 2021. The notional value is an indication of the extent of the Company’s involvement in this instrument at that time, but does not represent exposure to credit, interest rate or market risks.

	Notional		Strike		Effective	Expiration	Fair Value (2) at
(in thousands)	Value		Rate		Date	Date	September 30, 2022		December 31, 2021
2019 BMO Interest Rate Swap (1)	$	165,000	2.39	%	Aug-20	Jan-24	$	4,266	$	(5,239)
(1) The Notional Value decreased to $165 million on June 4, 2021.
(2) Classified within Level 2 of the fair value hierarchy.

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The 2019 BMO Interest Rate Swap was reported as an asset with a fair value of approximately $4.3 million and a liability of approximately $5.2 million at September 30, 2022 and December 31, 2021, respectively. The balance is included in other assets: derivative asset and other liabilities: derivative liabilities in the consolidated balance sheet at September 30, 2022 and December 31, 2021, respectively.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2022 and 2021, respectively, was as follows:

(in thousands)	Nine Months Ended September 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2022		2021
Amounts of gain recognized in OCI	$	7,835	$	2,410
Amounts of previously recorded loss reclassified from OCI into Interest Expense	$	(1,669)	$	(7,318)
Total amount of Interest Expense presented in the consolidated statements of operations	$	17,140	$	26,582

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 $3.2 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 hedging transaction uses 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 the contract. The Company requires its derivatives contracts to be with counterparties that have investment grade ratings. As a result, the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that the Company will be able to adequately protect against the foregoing risks or that it will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.

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

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

5.  Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of Company shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were no potential dilutive shares outstanding at each of September 30, 2022 and 2021.

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6.  Stockholders’ Equity

As of September 30, 2022, the Company had 103,235,914 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
Special dividend declared in December 2021 and paid January 2022	$	0.32	$	33,280
First quarter of 2022	$	0.09	$	9,360
Second quarter of 2022	$	0.09	$	9,284
Third quarter of 2022	$	0.01	$	1,032
First quarter of 2021	$	0.09	$	9,660
Second quarter of 2021	$	0.09	$	9,659
Third quarter of 2021	$	0.09	$	9,666

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.

On May 20, 2021 and May 17, 2022, the Company granted shares under the Plan to non-employee directors with the compensation cost related to such grants indicated in the table below, which was recognized during the year ended December 31, 2021 and the nine months ended September 30, 2022, respectively, and is included in general and administrative expenses for such periods. Such shares were fully vested on the date of issuance.

	Shares Available		Compensation
	for Grant		Cost
Balance December 31, 2020		1,847,384	$	675,000
Shares granted 2021		(66,564)		337,500
Balance December 31, 2021		1,780,820		1,012,500
Shares granted 2022		(84,133)		393,750
Balance September 30, 2022		1,696,687	$	1,406,250

Repurchase of Common Stock

On June 23, 2021, the Board of Directors of the Company authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time. The Company subsequently repurchased 3,396,243 shares of common stock during the third and fourth quarters of 2021 at an aggregate cost of approximately $18.2 million at an average cost of approximately $5.37 per share, inclusive of brokerage commissions. The Company subsequently repurchased 846,739 shares of common stock during the first quarter of 2022 at an aggregate cost of approximately $4.8 million at an average cost of approximately $5.72 per share, inclusive of brokerage commissions. The Company did not repurchase any shares of common stock during the second and third quarters of 2022. The excess of the purchase price over the par value of the shares repurchased is applied to reduce additional paid-in capital.

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

(Cost in thousands)	Shares Repurchased	Cost
Balance December 31, 2020	1,017,498	$	18,775
Repurchase of shares	3,396,243		18,244
Balance, December 31, 2021	4,413,741		37,019
Repurchase of shares	846,739		4,843
Balance, September 30, 2022	5,260,480	$	41,862

7.  Income Taxes

General

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

One such restriction is that the Company generally cannot own more than 10% of the voting power or value of the securities of any one issuer unless the issuer is itself a REIT or a taxable REIT subsidiary (“TRS”). In the case of TRSs, the Company’s ownership of securities in all TRSs generally cannot exceed 20% (25% of taxable years beginning on or before December 31, 2017) of the value of all of the Company’s assets and, when considered together with other non-real estate assets, cannot exceed 25% of the value of all of the Company’s assets. FSP Investments LLC and FSP Protective TRS Corp. are the Company’s taxable REIT subsidiaries operating as taxable corporations under the Code. The TRSs have gross amounts of net operating losses (“NOLs”) available to those taxable corporations of $4.8 million and $4.6 million as of each of December 31, 2021 and 2020, respectively. The NOLs created prior to 2018 will expire between 2030 and 2047 and the NOLs generated after 2017 will not expire. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured.

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

The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2018 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

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amount of the NOLs as the realization of any tax benefits from such NOLs is not assured. The gross amount of NOLs available to the Company was $1.7 million and $1.1 million as of September 30, 2022 and December 31, 2021, respectively.

Income Tax Expense

The Company is subject to a business tax known as the Revised Texas Franchise Tax. Some of the Company’s leases allow reimbursement by tenants for these amounts because the Revised Texas Franchise Tax replaces a portion of the property tax for school districts. Because the tax base on the Revised Texas Franchise Tax is derived from an income based measure, it is considered an income tax. The Company recorded a provision for the Revised Texas Franchise Tax of $167,000 and $174,000 for the nine months ended September 30, 2022 and 2021, respectively.

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

	For the Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
Revised Texas Franchise Tax	$	167	$	174
Other Taxes		—		—
Tax expense	$	167	$	174

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

8.  Leases

Leases as a Lessor:

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

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

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For the nine months ended September 30, 2022 and 2021, the Company recognized the following amounts of income relating to lease payments:

Income relating to lease payments:
	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
Income from leases (1)	$	118,843	$	161,443
	$	118,843	$	161,443
(1) Amounts recognized from variable lease payments were $37,050 and $42,298 for the nine months ended September 30, 2022 and 2021, respectively.

9. Disposition of Properties

In furtherance of the Company’s strategy adopted in 2021 to dispose of certain properties where it believed its valuation objective has been met, the Company sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $102.5 million, at a net gain of approximately $24.1 million. In 2021, the Company sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.7 million. The Company sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. The Company sold an office property located in Indianapolis, Indiana on August 31, 2021 with a sales price of approximately $35 million, at a loss of approximately $1.7 million. The Company sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. The Company used the proceeds of the dispositions principally to repay outstanding indebtedness.

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

The operating results for the properties that the Company disposed of during the three and nine months ended September 30, 2022 and 2021, respectively, are summarized below:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2022		2021		2022		2021
Rental revenue	$	2,078	$	5,959	$	8,581	$	30,598
Rental operating expenses		(580)		(1,558)		(2,460)		(8,779)
Real estate taxes and insurance		(569)		(742)		(2,145)		(5,440)
Depreciation and amortization		(783)		(1,951)		(3,139)		(9,595)
Income from dispositions	$	146	$	1,708	$	837	$	6,784

10.  Subsequent Events

On October 7, 2022, the Board of Directors of the Company declared a cash distribution of $0.01 per share of common stock payable on November 10, 2022 to stockholders of record on October 21, 2022.

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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, 2021. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Quarterly Report on Form 10-Q may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, adverse changes in general economic or local market conditions, including the impact of increasing inflation, energy prices and interest rates, as well as a result of the COVID-19 pandemic, including the impact of work-from-home policies, and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future property dispositions, uncertainty relating to the completion and timing of the disposition of the properties under agreement, expectations for potential repurchases of our common stock and the potential payment of special dividends, changes in interest rates as a result of economic market conditions, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 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 30, 2022, approximately 5.3 million square feet, or approximately 83% of our total owned portfolio, was located in Dallas, Denver, Houston and Minneapolis.

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

We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets and we will seek to increase shareholder value (1) through the potential sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) by striving to increase occupancy in our continuing portfolio of real estate. Pursuant to this strategy, we anticipate that dispositions in 2022 will result in estimated gross proceeds in the range of approximately $102.5 million to $200 million. However, this estimated range is subject to change for a variety of reasons, including economic conditions, office market conditions and geopolitical events. As we

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continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures are likely to decrease in the short term. Proceeds from dispositions are intended to be used for the repayment of debt, repurchases of our common stock, payment of dividends and other general corporate purposes.

We sold two office properties located in Broomfield, Colorado on August 31, 2022, for an aggregate sales price of $102.5 million, at a gain of approximately $24.1 million. On September 6, 2022, we prepaid our $110 million term loan with Bank of America, N.A. as administrative agent and the other lending institutions party thereto ( the “BofA Term Loan”). If we had not prepaid the BofA Term Loan in full, it would have matured by its own terms on January 12, 2023.

For the year ended December 31, 2021, our disposition strategy resulted in gross sale proceeds of approximately $603 million, and we used a portion of the proceeds of such dispositions to repay approximately $508 million of debt. Specifically, on May 27, 2021, we sold One Ravinia, Two Ravinia and One Overton Park in Atlanta, Georgia for aggregate gross proceeds of approximately $219.5 million, on June 29, 2021, we sold Loudoun Technology Center in Sterling, Virginia for gross proceeds of approximately $17.25 million, on August 31, 2021, we sold River Crossing in Indianapolis, Indiana for gross proceeds of $35 million, on September 23, 2021, we sold Timberlake and Timberlake East, in Chesterfield, Missouri for aggregate gross proceeds of $67 million, on October 22, 2021, we sold 999 Peachtree in Atlanta, Georgia for gross proceeds of approximately $223.9 million and on November 16, 2021, we sold two office properties in Chantilly, Virginia for aggregate gross proceeds of approximately $40 million. During the three months ended June 30, 2021, we repaid approximately $155 million of term loan indebtedness and the approximately $47.5 million that had been drawn under our revolving line of credit. During the three months ended September 30, 2021 and December 31, 2021, we repaid $90 million and $215 million, respectively, of term loan indebtedness.

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

On June 15, 2021, the credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service to Ba1 from Baa3. The interest rate applicable to borrowings under our credit facilities is based in part on the rating of our debt. We anticipate that as a result of this downgrade we will incur approximately $1.8 million in additional interest costs during the next twelve months based on our borrowings and interest rates as defined in our loan agreements as of September 30, 2022.

Trends and Uncertainties

COVID-19 Pandemic

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 disrupted global travel supply chains, adversely impacted global commercial activity, and its long-term economic impact remains uncertain. Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, as well as the availability, administration rates and effectiveness of vaccines, therapeutics and any responses taken on a national and local level by government authorities and businesses. Limits on hours of operations and/or closures of various businesses and other efforts to curb the spread of COVID-19 significantly disrupted business activity globally, including in the markets where we own properties. Many of our tenants still do not fully occupy the space that they lease. The pandemic has had an adverse impact on economic and market conditions in various sectors of the economy. However, the evolving nature of the pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our business. The COVID-19 pandemic continues to present material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the impact of work-from-home policies, the potential negative impact to leasing efforts and occupancy at our properties, 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, negative impacts on our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations,

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making more difficult our ability to complete required capital expenditures in a timely manner and on budget, decreases in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. We are unable to estimate the full extent of the impact that the COVID-19 pandemic will have on our future financial results at this time. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

We have been following and directing our vendors to follow the guidelines from the Centers for Disease Control and other applicable authorities to minimize the spread of COVID-19 among our employees, tenants, vendors and visitors, as well as at our properties. During the year ended December 31, 2021 and the nine months ended September 30, 2022, all of our properties remained open for business. Some of our tenants have requested rent concessions, and more tenants may request rent concessions or may not pay rent in the future. Future rent concession requests or nonpayment of rent could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, extended lease terms, increased tenant improvement capital expenditures, or reduced rental rates to maintain occupancies. We review each rent concession request on a case by case basis and may or may not provide rent concessions, depending on the specific circumstances involved. Cash, cash equivalents and restricted cash were $8.7 million as of September 30, 2022. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BofA Revolver ($172.5 million available as of October 28, 2022) and proceeds from dispositions of properties, will be sufficient to meet working capital requirements, term loan repayment 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 pay dividends to stockholders and the level of such dividends, however, depends in significant part upon the level of rental income from our real estate properties and the amount, timing and terms of any property dispositions.

