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Derwent London401 Edgewater PlaceWakefield, MA 01880P 800.950.6288www.fspreit.comFranklin Street Properties2019 Annual Report Franklin Street Properties Corp.Franklin Street Properties Corp. (FSP) (NYSE American: FSP) is a real estate investment trust (REIT) focused on infill and central business district (CBD) office properties in the U.S. Sunbelt and Mountain West, as well as select opportunistic markets. FSP seeks value-oriented investments with an eye towards long-term growth and appreciation. FSP’s real estate operations include property acquisitions and dispositions, leasing, development, redevelopment and asset management. As of December 31, 2019, FSP owned and operated a portfolio of real estate consisting of 32 operating and 3 redevelopment properties. FSP’s operating portfolio of 32 properties was approximately 87.6% leased as of December 31, 2019.This Annual Report contains “forward-looking statements” within the meaning of federal securities laws. For more information, please refer to the discussion in the first paragraph of Part II, Item 7 in the attached Annual Report on Form 10-K for the year ended December 31, 2019.Annual MeetingInformationThursday, May 14, 202011:00 a.m., Eastern TimeFour Points by Sheraton WakefieldBoston Hotel & Conference CenterOne Audubon RoadWakefield, MA 01880Board of DirectorsGeorge J. Carter*Chairman and Chief Executive OfficerJohn N. Burke, CPAChair of the Audit CommitteeMember of the Compensation and Nominating and Corporate Governance CommitteesBrian N. HansenChair of the Nominating andCorporate Governance CommitteeMember of the Audit and Compensation CommitteesKenneth A. HoxsieMember of the Audit andNominating and CorporateGovernance CommitteesDennis J. McGillicuddyMember of the Audit CommitteeGeorgia MurrayLead Independent DirectorChair of the Compensation CommitteeMember of the Audit CommitteeKathryn P. O’NeilMember of the Compensation and Nominating and Corporate Governance Committees*Also an Executive Officer of the CompanyExecutive OfficersJeffrey B. CarterPresident and Chief Investment OfficerJohn G. DemerittExecutive Vice President,Chief Financial Officer and TreasurerScott H. CarterExecutive Vice President, General Counsel and SecretaryJohn F. DonahueExecutive Vice President and President of FSP Property Management LLCEriel AnchondoExecutive Vice President and Chief Operating OfficerCorporate HeadquartersFranklin Street Properties Corp.401 Edgewater Place, Suite 200Wakefield, MA 01880Telephone: 800.950.6288www.fspreit.comStock ListingFranklin Street Properties Corp.’sCommon Stock trades on the NYSE American under the symbol “FSP”Transfer AgentAmerican Stock Transferand Trust CompanyOperations Center6201 15th AvenueBrooklyn, NY 11219Telephone: 800.937.5449www.amstock.comOutside CounselWilmer Cutler PickeringHale and Dorr LLP60 State StreetBoston, MA 02109Telephone: 617.526.6000Independent RegisteredPublic Accounting FirmErnst & Young LLP200 Clarendon StreetBoston, MA 02116Telephone: 617.266.2000Investor Relations ContactGeorgia Touma, Director of Investor RelationsFranklin Street Properties Corp.401 Edgewater Place, Suite 200Wakefield, MA 01880Telephone: 877.686.9496investorrelations@fspreit.com Fellow Stock ho l der s
For the full-year 2019, our net income was approximately $6.5 million, or $0.06 per share, and our Company’s
profitability, as measured by Funds from Operations (FFO1), totaled approximately $97.5 million, or $0.91 per
share. As of December 31, 2019, about 95% of our approximately $970 million debt stack was at fixed rates
and our nearest debt maturity was $205 million due on November 30, 2021. As of December 31, 2019, our
debt service coverage ratio was about 4.0 times and our total liquidity between our revolving line of credit
and cash exceeded $609 million.
During 2019, we leased a total of approximately 1.4 million square feet of office space in our portfolio of
32 operating and 3 redevelopment properties, of which approximately 534,000 square feet was with new
tenants. Over the last three years, we averaged about 1.5 million square feet of leasing per year, or about
15% of our approximately 9.9 million square foot property portfolio. Lease expirations in 2020 are expected to
be approximately 760,000 square feet, or approximately 7.7% of our total office space, and lease expirations
in 2021 are expected to be approximately 799,000 square feet, or approximately 8.0% of our total office
space. We believe that the expected lease expirations in 2020 and 2021 are meaningfully lower than the past
few years.
Over the past two years, much of our leasing activity has been focused on renewing or backfilling existing
tenant lease rollover space. In 2020, we will seek to achieve meaningful net new absorption, with the objective
of increasing economic occupancy, average rental rates, and the average length of lease-term for years to
come. The longer term value-add proposition that was such an integral part of the strategy of recasting our
property portfolio over the last ten years is, we believe, finally at an inflection point. We look forward to the
coming year with great anticipation and optimism.
Thank you for your continued support.
George J. Carter
Chairman and Chief Executive Officer
1 FFO is a non-GAAP financial measure currently used in the real estate industry that we believe provides useful information to investors.
Please refer to page A-1 of this Annual Report for a definition of FFO and a reconciliation of net income to FFO.
1
Sustainabilit y Ef fo r ts
Franklin Street Properties strives to maximize stockholder value through the prudent application of sound
environmental, social and governance (ESG) actions. We believe that our efforts in ESG have the potential
to not only improve the health of our planet, but also to save money on operating expenses, increase
tenant and employee retention and reduce company risk.
We benchmark our progress relative to our peers with 3 main tools: GRESB®, ENERGY STAR®, and LEED®.
Each of these rating systems capture different aspects of our sustainability journey.
GRESB is an industry-driven, global benchmark that evaluates the performance of real estate firms on key
areas of participants’ ESG programs. FSP was again awarded the designation of Green Star, recognizing
achievement for both the Implementation & Measurement and Management & Policy dimensions of the
benchmark. We received a GRESB rating of four out of five stars, which is indicative of FSP’s quintile position
relative to all GRESB respondents.
For asset level ratings, FSP utilizes the EPA’s ENERGY STAR program and the U.S. Green Building Council’s
Leadership in Energy and Environmental Design (LEED) rating system. The ENERGY STAR label demonstrates
energy performance in the top 25% of similar buildings. The LEED rating system we use for the majority of
our portfolio is focused on building operations performance: energy, water, waste, transportation, indoor
air quality, and tenant satisfaction. Two of our buildings, 999 Peachtree in Atlanta and 1001 17th Street in
Denver, were awarded LEED Platinum in 2019, which is the highest level of certification.
Social initiatives during the year focused on tenant and employee engagement. Tenant engagement
included green fit out guides and sustainability-themed events. FSP gives back to our local community
by offering all employees a paid day once per year for volunteering time at charitable activities of our
employees’ choice. In 2019, employees also enjoyed wellness themed workshops and a new employee
wellness room.
Governance initiatives during the year included regular meetings of our Sustainability Committee,
employee training on governance matters and ESG reporting to our Board of Directors.
2
EN ERGY
STAR
GRESB
LEED
Over 60% of our square
Our GRESB score has shown improvement
Over 50% of our square footage,
footage, both directly-owned
since 2014 reflecting our efforts to maximize
both directly-owned and asset-
and asset-managed by FSP, has
stockholder value through the prudent
managed by FSP, has been
earned the ENERGY STAR label.
application of sound ESG actions.
awarded LEED certification.
GRESB Score
75
80
Over 60%
62
59
68
46
Over 50%
% of square footage earning
the ENERGY STAR label
2014
2015
2016
2017
2018
2019
% of square footage awarded
LEED certification
3
Balance Sheet Data – Year Ended December 31
(In thousands)
2015
2016
2017
2018
2019
Total assets
$
1,919,015 $ 2,088,133 $ 1,990,512 $ 1,898,102 $ 1,842,654
Total liabilities
983,359 1,126,089 1,119,220 1,060,468 1,056,258
Total stockholders’ equity
935,656
962,044
871,292
837,634
786,396
Shares outstanding at year-end
100,187
107,231
107,231
107,231
107,269
Dividends paid
for the year ended December 31
$ 76,142 $ 77,481 $
81,496
$
49,326 $ 38,603
Dividends Paid (per share)
as of December 31
Total Revenue (in thousands)
as of December 31
2019
2018
2017
2016
2015
$0.36
$0.46
$0.76
$0.76
$0.76
2019
2018
2017
2016
2015
$269,065
$268,870
$272,588
$249,888
$243,867
Funds from Operations (FFO)* (per share)
as of December 31
Total Market Capitalization (TMC, in thousands)**
as of December 31
2019
2018
2017
2016
2015
$0.91
$0.96
$1.04
$1.03
$1.07
2019
2018
2017
2016
2015
$1,888,224
$1,663,050
$2,199,663
$2,439,716
$1,946,940
*
FFO is a non-GAAP financial measure currently used in the real estate industry that we believe provides useful information to investors. Please refer to page A-1 of
this Annual Report for a definition of FFO and a reconciliation of net income to FFO.
**
The Company calculates Total Market Capitalization as the sum of the closing share price for the date of the calculation multiplied by the number of shares
outstanding on the date of the calculation, plus the sum of debt outstanding on the date of the calculation.
4
Following is the Annual Report on Form 10-K
for the fiscal year ended December 31, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
For the transition period from to
Commission File No. 001-32470
FRANKLIN STREET PROPERTIES CORP.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
401 Edgewater Place, Suite 200, Wakefield, Massachusetts
(Address of principal executive offices)
04-3578653
(I.R.S. Employer
Identification No.)
01880
(Zip Code)
Registrant’s telephone number, including area code: (781) 557-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $.0001 par value per share
Trading Symbol(s)
FSP
Name of each exchange on which registered:
NYSE American
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No .
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 ☒
Non-accelerated filer ☐
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 Act). Yes ☐ No ☒.
The aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing sale price as reported on
NYSE American, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2019, was approximately
$759,493,045.
There were 107,269,201 shares of common stock of the registrant outstanding as of February 6, 2020.
Documents incorporated by reference: The registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the
Securities Exchange Act of 1934, as amended, to be used in connection with the registrant’s Annual Meeting of Stockholders to be held on May 14, 2020
(the “Proxy Statement”). The information required in response to Items 10 — 14 of Part III of this Form 10-K, other than that contained in Part I under
the caption, “Information about our Executive Officers,” is hereby incorporated by reference to the Proxy Statement.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Stock Performance Graph
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
SIGNATURES
1
1
6
15
16
22
22
23
23
23
24
25
46
48
48
48
49
50
50
50
50
50
50
51
51
54
55
PART I
Item 1. Business
History
Our company, Franklin Street Properties Corp., which we refer to as FSP Corp., the Company, we or our, is a
Maryland corporation that operates in a manner intended to qualify as a real estate investment trust, or REIT, for federal
income tax purposes. Our common stock is traded on the NYSE American under the symbol “FSP”. FSP Corp. is the
successor to Franklin Street Partners Limited Partnership, or the FSP Partnership, which was originally formed as a
Massachusetts general partnership in January 1997 as the successor to a Massachusetts general partnership that was
formed in 1981. On January 1, 2002, the FSP Partnership converted into FSP Corp., which we refer to as the conversion.
As a result of this conversion, the FSP Partnership ceased to exist and we succeeded to the business of the FSP
Partnership. In the conversion, each unit of both general and limited partnership interests in the FSP Partnership was
converted into one share of our common stock. As a result of the conversion, we hold, directly and indirectly, 100% of
the interest in three former subsidiaries of the FSP Partnership: FSP Investments LLC, FSP Property Management LLC,
and FSP Holdings LLC. We operate some of our business through these subsidiaries.