Economic Conditions

The global economy is experiencing significant disruptions as a result of various factors, including geopolitical events such as the ongoing conflict between Russia and Ukraine, the COVID-19 pandemic and continuing supply chain difficulties. In addition, negative gross domestic product growth, increasing inflation, energy prices and interest rates and declining consumer confidence and spending are contributing to recessionary concerns for the economy of the United States. Economic conditions directly affect the demand for office space, our primary income producing asset. In addition, the broad economic market conditions in the United States are typically affected by numerous 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. During the nine months ended September 30, 2022, the Federal Reserve raised the federal funds rate target several times, most recently by 75 basis points in September 2022 to a range of 3.00% to 3.25%. The Federal Reserve has indicated that ongoing increases in the target range will be appropriate, which could also increase interest rates. In addition, in April 2022, the Federal Reserve confirmed its plan to reduce its balance sheet at a rapid pace beginning in May 2022 and in September 2022 indicated it would continue to reduce its holdings of Treasury Securities and agency debt and agency mortgage-backed securities. If interest rates continue to increase, then the interest costs on our unhedged variable rate debt would be adversely affected, which could in turn adversely affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders. As of September 30, 2022, approximately 15% of our total debt constituted unhedged variable rate debt. Increasing interest rates could also decrease the amount third parties are willing to pay for our assets and limit our ability to incur new debt or refinance existing debt when it matures. As of the date of this report, the impact of current economic conditions and geopolitical events and the ongoing effects of the COVID-19 pandemic are adversely affecting the demand for office space in the United States.

Real Estate Operations

As of September 30, 2022, our real estate portfolio was comprised of 22 operating properties, which we also refer to as our owned properties. Our 22 operating properties were approximately 75.9% leased as of September 30, 2022, a decrease from 78.4% leased as of December 31, 2021. The 2.5% decrease in leased space was primarily a result of lease maturities that occurred during the nine months ended September 30, 2022. As of September 30, 2022, we had approximately 1,549,000

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square feet of vacancy in our owned properties compared to approximately 1,496,000 square feet of vacancy at December 31, 2021. During the nine months ended September 30, 2022, we leased approximately 342,000 square feet of office space, of which approximately 125,000 square feet were with existing tenants, at a weighted average term of 7.0 years. On average, tenant improvements for such leases were $35.60 per square foot, lease commissions were $12.83 per square foot and rent concessions were approximately six months of free rent. Average GAAP base rents under such leases were $33.40 per square foot, or 9.6% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2021.

As of September 30, 2022, leases for approximately 0.8% and 6.9% of the square footage in our owned portfolio are scheduled to expire during 2022 and 2023, respectively. As the fourth quarter of 2022 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the impact of geopolitical events and current economic conditions and the ongoing effects of the COVID-19 pandemic may limit or delay new tenant leasing during at least the fourth quarter of 2022 and potentially in future periods.

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

Dispositions of Properties

During 2022, we sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $102.5 million, at a net gain of approximately $24.1 million. During 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property located in Dulles, Virginia on June 29, 2021 for a sales price of approximately $17.3 million, at a net loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021 for a sales price of approximately $35 million, at a net loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 for an aggregate sales price of approximately $67 million, at a net gain of approximately $10.3 million. We sold an office property located in Atlanta, Georgia on October 22, 2021 for a sales price of approximately $223.9 million, at a net gain of approximately $86.8 million. We sold two office properties located in Chantilly, Virginia on November 16, 2021 for an aggregate sales price of approximately $40 million, at a net loss of approximately $2.9 million. There were no properties held for sale as of September 30, 2022.

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

The dispositions of these properties did not represent a strategic shift that has a major effect on our operations and financial results. Our current strategy is to continue to invest in the sunbelt region of the United States. Accordingly, the properties sold remained classified within continuing operations for all periods presented.

We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets, and we will seek to increase shareholder value (1) through the potential sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) by striving to increase occupancy in our continuing portfolio of real estate. Pursuant to this strategy, we anticipate that dispositions in 2022 will result in estimated gross proceeds in the range of approximately $102.5 million to $200 million. However, this estimated range is subject to change for a variety of reasons, including economic conditions, office market conditions and geopolitical events. As we continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures are likely to decrease in the short term. Proceeds from dispositions are intended to be used for the repayment of debt, repurchases of our common stock, dividends and other general corporate purposes.

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Critical Accounting Estimates

We have certain critical accounting policies that are subject to judgments and estimates by our management and uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to 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, 2021.

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

Recent Accounting Standards

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

Results of Operations

The following table shows financial results for the three months ended September 30, 2022 and 2021:

	Three months ended September 30,
(in thousands)	2022		2021		Change
Revenues:
Rental	$	40,366	$	50,326	$	(9,960)
Related party revenue:
Management fees and interest income from loans		466		419		47
Other		4		57		(53)
Total revenues		40,836		50,802		(9,966)
Expenses:
Real estate operating expenses		13,369		14,373		(1,004)
Real estate taxes and insurance		8,951		10,200		(1,249)
Depreciation and amortization		15,148		18,862		(3,714)
General and administrative		3,232		3,749		(517)
Interest		6,110		7,928		(1,818)
Total expenses		46,810		55,112		(8,302)
Loss on extinguishment of debt		(78)		(236)		158
Impairment and loan loss reserve		(717)		—		(717)
Gain on sale of properties, net		24,077		8,632		15,445
Income (loss) before taxes and equity in income of non-consolidated REITs		17,308		4,086		13,222
Tax expense		62		51		11
Equity in income of non-consolidated REITs		—		421		(421)
Net income (loss)	$	17,246	$	4,456	$	12,790

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Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021:

Revenues

Total revenues decreased by $10.0 million to $40.8 million for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The decrease was primarily a result of:

● A decrease in rental revenue of approximately $10.0 million arising primarily from the sale of five properties since September 30, 2021 and other losses of rental income from leases that expired after September 30, 2021 and during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. These decreases were partially offset by rental income earned from leases commencing after September 30, 2021. Our leased space in our operating properties was 75.9% at September 30, 2022 and 80.0% at September 30, 2021.

Expenses

Total expenses decreased by $8.3 million to $46.8 million for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $2.3 million primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $3.7 million primarily attributable to the property dispositions noted above.

● A decrease in general and administrative expenses of $0.5 million, which was primarily related to lower personnel costs.

● A decrease in interest expense of approximately $1.8 million. The decrease was primarily due to lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset by higher interest rates during the three months ended September 30, 2022 compared to the same period in 2021.

Loss on extinguishment of debt

During the three months ended September 30, 2022, we repaid debt and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs on the date of the repayment.

Impairment and loan reserve and Gain on sale of properties, net

During the three months ended September 30, 2022, we recorded an impairment on a mortgage receivable of $0.7 million.

During the three months ended September 30, 2022, we sold two office properties located in Broomfield, Colorado on August 31, 2022 with an aggregate sales price of $102.5 million, at a gain of $24.1 million.

During the three months ended September 30, 2021, we sold an office property located in Indianapolis, Indiana on August 31, 2021, for a sales price of approximately $35 million at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $62,000 during the three months ended September 30, 2022 compared to $51,000 during the three months ended September 30, 2021.

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Net income

Net income for the three months ended September 30, 2022 was $17.2 million compared to a net income of $4.5 million for the three months ended September 30, 2021, for the reasons described above.

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The following table shows financial results for the nine months ended September 30, 2022 and 2021:

	Nine months ended September 30,
(in thousands)	2022		2021		Change
Revenues:
Rental	$	122,994	$	164,671	$	(41,677)
Related party revenue:
Management fees and interest income from loans		1,393		1,246		147
Other		17		69		(52)
Total revenues		124,404		165,986		(41,582)
Expenses:
Real estate operating expenses		38,547		45,664		(7,117)
Real estate taxes and insurance		26,713		34,461		(7,748)
Depreciation and amortization		49,004		62,379		(13,375)
General and administrative		10,997		11,857		(860)
Interest		17,140		26,582		(9,442)
Total expenses		142,401		180,943		(38,542)
Loss on extinguishment of debt		(78)		(403)		325
Impairment and loan loss reserve		(1,857)		—		(1,857)
Gain on sale of properties, net		24,077		29,258		(5,181)
Income (loss) before taxes and equity in income of non-consolidated REITs		4,145		13,898		(9,753)
Tax expense		167		174		(7)
Equity in income of non-consolidated REITs		—		421		(421)
Net income (loss)	$	3,978	$	14,145	$	(10,167)

Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021:

Revenues

Total revenues decreased by $41.6 million to $124.4 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease was primarily a result of:

● A decrease in rental revenue of approximately $41.7 million arising primarily due to the sale of twelve properties during 2021 and 2022 and other loss of rental income from leases that expired after September 30, 2021 and during the nine months ended September 30, 2022 compared the same period in 2021. These decreases were partially offset by rental income earned from leases commencing after September 30, 2021. Our leased space in our operating properties was 75.9% at September 30, 2022 and 80.0% at September 30, 2021.

Expenses

Total expenses decreased by $38.5 million to $142.4 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease was primarily a result of:

● A decrease in real estate operating expenses and real estate taxes and insurance of approximately $14.9 million primarily attributable to the property dispositions noted above.

● A decrease in depreciation and amortization of approximately $13.4 million primarily attributable to the property dispositions noted above.

● A decrease general and administrative expenses of approximately $0.9 million, which was primarily due to lower personnel costs and professional fees and expenses.

● A decrease in interest expense of approximately $9.4 million. The decrease was primarily from lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset by higher interest rates during the nine months ended September 30, 2022 compared to the nine

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months ended September 30, 2021. In addition, the decrease was higher from interest swap breakage costs of $1.9 million related to the repayment of $155 million in term loan debt on June 4, 2021.

Loss on extinguishment of debt

During the nine months ended September 30, 2022 and 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.1 million and $0.4 million related to unamortized deferred financing costs on the dates of the repayments.

Impairment and loan reserve and Gain on sale of properties, net

During the nine months ended September 30, 2022, we recorded an impairment on a mortgage receivable of $1.9 million.

During the nine months ended September 30, 2022, we sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $102.5 million, at a gain of $24.1 million.

During the nine months ended September 30, 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property located in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021, for a sales price of approximately $35 million at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 for an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million.

Tax expense on income

Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $167,000 during the nine months ended September 30, 2022 compared to $174,000 during the nine months ended September 30, 2021.

Net income (loss)

Net loss for the nine months ended September 30, 2022 was $4.0 million compared to net income $14.1 million for the nine months ended September 30, 2021, for the reasons described above.

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Non-GAAP Financial Measures

Funds From Operations

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

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

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

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

The calculations of FFO are shown in the following table:

	For the					For the
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands):	2022			2021		2022			2021
Net income	$	17,246	$		4,456	$	3,978	$		14,145
Impairment and loan loss reserve		717			—		1,857			—
Gain on sale of properties		(24,077)			(8,632)		(24,077)			(29,258)
Equity in income of non-consolidated REITs		—			(421)		—			(421)
FFO from non-consolidated REITs		—			421		—			421
Depreciation and amortization		15,114			18,861		48,916			62,340
NAREIT FFO		9,000			14,685		30,674			47,227
Lease Acquisition costs		41			112		206			297
Funds From Operations	$	9,041		$	14,797	$	30,880		$	47,524

Net Operating Income (NOI)

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

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results include properties held for the periods presented and exclude properties that are redevelopment properties. We also exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions. The calculations of NOI are shown in the following table:

Net Operating Income (NOI)*

	Rentable
	Square							Nine Months Ended								Nine Months
	Feet	Three Months Ended						Ended		Three Months Ended						Ended		Inc		%
(in thousands)	or RSF	31-Mar-22		30-Jun-22		30-Sep-22		30-Sep-22		31-Mar-21		30-Jun-21		30-Sep-21		30-Sep-21		(Dec)		Change
Region
East	362	$	497	$	475	$	391	$	1,363	$	504	$	523	$	612	$	1,639	$	(276)	(16.8)	%
MidWest	1,130		3,897		4,850		3,905		12,652		3,217		3,243		3,158		9,618		3,034	31.5	%
South	2,796		5,817		5,611		5,902		17,330		7,095		7,070		6,162		20,327		(2,997)	(14.7)	%
West	2,146		8,070		6,609		6,401		21,080		8,721		8,392		8,643		25,756		(4,676)	(18.2)	%
Property NOI* from Operating Properties	6,434		18,281		17,545		16,599		52,425		19,537		19,228		18,575		57,340		(4,915)	(8.6)	%
Dispositions and Redevelopment Properties (a)	-		1,300		1,574		1,068		3,942		10,223		8,772		6,788		25,783		(21,841)	(23.6)	%
Property NOI*	6,434	$	19,581	$	19,119	$	17,667	$	56,367	$	29,760	$	28,000	$	25,363	$	83,123	$	(26,756)	(32.2)	%
Same Store		$	18,281	$	17,545	$	16,599	$	52,425	$	19,537	$	19,228	$	18,575	$	57,340	$	(4,915)	(8.6)	%
Less Nonrecurring
Items in NOI* (b)			273		1,258		494		2,025		32		34		281		347		1,678	(3.0)	%
Comparative
Same Store		$	18,008	$	16,287	$	16,105	$	50,400	$	19,505	$	19,194	$	18,294	$	56,993	$	(6,593)	(11.6)	%
									Nine Months Ended								Nine Months
		Three Months Ended							Ended	Three Months Ended							Ended
Reconciliation to Net Income (Loss)		31-Mar-22			30-Jun-22		30-Sep-22		30-Sep-22	31-Mar-21			30-Jun-21		30-Sep-21		30-Sep-21
Net income (loss)		$	(4,158)	$	(9,110)	$	17,246	$	3,978	$	(6,460)	$	16,149	$	4,456	$	14,145
Add (deduct):
Loss on extinguishment of debt			—				78		78		—		167		236		403
Impairment and loan loss reserve			—		1,140		717		1,857		—		—		—		—
Gain on sale of properties, net			—		—		(24,077)		(24,077)		—		(20,626)		(8,632)		(29,258)
Management fee income			(291)		(267)		(274)		(832)		(465)		(403)		(380)		(1,248)
Depreciation and amortization			15,670		18,185		15,148		49,003		24,381		19,136		18,862		62,379
Amortization of above/below market leases			(9)		(45)		(34)		(88)		(32)		(6)		—		(38)
General and administrative			3,784		3,981		3,233		10,998		4,146		3,962		3,749		11,857
Interest expense			5,366		5,664		6,109		17,139		8,600		10,054		7,928		26,582
Interest income			(451)		(455)		(461)		(1,367)		(394)		(399)		(404)		(1,197)
Equity in income of non-consolidated REITs			—						—		—				(421)		(421)
Non-property specific items, net			(330)		26		(18)		(322)		(16)		(34)		(31)		(81)
Property NOI*		$	19,581	$	19,119	$	17,667	$	56,367	$	29,760	$	28,000	$	25,363	$	83,123

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

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

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

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The information presented below provides the weighted average GAAP rent per square foot for the nine months ended September 30, 2022 for our properties and weighted occupancy square feet and percentages. GAAP rent includes the impact of tenant concessions and reimbursements. This table does not include information about properties held by our investments in non-consolidated REITs or those to which we have provided Sponsored REIT Loans.

						Weighted
						Occupied		Weighted
			Year Built		Weighted	Percentage as of		Average
			or	Net Rentable	Occupied	September 30,		Rent per Occupied
Property Name	City	State	Renovated	Square Feet	Sq. Ft.	2022 (a)		Square Feet (b)
Forest Park	Charlotte	NC	1999/2020	64,198	50,331	78.4	%	$	23.38
Innsbrook	Glen Allen	VA	1999	298,183	145,543	48.8	%		18.94
East total				362,381	195,874	54.1	%		20.08
Northwest Point	Elk Grove Village	IL	1999	177,095	177,095	100.0	%		31.64
909 Davis Street	Evanston	IL	2002	195,098	179,939	92.2	%		41.91
121 South 8th Street	Minneapolis	MN	1974	298,121	267,027	89.6	%		24.85
801 Marquette Ave	Minneapolis	MN	1923/2017	129,691	115,736	89.2	%		22.38
Plaza Seven	Minneapolis	MN	1987	330,096	270,085	81.8	%		33.56
Midwest total				1,130,101	1,009,882	89.4	%		31.13
Blue Lagoon Drive	Miami	FL	2002/2021	213,182	156,795	73.6	%		28.68
Park Ten	Houston	TX	1999	157,609	113,431	72.0	%		29.02
Addison Circle	Addison	TX	1999	289,333	202,822	70.1	%		33.73
Collins Crossing	Richardson	TX	1999	300,887	259,034	86.1	%		26.58
Eldridge Green	Houston	TX	1999	248,399	248,399	100.0	%		26.89
Park Ten Phase II	Houston	TX	2006	156,746	148,924	95.0	%		28.61
Liberty Plaza	Addison	TX	1985	217,600	152,908	70.3	%		23.79
Legacy Tennyson Center	Plano	TX	1999/2008	208,966	85,175	40.8	%		30.81
One Legacy Circle	Plano	TX	2008	214,110	125,383	58.6	%		36.94
Westchase I & II	Houston	TX	1983/2008	629,025	347,914	55.3	%		27.26
Pershing Park Plaza	Atlanta	GA	1989	160,145	31,052	19.4	%		24.92
South Total				2,796,002	1,871,837	66.9	%		28.64
1999 Broadway	Denver	CO	1986	680,255	452,301	66.5	%		33.64
1001 17th Street	Denver	CO	1977/2006	657,816	516,846	78.6	%		34.62
600 17th Street	Denver	CO	1982	611,163	473,346	77.5	%		34.01
Greenwood Plaza	Englewood	CO	2000	196,236	159,442	81.3	%		26.95
West Total				2,145,470	1,601,935	74.7	%		33.40
Total Owned Properties				6,433,954	4,679,528	72.7	%	$	30.45

(a) Based on weighted occupied square feet for the nine months ended September 30, 2022, including month-to-month tenants, divided by the Property’s net rentable square footage.

(b) Represents annualized GAAP rental revenue for the nine months ended September 30, 2022, per weighted occupied square foot.

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Liquidity and Capital Resources

Cash, cash equivalents and restricted cash were $8.7 million and $40.7 million at September 30, 2022 and December 31, 2021, respectively. The decrease of $32.0 million is attributable to $9.3 million provided by operating activities, $64.0 million provided by investing activities and $105.3 million used in financing activities. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BofA Revolver ($162.5 million available as of October 28, 2022) and proceeds from dispositions of properties, will be sufficient to meet working capital requirements, term loan repayment 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 pay dividends to stockholders and the level of such dividends, however, depends in significant part upon the level of rental income from our real properties and our interest costs.

Operating Activities

Cash provided by operating activities for the nine months ended September 30, 2022 of $9.3 million is primarily attributable to a net income of $4.0 million less the gain on sale of properties of $24.1 million, plus the impairment loss on a mortgage receivable of $1.9 million, and the add-back of $46.8 million of non-cash expenses, plus a decrease in tenant rent receivables of $0.6 million, less a decrease in accounts payable and accrued compensation of $7.9 million, an increase in payment of deferred leasing commissions of $7.1 million, an increase in lease acquisition costs of $2.7 million, an increase in prepaid expenses of $1.7 million and an increase in tenant security deposits of $0.5 million.

Investing Activities

Cash provided by investing activities for the nine months ended September 30, 2022 of $64.0 million is primarily attributable to proceeds from asset sales of $102.0 million, which was partially offset by purchases of other real estate assets and office equipment investments of $38.0 million.

Financing Activities

Cash used in financing activities for the nine months ended September 30, 2022 of $105.3 million is primarily attributable to repayment of the BofA Term Loan of $110 million, payment of distributions to stockholders of $52.9 million, stock repurchases of $4.8 million and payment of deferred financing costs of $2.6 million, which was partially offset by net borrowings on the BofA Revolver (as defined below) of $65.0 million.

Liquidity beyond the next 12 months

Our ability to generate cash adequate to meet our needs is dependent primarily on income from real estate investments, the sale of real estate investments, leveraging of real estate investments, availability of bank borrowings, proceeds from public offerings of stock, private placement of debt and access to the capital markets. The acquisition of new properties, the payment of expenses related to real estate operations, capital improvement expenses, debt service payments, general and administrative expenses, and distribution requirements place demands on our liquidity.

We intend to operate our properties from the cash flows generated by our properties. However, our expenses are affected by various factors, including inflation. See Part II, Item 1A, Risk Factors for additional factors. Increases in operating expenses are predominantly borne by our tenants. To the extent that increases cannot be passed on to our tenants through rent reimbursements, such expenses would reduce the amount of available cash flow, which can adversely affect the market value of the applicable property.

We have used a variety of sources to fund our cash needs in addition to our free cash flow generated from our investments in real estate. In the past, we considered borrowing on our unsecured line of credit facility, adding or refinancing existing term debt or raising capital through public offerings or At The Market (ATM) programs of our common stock. We believe these sources of funds will provide sufficient funds to adequately meet our obligations beyond the next twelve months.

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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 provided a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”). On December 24, 2020, the Company repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, and $100 million remained fully advanced and outstanding under the JPM Term Loan. On June 4, 2021, the Company repaid the remaining $100 million outstanding on the loan, which had been scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs.

Although the interest rate on the JPM Term Loan was 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. On June 4, 2021, the Company paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.

BMO Term Loan

On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal (“BMO”), as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $220 million (the “BMO Term Loan”), of which $165 million remains fully advanced and outstanding. The BMO Term Loan initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. On June 4, 2021, the Company repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The $165 million tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that allows up to $100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions. The BMO Term Loan was previously evidenced by an Amended and Restated Credit Agreement, dated October 29, 2014, among the Company, BMO, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated July 21, 2016, and a Second Amendment, dated October 18, 2017.

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (165 basis points over LIBOR at September 30, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (65 basis points over the base rate at September 30, 2022).

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 BMO that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum, which matured on August 26, 2020. On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of September 30, 2022, the effective interest rate on the BMO Term Loan was 4.04% per annum. On June 4, 2021, the Company paid approximately $0.6 million to terminate the portion of the interest rate swap on the tranche A term loan, which was scheduled to mature on November 30, 2021.

The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage

34

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 30, 2022.

BofA Revolver

On January 10, 2022, the Company entered into a Credit Agreement (the “BofA Credit Agreement”) with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto, for a new revolving line of credit for borrowings, at the Company’s election, of up to $217.5 million (the “BofA Revolver”). On February 10, 2022, the Company increased its BofA Revolver availability by $20.0 million to $237.5 million as part of the accordion feature that is available to increase borrowing capacity. Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $237.5 million outstanding at any time. As of September 30, 2022, there were borrowings of $65.0 million drawn and outstanding under the BofA Revolver. Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on January 12, 2024. The Company has the right to request an extension of the maturity date, subject to acceptance by the lenders and satisfaction of certain other customary conditions. The BofA Revolver includes an accordion feature that allows the Company to request an increase in borrowing capacity to an amount not exceeding $750 million in the aggregate, subject to receipt of lender commitments and satisfaction of certain customary conditions.

Borrowings under the BofA Revolver bear interest at a margin over either (i) the daily simple Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively. In addition, under certain circumstances, such as if SOFR is not able to be determined, the BofA Revolver will instead bear interest at a margin over a specified base rate. The margin over SOFR or, if applicable, the base rate varies depending on the Company’s leverage ratio (1.95% over SOFR and 0.95% over the base rate at September 30, 2022). The Company is also obligated to pay an annual facility fee and, if applicable, letter of credit fees in amounts that are also based on the Company’s leverage ratio. The facility fee is assessed against the aggregate amount of lender commitments regardless of usage (0.35% at September 30, 2022).

Based upon the Company’s credit rating, as of September 30, 2022, the interest rate on the BofA Revolver was 5.11% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through September 30, 2022 was approximately 1.84% per annum.

The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BofA Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio and a minimum unsecured interest coverage ratio. The BofA Credit Agreement also restricts the Company’s ability to make dividend distributions that exceed 95% of the Company’s good faith estimate of projected funds from operations for the applicable fiscal year; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The Company was in compliance with the BofA Revolver financial covenants as of September 30, 2022.

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

The Company may use the net proceeds of the BofA Revolver 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 BofA Credit Agreement.

BofA Credit Facility

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

BofA Term Loan Highlights

● The original principal amount of the BofA Term Loan was $400 million. On September 30, 2021, the Company repaid a $90 million portion and on October 25, 2021, the Company repaid a $200 million portion of the BofA Term Loan and incurred a loss on extinguishment of debt of $0.7 million related to unamortized deferred financing costs. On September 6, 2022, the Company prepaid the remaining $110 million balance of the BofA Term Loan in full and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. As of September 30, 2022, there was no balance outstanding under the BofA Term Loan.

● If the Company had not prepaid the BofA Term Loan on September 6, 2022, the BofA Term Loan would have matured by its own terms on January 12, 2023.

The BofA Term Loan bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.75% over LIBOR at the date of repayment on September 6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating (0.75% over the base rate at the date of repayment on September 6, 2022).

The interest rate on the BofA Term Loan was variable through the date of prepayment on September 6, 2022. Previously the Company had fixed the base LIBOR interest rate on the BofA Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BofA Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ended on September 27, 2021. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan through the date of repayment on September 6, 2022, was approximately 2.65% per annum.

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.

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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) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $116 million (the “Series A Notes”) and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B Notes” and, together with the Series A Notes, the “Senior Notes”). On December 20, 2017, the Senior Notes were funded and the proceeds were used to reduce the outstanding balance of the Former BofA Revolver.

The Senior Notes bear interest depending on the Company’s credit rating. As of September 30, 2022, the Series A Notes bear interest at 4.49% per annum and the Series B Notes bear interest at 4.76% per annum.

The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA Credit 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 30, 2022.

Stock Repurchase Program

On June 23, 2021, FSP Corp. announced that the Board of Directors of FSP Corp. had authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time.

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 30, 2022, we had one loan outstanding for $24 million principal amount with one Sponsored REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes. We anticipate the sole Sponsored REIT Loan outstanding will be repaid through operation or sale of the property.

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 BofA Revolver in the future for a variety of corporate purposes, including the acquisition of properties that we acquire directly for our portfolio and for Sponsored REIT Loans as described below.

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Loans to Sponsored REIT

Sponsored REIT Loans

From time to time we may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. We anticipate the sole Sponsored REIT Loan outstanding will be repaid through operation or sale of the property. A Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately one year.