Our Business
We are a REIT focused on commercial real estate investments primarily in office markets and currently operate
in only one segment: real estate operations. The principal revenue sources for our real estate operations include rental
income from real estate leasing, interest income from secured loans made on office properties, property dispositions and
fee income from asset/property management 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.
Previously we also operated in an investment banking segment, which was discontinued in December 2011.
Our investment banking segment generated brokerage commissions, loan origination fees, development services and
other fees related to the organization of single-purpose entities that own real estate and the private placement of equity in
those entities. We refer to these entities, which are organized as corporations and operated in a manner intended to
qualify as REITs, as Sponsored REITs. On December 15, 2011, we announced that our broker/dealer subsidiary, FSP
Investments LLC, would no longer sponsor the syndication of shares of preferred stock in newly-formed Sponsored
REITs. On July 15, 2014, FSP Investments LLC withdrew its registration as a broker/dealer with FINRA.
From time-to-time we may acquire real estate or invest in real estate by making secured loans on real estate.
We may also pursue on a selective basis the sale of our properties to take advantage of the value creation and demand for
our properties, or for geographic or property specific reasons.
Real Estate
We own and operate a portfolio of real estate consisting of 35 office properties as of December 31, 2019,
consisting of 32 operating properties and 3 redevelopment properties. We derive rental revenue from income paid to us
by tenants of these properties. See Item 2 of this Annual Report on Form 10-K for more information about our
properties. From time-to-time we dispose of properties generating gains or losses in an ongoing effort to improve and
upgrade our portfolio.
We provide asset management, property management, property accounting, investor and/or development
services to our portfolio and certain of our Sponsored REITs through our subsidiaries FSP Investments LLC and FSP
Property Management LLC. FSP Corp. recognizes revenue from its receipt of fee income from Sponsored REITs that
1
have not been consolidated or acquired by us. Neither FSP Investments LLC nor FSP Property Management LLC
receives any rental income.
From time-to-time we may make secured loans to Sponsored REITs in the form of mortgage loans or revolving
lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. We anticipate that
these loans will be repaid at their maturity or earlier from long-term financings of the underlying properties, cash flows
from the underlying properties or some other capital event. We refer to these loans as Sponsored REIT Loans. We had
one Sponsored REIT Loan secured by real estate outstanding as of December 31, 2019, from which we derive interest
income.
Sustainability
As an owner of commercial real estate, a sector with significant environmental, social and governance “ESG”
impact, we strive to maximize shareholder value through the prudent application of sound ESG strategies. Our efforts
have been awarded recognition from various third party review entities, such as GRESB, ENERGY STAR and LEED.
For more details on our programs, key performance indicators, and achivements, please review the ESG tab on our
website, www.fspreit.com.
Investment Objectives
Our investment objectives are to create shareholder value by increasing revenue from rental, dividend, interest
and fee income and net gains from sales of properties and increase the cash available for distribution in the form of
dividends to our stockholders. We expect that we will continue to derive real estate revenue from owned properties and
Sponsored REIT Loans and fees from asset management, property management and investor services. We may also
acquire additional real properties.
We may acquire, and have acquired, real properties in any geographic area of the United States and of any
property type. We own 35 office properties that are located in 10 different states as of December 31, 2019, which consist
of 32 operating properties and 3 redevelopment properties. See Item 2 of this Annual Report on Form 10-K for more
information about our properties.
From time to time, as market conditions warrant, we may sell properties owned by us. We did not sell any
properties during 2019 or 2018. We sold an office property located in Milpitas, California on January 6, 2017 at a $2.3
million gain and an office property located in Baltimore, Maryland on October 20, 2017 at a $20.8 million loss. When
we sell a property, we either distribute some or all of the sale proceeds to our stockholders as a distribution or retain
some or all of such proceeds for investment in real properties or other corporate activities.
We rely on the following principles in selecting real properties for acquisition by FSP Corp. and managing them
after acquisition:
we seek to buy or develop investment properties at a price which produces value for investors and avoid
overpaying for real estate merely to outbid competitors;
we seek to buy or develop properties in excellent locations with substantial infrastructure in place around them
and avoid investing in locations where the future construction of such infrastructure is speculative;
we seek to buy or develop properties that are well-constructed and designed to appeal to a broad base of users
and avoid properties where quality has been sacrificed for cost savings in construction or which appeal only to a
narrow group of users;
we aggressively manage, maintain and upgrade our properties and refuse to neglect or undercapitalize
management, maintenance and capital improvement programs; and
we believe that we have the ability to hold properties through down cycles because we generally do not have
mortgage debt on the Company, which could place the properties at risk of foreclosure. As of February 6, 2020,
none of our owned properties were subject to mortgage debt.
2
Competition
With respect to our real estate investments, we face competition in each of the markets where our properties are
located. In order to establish, maintain or increase the rental revenues for a property, it must be competitive on location,
cost and amenities with other buildings of similar use. Some of our competitors may have significantly more resources
than we do and may be able to offer more attractive rental rates or services. On the other hand, some of our competitors
may be smaller or have less fixed overhead costs, less cash or other resources that make them willing or able to accept
lower rents in order to maintain a certain occupancy level. In markets where there is not currently significant existing
property competition, our competitors may decide to enter the market and build new buildings to compete with our
existing projects or those in a development stage. Our competition is not only with other developers, but also with
property users who choose to own their building or a portion of the building in the form of an office condominium.
Competitive conditions are affected by larger market forces beyond our control, such as general economic conditions,
which may increase competition among landlords for quality tenants, and individual decisions by tenants that are beyond
our control.
Employees
We had 37 employees as of each of February 6, 2020 and December 31, 2019.
Available Information
We make available, free of charge through our website http://www.fspreit.com our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended as soon as reasonably practicable
after we electronically file such material with the Securities and Exchange Commission, or SEC.
We will voluntarily provide paper copies of our filings and code of ethics upon written request received at the
address on the cover of this Annual Report on Form 10-K, free of charge.
Directors of FSP Corp.
The following table sets forth the names, ages and positions of all our directors as of February 6, 2020.
Name
George J. Carter (6)
John N. Burke (1) (2) (3) (5) (7)
Brian N. Hansen (1) (2) (3) (4) (9)
Kenneth Hoxsie (1) (3) (5)
Dennis J. McGillicuddy (1) (4)
Georgia Murray (1) (2) (6) (8) (10)
Kathryn P. O'Neil (2) (3) (5)
Age
Position
71 Chief Executive Officer and Chairman of the Board
58 Director
48 Director
69 Director
78 Director
69 Director
56 Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee
(4) Term expiring at 2022 Annual Meeting of Stockholders
(5) Term expiring at 2021 Annual Meeting of Stockholders
(6) Term expiring at 2020 Annual Meeting of Stockholders
(7) Chair of the Audit Committee
(8) Chair of the Compensation Committee
(9) Chair of the Nominating and Corporate Governance Committee
(10) Lead Independent Director
3
George J. Carter, age 71, is Chief Executive Officer and has been Chairman of the Board of Directors of
FSP Corp. since 2002. Mr. Carter also was the President of FSP Corp. from 2002 to May 2016. Mr. Carter is
responsible for all aspects of the business of FSP Corp. and its affiliates, with special emphasis on the evaluation,
acquisition and structuring of real estate investments. Prior to the conversion, he was President of the general partner of
the FSP Partnership and was responsible for all aspects of the business of the FSP Partnership and its affiliates. From
1992 through 1996 he was President of Boston Financial Securities, Inc. (“Boston Financial”). Prior to joining Boston
Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a commercial shipyard in Gloucester,
Massachusetts. From 1979 to 1988, Mr. Carter served as Managing Director in charge of marketing at First Winthrop
Corporation, a national real estate and investment banking firm headquartered in Boston, Massachusetts. Prior to that, he
held a number of positions in the brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes & Co.
Mr. Carter is a graduate of the University of Miami (B.S.).
John N. Burke, age 58, has been a Director of FSP Corp. since 2004 and Chair of the Audit Committee since
June 2004. Mr. Burke is a certified public accountant with over 30 years of experience in the practice of public
accounting working with both private and publicly traded companies with extensive experience serving clients in the real
estate and REIT industry. His experience includes analysis and evaluation of financial reporting, accounting systems,
internal controls and audit matters. Mr. Burke has been involved as an advisor on several public offerings, private equity
and debt financings and merger and acquisition transactions. Mr. Burke’s consulting experience includes a wide range of
accounting, tax and business planning matters. Prior to starting his own firm in 2003, Mr. Burke was an Audit Partner in
the Boston office of BDO USA, LLP. Mr. Burke is a member of the American Institute of Certified Public Accountants
and the Massachusetts Society of CPAs. Mr. Burke earned an M.S. in Taxation and studied undergraduate accounting at
Bentley University.
Brian N. Hansen, age 48, has been a Director of FSP Corp. since 2012 and Chair of the Nominating and
Corporate Governance Committee since 2013. Since 2007, Mr. Hansen has served as President and Chief Operating
Officer of Confluence Investment Management LLC, a St. Louis based Registered Investment Advisor. Prior to founding
Confluence in 2007, Mr. Hansen served as a Managing Director in A.G. Edwards’ Financial Institutions & Real Estate
Investment Banking practice. While at A.G. Edwards, Mr. Hansen advised a wide variety of Real Estate Investment
Trusts on numerous capital markets transactions, including public and private offerings of debt and equity securities as
well as the analysis of various merger & acquisition opportunities. Prior to joining A.G. Edwards, Mr. Hansen served as
a Manager in Arthur Andersen LLP’s Audit & Business Advisory practice. Mr. Hansen has served on the boards of a
number of non-profit entities and currently serves on the Investment Committee of the Archdiocese of St. Louis and as a
member of the St. Louis County Retirement Board. Mr. Hansen earned his M.B.A. from the Kellogg School of
Management at Northwestern University and his Bachelor of Science in Commerce from DePaul University. Mr. Hansen
is a Certified Public Accountant.
Kenneth A. Hoxsie, age 69, has been a Director of FSP Corp. since January 2016. Mr. Hoxsie was a Partner
at the international law firm of Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) until his retirement on
December 31, 2015. He joined Hale and Dorr (the predecessor of WilmerHale) in 1981, subsequently worked at Copley
Real Estate Advisors, an institutional real estate investment advisory firm, and rejoined Hale and Dorr in 1994. Mr.
Hoxsie has over 30 years’ experience in real estate capital markets transactions, fund formation, public company
counseling and mergers and acquisitions and has advised the Company since its formation in 1997. Mr. Hoxsie earned
his J.D. (Cum Laude) from Harvard Law School, his M.A. from Harvard University and his B.A. (Summa Cum Laude)
from Amherst College, where he was elected to Phi Beta Kappa.
Dennis J. McGillicuddy, age 78, has been a Director of FSP Corp. since May 2002. Mr. McGillicuddy
graduated from the University of Florida with a B.A. degree and from the University of Florida Law School with a J.D.
degree. In 1968, Mr. McGillicuddy joined Barry Silverstein in founding Coaxial Communications, a cable television
company. In 1998 and 1999, Coaxial sold its cable systems. Mr. McGillicuddy has served on the boards of various
charitable organizations. He is currently president of the Board of Trustees of Florida Studio Theater, a professional non-
profit theater organization, and he serves as a Co-Chair, together with his wife, of Embracing Our Differences, an annual
two-month long art exhibit that promotes the values of diversity and inclusion. Mr. McGillicuddy also is a director of
All-Star Children’s Foundation, an organization engaged in creating a new paradigm for foster care.
4
Georgia Murray, age 69, has been a Director of FSP Corp. since April 2005, Chair of the Compensation
Committee since October 2006 and Lead Independent Director since February 2014. Ms. Murray is retired from Lend
Lease Real Estate Investments, Inc., where she served as a Principal from November 1999 until May 2000. From 1973
through October 1999, Ms. Murray worked at The Boston Financial Group, Inc., serving as Senior Vice President and a
Director at times during her tenure. Boston Financial was an affiliate of the Boston Financial Group, Inc. She is a past
Trustee of the Urban Land Institute and a past President of the Multifamily Housing Institute. Ms. Murray previously
served on the Board of Directors of Capital Crossing Bank. She also serves on the boards of numerous non-profit
entities. Ms. Murray is a graduate of Newton College.
Kathryn P. O’Neil, age 56, has been a Director of FSP Corp. since January 2016. Ms. O’Neil was a Director
at Bain Capital in the Investor Relations area where she focused on Private Equity and had oversight of the Investment
Advisory sector from 2011 until her retirement in 2014. From 1999 to 2007, Ms. O’Neil was a Partner at FLAG Capital
Management LLC, a manager of fund-of-funds investment vehicles in private equity, venture capital, real estate and
natural resources. Previously, Ms. O’Neil was an Investment Consultant at Cambridge Associates where she specialized
in Alternative Assets. Ms. O’Neil currently serves on a variety of non-profit boards, including the Peabody Essex
Museum where she is a Director and a member of the Finance, Audit, and Investment Committees, Horizon’s for
Homeless Children where she is a Director and serves on the Executive and Finance Committees, and the Trustees of
Reservations where she serves on the President’s Council and Investment Committee. Ms. O’Neil is a Trustee Emeritus
of Colby College and a former member of the Board of Overseers of the Boston Museum of Science. Ms. O’Neil holds a
B.A. (Summa Cum Laude) and M.A. (Honorary) from Colby College where she was elected to Phi Beta Kappa. Ms.
O’Neil received her M.B.A. from The Harvard Graduate School of Business Administration.
Information about our Executive Officers
The following table sets forth the names, ages and positions of all our executive officers as of February 6, 2020.
Name
George J. Carter (1)
Jeffrey B. Carter
Scott H. Carter
John G. Demeritt
John F. Donahue
Eriel Anchondo
Age
Position
71 Chief Executive Officer and Chairman of the Board
48 President and Chief Investment Officer
48 Executive Vice President, General Counsel and Secretary
59 Executive Vice President, Chief Financial Officer and Treasurer
53 Executive Vice President
42 Executive Vice President and Chief Operating Officer
(1) Information about George J. Carter is set forth above. See “Directors of FSP Corp.”
Jeffrey B. Carter, age 48, is President and Chief Investment Officer of FSP Corp. Mr. Carter served as
Executive Vice President and Chief Investment Officer from February 2012 until May 2016, when he was appointed as
President in addition to his position as Chief Investment Officer. Previously, Mr. Carter served as Senior Vice President
and Director of Acquisitions of FSP Corp. from 2005 to 2012 and as Vice President - Acquisitions from 2003 to 2005.
Mr. Carter oversees the day-to-day execution of the Company’s strategic objectives and business plan. In addition, Mr.
Carter is primarily responsible for developing and implementing the Company’s investment strategy, including
coordination of acquisitions and dispositions. Prior to joining FSP Corp., Mr. Carter worked in Trust Administration for
Northern Trust Bank in Miami, Florida. Mr. Carter is a graduate of Arizona State University (B.A.), The George
Washington University (M.A.) and Cornell University (M.B.A.). Mr. Carter’s father, George J. Carter, serves as Chief
Executive Officer and Chairman of the Board of Directors of FSP Corp. and Mr. Carter’s brother, Scott H. Carter, serves
as Executive Vice President, General Counsel and Secretary of FSP Corp.
Scott H. Carter, age 48, is Executive Vice President, General Counsel and Secretary of FSP Corp. Mr. Carter
has served as General Counsel since February 2008. Mr. Carter joined FSP Corp. in October 2005 as Senior Vice
President and In-house Counsel. Mr. Carter is primarily responsible for the management of all of the legal affairs of FSP
Corp. and its affiliates. Prior to joining FSP Corp. in October 2005, Mr. Carter was associated with the law firm of
Nixon Peabody LLP, which he originally joined in 1999. At Nixon Peabody LLP, Mr. Carter concentrated his practice
on the areas of real estate syndication, acquisitions and finance. Mr. Carter received a Bachelor of Business
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Administration (B.B.A.) degree in Finance and Marketing and a Juris Doctor (J.D.) degree from the University of
Miami. Mr. Carter is admitted to practice law in the Commonwealth of Massachusetts. Mr. Carter’s father, George J.
Carter, serves as Chief Executive Officer and Chairman of the Board of Directors of FSP Corp. and Mr. Carter’s brother,
Jeffrey B. Carter, serves as President and Chief Investment Officer of FSP Corp.
John G. Demeritt, age 59, is Executive Vice President, Chief Financial Officer and Treasurer of FSP Corp.
and has been Chief Financial Officer since March 2005. Mr. Demeritt previously served as Senior Vice President,
Finance and Principal Accounting Officer from September 2004 to March 2005. Prior to September 2004, Mr. Demeritt
was a Manager with Caturano & Company, an independent accounting firm (which later merged with McGladrey) where
he focused on Sarbanes Oxley compliance. Previously, from March 2002 to March 2004 he provided consulting services
to public and private companies where he focused on SEC filings, evaluation of business processes and acquisition
integration. During 2001 and 2002 he was Vice President of Financial Planning & Analysis at Cabot Industrial Trust, a
publicly traded real estate investment trust, which was acquired by CalWest in December 2001. From October 1995 to
December 2000 he was Controller and Officer of The Meditrust Companies, a publicly traded real estate investment trust
(formerly known as The La Quinta Companies, which was then acquired by the Blackstone Group), where he was
involved with a number of merger and financing transactions. Prior to that, from 1986 to 1995 he had financial and
accounting responsibilities at three other public companies, and was previously associated with Laventhol & Horwath,
an independent accounting firm from 1983 to 1986. Mr. Demeritt is a Certified Public Accountant and holds a Bachelor
of Science degree from Babson College.
John F. Donahue, age 53, is Executive Vice President of FSP Corp. and President of FSP Property
Management LLC and has held those positions since May 2016. Mr. Donahue is primarily responsible for the oversight
of the management of all of the real estate assets of FSP Corp. and its affiliates. Mr. Donahue joined FSP Corp. in
August 2001 as Vice President of FSP Property Management LLC. From 2001 to May 2016, Mr. Donahue was
responsible for the management of real estate assets of FSP Corp. and its affiliates. From 1992 to 2001, Mr. Donahue
worked in the pension fund advisory business for GE Capital and AEW Capital Management with oversight of office,
research and development, industrial and land investments. From 1989 to 1992, Mr. Donahue worked for Krupp Realty
in various accounting and finance roles. Mr. Donahue holds a Bachelor of Science in Business Administration degree
from Bryant College.
Eriel Anchondo, age 42, is Executive Vice President and Chief Operating Officer of FSP Corp. and has held
those positions since May 2016. Mr. Anchondo joined FSP Corp. in 2015 as Senior Vice President of Operations. Mr.
Anchondo is responsible for ensuring that the Company has the proper operational controls, administrative and reporting
procedures, and people systems and infrastructure in place to effectively grow the organization and maintain financial
strength and operating efficiency. Prior to joining FSP Corp., from July 2014 to December 2014, Mr. Anchondo
provided consulting services to the retail banking division of ISBAN, which is part of the Technology and Operations
division of the Santander Group of financial institutions. From May 2007 to July 2013, Mr. Anchondo was employed by
Mercer, a global consulting leader in talent, health, retirement, and investments, as an Employee Education Manager
across all lines of Mercer’s business. From May 2005 to May 2007, Mr. Anchondo was a Communications Consultant at
New York Life Investment Management. From December 2002 to May 2005, Mr. Anchondo worked in the Preferred
Client Services Group at Putnam Investments. Mr. Anchondo is a graduate of Boston University (B.A.) and Cornell
University (M.B.A.).
Except for Eriel Anchondo, who joined FSP Corp. in 2015, each of the above executive officers has been a
full-time employee of FSP Corp. for the past five fiscal years.
Item 1A. Risk Factors
The following important factors, among others, could cause actual results to differ materially from those
indicated by forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by
management from time-to-time.
6
Economic conditions in the United States could have a material adverse impact on our earnings and financial
condition.
Because economic conditions in the United States may affect real estate values, occupancy levels and property
income, current and future economic conditions in the United States 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. Future economic factors may negatively affect real
estate values, occupancy levels and property income.
If a Sponsored REIT defaults on a Sponsored REIT Loan, we may be required to request additional draws, keep
balances outstanding on our existing debt, exercise any maturity date extension rights, seek new debt or use our
cash balance to repay our existing debt, which may reduce cash available for distribution to our stockholders or
for other corporate purposes.
From time-to-time, we may make secured 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 refer to these
loans as Sponsored REIT Loans. We anticipate that each Sponsored REIT Loan will be repaid at maturity or earlier
from long term financing of the property securing the loan, cash flows from that underlying property or some other
capital event. If a Sponsored REIT defaults on a Sponsored REIT Loan, the Sponsored REIT could be unable to fully
repay the Sponsored REIT Loan and we may have to satisfy our obligations under our existing debt through other means,
including without limitation, requesting additional draws, keeping balances outstanding, exercising any maturity date
extension rights, seeking new debt, and/or using our cash balance. If that happens, we may have less cash available for
distribution to our stockholders or for other corporate purposes.
Our operating results and financial condition could be adversely affected if we are unable to refinance the BAML
Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes.
There can be no assurance that we will be able to refinance the revolving line of credit portion of the BAML
Credit Facility (as defined in Note 4 to the Consolidated Financial Statements) upon its maturity on January 12, 2022
(subject to two six month extensions until January 12, 2023), the term loan portion of the BAML Credit Facility upon its
maturity on January 12, 2023, the BMO Term Loan (as defined in Note 4 to the Consolidated Financial Statements) upon
its maturities on November 30, 2021 and January 31, 2024, the JPM Term Loan (as defined in Note 4 to the
Consolidated Financial Statements) upon its maturity on November 30, 2021, the Series A Notes (as defined in Note 4 to
the Consolidated Financial Statements) upon their maturity on December 20, 2024 or the Series B Notes (as defined in
Note 4 to the Consolidated Financial Statements) upon their maturity on December 20, 2027, that any such refinancings
would be on terms as favorable as the terms of the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the
Series A Notes, or the Series B Notes, or that we will be able to otherwise obtain funds by selling assets or raising equity
to make required payments on the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes
or the Series B Notes. If we are unable to refinance the BAML Credit Facility, the BMO Term Loan, the JPM Term
Loan, the Series A Notes or the Series B Notes at maturity or meet our payment obligations, the amount of our
distributable cash flow and our financial condition would be adversely affected.
Failure to comply with covenants in the documents evidencing the BAML Credit Facility, the BMO Term Loan,
the JPM Term Loan, the Series A Notes or the Series B Notes could adversely affect our financial condition.
The documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A
Notes and the Series B Notes contain customary affirmative and negative covenants, 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 documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term
Loan, the Series A Notes and the Series B Notes contain some or all of the following financial covenants: minimum
tangible net worth; maximum leverage ratio; maximum secured leverage ratio; minimum fixed charge coverage ratio;
7
maximum unencumbered leverage ratio; and minimum unsecured interest coverage. Our continued ability to borrow
under the BAML Credit Facility, the BMO Term Loan, and the JPM Term Loan is subject to compliance with our
financial and other covenants. Failure to comply with such covenants could cause a default under the BAML Credit
Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes, and we may then be
required to repay them with capital from other sources. Under those circumstances, other sources of capital may not be
available to us, or be available only on unattractive terms.