Our Sponsored REIT Loans subject us to credit risk. However, we believe that our position as asset manager of a Sponsored REIT helps mitigate that risk by providing us with unique insight and the ability to rely on qualitative analysis of the Sponsored REIT. 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 Loan outstanding as of September 30, 2022, including a summary table of our Sponsored REIT Loan, is incorporated herein by reference to Part 1, Item 1, Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans” in the Notes to Consolidated Financial Statements included in this report.

Other Considerations

We generally pay the ordinary annual operating expenses of our properties from the rental revenue generated by the properties. For the three and nine months ended September 30, 2022 and 2021, respectively, the rental income exceeded the expenses for each individual property, with the exception of Pershing Park for the three and nine months ended September 30, 2022.

Pershing Park has approximately 160,000 square feet of rentable space, which was 12.4% leased at June 30, 2021 due to a large tenant departure on May 31, 2021. During the three months ended September 30, 2021, we signed a lease with a new tenant. During the three months ended March 31, 2022, we signed an expansion of space with that same tenant. The new lease inclusive of the expansion space is for approximately 101,000 square feet and has not yet commenced. Pershing Park had $310,000 of rental income and $575,000 of operating expenses for the three months ended September 30, 2022. The property had $664,000 of rental income and $1,593,000 of operating expenses for the nine months ended September 30, 2022, and was 79.2% leased as of September 30, 2022.

Off-Balance Sheet Arrangements and Contractual Obligations

There have been no material changes to our contractual obligations and off-balance-sheet arrangements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

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 30, 2022 and December 31, 2021, if market rates on our outstanding borrowings under the BofA Revolver subject to a floating rate increased by 10% at maturity, or approximately 50 basis points, over the current variable rate, the increase in interest expense would decrease future earnings and cash flows by approximately $0.3 million. Based upon our credit rating, the interest rate on the BofA Revolver as of September 30, 2022 was SOFR plus an adjustment of 0.11448% plus 195 basis points, or 5.11% per annum.

38

There was $65.0 million drawn on the BofA Revolver as of September 30, 2022. We do not believe that the interest rate risk on the BofA Revolver is material as of September 30, 2022.

Although the interest rate on the BMO Term Loan are variable, the Company fixed the base LIBOR interest rate on the BMO Term Loan, by entering into interest rate swap agreements. On February 20, 2019, the Company fixed the interest rate for the period beginning August 26, 2020 and ending January 31, 2024 on the BMO Term Loan with interest rate swap agreements (the “2019 BMO Interest Rate Swap”). On June 4, 2021, the Company paid approximately $0.6 million to terminate $55 million in Notional Value on the 2019 BMO Interest Rate Swap, which was scheduled to mature on November 30, 2021. Accordingly, based upon our credit rating, as of September 30, 2022, the interest rate on the BMO Term Loan was 4.04% per annum. The fair value of these interest rate swaps are affected by changes in market interest rates. We believe that we have mitigated interest rate risk with respect to the BMO Term Loan through the 2019 BMO Interest Rate Swap until January 31, 2024. This interest rate swap was our only derivative instrument as of September 30, 2022.

The table below includes our derivative instrument, which is hedging variable cash flows related to interest on our BMO Term Loan as of September 30, 2022 and December 31, 2021 (in thousands):

	Notional		Strike		Effective	Expiration	Fair Value (2) at
(in thousands)	Value		Rate		Date	Date	September 30, 2022		December 31, 2021
2019 BMO Interest Rate Swap (1)	$	165,000	2.39	%	Aug-20	Jan-24	$	4,266	$	(5,239)
(1) The Notional Value decreased to $165 million on June 4, 2021.
(2) Classified within Level 2 of the fair value hierarchy.

Our BMO Term Loan hedging transaction uses 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 the contract. We require our derivatives contracts to be with counterparties that have investment grade ratings. As a result, we do not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that we will be able to adequately protect against the foregoing risks or that we will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.

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 in the consolidated statements of other comprehensive income (loss).

The following table presents, as of September 30, 2022, our contractual variable rate borrowings under our BofA Revolver, which matures on January 12, 2024, 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.

	Payment due by period
	(in thousands)
	Total		2022		2023		2024		2025		2026		Thereafter
BofA Revolver	$	65,000	$	—	$	—	$	65,000	$	—	$	—	$	—
BMO Term Loan Tranche B		165,000		—		—		165,000		—		—		—
Series A Notes		116,000		—		—		116,000		—		—		—
Series B Notes		84,000		—		—		—		—		—		84,000
Total	$	430,000	$	—	$	—	$	346,000	$	—	$	—	$	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 30, 2022. The term “disclosure controls and procedures,” as

39

defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, 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 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

40

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

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”), which could materially affect our business, financial condition or future results. The risks described in the 2021 Form 10-K 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.

We have updated certain risk factors included in the 2021 Form 10-K, as set forth below.

Risks Related to our Indebtedness

Increases in interest rates would increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt or sell assets.

As of September 30, 2022, we had borrowings of $65 million drawn and outstanding under the BofA Revolver. Borrowings under the BofA Revolver, which may not exceed $237.5 million outstanding at any time, bear interest at variable rates based on our leverage ratio, from which we may incur additional indebtedness in the future.

As of September 30, 2022, $165 million was drawn and outstanding under the BMO Term Loan, although such amount may be increased by up to an additional $100 million through the exercise of an accordion feature. The BMO Term Loan consists of a $55 million tranche A term loan, which was fully repaid on June 4, 2021, and a $165 million tranche B term loan that remains outstanding. Although interest on the BMO Term Loan is at variable rates based on our credit rating, on August 26, 2013, we fixed the base LIBOR rate on the BMO Term Loan at 2.32% per annum until August 26, 2020 by entering into an interest rate swap agreement. On February 20, 2019, we fixed the base LIBOR rate on the BMO Term Loan at 2.39% per annum for the period beginning August 26, 2020 and ending on January 31, 2024, by entering into interest rate swap agreements.

During 2022, the Federal Reserve raised the federal funds rate target several times, most recently by 75 basis points in September 2022 to a range of 3.00% to 3.25% and indicated that ongoing increases in the target range will be appropriate. We expect that there will be additional increases in the Federal Reserve benchmark rate. If interest rates continue to increase, then the interest costs on our unhedged variable rate debt will also increase, which could adversely affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders. In addition, rising interest rates could limit our ability to incur new debt or to refinance existing debt when it matures. From time to time, we may enter into additional interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risks that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges. In addition, increases in interest rates could decrease the amount third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions, and limiting our ability to incur new debt or refinance existing debt when it matures.

41

Risks Related to our Operations and Properties

Economic conditions in the United States could have a material adverse impact on our earnings and financial condition.

The economic outlook in the United States is uncertain and facing recessionary concerns, including as a result of the ongoing effects of negative gross domestic product growth, the COVID-19 pandemic, rising inflation, increasing interest rates, supply chain disruptions and the conflict between Russia and Ukraine. Because economic conditions in the United States may affect the demand for office space, real estate values, occupancy levels and property income, current and future economic conditions in the United States, including slower growth, stock market volatility or recession fears, could have a material adverse impact on our earnings and financial condition. Economic conditions may be affected by numerous factors, including but not limited to, the pace of economic growth and/or recessionary concerns, inflation, increases in the levels of unemployment, energy prices, changes in currency exchange rates, uncertainty about government fiscal and tax policy, geopolitical events, the regulatory environment, the availability of credit and interest rates. As of the date of this report, the continuing impact of the COVID-19 pandemic and increased interest rates continue to adversely affect the demand for office space. Future economic factors also may negatively affect the demand for office space, real estate values, occupancy levels and property income.

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

On June 23, 2021, FSP Corp. announced that the Board of Directors of FSP Corp. had authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time. There were no repurchases during the three months ended September 30, 2022.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

None.

Item 5.  Other Information

None.

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Item 6.  Exhibits

Exhibit No.	Description
3.1 (1)	Articles of Incorporation, as amended
3.2 (2)	Amended and Restated By-laws.
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 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Comprehensive Income (Loss); and (vi) the Notes to Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Footnotes	Description
(1)	Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Quarterly Report on Form 10-Q, filed on July 30, 2019 (File No. 001-32470).
(2)	Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Current Report on Form 8-K, filed on April 16, 2021 (File No. 001-32470).
*	Filed herewith.

43

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: November 1, 2022	/s/ George J. Carter	Chief Executive Officer and Director
	George J. Carter	(Principal Executive Officer)
Date: November 1, 2022	/s/ John G. Demeritt	Chief Financial Officer
	John G. Demeritt	(Principal Financial Officer)

44

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, George J. Carter, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Franklin Street Properties Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Pril
Date: November 1, 2022	/s/ George J. Carter
	George J. Carter
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, John G. Demeritt, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Franklin Street Properties Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2022	/s/ John G. Demeritt
	John G. Demeritt
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Franklin Street Properties Corp. (the “Company”) for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, George J. Carter, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 1, 2022	/s/ George J. Carter
	George J. Carter
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Franklin Street Properties Corp. (the “Company”) for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John G. Demeritt, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 1, 2022	/s/ John G. Demeritt
	John G. Demeritt
	Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Oct. 27, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2022
Entity File Number	001-32470
Entity Registrant Name	Franklin Street Properties Corp.
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	04-3578653
Entity Address, Address Line One	401 Edgewater Place, Suite 200
Entity Address, City or Town	Wakefield
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	01880
City Area Code	781
Local Phone Number	557-1300
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock
Trading Symbol	FSP
Security Exchange Name	NYSEAMER
Entity Common Stock, Shares Outstanding		103,235,914
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001031316
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Real estate assets:
Land	$ 131,556	$ 146,844
Buildings and improvements	1,397,303	1,457,209
Fixtures and equipment	10,656	11,404
Total real estate assets, gross	1,539,515	1,615,457
Less accumulated depreciation	420,532	424,487
Real estate assets, net	1,118,983	1,190,970
Acquired real estate leases, less accumulated amortization of $19,535 and $40,423, respectively	11,177	14,934
Cash, cash equivalents and restricted cash	8,717	40,751
Tenant rent receivables	1,309	1,954
Straight-line rent receivable	50,885	49,024
Prepaid expenses and other assets	6,961	4,031
Related party mortgage loan receivable less allowance for credit loss of $1,857 and $0, respectively	22,143	24,000
Other assets: derivative asset	4,266
Office computers and furniture, net of accumulated depreciation of $1,099 and $1,198, respectively	170	198
Deferred leasing commissions, net of accumulated amortization of $20,826 and $21,099, respectively	37,459	38,311
Total assets	1,262,070	1,364,173
Liabilities:
Bank note payable	65,000
Term loans payable, less unamortized financing costs of $308 and $714, respectively	164,692	274,286
Series A & Series B Senior Notes, less unamortized financing costs of $535 and $658, respectively	199,465	199,342
Accounts payable and accrued expenses	50,371	89,493
Accrued compensation	3,159	4,704
Tenant security deposits	5,726	6,219
Lease liability	862	1,159
Other liabilities: derivative liabilities		5,239
Acquired unfavorable real estate leases, less accumulated amortization of $536 and $2,285, respectively	234	528
Total liabilities	489,509	580,970
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding
Common stock, $.0001 par value, 180,000,000 shares authorized, 103,235,914 and 103,998,520 shares issued and outstanding, respectively	10	10
Additional paid-in capital	1,334,776	1,339,226
Accumulated other comprehensive income (loss)	4,266	(5,239)
Distributions in excess of accumulated earnings	(566,491)	(550,794)
Total stockholders' equity	772,561	783,203
Total liabilities and stockholders' equity	$ 1,262,070	$ 1,364,173

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Consolidated Balance Sheets
Acquired real estate leases, accumulated amortization	$ 19,535	$ 40,423
Allowance on related parties loans and leases receivable	1,857	0
Tenant rent receivables, allowance for doubtful accounts	1,857	0
Office computers and furniture, accumulated depreciation	1,099	1,198
Deferred leasing commissions, accumulated amortization	20,826	21,099
Term loan payable, unamortized financing costs	308	714
Series A & Series B Senior notes, unamortized financing costs	535	658
Acquired unfavorable real estate leases, accumulated amortization	$ 536	$ 2,285
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	180,000,000	180,000,000
Common stock, shares issued (in shares)	103,235,914	103,998,520
Common stock, shares outstanding (in shares)	103,235,914	103,998,520