We may use the BAML Credit Facility, the BMO Term Loan, and the JPM Term Loan 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 respective documents. If we breach covenants in the documents evidencing the BAML
Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes, the lenders can
declare a default. A default under documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM
Term Loan, the Series A Notes, or the Series B Notes could result in difficulty financing growth in our business and
could also result in a reduction in the cash available for distribution to our stockholders or for other corporate purposes.
A default under documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series
A Notes or the Series B Notes could materially and adversely affect our financial condition and results of operations.
An increase 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 December 31, 2019, we had no borrowings under the revolving line of credit portion of our BAML
Credit Facility that bears interest at variable rates based on our credit rating, from which we may incur indebtedness in
the future. Borrowings under the revolving line of credit portion of our BAML Credit Facility may not exceed $600
million outstanding at any time. As of December 31, 2019, $400 million was drawn and outstanding under the term loan
portion of our BAML Credit Facility. The BAML Credit Facility includes an accordion feature that allows for an
aggregate amount of up to $500 million of additional borrowing capacity. On July 22, 2016, we fixed the base LIBOR
rate on the term loan portion of the BAML Credit Facility at 1.12% until September 27, 2021 by entering into an interest
rate swap agreement.
As of December 31, 2019, $220 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 and a $165 million tranche B term loan. 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.
As of December 31, 2019, $150 million was drawn and outstanding under the JPM Term Loan. The JPM
Term Loan bears interest at variable rates based on our credit rating. Effective March 29, 2019, we fixed the LIBOR-
based rate at 2.44% per annum on a $100 million portion of the JPM Term Loan until November 30, 2021, by entering
into interest rate swap agreements.
In the future, if interest rates 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, an
increase 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.
8
Changes to and replacement of the LIBOR benchmark interest rate could adversely affect our business, financial
results and operation.
We may be adversely affected by the expected discontinuance of LIBOR. In July 2017, the United Kingdom
Financial Conduct Authority (the regulatory authority over LIBOR) announced that it will plan for a phase out of
regulatory oversight of LIBOR interest rate indices after 2021 to allow for an orderly transition to an alternate reference
rate. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is
impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans,
or other securities or financial arrangements, given LIBOR’s role in determining market interest rates globally. The
Alternative Reference Rates Committee (ARRC), a group of private-market participants assembled by the Federal
Reserve Board and the Federal Reserve Bank of New York, has proposed that the Secured Overnight Financing Rate
(SOFR) is the rate that represents best practice as the alternative to LIBOR for derivatives and other financial contracts
that are currently indexed to LIBOR. The ARRC has proposed a market transition plan to SOFR from LIBOR and
organizations are currently working on transition plans as it relates to derivatives and cash markets exposed to LIBOR.
We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, including the
possibility of SOFR as the dominant replacement in the United States. In addition, other benchmarks may emerge or
other rates may be adopted outside of the United States. Although the full impact of the transition away from LIBOR,
including the discontinuance of LIBOR publication and the adoption of a replacement rate for LIBOR, remains unclear,
these changes may have an adverse impact on our financing costs with respect to any floating rate indebtedness.
Downgrades in our credit ratings could increase our borrowing costs or reduce our access to funding sources in
the credit and capital markets.
We are currently assigned a corporate credit rating from Moody’s Investors Service, Inc. (“Moody’s”)
based on its evaluation of our creditworthiness. Although our corporate credit rating from Moody’s is currently
investment grade, there can be no assurance that we will not be downgraded or that our rating will remain investment
grade. If our credit rating is downgraded or other negative action is taken, we could be required, among other things, to
pay additional interest and fees under the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A
Notes and the Series B Notes.
Credit rating reductions by one or more rating agencies could also adversely affect our access to funding
sources, the cost and other terms of obtaining funding as well as our overall financial condition, operating results and
cash flow.
If we are not able to collect sufficient rents from each of our owned real properties, or investments in Sponsored
REITs, or collect interest on Sponsored REIT Loans we fund, we may suffer significant operating losses or a
reduction in cash available for future dividends.
A substantial portion of our revenue is generated by the rental income of our real properties and investments in
Sponsored REITs. If our properties do not provide us with a steady rental income or we do not collect interest income
from Sponsored REIT Loans we fund, our revenues will decrease, which may cause us to incur operating losses in the
future and reduce the cash available for distribution to our stockholders.
We may not be able to identify properties that meet our criteria for purchase.
Growth in our portfolio of real estate is dependent on the ability of our acquisition executives to identify
properties for sale and/or development which meet the applicable investment criteria. To the extent they fail to identify
such properties, we would be unable to increase the size of our portfolio of real estate, which could reduce the cash
otherwise available for distribution to our stockholders.
We are dependent on key personnel.
We depend on the efforts of George J. Carter, our Chief Executive Officer and Chairman of the Board of
Directors; Jeffrey B. Carter, our President and Chief Investment Officer; Scott H. Carter, our General Counsel, Secretary
9
and an Executive Vice President; John G. Demeritt, our Chief Financial Officer, Treasurer and an Executive Vice
President; John F. Donahue, our President of FSP Property Management LLC and an Executive Vice President; and Eriel
Anchondo, our Chief Operating Officer and an Executive Vice President. If any of our executive officers were to resign,
our operations could be adversely affected. We do not have employment agreements with any of our executive officers.
Our level of dividends may fluctuate.
Because our real estate occupancy levels and rental rates can fluctuate, there is no predictable recurring level of
revenue from such activities and changes in interest rates or in the mix of our fixed and variable rate debt can cause our
interest costs to fluctuate. As a result of these fluctuations, the amount of cash available for distribution to our
stockholders may fluctuate, which may result in our not being able to maintain or grow dividend levels in the future.
We face risks from tenant defaults or bankruptcies.
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.
The real properties held by us may significantly decrease in value.
As of December 31, 2019, we owned 35 properties, consisting of 32 operating properties and 3 redevelopment
properties. Some or all of these properties may decline in value. To the extent our real properties decline in value, our
stockholders could lose some or all of the value of their investments. The value of our common stock may be adversely
affected if the real properties held by us decline in value since these real properties represent the majority of the tangible
assets held by us. Moreover, if we are forced to sell or lease the real property held by us below its initial purchase price
or its carrying costs, respectively, or if we are forced to lease real property at below market rates because of the condition
of the property, our results of operations would be adversely affected and such negative results of operations may result
in lower dividends being paid to holders of our common stock.
New acquisitions may fail to perform as expected.
We may fund the acquisition of new properties with cash, by drawing on the revolving line of credit portion of
our BAML Credit Facility, by assuming existing indebtedness, by entering into new indebtedness, by issuing debt
securities, by issuing shares of our stock or by other means. Our acquisition activities are subject to the following risks:
acquired properties may fail to perform as expected;
the actual costs of repositioning, redeveloping or maintaining acquired properties may be greater than
our estimates; and
we may be unable to quickly and efficiently integrate new acquisitions into our existing operations,
and this could have an adverse effect on our results of operations and financial condition.
We face risks in owning, developing, redeveloping and operating real property.
An investment in us is subject to the risks incident to the ownership, development, redevelopment and operation
of real estate-related assets. These risks include the fact that real estate investments are generally illiquid, which may
affect our ability to vary our portfolio in response to changes in economic and other conditions, as well as the risks
normally associated with:
changes in general and local economic conditions;
the supply or demand for particular types of properties in particular markets;
changes in market rental rates;
the impact of environmental protection laws;
changes in tax, real estate and zoning laws; and
10
the impact of obligations and restrictions contained in title-related documents.
Certain significant costs, such as real estate taxes, utilities, insurance and maintenance costs, generally are not
reduced even when a property’s rental income is reduced. In addition, environmental and tax laws, interest rate levels,
the availability of financing and other factors may affect real estate values and property income. Furthermore, the supply
of commercial space fluctuates with market conditions.
We may encounter significant delays in reletting vacant space, resulting in losses of income.
When leases expire, we may incur expenses and may not be able to re-lease the space on the same terms. While
we cannot predict when existing vacant space in properties will be leased, 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 current market rates for locations in which the buildings are located, which in some cases may be below the expiring
rates. Certain leases provide tenants the right to terminate early if they pay a fee. If we are unable to re-lease space
promptly, if the terms are significantly less favorable than anticipated or if the costs are higher, we may have to reduce
distributions to our stockholders. Typical lease terms range from five to ten years, so up to approximately 20% of our
rental revenue from commercial properties could be expected to expire each year.
We face risks of tenant-type concentration.
As of December 31, 2019, approximately 15%, 13%, 11% and 11% of our tenants as a percentage of the total
rentable square feet operated in the information technology and computer services industry, the energy services industry,
the non-legal professional services industry and the legal services industry, respectively. An economic downturn in these
or any industry in which a high concentration of our tenants operate or in which a significant number of our tenants
currently or may in the future operate, could negatively impact the financial condition of such tenants and cause them to
fail to make timely rental payments or default on lease obligations, fail to renew their leases or renew their leases on
terms less favorable to us, become bankrupt or insolvent, or otherwise become unable to satisfy their obligations to us,
which could adversely affect our financial condition and results of operations.
We face risks from geographic concentration.
The properties in our portfolio as of December 31, 2019, by aggregate square footage, are distributed
geographically as follows: South — 46.4%, West — 26.4%, Midwest — 17.0% and East — 10.2%. However, within
certain of those regions, we hold a larger concentration of our properties in Greater Denver, Colorado — 26.4%, Atlanta,
Georgia — 19.8%, Houston, Texas — 12.0% and Dallas, Texas — 12.4%. We are likely to face risks to the extent that
any of these areas in which we hold a larger concentration of our properties suffer deteriorating economic conditions.
Given the fact that the Dallas, Denver and Houston metropolitan areas have a significant presence in the energy sector, a
prolonged period of low oil or natural gas prices, or other factors negatively impacting the energy industry, could have
an adverse impact on our ability to maintain the occupancy of our properties in those areas or could cause us to lease
space at rates below current in-place rents, or at rates below the rates we have leased space in those areas in the prior
year. In addition, factors negatively impacting the energy industry could reduce the market values of our properties in
those areas, which could reduce our net asset value and adversely affect our financial condition and results of operations,
or cause a decline in the value of our common stock.
We compete with national, regional and local real estate operators and developers, which could adversely affect
our cash flow.
Competition exists in every market in which our properties are currently located and in every market in which
properties we may acquire in the future will be located. We compete with, among others, national, regional and
numerous local real estate operators and developers. Such competition may adversely affect the percentage of leased
space and the rental revenues of our properties, which could adversely affect our cash flow from operations and our
ability to make expected distributions to our stockholders. Some of our competitors may have more resources than we
do or other competitive advantages. Competition may be accelerated by any increase in availability of funds for
investment in real estate. For example, decreases in interest rates tend to increase the availability of funds and therefore
11
can increase competition. To the extent that our properties continue to operate profitably, this will likely stimulate new
development of competing properties. The extent to which we are affected by competition will depend in significant part
on both local market conditions and national and global economic conditions.
We are subject to possible liability relating to environmental matters, and we cannot assure you that we have
identified all possible liabilities.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property
may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property.
Such laws may impose liability without regard to whether the owner or operator knew of, or caused, the release of such
hazardous substances. The presence of hazardous substances on a property may adversely affect the owner’s ability to
sell such property or to borrow using such property as collateral, and it may cause the owner of the property to incur
substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property
could result in the owner incurring substantial liabilities as a result of a claim by a private party for personal injury or a
claim by an adjacent property owner for property damage.
In addition, we cannot assure you that:
future laws, ordinances or regulations will not impose any material environmental liability;
the current environmental conditions of our properties will not be affected by the condition of properties in the
vicinity of such properties (such as the presence of leaking underground storage tanks) or by third parties
unrelated to us;
tenants will not violate their leases by introducing hazardous or toxic substances into our properties that could
expose us to liability under federal or state environmental laws; or
environmental conditions, such as the growth of bacteria and toxic mold in heating and ventilation systems or
on walls, will not occur at our properties and pose a threat to human health.
We face possible risks associated with the physical effects of climate change.
The physical effects of climate change could have a material adverse effect on our properties, operations and
business. For example, climate change could increase utility and other costs of operating our properties, including
increased costs for energy, water, insurance, regulatory compliance and other supply chain materials, which if not offset
by rising rental income and/or paid by tenants, could have a material adverse effect on our properties, operations and
business. We are also subject to climate change induced severe storm hazards, which to the extent not covered by
insurance, could result in significant capital expenditures. Over time, the physical effects of climate change could result
in declining demand for office space in our buildings or our inability to operate the buildings at all.
We are subject to compliance with the Americans With Disabilities Act and fire and safety regulations, any of
which could require us to make significant capital expenditures.
All of our properties are required to comply with the Americans With Disabilities Act (ADA), and the
regulations, rules and orders that may be issued thereunder. The ADA has separate compliance requirements for “public
accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to persons with
disabilities. Compliance with ADA requirements might require, among other things, removal of access barriers.
Noncompliance with such requirements could result in the imposition of fines by the U.S. government or an award of
damages to private litigants.
In addition, we are required to operate our properties in compliance with fire and safety regulations, building
codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become
applicable to our properties. Compliance with such requirements may require us to make substantial capital
expenditures, which expenditures would reduce cash otherwise available for distribution to our stockholders.
12
We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets
Control.
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States
Department of the Treasury, or OFAC, maintains a list of persons designated as terrorists or who are otherwise blocked
or banned, which we refer to as Prohibited Persons. OFAC regulations and other laws prohibit conducting business or
engaging in transactions with Prohibited Persons (the “OFAC Requirements”). Our current leases and certain other
agreements require the other party to comply with the OFAC Requirements. If a tenant or other party with whom we
contract is placed on the OFAC list, we may be required by the OFAC Requirements to terminate the lease or other
agreement. Any such termination could result in a loss of revenue or a damage claim by the other party that the
termination was wrongful.
Security breaches and other disruptions could compromise our information and expose us to liability, which
could cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data concerning investors in the Sponsored
REITS, tenants and vendors. Although we have taken steps to protect the security of our information technology
systems and the data maintained in those systems, such systems and infrastructure may be vulnerable to attacks by
hackers, computer viruses or ransomware, or breaches due to employee error, malfeasance, impersonization of
authorized users or other disruptions. Any such breach or attack could compromise our networks and the information
stored there could be accessed, publicly disclosed, lost or stolen. Because the techniques used to obtain unauthorized
access, disable or degrade service, or sabotage systems change frequently and continuously become more sophisticated,
often are not recognized until launched against a target and may be difficult to detect for a long time, we may be unable
to anticipate these techniques or to implement adequate preventive or detective measures. Any unauthorized access,
disclosure or other loss of information could result in significant financial exposure, including significant costs to
remediate possible injury to the affected parties. We may also be subject to sanctions and civil or criminal penalties if we
are found to be in violation of the privacy or security rules under laws protecting confidential information. Any failure to
maintain proper functionality and security of our information systems could interrupt our operations, damage our
reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our
properties.
We have significant investments in markets that may be the targets of actual or threatened terrorism attacks in
the future. As a result, some tenants in these markets may choose to relocate their businesses to other markets or to
lower-profile office buildings within these markets that may be perceived to be less likely targets of future terrorist
activity. This could result in an overall decrease in the demand for office space in these markets generally or in our
properties in particular, which could increase vacancies in our properties or necessitate that we lease our properties on
less favorable terms or both. In addition, future terrorist attacks in these markets could directly or indirectly damage our
properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of
the foregoing, our ability to generate revenues and the value of our properties could decline materially. See also “We
may lose capital investment or anticipated profits if an uninsured event occurs.”
We may lose capital investment or anticipated profits if an uninsured event occurs.
We carry, or our tenants carry, comprehensive liability, fire and extended coverage with respect to each of our
properties, with policy specification and insured limits customarily carried for similar properties. There are, however,
certain types of losses that may be either uninsurable or not economically insurable. Should an uninsured material loss
occur, we could lose both capital invested in the property and anticipated profits.
13
Our employee retention plan may prevent changes in control.
During February 2006, our Board of Directors approved a change in control plan, which included a form of
retention agreement and discretionary payment plan. Payments under the discretionary plan are capped at 1% of the
market capitalization of FSP Corp. as reduced by the amount paid under the retention plan. The costs associated with
these two components of the plan may have the effect of discouraging a third party from making an acquisition proposal
for us and may thereby inhibit a change in control under circumstances that could otherwise give the holders of our
common stock the opportunity to realize a greater premium over the then-prevailing market prices.
Further issuances of equity securities may be dilutive to current stockholders.
The interests of our existing stockholders could be diluted if we issue additional equity securities to finance
future acquisitions, repay indebtedness or to fund other general corporate purposes. Our ability to execute our business
strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other
forms of secured and unsecured debt, and equity financing.
The price of our common stock may vary.
The market prices for our common stock may fluctuate with changes in market and economic conditions,
including the market perception of real estate investment trusts (REITs) in general, and changes in our financial
condition and results of operations. Such fluctuations may depress the market price of our common stock independent of
the financial performance of FSP Corp. The market conditions for REIT stocks generally could affect the market price
of our common stock.
We would incur adverse tax consequences if we failed to qualify as a REIT.
The provisions of the tax code governing the taxation of REITs are very technical and complex, and although
we expect that we will be organized and will operate in a manner that will enable us to meet such requirements, no
assurance can be given that we will always succeed in doing so. In addition, as a result of our past acquisition of certain
Sponsored REITs by merger, which we refer to as target REITs, we might no longer qualify as a REIT. We could lose
our ability to so qualify for a variety of reasons relating to the nature of the assets acquired from the target REITs, the
identity of the stockholders of the target REITs who become our stockholders or the failure of one or more of the target
REITs to have previously qualified as a REIT. Moreover, if one or more of the target REITs that we acquired in
May 2008, April 2006, April 2005 or June 2003 did not qualify as a REIT immediately prior to the consummation of its
acquisition, we could be disqualified as a REIT as a result of such acquisition.
If in any taxable year we do not qualify as a REIT, we would be taxed as a corporation and distributions to our
stockholders would not be deductible by us in computing our taxable income. In addition, if we were to fail to qualify as
a REIT, we could be disqualified from treatment as a REIT in the year in which such failure occurred and for the next
four taxable years and, consequently, we would be taxed as a regular corporation during such years. Failure to qualify
for even one taxable year could result in a significant reduction of our cash available for distribution to our stockholders
or could require us to incur indebtedness or liquidate investments in order to generate sufficient funds to pay the
resulting federal income tax liabilities.
Provisions in our organizational documents may prevent changes in control.
Our Articles of Incorporation and Bylaws contain provisions, described below, which may have the effect of
discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change of control under
circumstances that could otherwise give the holders of our common stock the opportunity to realize a premium over the
then-prevailing market prices.
Ownership Limits. In order for us to maintain our qualification as a REIT, the holders of our common stock
may be limited to owning, either directly or under applicable attribution rules of the Internal Revenue Code, no more
than 9.8% of the lesser of the value or the number of our equity shares, and no holder of common stock may acquire or
14
transfer shares that would result in our shares of common stock being beneficially owned by fewer than 100 persons.
Such ownership limit may have the effect of preventing an acquisition of control of us without the approval of our board
of directors. Our Articles of Incorporation give our board of directors the right to refuse to give effect to the acquisition
or transfer of shares by a stockholder in violation of these provisions.
Board Terms. Prior to our 2019 annual meeting of stockholders, our board of directors was divided into three
classes, with directors of each class elected to serve a three year term. Following the 2019 annual meeting of
stockholders, we amended our articles of incorporation to provide that each of the successors to the directors whose
terms expired in 2020 would be elected to serve until the next annual meeting of stockholders, each of the successors to
the directors whose terms expired in 2021, along with the successors to the directors elected at the 2020 annual meeting,
would be elected to serve until the following annual meeting of stockholders and beginning with the annual meeting of
stockholders in 2022 all directors would be elected to serve until the next annual meeting of stockholders. As a result,
during the transition period prior to the 2022 annual meeting of stockholders, the staggered terms for directors may affect
our stockholders’ ability to effect a change in control even if a change in control may be in the stockholders best interest.
Preferred Stock. Our Articles of Incorporation authorize our board of directors to issue up to 20,000,000 shares
of preferred stock, par value $.0001 per share, and to establish the preferences and rights of any such shares issued. The
issuance of preferred stock could have the effect of delaying or preventing a change in control even if a change in control
may be in our stockholders’ best interest.
Increase of Authorized Stock. Our board of directors, without any vote or consent of the stockholders, may
increase the number of authorized shares of any class or series of stock or the aggregate number of authorized shares we
have authority to issue. The ability to increase the number of authorized shares and issue such shares could have the
effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interest.
Amendment of Bylaws. Our board of directors has the power to amend our Bylaws. This power could have the
effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interests.
Stockholder Meetings. Our Bylaws require advance notice for stockholder proposals to be considered at annual
and special meetings of stockholders and for stockholder nominations for election of directors at annual and special
meetings of stockholders. The advance notice provisions require a proponent to provide us with detailed information
about the proponent and/or nominee. Our Bylaws also provide that stockholders entitled to cast more than 50% of all the
votes entitled to be cast at a meeting must join in a request by stockholders to call a special meeting of stockholders and
that a specific process for the meeting request must be followed. These provisions could have the effect of delaying or
preventing a change in control even if a change in control may be in the best interests of our stockholders.
Supermajority Votes Required. Our Articles of Incorporation require the affirmative vote of the holders of no
less than 80% of the shares of capital stock outstanding and entitled to vote in order (i) to amend the provisions of our
Articles of Incorporation relating to the removal of directors, limitation of liability of officers and directors or
indemnification of officers and directors or (ii) to amend our Articles of Incorporation to impose cumulative voting in the
election of directors. These provisions could have the effect of delaying or preventing a change in control even if a
change in control may be in our stockholders’ best interest.
Item 1B. Unresolved Staff Comments.
None.
15
Item 2.
Properties
Set forth below is information regarding our properties as of December 31, 2019:
Property Location
Office
14151 Park Meadow Drive
Chantilly, VA 20151
1370 & 1390 Timberlake
Manor Parkway,
Chesterfield, MO 63017
50 Northwest Point Rd.
Elk Grove Village, IL 60005
1350 Timberlake Manor
Parkway
Chesterfield, MO 63017
16285 Park Ten Place
Houston, TX 77084
15601 Dallas Parkway
Addison, TX 75001
1500 & 1600 N. Greenville
Ave.
Richardson, TX 75081
6550 & 6560 Greenwood
Plaza
Englewood, CO 80111
3815-3925 River Crossing
Pkwy
Indianapolis, IN 46240
5055 & 5057 Keller Springs
Rd.
Addison, TX 75001
Date of
Purchase (1)
Approx.
Square
Feet
Percent
Leased as
of 12/31/19
Approx.
Number
of Tenants
Major Tenants (2)
3/15/01
138,537
100.0 %
5 American Systems Corporation
Omniplex World Services
Booz Allen Hamilton, Inc.
5/24/01
234,496
95.7 %
3 Centene Management Company, LLC
Amdocs, Inc.
12/5/01
177,095
100.0 %
2 Citicorp Credit Services, Inc.
NCS Pearson, Inc.
3/4/02
117,036
100.0 %
3 Centene Management Company, LLC
Edgewell Personal Care Company
6/27/02
157,460
79.0 %
7 Penn Virginia Corporation
Blade Energy Partners, Ltd.