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Revenues:
Total revenues	$ 40,836	$ 50,802	$ 124,404	$ 165,986
Expenses:
Real estate operating expenses	13,369	14,373	38,547	45,664
Real estate taxes and insurance	8,951	10,200	26,713	34,461
Depreciation and amortization	15,148	18,862	49,004	62,379
General and administrative	3,232	3,749	10,997	11,857
Interest	6,110	7,928	17,140	26,582
Total expenses	46,810	55,112	142,401	180,943
Loss on extinguishment of debt	(78)	(236)	(78)	(403)
Impairment and loan loss reserve	(717)		(1,857)
Gain on sale of properties, net	24,077	8,632	24,077	29,258
Income (loss) before taxes and equity in income of non-consolidated REIT	17,308	4,086	4,145	13,898
Tax expense	62	51	167	174
Equity in income of non-consolidated REITs		421		421
Net income	$ 17,246	$ 4,456	$ 3,978	$ 14,145
Weighted average number of shares outstanding, basic	103,236	106,905	103,372	107,196
Weighted average number of shares outstanding, diluted	103,236	106,905	103,372	107,196
Net income per share, basic	$ 0.17	$ 0.04	$ 0.04	$ 0.13
Net income per share, diluted	$ 0.17	$ 0.04	$ 0.04	$ 0.13
Rental
Revenues:
Rental	$ 40,366	$ 50,326	$ 122,994	$ 164,671
Related party revenue: Management fees and interest income from loans
Revenues:
Revenue	466	419	1,393	1,246
Related party revenue: Other
Revenues:
Revenue	$ 4	$ 57	$ 17	$ 69

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Consolidated Statements of Comprehensive Income (Loss)
Net income	$ 17,246	$ 4,456	$ 3,978	$ 14,145
Other comprehensive income:
Unrealized gain (loss) on derivative financial instruments	2,315	1,842	9,504	9,728
Total other comprehensive income	2,315	1,842	9,504	9,728
Comprehensive income	$ 19,561	$ 6,298	$ 13,482	$ 23,873

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated other comprehensive income (loss)	Distributions in excess of accumulated earnings	Total
Balance at Dec. 31, 2020	$ 11	$ 1,357,131	$ (17,311)	$ (571,740)	$ 768,091
Balance (in shares) at Dec. 31, 2020	107,328,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)			3,613	(6,460)	(2,847)
Distributions				(9,660)	(9,660)
Balance at Mar. 31, 2021	$ 11	1,357,131	(13,698)	(587,860)	755,584
Balance (in shares) at Mar. 31, 2021	107,328,000
Balance at Dec. 31, 2020	$ 11	1,357,131	(17,311)	(571,740)	768,091
Balance (in shares) at Dec. 31, 2020	107,328,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)					23,873
Balance at Sep. 30, 2021	$ 11	1,349,225	(7,583)	(586,580)	755,073
Balance (in shares) at Sep. 30, 2021	105,633,000
Balance at Dec. 31, 2020	$ 11	1,357,131	(17,311)	(571,740)	768,091
Balance (in shares) at Dec. 31, 2020	107,328,000
Increase (Decrease) in Stockholders' Equity
Repurchased shares					$ (18,244)
Repurchased shares (in shares)					(3,396,243)
Balance at Dec. 31, 2021	$ 10	1,339,226	(5,239)	(550,794)	$ 783,203
Balance (in shares) at Dec. 31, 2021	103,999,000
Balance at Mar. 31, 2021	$ 11	1,357,131	(13,698)	(587,860)	755,584
Balance (in shares) at Mar. 31, 2021	107,328,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)			4,273	16,149	20,422
Equity-based compensation		338			338
Equity-based compensation (in shares)	67,000
Distributions				(9,659)	(9,659)
Balance at Jun. 30, 2021	$ 11	1,357,469	(9,425)	(581,370)	766,685
Balance (in shares) at Jun. 30, 2021	107,395,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)			1,842	4,456	6,298
Repurchased shares		(8,244)			(8,244)
Repurchased shares (in shares)	(1,762,000)
Distributions				(9,666)	(9,666)
Balance at Sep. 30, 2021	$ 11	1,349,225	(7,583)	(586,580)	755,073
Balance (in shares) at Sep. 30, 2021	105,633,000
Balance at Jun. 30, 2021	$ 11	1,357,469	(9,425)	(581,370)	766,685
Balance (in shares) at Jun. 30, 2021	107,395,000
Increase (Decrease) in Stockholders' Equity
Repurchased shares					$ (18,200)
Repurchased shares (in shares)					(3,396,243)
Balance at Dec. 31, 2021	$ 10	1,339,226	(5,239)	(550,794)	$ 783,203
Balance (in shares) at Dec. 31, 2021	103,999,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)			5,044	(4,158)	886
Repurchased shares		(4,843)			$ (4,843)
Repurchased shares (in shares)	(847,000)				(846,739)
Distributions				(9,360)	$ (9,360)
Balance at Mar. 31, 2022	$ 10	1,334,383	(195)	(564,312)	769,886
Balance (in shares) at Mar. 31, 2022	103,152,000
Balance at Dec. 31, 2021	$ 10	1,339,226	(5,239)	(550,794)	783,203
Balance (in shares) at Dec. 31, 2021	103,999,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)					13,482
Repurchased shares					$ (4,843)
Repurchased shares (in shares)					(846,739)
Balance at Sep. 30, 2022	$ 10	1,334,776	4,266	(566,491)	$ 772,561
Balance (in shares) at Sep. 30, 2022	103,236,000
Balance at Mar. 31, 2022	$ 10	1,334,383	(195)	(564,312)	769,886
Balance (in shares) at Mar. 31, 2022	103,152,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)			2,146	(9,110)	(6,964)
Equity-based compensation		393			393
Equity-based compensation (in shares)	84,000
Distributions				(9,283)	(9,283)
Balance at Jun. 30, 2022	$ 10	1,334,776	1,951	(582,705)	754,032
Balance (in shares) at Jun. 30, 2022	103,236,000
Increase (Decrease) in Stockholders' Equity
Comprehensive income (loss)			2,315	17,246	19,561
Distributions				(1,032)	(1,032)
Balance at Sep. 30, 2022	$ 10	$ 1,334,776	$ 4,266	$ (566,491)	$ 772,561
Balance (in shares) at Sep. 30, 2022	103,236,000

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Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021
Consolidated Statements of Stockholders' Equity
Distributions common stock (in dollars per share)	$ 0.01	$ 0.09	$ 0.09	$ 0.09	$ 0.09	$ 0.09

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash flows from operating activities:
Net income	$ 3,978	$ 14,145
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	50,472	64,390
Amortization of above and below market leases	(88)	(38)
Shares issued as compensation	394	338
Loss on extinguishment of debt	78	403
Impairment and loan loss reserve	1,857
Gain on sale of properties, net	(24,077)	(29,258)
Equity in income of non-consolidated REITs		(421)
Distributions from non-consolidated REITs		421
Changes in operating assets and liabilities:
Tenant rent receivables	645	4,975
Straight-line rents	(4,064)	(3,103)
Lease acquisition costs	(2,659)	(1,666)
Prepaid expenses and other assets	(1,670)	(1,035)
Accounts payable and accrued expenses	(6,388)	(8,389)
Accrued compensation	(1,545)	(436)
Tenant security deposits	(493)	(2,508)
Payment of deferred leasing commissions	(7,086)	(10,857)
Net cash provided by operating activities	9,354	26,961
Cash flows from investing activities:
Property improvements, fixtures and equipment	(38,035)	(55,008)
Proceeds received from sales of properties	102,007	319,357
Net cash provided by investing activities	63,972	264,349
Cash flows from financing activities:
Distributions to stockholders	(52,956)	(28,985)
Stock repurchases	(4,843)	(8,244)
Borrowings under bank note payable	80,000	76,500
Repayments of bank note payable	(15,000)	(80,000)
Repayment of term loan payable	(110,000)	(245,000)
Deferred financing costs	(2,561)
Net cash used in financing activities	(105,360)	(285,729)
Net increase (decrease) in cash, cash equivalents and restricted cash	(32,034)	5,581
Cash, cash equivalents and restricted cash, beginning of year	40,751	4,150
Cash, cash equivalents and restricted cash, end of period	8,717	9,731
Cash paid for:
Interest	13,692	22,995
Taxes	664	417
Non-cash investing and financing activities:
Accrued costs for purchases of real estate assets	$ 7,466	$ 5,108

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

9 Months Ended

Sep. 30, 2022

Organization

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

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

Organization

Franklin Street Properties Corp. (“FSP Corp.” or the “Company”) holds, directly and indirectly, 100% of the interest in FSP Investments LLC, FSP Property Management LLC, FSP Holdings LLC and FSP Protective TRS Corp. FSP Property Management LLC provides asset management and property management services. The Company also has a non-controlling common stock interest in one corporation organized to operate as a real estate investment trust (the “Sponsored REIT”).

As of September 30, 2022, the Company owned and operated a portfolio of real estate consisting of 22 operating properties, one managed Sponsored REIT and held one promissory note secured by a mortgage on real estate owned by the Sponsored REIT. From time-to-time, the Company may acquire real estate or make additional secured loans. The Company may also pursue, on a selective basis, the sale of its properties in order to take advantage of the value creation and demand for its properties, for geographic, property specific reasons or for other general corporate purposes.

Properties

The following table summarizes the Company’s number of operating properties, which we also refer to as our owned properties and rentable square feet of real estate.

	As of September 30,
	2022	2021
Operating Properties:
Number of properties	22	26
Rentable square feet	6,433,954	7,671,275

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, 2021, as filed with the Securities and Exchange Commission.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 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 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,
(in thousands)	2022		2021
Cash and cash equivalents	$	6,367	$	5,053
Restricted cash		2,350		4,678
Total cash, cash equivalents and restricted cash	$	8,717	$	9,731

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

Variable Interest Entities (VIEs)

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

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

We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct a proposed sale of the property or merger of the company. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion upon a reconsideration event. As of September 30, 2022, our relationship with FSP Monument Circle LLC was considered a VIE for which we are not the primary beneficiary. Our maximum exposure to losses associated with this VIE is limited to the outstanding Sponsored REIT Loan (as defined in Note 2) net of the allowance for credit loss, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $24.0 million and $24.5 million at September 30, 2022 and December 31, 2021, respectively. The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and are approximately $1.8 million and $0.5 million at September 30, 2022 and December 31, 2021, respectively. The relationships and investments related to the entity in which we have a variable interest are summarized in Note 2.

Recent Accounting Standards

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

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Related Party Transactions and Investments in Non-Consolidated Entities

9 Months Ended

Sep. 30, 2022

Related Party Transactions and Investments in Non-Consolidated Entities

Related Party Transactions and Investments in Non-Consolidated Entities

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

Investment in Sponsored REITs:

At September 30, 2022 and December 31, 2021, the Company held a non-controlling common stock interest in one and two Sponsored REITs, respectively, in which the Company no longer shares in economic benefit or risk.

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancellable with 30 days notice. Asset management fee income from non-consolidated entities amounted to approximately $26,000 and $50,000 for the nine months ended September 30, 2022 and 2021, respectively.

From time to time the Company may make secured loans (“Sponsored REIT Loans”) to the Sponsored REIT 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 the current expected credit loss model (“CECL”) for Sponsored REIT Loans each reporting period. The measurement of expected credit losses is based upon historical experiences, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company has elected to apply the practical expedient for financial assets secured by collateral in instances where the borrower is experiencing financial difficulty and repayment of the Sponsored REIT Loan is expected to be provided substantially through operation or sale of the collateral. The Company uses the fair value of the collateral at the reporting date and an adjustment to the allowance for expected credit losses is recorded when the amortized cost basis of the financial asset exceeds the fair value of the collateral, less costs to sell.

The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s fair value, operating results and existing cash balances are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.

The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid through operation or sale of the property. The outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and the balances within the borrower’s cash accounts. The Sponsored REIT Loan matures on June 30, 2023.

The following is a summary of the sole Sponsored REIT Loan outstanding as of September 30, 2022:

			Maximum		Amount		Interest
(dollars in thousands, except footnotes)		Maturity	Amount		Outstanding		Rate at
Sponsored REIT	Location	Date	of Loan		30-Sep-22		30-Sep-22
Mortgage loan secured by property
FSP Monument Circle LLC (1)	Indianapolis, IN	30-Jun-23	$	24,000	$	24,000	7.51	%
			$	24,000	$	24,000

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

The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $1,367,000 and $1,196,000 for the nine months ended September 30, 2022 and 2021, respectively.

On October 29, 2021, the Company agreed to amend and restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $21 million to $24 million. In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023. As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to vote their shares in favor of any sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023. There were no commitments to lend additional funds to the Sponsored REIT and the loan is collateralized by the mortgage held on the Sponsored REIT’s property and by cash accounts, as of September 30, 2022.

As of December 31, 2021, we did not have an allowance for credit losses recorded on our consolidated balance sheets. We recorded a $1.9 million increase in our provision for credit losses during the nine months ended September 30, 2022. The change in the allowance for credit losses during the nine months ended September 30, 2022 is primarily due to the deterioration within the current real estate market, changes to key assumptions applied within our financial model to reflect these market changes, such as the exit cap and the discount rate, and due to an increase in the accrued interest receivable balance. The following table presents a roll-forward of our allowance for credit losses.