Subsea Solutions LLC
9/30/02
289,302
80.5 %
11 Cyxtera Management Inc.
Compass Production Partners, LP
WDT Acquisition Corporation
Aerotek, Inc.
3/3/03
300,887
88.4 %
6 ARGO Data Resource Corp.
EMC Corporation
Id Software, LLC
2/24/05
196,236
100.0 %
4 Kaiser Foundation Health Plan
DirecTV, Inc.
7/6/05
205,729
98.5 %
12 Somerset CPAs, P.C.
Crowe, LLP
Blackboard, Inc.
2/24/06
216,834
72.4 %
22 See Footnote 3
5600, 5620 & 5640 Cox Road 7/16/03
Glen Allen, VA 23060
298,183
57.2 %
5 ChemTreat, Inc.
General Electric Company
16
Property Location
1293 Eldridge Parkway
Houston, TX 77077
380 Interlocken Crescent
Broomfield, CO 80021
Date of
Purchase (1)
Approx.
Square
Feet
Percent
Leased as
of 12/31/19
Approx.
Number
of Tenants
Major Tenants (2)
1/16/04
248,399
100.0 %
1 CITGO Petroleum Corporation
8/15/03
240,359
87.2 %
7 VMWare, Inc.
Cooley LLP
Sierra Financial Services, Inc.
3625 Cumberland Boulevard 6/27/06
Atlanta, GA 30339
387,267
85.3 %
21 Randstad General Partner (US)
12/21/06
241,512
98.2 %
Gas South LLC
Carestream Dental, LLC
7 The Vail Corporation
AppExtremes, LLC
390 Interlocken Crescent
Broomfield, CO 80021
16290 Katy Freeway
Houston, TX 77094
45925 Horseshoe Drive
Dulles, VA 20166
4807 Stonecroft Blvd.
Chantilly, VA 20151
121 South Eighth Street
Minneapolis, MN 55402
4820 Emperor Boulevard
Durham, NC 27703
9/28/05
156,746
84.4 %
7 Olin Corporation
Hargrove and Associates, Inc.
Bluware, Inc.
12/23/08
136,658
98.9 %
4 Giesecke & Devrient America, Inc.
6/26/09
111,469
100.0 %
1 Northrop Grumman Systems Corp.
6/29/10
297,209
90.1 %
43 Schwegman, Lundberg & Woessner
3/4/11
259,531
100.0 %
1 IQVIA Holdings, Inc.
5100 & 5160 Tennyson Pkwy 3/10/11
Plano, TX 75024
207,049
100.0 %
5 Worldventures Holdings, LLC
ARK-LA-TEX Financial Services, LLC
7500 Dallas Parkway
Plano, TX 75024
909 Davis Street
Evanston, IL 60201
One Ravinia Drive
Atlanta, GA 30346
Two Ravinia Drive
Atlanta, GA 30346
10370 & 10350 Richmond
Ave.
Houston, TX 77042
3/24/11
214,110
69.4 %
6 ADS Alliance Data Systems, Inc.
9/30/11
195,098
93.3 %
9 Houghton Mifflin Co.
Aptinyx, Inc.
Northshore University Healthsystem
Industrious Evn 909 Davis Street
7/31/12
386,602
86.8 %
11 T-Mobile South LLC
Cedar Document Technologies, Inc.
4/8/15
411,047
71.0 %
40 See Footnote 3
11/1/12
629,025
62.3 %
38 See Footnote 3
17
Property Location
1999 Broadway
Denver, CO 80202
999 Peachtree Street
Atlanta, GA 30309
1001 17th Street
Denver, CO 80202
45 South Seventh Street
Minneapolis, MN 55402
1420 Peachtree Street, NE
Atlanta, GA 30309
600 17th Street
Denver, CO 80202
Date of
Purchase (1)
5/22/13
Approx.
Square
Feet
677,378
Percent
Leased as
of 12/31/19
Approx.
Number
of Tenants
Major Tenants (2)
90.0 %
42 United States Government
7/1/13
621,946
94.2 %
37 Eversheds Sutherland (US) LLP
8/28/13
655,420
98.5 %
21 Newfield Exploration
WPX Energy. Inc.
Hall and Evans, LLC
Ping Identity Corp.
6/6/16
326,757
88.6 %
29 PricewaterhouseCoopers LLP
Haworth Marketing & Media Company
8/10/16
160,145
98.9 %
4 Jones Day
12/1/16
609,112
89.5 %
41 EOG Resources, Inc.
Operating portfolio
9,504,634
87.6 %
Redevelopment Properties (4)
600 Forest Point Circle
Charlotte, NC 28273
5505 Blue Lagoon Drive
Miami, FL 33126
801 Marquette Ave. South
Minneapolis, MN 55402
7/8/99
62,212
— %
—
11/6/03
213,182
73.1 %
1 Lennar Homes, LLC
6/29/10
129,821
37.0 %
2 Common Grounds Minneapolis I, LLC
405,215
50.3 %
& Visitor Association
Greater Minneapolis Convention
Total Office
9,909,849
86.1 %
(1) Date of purchase or merged entity date of purchase.
(2) Major tenants that occupy 10% or more of the space in an individual property.
(3) No tenant occupies more than 10% of the space.
(4) Redevelopment Properties include properties in the process of being redeveloped, or are completed but not yet
stabilized.
18
As of December 31, 2019, we had approximately 0.4 million rentable square feet in our Redevelopment Properties. The
following table summarizes these properties:
(in 000's except square feet)
Property Name
City
State Square Feet Investment (1) 31-Dec-19 31-Dec-19 Date
Anticipated
Incurred
Through
Percent
Leased
Estimated
Estimated
Estimated
Occupied
Leased
Completion Stabilization Stabilization
Date
Date
Redevelopment Activity
Redevelopment in Process
Forest Park
Blue Lagoon Drive (2)
Total Office in Process
Redevelopment Complete But
Not Stabilized
Charlotte
Miami
NC
FL
62,212 $
213,182
275,394
4,418
38,896
43,314
$
754
8,748
9,502
0.0%
73.1%
30-Jun-20
31-Dec-20
30-Sep-20
30-Sep-20
31-Dec-20
31-Mar-21
801 Marquette Ave (3)
Minneapolis MN
129,821 $
28,810
$
22,956
37.0%
30-Jun-17
30-Sep-20
31-Dec-20
Total
405,215 $
72,124
$
32,458
(1) Anticipated investment includes capitalized redevelopment costs, capitalized interest and lease-up costs.
(2) Leased square feet was 155,808 as of December 31, 2019.
(3) Leased square feet was 48,019 as of December 31, 2019.
All of the properties listed above are owned, directly or indirectly, by us. None of our properties are subject to any
mortgage loans. We have no other material undeveloped or unimproved properties, or proposed programs for material
renovation or development of any of our properties in 2020. We believe that our properties are adequately covered by
insurance as of December 31, 2019.
19
The information presented below provides the weighted average GAAP rent per square foot for the year ended
December 31, 2019 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 nonconsolidated REITs or those which we have provided Sponsored REIT Loans.
Property Name
City
State Renovated
Square Feet
Sq. Ft.
Year Built
or
Weighted
Net Rentable Occupied
Weighted
Occupied
Percentage as of
December 31,
2019 (a)
Weighted
Average
Rent per Occupied
Square Feet (b)
138,537
298,183
138,537
170,769
100.0 % $
57.3 %
25.87
19.20
18.77
28.22
33.81
26.16
32.89
36.77
23.92
28.13
27.18
23.52
33.72
29.46
22.80
28.52
31.13
26.14
30.56
27.05
23.03
27.88
34.79
97.9 %
100.0 %
100.0 %
86.2 %
100.0 %
90.8 %
95.2 %
97.1 %
100.0 %
83.1 %
87.6 %
91.9 %
79.5 %
90.7 %
74.9 %
96.5 %
100.0 %
59.5 %
71.6 %
90.4 %
91.9 %
Chantilly
Glen Allen
Dulles
Chantilly
VA
VA
VA
VA
1999
1999
1999
2008
Durham
NC
2009
Elk Grove Village IL
IL
Evanston
IN
MO
MO
Indianapolis
Chesterfield
Chesterfield
Meadow Point
Innsbrook
Loudoun Tech
Center
Stonecroft
Emperor
Boulevard
East total
Northwest Point
909 Davis Street
River Crossing
Timberlake
Timberlake East
121 South 8th
Street
Plaza Seven
Minneapolis
Minneapolis
Midwest total
One Overton Park Atlanta
Houston
Park Ten
Addison
Addison Circle
Richardson
Collins Crossing
Houston
Eldridge Green
Park Ten Phase II Houston
Liberty Plaza
Addison
Legacy Tennyson
Center
Plano
One Legacy Circle Plano
136,658
111,469
133,761
111,469
259,531
944,378
177,095
195,098
205,729
234,496
117,036
259,531
814,067
177,095
177,129
195,833
227,719
117,036
297,209
326,757
1,553,420
387,267
157,460
289,302
300,887
248,399
156,746
216,834
246,981
286,272
1,428,065
307,877
142,738
216,629
290,416
248,399
93,201
155,145
1999
2002
1998
1999
2000
1974
1987
2002
1999
1999
1999
1999
2006
1985
MN
MN
GA
TX
TX
TX
TX
TX
TX
TX 1999/2008
TX
2008
207,049
214,110
187,234
196,682
20
South Total
380 Interlocken
1999 Broadway
1001 17th Street
600 17th Street
Greenwood Plaza
390 Interlocken
West Total
Total Operating
Properties
Redevelopment
Properties (c)
Forest Park
Blue Lagoon Drive
801 Marquette Ave
Total
Redevelopment
Properties
Grand Total
The following table is continued from the previous page and provides the weighted average GAAP rent per square foot
for the year ended December 31, 2019 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 nonconsolidated REITs or those which we have provided Sponsored REIT Loans.
Property Name
City
State Renovated
Year Built
or
One Ravinia Drive
Two Ravinia Drive
Westchase I & II
Pershing Park Plaza
999 Peachtree
Atlanta
Atlanta
Houston
Atlanta
Atlanta
1985
1987
GA
GA
TX 1983/2008
GA
GA
1989
1987
2000
1986
Broomfield CO
CO
Denver
CO 1977/2006
Denver
CO
Denver
Englewood CO
Broomfield CO
1982
2000
2002
Weighted
Net Rentable Occupied
Square Feet
Sq. Ft.
Weighted
Occupied
Percentage as of
December 31,
2019 (a)
Weighted
Average
Rent per Occupied
Square Feet (b)
386,602
411,047
629,025
160,145
621,946
4,386,819
240,359
677,378
655,420
609,112
196,236
241,512
2,620,017
336,421
288,555
478,499
156,013
514,412
3,612,221
214,160
512,436
634,774
522,070
196,236
237,141
2,316,817
87.0 % $
70.2 %
76.1 %
97.4 %
82.7 %
82.3 %
89.1 %
75.7 %
96.9 %
85.7 %
100.0 %
98.2 %
88.4 %
24.96
27.05
31.30
36.61
31.89
28.92
32.56
32.86
36.17
32.82
25.44
32.84
33.10
9,504,634
8,171,171
86.0 %
29.92
NC
Charlotte
Miami
FL
Minneapolis MN 1923/2017
1999
2002
62,212
213,182
129,821
—
—
36,571
— %
— %
28.2 %
—
—
20.49
405,215
36,571
9.0 %
20.49
9,909,849
8,207,742
82.8 % $
29.88
(a) Based on weighted occupied square feet for the year ended December 31, 2019, including month-to-month tenants,
divided by the property’s net rentable square footage.
(b) Represents annualized GAAP rental revenue for the year ended December 31, 2019 per weighted occupied square
foot.