	For the Nine Months Ended September 30,
(Dollars in thousands)		2022		2021
Beginning allowance for credit losses	$	—	$	—
Additional increases to the allowance for credit losses		1,857		—
Ending allowance for credit losses	$	1,857	$	—

The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the Sponsored REIT Loan measured at fair value on a nonrecurring basis:

	Fair Value (1) at			Significant	Range				Weighted
Description	September 30, 2022		Valuation Technique	Unobservable Input	Min		Max		Average (2)
		(in thousands)
Sponsored REIT Loan	$	22,143	Discounted Cash Flows	Exit Cap Rate	7.50	%	7.50	%	7.50	%
				Discount Rate	8.75	%	8.75	%	8.75	%
(1) Classified within Level 3 of the fair value hierarchy.
(2) Unobservable inputs were weighted based on the fair value of the related instrument.

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Bank Note Payable, Term Loans Payable and Senior Notes

9 Months Ended

Sep. 30, 2022

Bank Note Payable, Term Note Payable and Private Placements

Bank Note Payable, Term Note Payable and Senior Notes

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

JPM Term Loan

On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which provided a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”). On December 24, 2020, the Company repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, and $100 million remained fully advanced and outstanding under the JPM Term Loan. On June 4, 2021, the Company repaid the remaining $100 million

outstanding on the loan, which had been scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs.

Although the interest rate on the JPM Term Loan was 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. On June 4, 2021, the Company paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.

BMO Term Loan

On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal (“BMO”), as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $220 million (the “BMO Term Loan”), of which $165 million remains fully advanced and outstanding. The BMO Term Loan initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. On June 4, 2021, the Company repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The $165 million tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that allows up to $100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions. The BMO Term Loan was previously evidenced by an Amended and Restated Credit Agreement, dated October 29, 2014, among the Company, BMO, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First Amendment, dated July 21, 2016, and a Second Amendment, dated October 18, 2017.

The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (165 basis points over LIBOR at September 30, 2022) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (65 basis points over the base rate at September 30, 2022).

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 BMO that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum, which matured on August 26, 2020. On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of September 30, 2022, the effective interest rate on the BMO Term Loan was 4.04% per annum. On June 4, 2021, the Company paid approximately $0.6 million to terminate the portion of the interest rate swap on the tranche A term loan, which was scheduled to mature on November 30, 2021.

The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or the administrative agent under the BMO Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all

outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BMO Term Loan financial covenants as of September 30, 2022.

BofA Revolver

On January 10, 2022, the Company entered into a Credit Agreement (the “BofA Credit Agreement”) with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto, for a new revolving line of credit for borrowings, at the Company’s election, of up to $217.5 million (the “BofA Revolver”). On February 10, 2022, the Company increased its BofA Revolver availability by $20.0 million to $237.5 million as part of the accordion feature that is available to increase borrowing capacity. Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $237.5 million outstanding at any time. As of September 30, 2022, there were borrowings of $65.0 million drawn and outstanding under the BofA Revolver. Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on January 12, 2024. The Company has the right to request an extension of the maturity date, subject to acceptance by the lenders and satisfaction of certain other customary conditions. The BofA Revolver includes an accordion feature that allows the Company to request an increase in borrowing capacity to an amount not exceeding $750 million in the aggregate, subject to receipt of lender commitments and satisfaction of certain customary conditions.

Borrowings under the BofA Revolver bear interest at a margin over either (i) the daily simple Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively. In addition, under certain circumstances, such as if SOFR is not able to be determined, the BofA Revolver will instead bear interest at a margin over a specified base rate. The margin over SOFR or, if applicable, the base rate varies depending on the Company’s leverage ratio (1.95% over SOFR and 0.95% over the base rate at September 30, 2022). The Company is also obligated to pay an annual facility fee and, if applicable, letter of credit fees in amounts that are also based on the Company’s leverage ratio. The facility fee is assessed against the aggregate amount of lender commitments regardless of usage (0.35% at September 30, 2022).

Based upon the Company’s credit rating, as of September 30, 2022, the interest rate on the BofA Revolver was 5.11% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Revolver through September 30, 2022 was approximately 1.84% per annum.

The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BofA Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio and a minimum unsecured interest coverage ratio. The BofA Credit Agreement also restricts the Company’s ability to make dividend distributions that exceed 95% of the Company’s good faith estimate of projected funds from operations for the applicable fiscal year; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. The Company was in compliance with the BofA Revolver financial covenants as of September 30, 2022.

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

The Company may use the net proceeds of the BofA Revolver 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 BofA Credit Agreement.

BofA Credit Facility

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

BofA Term Loan Highlights

● The original principal amount of the BofA Term Loan was $400 million. On September 30, 2021, the Company repaid a $90 million portion and on October 25, 2021, the Company repaid a $200 million portion of the BofA Term Loan and incurred a loss on extinguishment of debt of $0.7 million related to unamortized deferred financing costs. On September 6, 2022, the Company prepaid the remaining $110 million balance of the BofA Term Loan in full and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. As of September 30, 2022, there was no balance outstanding under the BofA Term Loan.

● If the Company had not prepaid the BofA Term Loan on September 6, 2022, the BofA Term Loan would have matured by its own terms on January 12, 2023.

The BofA Term Loan bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.75% over LIBOR at the date of repayment on September 6, 2022) or (ii) a margin over the base rate depending on the Company’s credit rating (0.75% over the base rate at the date of repayment on September 6, 2022).

The interest rate on the BofA Term Loan was variable through the date of prepayment on September 6, 2022. Previously the Company had fixed the base LIBOR interest rate on the BofA Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BofA Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ended on September 27, 2021. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan through the date of repayment on September 6, 2022, was approximately 2.65% per annum.

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) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $116 million (the “Series A Notes”) and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B Notes” and, together with the Series A Notes, the “Senior Notes”). On December 20, 2017, the Senior Notes were funded and the proceeds were used to reduce the outstanding balance of the Former BofA Revolver.

The Senior Notes bear interest depending on the Company’s credit rating. As of September 30, 2022, the Series A Notes bear interest at 4.49% per annum and the Series B Notes bear interest at 4.76% per annum.

The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BofA Credit 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 30, 2022.

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Financial Instruments: Derivatives and Hedging

9 Months Ended

Sep. 30, 2022

Financial Instruments: Derivatives and Hedging

Financial Instruments: Derivatives and Hedging

4.  Financial Instruments: Derivatives and Hedging

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

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

The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.

The following table summarizes the notional and fair value of the Company’s derivative financial instrument at September 30, 2022 and December 31, 2021. The notional value is an indication of the extent of the Company’s involvement in this instrument at that time, but does not represent exposure to credit, interest rate or market risks.

	Notional		Strike		Effective	Expiration	Fair Value (2) at
(in thousands)	Value		Rate		Date	Date	September 30, 2022		December 31, 2021
2019 BMO Interest Rate Swap (1)	$	165,000	2.39	%	Aug-20	Jan-24	$	4,266	$	(5,239)
(1) The Notional Value decreased to $165 million on June 4, 2021.
(2) Classified within Level 2 of the fair value hierarchy.

The 2019 BMO Interest Rate Swap was reported as an asset with a fair value of approximately $4.3 million and a liability of approximately $5.2 million at September 30, 2022 and December 31, 2021, respectively. The balance is included in other assets: derivative asset and other liabilities: derivative liabilities in the consolidated balance sheet at September 30, 2022 and December 31, 2021, respectively.

The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2022 and 2021, respectively, was as follows:

(in thousands)	Nine Months Ended September 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2022		2021
Amounts of gain recognized in OCI	$	7,835	$	2,410
Amounts of previously recorded loss reclassified from OCI into Interest Expense	$	(1,669)	$	(7,318)
Total amount of Interest Expense presented in the consolidated statements of operations	$	17,140	$	26,582

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 $3.2 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 hedging transaction uses 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 the contract. The Company requires its derivatives contracts to be with counterparties that have investment grade ratings. As a result, the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that the Company will be able to adequately protect against the foregoing risks or that it will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.

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

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

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Net Income Per Share

9 Months Ended

Sep. 30, 2022

Net Income Per Share

Net Income Per Share

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 no potential dilutive shares outstanding at each of September 30, 2022 and 2021.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Stockholders' Equity

6.  Stockholders’ Equity

As of September 30, 2022, the Company had 103,235,914 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
Special dividend declared in December 2021 and paid January 2022	$	0.32	$	33,280
First quarter of 2022	$	0.09	$	9,360
Second quarter of 2022	$	0.09	$	9,284
Third quarter of 2022	$	0.01	$	1,032
First quarter of 2021	$	0.09	$	9,660
Second quarter of 2021	$	0.09	$	9,659
Third quarter of 2021	$	0.09	$	9,666

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.

On May 20, 2021 and May 17, 2022, the Company granted shares under the Plan to non-employee directors with the compensation cost related to such grants indicated in the table below, which was recognized during the year ended December 31, 2021 and the nine months ended September 30, 2022, respectively, and is included in general and administrative expenses for such periods. Such shares were fully vested on the date of issuance.

	Shares Available		Compensation
	for Grant		Cost
Balance December 31, 2020		1,847,384	$	675,000
Shares granted 2021		(66,564)		337,500
Balance December 31, 2021		1,780,820		1,012,500
Shares granted 2022		(84,133)		393,750
Balance September 30, 2022		1,696,687	$	1,406,250

Repurchase of Common Stock

On June 23, 2021, the Board of Directors of the Company authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time. The Company subsequently repurchased 3,396,243 shares of common stock during the third and fourth quarters of 2021 at an aggregate cost of approximately $18.2 million at an average cost of approximately $5.37 per share, inclusive of brokerage commissions. The Company subsequently repurchased 846,739 shares of common stock during the first quarter of 2022 at an aggregate cost of approximately $4.8 million at an average cost of approximately $5.72 per share, inclusive of brokerage commissions. The Company did not repurchase any shares of common stock during the second and third quarters of 2022. The excess of the purchase price over the par value of the shares repurchased is applied to reduce additional paid-in capital.

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

(Cost in thousands)	Shares Repurchased	Cost
Balance December 31, 2020	1,017,498	$	18,775
Repurchase of shares	3,396,243		18,244
Balance, December 31, 2021	4,413,741		37,019
Repurchase of shares	846,739		4,843
Balance, September 30, 2022	5,260,480	$	41,862

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Income Taxes

9 Months Ended

Sep. 30, 2022

Federal Income Tax Reporting

Income Taxes

7.  Income Taxes

General

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

One such restriction is that the Company generally cannot own more than 10% of the voting power or value of the securities of any one issuer unless the issuer is itself a REIT or a taxable REIT subsidiary (“TRS”). In the case of TRSs, the Company’s ownership of securities in all TRSs generally cannot exceed 20% (25% of taxable years beginning on or before December 31, 2017) of the value of all of the Company’s assets and, when considered together with other non-real estate assets, cannot exceed 25% of the value of all of the Company’s assets. FSP Investments LLC and FSP Protective TRS Corp. are the Company’s taxable REIT subsidiaries operating as taxable corporations under the Code. The TRSs have gross amounts of net operating losses (“NOLs”) available to those taxable corporations of $4.8 million and $4.6 million as of each of December 31, 2021 and 2020, respectively. The NOLs created prior to 2018 will expire between 2030 and 2047 and the NOLs generated after 2017 will not expire. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured.

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

The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2018 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 $1.7 million and $1.1 million as of September 30, 2022 and December 31, 2021, respectively.

Income Tax Expense

The Company is subject to a business tax known as the Revised Texas Franchise Tax. Some of the Company’s leases allow reimbursement by tenants for these amounts because the Revised Texas Franchise Tax replaces a portion of the property tax for school districts. Because the tax base on the Revised Texas Franchise Tax is derived from an income based measure, it is considered an income tax. The Company recorded a provision for the Revised Texas Franchise Tax of $167,000 and $174,000 for the nine months ended September 30, 2022 and 2021, respectively.

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

	For the Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
Revised Texas Franchise Tax	$	167	$	174
Other Taxes		—		—
Tax expense	$	167	$	174

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

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Leases

9 Months Ended

Sep. 30, 2022

Leases

Leases

8.  Leases

Leases as a Lessor:

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

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

For the nine months ended September 30, 2022 and 2021, the Company recognized the following amounts of income relating to lease payments:

Income relating to lease payments:
	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
Income from leases (1)	$	118,843	$	161,443
	$	118,843	$	161,443
(1) Amounts recognized from variable lease payments were $37,050 and $42,298 for the nine months ended September 30, 2022 and 2021, respectively.

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Disposition of Properties

9 Months Ended

Sep. 30, 2022

Dispositions of property

Dispositions of properties

9. Disposition of Properties

In furtherance of the Company’s strategy adopted in 2021 to dispose of certain properties where it believed its valuation objective has been met, the Company sold two office properties located in Broomfield, Colorado on August 31, 2022 for an aggregate sales price of $102.5 million, at a net gain of approximately $24.1 million. In 2021, the Company sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.7 million. The Company sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. The Company sold an office property located in Indianapolis, Indiana on August 31, 2021 with a sales price of approximately $35 million, at a loss of approximately $1.7 million. The Company sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. The Company used the proceeds of the dispositions principally to repay outstanding indebtedness.

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

The operating results for the properties that the Company disposed of during the three and nine months ended September 30, 2022 and 2021, respectively, are summarized below:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2022		2021		2022		2021
Rental revenue	$	2,078	$	5,959	$	8,581	$	30,598
Rental operating expenses		(580)		(1,558)		(2,460)		(8,779)
Real estate taxes and insurance		(569)		(742)		(2,145)		(5,440)
Depreciation and amortization		(783)		(1,951)		(3,139)		(9,595)
Income from dispositions	$	146	$	1,708	$	837	$	6,784

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Subsequent Events

9 Months Ended

Sep. 30, 2022

Subsequent Events

Subsequent Events

10.  Subsequent Events

On October 7, 2022, the Board of Directors of the Company declared a cash distribution of $0.01 per share of common stock payable on November 10, 2022 to stockholders of record on October 21, 2022.

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Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards (Policies)

9 Months Ended

Sep. 30, 2022

Organization

Basis of Presentation

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, 2021, as filed with the Securities and Exchange Commission.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other period.

Financial Instruments

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 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

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,
(in thousands)	2022		2021
Cash and cash equivalents	$	6,367	$	5,053
Restricted cash		2,350		4,678
Total cash, cash equivalents and restricted cash	$	8,717	$	9,731

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

Variable Interest Entities

Variable Interest Entities (VIEs)

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

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

We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct a proposed sale of the property or merger of the company. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion upon a reconsideration event. As of September 30, 2022, our relationship with FSP Monument Circle LLC was considered a VIE for which we are not the primary beneficiary. Our maximum exposure to losses associated with this VIE is limited to the outstanding Sponsored REIT Loan (as defined in Note 2) net of the allowance for credit loss, the related accrued interest receivable and an exit fee receivable, which were in aggregate approximately $24.0 million and $24.5 million at September 30, 2022 and December 31, 2021, respectively. The accrued interest and exit fee receivables are included in prepaid expenses and other assets in the consolidated balance sheet and are approximately $1.8 million and $0.5 million at September 30, 2022 and December 31, 2021, respectively. The relationships and investments related to the entity in which we have a variable interest are summarized in Note 2.

Recent Accounting Standards

Recent Accounting Standards

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

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Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards (Tables)

9 Months Ended

Sep. 30, 2022

Organization

Summary of the entity's investment in real estate assets, including number of properties and rentable square feet of real estate

	As of September 30,
	2022	2021
Operating Properties:
Number of properties	22	26
Rentable square feet	6,433,954	7,671,275

Reconciliation of cash, cash equivalents, and restricted cash

	September 30,		September 30,
(in thousands)	2022		2021
Cash and cash equivalents	$	6,367	$	5,053
Restricted cash		2,350		4,678
Total cash, cash equivalents and restricted cash	$	8,717	$	9,731

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Related Party Transactions and Investments in Non-Consolidated Entities (Tables)

9 Months Ended

Sep. 30, 2022

Related Party Transactions and Investments in Non-Consolidated Entities

Summary of the Sponsored REIT Loans outstanding

			Maximum		Amount		Interest
(dollars in thousands, except footnotes)		Maturity	Amount		Outstanding		Rate at
Sponsored REIT	Location	Date	of Loan		30-Sep-22		30-Sep-22
Mortgage loan secured by property
FSP Monument Circle LLC (1)	Indianapolis, IN	30-Jun-23	$	24,000	$	24,000	7.51	%
			$	24,000	$	24,000

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

Allowance for credit losses rollforward

	For the Nine Months Ended September 30,
(Dollars in thousands)		2022		2021
Beginning allowance for credit losses	$	—	$	—
Additional increases to the allowance for credit losses		1,857		—
Ending allowance for credit losses	$	1,857	$	—

Quantitative information about significant unobservable inputs of Level 3 measurement

	Fair Value (1) at			Significant	Range				Weighted
Description	September 30, 2022		Valuation Technique	Unobservable Input	Min		Max		Average (2)
		(in thousands)
Sponsored REIT Loan	$	22,143	Discounted Cash Flows	Exit Cap Rate	7.50	%	7.50	%	7.50	%
				Discount Rate	8.75	%	8.75	%	8.75	%
(1) Classified within Level 3 of the fair value hierarchy.
(2) Unobservable inputs were weighted based on the fair value of the related instrument.

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Financial Instruments: Derivatives and Hedging (Tables)

9 Months Ended

Sep. 30, 2022

Financial Instruments: Derivatives and Hedging

Schedule of notional and fair value of derivative financial instruments

	Notional		Strike		Effective	Expiration	Fair Value (2) at
(in thousands)	Value		Rate		Date	Date	September 30, 2022		December 31, 2021
2019 BMO Interest Rate Swap (1)	$	165,000	2.39	%	Aug-20	Jan-24	$	4,266	$	(5,239)
(1) The Notional Value decreased to $165 million on June 4, 2021.
(2) Classified within Level 2 of the fair value hierarchy.

Summary of Interest Rate Swaps that was recorded in OCI

(in thousands)	Nine Months Ended September 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2022		2021
Amounts of gain recognized in OCI	$	7,835	$	2,410
Amounts of previously recorded loss reclassified from OCI into Interest Expense	$	(1,669)	$	(7,318)
Total amount of Interest Expense presented in the consolidated statements of operations	$	17,140	$	26,582

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Schedule of dividends declared and paid

	Dividends Per		Total
Quarter Paid	Share		Dividends
Special dividend declared in December 2021 and paid January 2022	$	0.32	$	33,280
First quarter of 2022	$	0.09	$	9,360
Second quarter of 2022	$	0.09	$	9,284
Third quarter of 2022	$	0.01	$	1,032
First quarter of 2021	$	0.09	$	9,660
Second quarter of 2021	$	0.09	$	9,659
Third quarter of 2021	$	0.09	$	9,666

Schedule of Share-based Payment Arrangement, Nonemployee Director Award Plan, Activity

	Shares Available		Compensation
	for Grant		Cost
Balance December 31, 2020		1,847,384	$	675,000
Shares granted 2021		(66,564)		337,500
Balance December 31, 2021		1,780,820		1,012,500
Shares granted 2022		(84,133)		393,750
Balance September 30, 2022		1,696,687	$	1,406,250

Schedule of repurchase of common stock

(Cost in thousands)	Shares Repurchased	Cost
Balance December 31, 2020	1,017,498	$	18,775
Repurchase of shares	3,396,243		18,244
Balance, December 31, 2021	4,413,741		37,019
Repurchase of shares	846,739		4,843
Balance, September 30, 2022	5,260,480	$	41,862

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2022

Federal Income Tax Reporting

Schedule of income tax expense reflected in the condensed consolidated statements of income

	For the Nine Months Ended September 30,
(Dollars in thousands)	2022		2021
Revised Texas Franchise Tax	$	167	$	174
Other Taxes		—		—
Tax expense	$	167	$	174

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Leases (Tables)

9 Months Ended

Sep. 30, 2022

Leases

Summary of income relating to lease payments and undiscounted cash flows

Income relating to lease payments:
	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
Income from leases (1)	$	118,843	$	161,443
	$	118,843	$	161,443
(1) Amounts recognized from variable lease payments were $37,050 and $42,298 for the nine months ended September 30, 2022 and 2021, respectively.

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Disposition of properties (Tables)

9 Months Ended

Sep. 30, 2022

Dispositions of property

Summary of operating results for discontinued operations

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2022		2021		2022		2021
Rental revenue	$	2,078	$	5,959	$	8,581	$	30,598
Rental operating expenses		(580)		(1,558)		(2,460)		(8,779)
Real estate taxes and insurance		(569)		(742)		(2,145)		(5,440)
Depreciation and amortization		(783)		(1,951)		(3,139)		(9,595)
Income from dispositions	$	146	$	1,708	$	837	$	6,784

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Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards (Details)	9 Months Ended
	Sep. 30, 2022 ft² property entity	Dec. 31, 2021 entity	Sep. 30, 2021 ft² property
Organization
Number of REITs in which the entity holds non-controlling common stock interest | entity	1	2
Number of Sponsored REITs	1
Number of promissory notes secured by mortgages on real estate owned by Sponsored REITs	1
Properties
Number of properties	22		26
Rentable square feet | ft²	6,433,954		7,671,275
FSP Investments LLC
Organization
Ownership interest (as a percent)	100.00%
FSP Property Management LLC
Organization
Ownership interest (as a percent)	100.00%
FSP Holdings LLC
Organization
Ownership interest (as a percent)	100.00%
FSP Protective TRS Corp.
Organization
Ownership interest (as a percent)	100.00%

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Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards - Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents	$ 6,367		$ 5,053
Restricted Cash	2,350		4,678
Total cash, cash equivalents and restricted cash	$ 8,717	$ 40,751	$ 9,731	$ 4,150
Restricted Cash, Statement of Financial Position [Extensible Enumeration]	Total cash, cash equivalents and restricted cash

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Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards - Variable Interest Entities (Details) - VIE, Not Primary Beneficiary - USD ($) $ in Millions	Sep. 30, 2022	Dec. 31, 2021
Variable interest entity
Maximum exposure to losses associated with VIE	$ 24.0	$ 24.5
Prepaid expenses and other assets
Variable interest entity
Accrued interest and exit fee receivables	$ 1.8	$ 0.5

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Related Party Transactions and Investments in Non-Consolidated Entities - Investment in Sponsored REITs (Details) - entity	Sep. 30, 2022	Dec. 31, 2021
Related Party Transactions and Investments in Non-Consolidated Entities
Number of REITs in which the entity holds non-controlling common stock interest	1	2

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Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans (Details) - USD ($)	9 Months Ended		21 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022
Sponsored REITs
Asset management fees, low end of range (as a percent)	1.00%
Asset management fees, high end of range (as a percent)	5.00%
Notice period for cancellation of applicable contracts	30 days
Type of revenue			Asset management fees
Asset management fees
Sponsored REITs
Revenue	$ 26,000	$ 50,000

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Related Party Transactions and Investments in Non-Consolidated Entities - Sponsored REIT Loans outstanding (Details) - USD ($)	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Oct. 29, 2021	Oct. 28, 2021
Sponsored REITs
Maximum amount of loan	$ 24,000,000
Amount Drawn	24,000,000		$ 24,000,000	$ 21,000,000
Related party mortgage loan receivable	24,000,000		24,000,000	$ 21,000,000
Sponsored REITs
Sponsored REITs
Interest income and fees from the Sponsored REIT Loans	1,367,000	$ 1,196,000
FSP Monument Circle LLC
Sponsored REITs
Additional loan amount			$ 3,000,000.0
Mortgage loan | FSP Monument Circle LLC
Sponsored REITs
Maximum amount of loan	24,000,000
Amount Drawn	$ 24,000,000
Interest rate (as a percent)	7.51%
Origination fee	$ 164,000
Exit fee	38,000
Related party mortgage loan receivable	$ 24,000,000

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Related Party Transactions and Investments in Non-Consolidated Entities - Allowance for credit losses (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Beginning allowance for credit losses	$ 0
Additional increases or decreases to the allowance for credit losses	1,857
Ending allowance for credit losses	$ 1,857

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Related Party Transactions and Investments in Non-Consolidated Entities - Level 3 Significant unobservable inputs (Details) $ in Thousands	Sep. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Related party mortgage loan receivable	$ 22,143	$ 24,000
Level 3
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Related party mortgage loan receivable	$ 22,143
Level 3 | Maximum | Exit Cap Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	7.50
Level 3 | Maximum | Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	8.75
Level 3 | Minimum | Exit Cap Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	7.50
Level 3 | Minimum | Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	8.75
Level 3 | Weighted Average | Exit Cap Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	7.50
Level 3 | Weighted Average | Discount Rate
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	8.75
Level 3 | Sponsored REIT Loan
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Debt Securities, Available-for-Sale, Valuation Technique [Extensible Enumeration]	us-gaap:ValuationTechniqueDiscountedCashFlowMember