(c) Redevelopment Properties include properties in the process of being redeveloped, or are completed but not yet
stabilized.
21
The information presented below is a lease expiration table for ten years and thereafter, stating (i) the number of tenants
whose leases will expire, (ii) the total area in square feet covered by such leases, (iii) the annual rental represented by
such leases in dollars and by square feet, and (iv) the percentage of gross annual rental represented by such leases.
Year of
Lease
Expiration
December 31,
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030 and thereafter
Leased total
Vacancies as of 12/31/19
Redevelopment Properties (e)
Total Portfolio Square Footage
Number of
Leases
Expiring
Within the
Year (a)
Rentable
Square
Footage
Subject to
Expiring
Leases
Annualized
Rent Under
Expiring
Leases (b)
Annualized Percentage
Rent
of Total
Per Square Annualized
Foot Under Rent Under
Expiring
Expiring
Leases
Leases
Cumulative
Total
24,258,531
39,110,866
19,426,005
25,077,473
19,859,472
28,510,343
17,030,830
9,092,017
10,477,445
22,381,152
67 (c) 761,756 $ 24,132,385 $ 31.68
30.36
64
799,020
33.07
79
1,182,547
29.86
61
650,569
28.63
64
875,989
23.89
51
831,131
32.49
21
877,629
27.21
17
625,830
26.89
11
338,107
30.87
9
339,437
1,251,672 (d)
70
17.88
8,533,687 $ 239,356,519 $ 28.05
514
1,174,774
201,388
9,909,849
10.1 %
10.1 %
16.3 %
8.1 %
10.5 %
8.3 %
11.9 %
7.1 %
3.8 %
4.4 %
9.4 %
100.0 %
10.1 %
20.2 %
36.5 %
44.6 %
55.1 %
63.4 %
75.3 %
82.4 %
86.2 %
90.6 %
100.0 %
(a) The number of leases approximates the number of tenants. Tenants with lease maturities in different years are
included in annual totals for each lease. Tenants may have multiple leases in the same year.
(b) Annualized rent represents the monthly rent charged, including tenant reimbursements, for each lease in effect at
December 31, 2019 multiplied by 12. Tenant reimbursements generally include payment of real estate taxes,
operating expenses and common area maintenance and utility charges.
(c) Includes 4 leases that are month-to-month.
(d) Includes 106,709 square feet that are non-revenue producing building amenities.
(e) Redevelopment Properties include properties being redeveloped, or are completed but not yet stabilized.
Item 3. 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 4. Mine Safety Disclosures
Not applicable.
22
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on the NYSE American under the symbol “FSP”.
As of February 3, 2020, there were 9,610 holders of our common stock, including both holders of record and
participants in securities position listings.
While not guaranteed, we expect to continue to pay cash dividends on our common stock in the future. See
Part I, Item 1A Risk Factors, “Our level of dividends may fluctuate.” for additional information.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the Company’s common stock
between December 31, 2014 and December 31, 2019 with the cumulative total return of (1) the NAREIT Equity Index,
(2) the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500”) and (3) the Russell 2000 Total Return Index
over the same period. This graph assumes the investment of $100.00 on December 31, 2014 and assumes that any
distributions are reinvested.
Performance Graph
s
r
a
l
l
o
D
n
i
e
u
l
a
V
200
175
150
125
100
75
50
25
-
Years
Franklin Street Properties
NAREIT Equity
S&P 500
Russell 2000
2014
2015
2016
2017
2018
2019
As of December 31,
FSP
NAREIT Equity
S&P 500
Russell 2000
2017
2015
2016
2014
2019
$ 100 $ 90 $ 120 $ 107 $ 65 $ 94
150
174
148
116
132
118
121
138
133
112
114
116
103
101
96
100
100
100
2018
Notes to Graph:
The above performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the
Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing
under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we
specifically incorporate it by reference into such filing.
23
Item 6. Selected Financial Data
The following selected financial information is derived from the historical consolidated financial statements
of FSP Corp. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Item 7 and with FSP Corp.’s consolidated financial statements and related notes
thereto included in Item 8.
(In thousands, except per share amounts)
2019
2018
2017
2016
2015
Year Ended December 31,
Operating Data:
Total revenue
Net income (loss)
$ 269,065 $ 268,870 $ 272,588 $ 249,888 $ 243,867
6,475
13,069
(15,944)
8,378
35,014
Basic and diluted income (loss) per share:
$
0.06 $
0.12 $
(0.15) $
0.08 $
0.35
Distributions declared per share outstanding:
$
0.36 $
0.46 $
0.76 $
0.76 $
0.76
2019
2018
As of December 31,
2017
2016
2015
Balance Sheet Data:
Total assets
Total liabilities
Total shareholders’ equity
$ 1,842,654 $ 1,898,102 $ 1,990,512 $ 2,088,133 $ 1,919,015
983,359
1,119,220
935,656
871,292
1,126,089
962,044
1,060,468
837,634
1,056,258
786,396
24
Item 7. 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. 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 Annual Report on Form 10-K 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, economic conditions in
the United States, changes in interest rates as a result of economic conditions or a downgrade in our credit rating,
disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of
demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government
regulations and regulatory uncertainty, changes in energy prices, geopolitical events, and expenditures that cannot be
anticipated such as utility rate and usage increases, unanticipated repairs, additional staffing, insurance increases and real
estate tax valuation reassessments. See “Risk Factors” in Item 1A. 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 Annual Report on Form 10-
K 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 December 31, 2019, approximately 7.8 million square feet, or approximately 78% of our total owned
portfolio, was located in Atlanta, Dallas, Denver, Houston and Minneapolis. From time-to-time we may dispose of our
smaller, suburban office assets and replace them with larger urban infill and central business district office assets. As we
execute this strategy, short term operating results could be adversely impacted. However, we believe that the
transformed portfolio has the potential to provide higher profit and asset value growth over a longer period of time.
The main factor that affects our real estate operations is the broad economic market conditions in the United
States. These market conditions affect the occupancy levels and the rent levels on both a national and local level. We
have no influence on broader economic/market conditions. We look to acquire and/or develop quality properties in good
locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.
Trends and Uncertainties
Economic Conditions
The economy in the United States is continuing to experience a period of economic growth, which directly
affects the demand for office space, our primary income producing asset. The broad economic market conditions in the
United States are affected by numerous factors, including but not limited to, inflation and employment levels, energy
prices, the pace of economic growth and/or recessionary concerns, uncertainty about government fiscal, monetary, trade
and tax policies, changes in currency exchange rates, geopolitical events, the regulatory environment, the availability of
credit and interest rates. Any increase in interest rates could result in increased borrowing costs to us. However, we
could also benefit from any further improved economic fundamentals and increasing levels of employment. We believe
25
that the economy is improving in many markets and appears to be in a broad-based upswing. However, future economic
factors may negatively affect real estate values, occupancy levels and property income.
Real Estate Operations
Leasing
As of December 31, 2019, our real estate portfolio was comprised of 32 operating properties, which we refer to
as our operating properties, and 3 redevelopment properties, which we refer to as our redevelopment properties, that are
in the process of being redeveloped, or are completed but not yet stabilized. We collectively refer to our operating and
our redevelopment properties as our owned portfolio. Our 32 operating properties were approximately 87.6% leased as
of December 31, 2019, a decrease from 89.0% as of December 31, 2018. The 1.4% decrease in leased space was a result
of the impact of lease expirations and terminations, which exceeded leasing completed during the year ended December
31, 2019. As of December 31, 2019, we had approximately 1,175,000 square feet of vacancy in our operating properties
compared to approximately 1,046,000 square feet of vacancy at December 31, 2018. During the year ended December
31, 2019, we leased approximately 1,417,000 square feet of office space, of which approximately 883,000 square feet
were with existing tenants, at a weighted average term of 8.3 years. On average, tenant improvements for such leases
were $34.44 per square foot, lease commissions were $13.51 per square foot and rent concessions were approximately
three months of free rent. Average GAAP base rents under such leases were $31.78 per square foot, or 10.9% higher
than average rents in the respective properties as applicable compared to the year ended December 31, 2018.
As of December 31, 2019, our three redevelopment properties included an approximately 130,000 square foot
redevelopment property known as 801 Marquette in Minneapolis, Minnesota, an approximately 213,000 square foot
property known as Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property known as Forest
Park in Charlotte, North Carolina. Given the length of the redevelopment and lease-up process, these properties are not
placed in service until, in some cases, years after we commence the project.
The redevelopment at 801 Marquette was substantially completed at the end of the second quarter of 2017 and
is in the process of being leased up; however, it is not stabilized. As of December 31, 2019, we had leases signed and
tenants occupying approximately 37.0% of the rentable square feet of the property. We expect to incur redevelopment
and lease-up costs of $28.8 million, of which we had incurred approximately $23.0 million as of December 31, 2019.
The redevelopment of Blue Lagoon commenced in December 2018 following the maturity of a lease with a
major tenant that occupied 100% of the property. On September 13, 2019, we entered into a lease agreement with a new
tenant with an initial term of 16 years for approximately 156,000 square feet, or 73.1% of the property’s rentable square
feet. We expect to incur total restoration, redevelopment and lease-up costs of $38.9 million, which include work on the
roof of the building, costs to make the space suitable for multiple tenants and to increase parking at the property. As of
December 31, 2019, we had incurred approximately $8.7 million in total redevelopment costs. We anticipate completing
the redevelopment by the end of 2020.
The redevelopment of Forest Park commenced in January 2019 following the maturity of a lease with a tenant
that occupied 100% of the property through December 31, 2018. We expect to incur total redevelopment and lease-up
costs of $4.4 million, which include interior work to make the space suitable for multiple tenants. As of December 31,
2019, we had incurred approximately $0.7 million in redevelopment costs. We anticipate completing the redevelopment
by June 30, 2020.
As of December 31, 2019, leases for approximately 7.7% and 8.1% of the square footage in our owned portfolio
are scheduled to expire during 2020 and 2021, respectively. As the first quarter of 2020 begins, we believe that our
operating properties are well stabilized, with a balanced lease expiration schedule, and that existing vacancy is being
actively marketed to numerous potential tenants. We believe that most of our largest property markets are now
experiencing generally steady or improving rental conditions. We are seeing increased potential leasing activity in the
energy influenced market of Denver compared to the last several years. We anticipate positive leasing activity within
our operating properties throughout 2020.
26
While we cannot generally predict when an existing vacancy in our owned portfolio will be leased or if existing
tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we
expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which
could be above or below the expiring rates. Also, we believe the potential for any of our tenants to default on its lease or
to seek the protection of bankruptcy exists. If any of our tenants defaults on its lease, we may experience delays in
enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a
tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and
termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.
Real Estate Acquisition and Investment Activity
During 2019:
during the year ended December 31, 2019, we received approximately $1.1 million as full repayment
of a Sponsored REIT Loan with FSP Satellite Place Corp. (“Satellite Place”) and we received
approximately $51 million as full repayment of a Sponsored REIT Loan with FSP Energy Tower I
Corp.;
on February 2, 2019, we received a cash distribution of approximately $0.2 million from the
liquidating trust of Grand Boulevard (defined below) and anticipate receiving additional liquidating
distributions of approximately $0.1 million in the aggregate as the trust is liquidated;
on April 3, 2019 we received a cash distribution of approximately $1.0 million from the liquidating
trust of East Wacker (defined below); and
we have continued to actively explore additional potential real estate investment opportunities and
anticipate further real estate investments in the future.