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Bank Note Payable, Term Loans Payable and Senior Notes (Details) - USD ($)						3 Months Ended		9 Months Ended
	Sep. 06, 2022	Oct. 25, 2021	Sep. 29, 2021	Jun. 04, 2021	Dec. 24, 2020	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Feb. 10, 2022	Jan. 10, 2022	Dec. 31, 2021	Dec. 23, 2020	Aug. 02, 2018	Oct. 18, 2017
Debt Instrument [Line Items]
Repayments of unsecured debt								$ 110,000,000	$ 245,000,000
Loss on extinguishment of debt						$ (78,000)	$ (236,000)	(78,000)	$ (403,000)
Unsecured term loan						164,692,000		164,692,000				$ 274,286,000
Borrowings outstanding						65,000,000		65,000,000
Senior Notes
Debt Instrument [Line Items]
Principal amount of loan						200,000,000		$ 200,000,000
Fixed charge coverage ratio								1.50
Series A Notes
Debt Instrument [Line Items]
Principal amount of loan						$ 116,000,000		$ 116,000,000
Interest rate (as a percent)						4.49%		4.49%
Series B Notes
Debt Instrument [Line Items]
Principal amount of loan						$ 84,000,000		$ 84,000,000
Interest rate (as a percent)						4.76%		4.76%
Maximum | Senior Notes
Debt Instrument [Line Items]
Unsecured leverage ratio								60.00%
Unsecured leverage ratio for significant acquisition								65.00%
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Interest rate during period (as a percent)								5.11%
Weighted average variable interest rate (as a percent)								1.84%
Borrowing capacity										$ 237,500,000	$ 217,500,000
Increase to maximum borrowing capacity by exercising an accordion feature										$ 20,000,000.0
Borrowings outstanding						$ 65,000,000.0		$ 65,000,000.0
Maximum allowable borrowing capacity upon exercising an accordion feature						$ 750,000,000		$ 750,000,000
Facility fee at period end (as a percent)						0.35%		0.35%
Percentage of funds from operations which dividend distributions cannot exceed per the BofA Credit Agreement								95.00%
Revolving Credit Facility [Member] | SOFR
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)								0.11448%
Unsecured leverage ratio								1.95%
Revolving Credit Facility [Member] | One Month SOFR
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)								0.11448%
Term of SOFR								1 month
Revolving Credit Facility [Member] | Three month SOFR
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)								0.26161%
Term of SOFR								3 months
Revolving Credit Facility [Member] | Six month SOFR
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)								0.42826%
Term of SOFR								6 months
Revolving Credit Facility [Member] | Bank's base rate
Debt Instrument [Line Items]
Unsecured leverage ratio								0.95%
Unsecured Debt [Member]
Debt Instrument [Line Items]
Principal amount of loan															$ 400,000,000
Repayments of unsecured debt	$ 110,000,000	$ 200,000,000	$ 90,000,000
Loss on extinguishment of debt	100,000	$ 700,000
Unsecured term loan	$ 0
Weighted average interest rate (as a percent)						2.65%		2.65%
Unsecured Debt [Member] | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate at period end (as a percent)						1.75%		1.75%
Fixed rate (as a percent)						1.12%		1.12%
Unsecured Debt [Member] | Bank's base rate
Debt Instrument [Line Items]
Basis spread on variable rate at period end (as a percent)						0.75%		0.75%
JPM Term Loan
Debt Instrument [Line Items]
Principal amount of loan														$ 150,000,000
Repayments of unsecured debt				$ 100,000,000	$ 50,000,000
Loss on extinguishment of debt				100,000
Unsecured term loan													$ 100,000,000
Portion of future LIBOR-based rate risk						$ 100,000,000		$ 100,000,000
JPM Term Loan | Hedged portion
Debt Instrument [Line Items]
Payment to terminate interest rate swap				1,200,000
Portion of future LIBOR-based rate risk						$ 100,000,000		$ 100,000,000
JPM Term Loan | LIBOR | Hedged portion
Debt Instrument [Line Items]
Fixed rate (as a percent)						2.44%		2.44%
BMO Term Loan
Debt Instrument [Line Items]
Principal amount of loan						$ 220,000,000		$ 220,000,000
Effective interest rate (as a percent)						4.04%		4.04%
Maximum allowable borrowing capacity upon exercising an accordion feature						$ 100,000,000		$ 100,000,000
BMO Term Loan | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate at period end (as a percent)						1.65%		1.65%
Fixed rate (as a percent)						2.32%		2.32%
BMO Term Loan | LIBOR | Hedged portion
Debt Instrument [Line Items]
Fixed rate (as a percent)						2.39%		2.39%
BMO Term Loan | Bank's base rate
Debt Instrument [Line Items]
Basis spread on variable rate at period end (as a percent)						0.65%		0.65%
Tranche A Term Loan
Debt Instrument [Line Items]
Principal amount of loan						$ 55,000,000		$ 55,000,000
Loss on extinguishment of debt				100,000
Payment to terminate interest rate swap				$ 600,000
Tranche B Term Loan
Debt Instrument [Line Items]
Principal amount of loan						$ 165,000,000		$ 165,000,000

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Financial Instruments: Derivatives and Hedging (Details) - USD ($) $ in Thousands		9 Months Ended
	Jun. 04, 2021	Sep. 30, 2022	Dec. 31, 2021
Financial Instruments: Derivatives and Hedging
Interest reclassified from accumulated other comprehensive income into interest expense		$ 1,900
Amount estimated to be reclassified into earnings within next 12 months		3,200
JPM Term Loan
Financial Instruments: Derivatives and Hedging
Hedged amount of portion of the future rate risk		100,000
2019 JPM Interest Rate Swap
Financial Instruments: Derivatives and Hedging
Payment to terminate interest rate swap	$ 1,200
2019 BMO Interest Rate Swap
Financial Instruments: Derivatives and Hedging
Fair value of hedged asset		4,300	$ 4,300
Hedged amount of portion of the future rate risk		5,200	5,200
Payment to terminate interest rate swap	600
2019 BMO Interest Rate Swap | Cash flow hedges
Financial Instruments: Derivatives and Hedging
Notional Value	$ 165,000	$ 165,000
Strike Rate (as a percent)		2.39%
2019 BMO Interest Rate Swap | Cash flow hedges | Level 2
Financial Instruments: Derivatives and Hedging
Fair Value		$ 4,266	$ (5,239)

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Financial Instruments: Derivatives and Hedging - Interest Rate Swaps (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total amount of Interest Expense presented in the consolidated statements of operations	$ 6,110	$ 7,928	$ 17,140	$ 26,582
Interest Rate Swap
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total amount of Interest Expense presented in the consolidated statements of operations			17,140	26,582
Interest Rate Swap | Amounts of previously recorded loss reclassified from OCI into Interest Expense
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total amount of Interest Expense presented in the consolidated statements of operations			(1,669)	(7,318)
Interest Rate Swap | Amounts of gain recognized in OCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total amount of Interest Expense presented in the consolidated statements of operations			$ 7,835	$ 2,410

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Net Income Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Net Income Per Share
Potential dilutive shares outstanding	0	0

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Stockholders' Equity (Details)	1 Months Ended	3 Months Ended						9 Months Ended	12 Months Ended
	Dec. 31, 2021 USD ($) $ / shares shares	Sep. 30, 2022 USD ($) $ / shares shares	Jun. 30, 2022 USD ($) $ / shares	Mar. 31, 2022 USD ($) $ / shares shares	Sep. 30, 2021 USD ($) $ / shares	Jun. 30, 2021 USD ($) $ / shares	Mar. 31, 2021 USD ($) $ / shares shares	Sep. 30, 2022 USD ($) item shares	Dec. 31, 2021 USD ($) shares
Stockholders' Equity
Common Stock, Shares, Outstanding	103,998,520	103,235,914						103,235,914	103,998,520
Dividends declared and paid
Cash dividend declared per share (in dollars per share) | $ / shares	$ 0.32	$ 0.01	$ 0.09	$ 0.09	$ 0.09	$ 0.09	$ 0.09
Total Dividends | $	$ 33,280,000	$ 1,032,000	$ 9,284,000	$ 9,360,000	$ 9,666,000	$ 9,659,000	$ 9,660,000
2002 Stock Incentive Plan
Equity-Based Compensation
Maximum number of shares provided for grant under equity-based incentive compensation plan		2,000,000						2,000,000
Number of vesting requirements | item								0
Number of shares available for grant under the plan, Beginning				1,780,820			1,847,384	1,780,820	1,847,384
Shares Granted								(84,133)	(66,564)
Number of shares available for grant under the plan, Ending	1,780,820	1,696,687						1,696,687	1,780,820
Compensation Cost, Beginning | $				$ 1,012,500			$ 675,000	$ 1,012,500	$ 675,000
Compensation cost | $								393,750	337,500
Compensation Cost, Ending | $	$ 1,012,500	$ 1,406,250						$ 1,406,250	$ 1,012,500

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Stockholders' Equity - Repurchase of Common Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended	9 Months Ended	12 Months Ended
	Mar. 31, 2022	Sep. 30, 2021	Dec. 31, 2021	Sep. 30, 2022	Dec. 31, 2021	Jun. 23, 2021
Stockholders' Equity
Shares authorized to be repurchased						$ 50,000
Average cost per share of repurchased shares (in dollars per share)			$ 5.37	$ 5.72
Total number of shares repurchased, beginning (in shares)	4,413,741			4,413,741	1,017,498
Shares repurchased (in shares)	846,739		3,396,243	846,739	3,396,243
Total number of shares repurchased, ending (in shares)			4,413,741	5,260,480	4,413,741
Amount of stock repurchased, beginning	$ 37,019			$ 37,019	$ 18,775
Aggregate cost of shares repurchased	$ 4,843	$ 8,244	$ 18,200	4,843	18,244
Amount of stock repurchased, ending			$ 37,019	$ 41,862	$ 37,019

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Income Taxes (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2017	Dec. 31, 2021	Dec. 31, 2020
Federal Income Tax Reporting
Maximum ownership as a percentage of the voting power or value of the securities of each issuer other than REIT or "TRS"			10.00%
Maximum ownership of securities in all TRS (as a percent)			20.00%		25.00%
Maximum ownership of securities in all TRS when considered together with other non-real estate assets (as a percent)			25.00%
Gross amount of NOL of TRS						$ 4,800,000	$ 4,600,000
Net operating losses
Gross amount of NOLs available to company	$ 1,700,000		$ 1,700,000			$ 1,100,000
Income Tax Expense
Revised Texas Franchise Tax			167,000	$ 174,000
Tax expense	$ 62,000	$ 51,000	167,000	$ 174,000
Deferred income taxes			$ 0

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Leases - Income Relating to Lease Payments (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Income relating to lease payments:
Income from leases	$ 118,843	$ 161,443
Undiscounted Cash Flows
Variable lease payments	$ 37,050	$ 42,298

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Disposition of Properties (Details) $ in Thousands						3 Months Ended		9 Months Ended
	Aug. 31, 2022 USD ($) property	Sep. 23, 2021 USD ($) property	Aug. 31, 2021 USD ($)	Jun. 29, 2021 USD ($)	May 27, 2021 USD ($) property	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)
Dispositions of properties
Gain (loss) on sale of property						$ 24,077	$ 8,632	$ 24,077	$ 29,258
Operating results for discontinued operations:
Rental revenue						2,078	5,959	8,581	30,598
Rental operating expenses						(580)	(1,558)	(2,460)	(8,779)
Real estate taxes and insurance						(569)	(742)	(2,145)	(5,440)
Depreciation and amortization						(783)	(1,951)	(3,139)	(9,595)
Net income (loss) from discontinued operations						$ 146	$ 1,708	$ 837	$ 6,784
Office properties in Broomfield, Colorado
Dispositions of properties
Number of properties sold | property	2
Gain (loss) on sale of property	$ 24,100
Sale price	$ 102,500
Office Properties in Atlanta, Georgia
Dispositions of properties
Number of properties sold | property					3
Gain (loss) on sale of property					$ 22,700
Sale price					$ 219,500
Office Property in Dulles, Virginia
Dispositions of properties
Gain (loss) on sale of property				$ 2,100
Office property in Indianapolis, Indiana
Dispositions of properties
Gain (loss) on sale of property			$ (1,700)
Sale price			$ 35,000
Office properties in Chesterfield, MO
Dispositions of properties
Number of properties sold | property		2
Gain (loss) on sale of property		$ 10,300
Sale price		$ 67,000

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Subsequent Events (Details) $ / shares in Units, $ in Millions		1 Months Ended	3 Months Ended
	Oct. 07, 2022 $ / shares	Dec. 31, 2021 $ / shares	Sep. 30, 2022 $ / shares	Jun. 30, 2022 $ / shares	Mar. 31, 2022 $ / shares	Sep. 30, 2021 $ / shares	Jun. 30, 2021 $ / shares	Mar. 31, 2021 $ / shares	Aug. 31, 2022 property	Feb. 10, 2022 USD ($)	Jan. 10, 2022 USD ($)	Sep. 23, 2021 property	May 27, 2021 property
Subsequent Events
Cash dividend declared per share (in dollars per share) | $ / shares		$ 0.32	$ 0.01	$ 0.09	$ 0.09	$ 0.09	$ 0.09	$ 0.09
Subsequent event
Subsequent Events
Cash dividend declared per share (in dollars per share) | $ / shares	$ 0.01
Office properties in Broomfield, Colorado
Subsequent Events
Number of properties sold									2
Office Properties in Atlanta, Georgia
Subsequent Events
Number of properties sold													3
Office properties in Chesterfield, MO
Subsequent Events
Number of properties sold												2
BofA Revolver
Subsequent Events
Borrowing capacity | $										$ 237.5	$ 217.5
Increase to maximum borrowing capacity by exercising an accordion feature | $										$ 20.0