During 2018:
we received approximately $1.1 million in cash from Satellite Place, as partial prepayment of a
Sponsored REIT Loan;
on July 19, 2018, an office property owned by a Sponsored REIT, FSP Grand Boulevard Corp. (Grand
Boulevard) was sold to a third party. We held an equity investment in Grand Boulevard and received a
liquidating distribution of its investment of $6.2 million on July 20, 2018. The Company received an
initial cash distribution of $5.9 million from the liquidating trust of Grand Boulevard on August 17,
2018; and
on September 24, 2018, an office property owned by a Sponsored REIT, FSP 303 East Wacker Drive
Corp (East Wacker) was sold to a third party. We held an equity investment in East Wacker and
received a liquidating distribution of its investment of $70.0 million on September 25, 2018. We
received an initial cash distribution of $69.0 million from the liquidating trust of East Wacker on
September 27, 2018.
During 2017:
on January 6, we received approximately $6.2 million in proceeds from the sale of a property located
in Milpitas, California;
on June 7, we received approximately $9.0 million in cash from FSP 1441 Main Street Corp. as
repayment in full of a Sponsored REIT Loan;
during the year ended December 31, we received approximately $1.1 million in cash from Satellite
Place, as partial prepayment of a Sponsored REIT Loan; and
on October 20, we received approximately $31.6 million in proceeds from the sale of a property
located in Baltimore, Maryland.
Property Dispositions and Assets Held for Sale
During the three months ended June 30, 2017, we reached a decision to classify our office property located in
Baltimore, Maryland as an asset held for sale. The property was expected to sell within one year at a loss, which was
27
recorded as a provision for loss on a property held for sale of $20.5 million and was classified as an asset held for sale of
$31.9 million at June 30, 2017. During the three months ended September 30, 2017, we increased the provision for loss
by $0.3 million to $20.7 million and the property was classified as an asset held for sale in the amount of $31.6 million at
September 30, 2017. We sold the property on October 20, 2017 for net proceeds of $31.6 million resulting in a total loss
of $20.8 million.
During the three months ended December 31, 2016, we reached an agreement to sell an office property located
in Milpitas, California. The property was classified as an asset held for sale at December 31, 2016 and was sold on
January 6, 2017 at a $2.3 million gain.
The disposal of these properties did not represent a strategic shift that has a major effect on the Company’s
operations and financial results. Accordingly, the properties remained classified within continuing operations for all
periods presented.
We will continue to evaluate our portfolio, and in the future may decide to dispose of additional properties from
time-to-time in the ordinary course of business. As an important part of our total return strategy, we intend to be active
in property dispositions when we believe that we have maximized value and that market conditions warrant such activity
and, as a consequence, we continuously review and evaluate our portfolio of properties for potentially advantageous
dispositions.
Critical Accounting Policies
We have certain critical accounting policies that are subject to judgments and estimates by our management and
uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and
on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate
our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in
subsequent periods to reflect more current information. The accounting policies that we believe are most critical to the
understanding of our financial position and results of operations, and that require significant management estimates and
judgments, are discussed below. Significant estimates in the consolidated financial statements include the allowance for
doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment considerations and the valuation of
derivatives.
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. Our
most critical accounting policies involve our investments in Sponsored REITs and our investments in real property.
These policies affect our:
allocation of purchase price;
allowance for doubtful accounts;
assessment of the carrying values and impairments of long lived assets;
useful lives of fixed assets and intangibles;
valuation of derivatives;
classification of leases; and
ownership of stock in a Sponsored REIT and related interests.
These policies involve significant judgments made based upon our experience, including judgments about
current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability of our tenants to
perform their obligations to us, current and future economic conditions and competitive factors in the markets in which
our properties are located. Competition, economic conditions and other factors may cause occupancy declines in the
future. In the future we may need to revise our carrying value assessments to incorporate information which is not now
known and such revisions could increase or decrease our depreciation expense related to properties we own, result in the
classification of our leases as other than operating leases or decrease the carrying values of our assets.
28
Allocation of Purchase Price
We allocate the value of real estate acquired among land, buildings, improvements and identified intangible
assets and liabilities, which may consist of the value of above market and below market leases, the value of in-place
leases, and the value of tenant relationships. Purchase price allocations and the determination of the useful lives are
based on management’s estimates. Under some circumstances we may rely upon studies commissioned from
independent real estate appraisal firms in determining the purchase price allocations.
Purchase price allocated to land and building and improvements is based on management’s determination of the
relative fair values of these assets assuming the property was vacant. Management determines the fair value of a property
using methods similar to those used by independent appraisers. Purchase price allocated to above or below market leases
is based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid pursuant to the in-place leases including consideration of
potential lease renewals and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a
period equal to the remaining non-cancelable terms of the respective leases. This aggregate value is allocated between
in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each
tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value because such
value and its consequence to amortization expense is immaterial for acquisitions reflected in our financial statements.
Factors considered by us in performing these analyses include (i) an estimate of carrying costs during the expected lease-
up periods, including real estate taxes, insurance and other operating income and expenses, and (ii) costs to execute
similar leases in current market conditions, such as leasing commissions, legal and other related costs. If future
acquisitions result in our allocating material amounts to the value of tenant relationships, those amounts would be
separately allocated and amortized over the estimated life of the relationships.
Allowance for Doubtful Accounts
We provide an allowance for doubtful accounts based on collectability. Lessors recognize the effect of a
change in their assessment of whether the collectability of operating lease receivables are probable as an adjustment to
lease income rather than bad debt expense.
Impairment
We periodically evaluate our real estate properties for impairment indicators. These indicators may include
declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an
asset before the end of its estimated useful life or legislative, economic or market changes that permanently reduce the
value of our investments. If indicators of impairment are present, we evaluate the carrying value of the property by
comparing it to its expected future undiscounted cash flows. If the sum of these expected future cash flows is less than
the carrying value, we reduce the net carrying value of the property to the present value of these expected future cash
flows. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows.
If we misjudge or estimate incorrectly or if future tenant profitability, market or industry factors differ from our
expectations, we may record an impairment charge which is inappropriate or fail to record a charge when we should have
done so, or the amount of such charges may be inaccurate.
Depreciation and Amortization Expense
We compute depreciation expense using the straight-line method over estimated useful lives of up to 39 years
for buildings and improvements, and up to 15 years for personal property. Costs incurred in connection with leasing
(primarily tenant improvements and leasing commissions) are capitalized and amortized over the lease period. The
allocated cost of land is not depreciated. The value of above or below-market leases is amortized over the remaining
non-cancelable periods of the respective leases as an adjustment to rental income. The value of in-place leases, exclusive
of the value of above-market and below-market in-place leases, is also amortized over the remaining non-cancelable
periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to
that lease are written off. Inappropriate allocation of acquisition costs, or incorrect estimates of useful lives, could result
29
in depreciation and amortization expenses which do not appropriately reflect the allocation of our capital expenditures
over future periods, as is required by generally accepted accounting principles.
Derivative Instruments
We recognize derivatives on the balance sheet at fair value. Derivatives that do not qualify, or are not
designated as hedge relationships, must be adjusted to fair value through income. Derivative instruments designated in a
hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the
derivative instrument on the balance sheet as either an asset or liability. To the extent hedges are effective, a
corresponding amount, adjusted for swap payments, is recorded in accumulated other comprehensive income within
stockholders’ equity. Amounts are then reclassified from accumulated other comprehensive income to the income
statement in the period or periods the hedged forecasted transaction affects earnings. The ineffective portion of the
derivatives’ fair value is recognized directly into earnings as “Other” in our income statement. Derivative instruments
designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. We currently
have no fair value hedges outstanding. Fair values of derivatives are subject to significant variability based on changes in
interest rates and counterparty credit risk. To the extent we enter into fair value hedges in the future, the results of such
variability could be a significant increase or decrease in our derivative assets, derivative liabilities, book equity, and/or
earnings.
Lease Classification
Some of our real estate properties are leased on a triple net basis, pursuant to non-cancelable, fixed term,
operating leases. Each time we enter a new lease or materially modify an existing lease we evaluate whether it is
appropriately classified as a capital lease or as an operating lease. The classification of a lease as capital or operating
affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations
require us to make estimates of, among other things, the remaining useful life and market value of a property, discount
rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases.
Ownership of Stock in a Sponsored REIT and Related Interests
We held preferred stock interests in two Sponsored REITs, both of which were liquidated during 2018. As a
result of our common and preferred stock interests in these two Sponsored REITs, we exercised influence over, but did
not control these entities. These preferred stock interests were accounted for using the equity method. Under the equity
method of accounting our cost basis was adjusted by our share of the Sponsored REITs’ operations and distributions
received. We also agreed to vote our preferred shares (i) with respect to any merger in the same manner that a majority
of the other stockholders of the Sponsored REIT vote for or against the merger and (ii) with respect to any other matter
presented to a vote by the stockholders of these Sponsored REITs in the same proportion as shares voted by other
stockholders of that Sponsored REIT.
The equity investments in Sponsored REITS were reviewed for impairment each reporting period. The
Company recorded impairment charges when events or circumstances indicate a decline in the fair value below the
carrying value of the investment has occurred and such decline is other than temporary.
30
Results of Operations
The following table shows financial results for the years ended December 31, 2019 and 2018.
(in thousands)
Revenues:
Rental
Related party revenue:
Management fees and interest income from loans
Other
Total revenues
Expenses:
Real estate operating expenses
Real estate taxes and insurance
Depreciation and amortization
General and administrative
Interest
Total expenses
Income before taxes on income and equity in
income of non-consolidated REITs
Tax expense on income
Equity in income of non-consolidated REITs
Net income
Year ended December 31,
2018
2019
Change
$ 265,527 $ 263,777 $ 1,750
3,517
21
269,065
5,061
32
268,870
(1,544)
(11)
195
72,311
47,871
90,909
14,473
36,757
262,321
70,703
45,857
94,230
13,070
38,374
262,234
1,608
2,014
(3,321)
1,403
(1,617)
87
6,744
269
—
6,636
360
6,793
108
(91)
(6,793)
$
6,475 $ 13,069 $ (6,594)
Comparison of the year ended December 31, 2019 to the year ended December 31, 2018
Revenues
Total revenues increased by $0.2 million to $269.1 million for the year ended December 31, 2019, as compared
to the year ended December 31, 2018. The increase was primarily a result of:
An increase in rental revenue of approximately $1.7 million arising primarily from increased
termination fees for the year ended December 31, 2019, as compared to the year ended December
31, 2018, and rental income earned from leases commencing in 2019 and 2018, which was offset
by the loss of rental income from leases that expired in 2019 and 2018. Our leased space in our
operating properties was 87.6% at December 31, 2019 and 89.0% at December 31, 2018.
The increase was partially offset by:
A decrease in interest income from Sponsored REIT loans of approximately $1.5 million primarily
as a result of repayment of an outstanding loan by a Sponsored REIT of approximately $51
million in June 2019.
Expenses
Total expenses increased by $0.1 million to $262.3 million for the year ended December 31, 2019, as compared
to the year ended December 31, 2018. The increase was primarily a result of:
An increase in real estate operating expenses and real estate taxes and insurance of approximately
$3.6 million.
31
An increase in general and administrative expenses of $1.4 million, which was primarily
attributable to personnel related expenses and lease acquisition costs.
These increases were partially offset by:
A decrease in depreciation and amortization of approximately $3.3 million.
A decrease in interest expense of approximately $1.6 million. The decrease was primarily
attributable to lower debt outstanding, which was partially offset by higher interest rates during the
year ended December 31, 2019 compared to the year ended December 31, 2018.
Tax expense on income
Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties,
which increased $75,000, and federal and other income taxes, which decreased by $166,000, during the year ended
December 31, 2019, as compared to the year ended December 31, 2018, primarily as a result of a refund arising due to
the provisions of the Tax Cuts and Jobs Act of 2017.
Equity in income of non-consolidated REITs
Equity in income from non-consolidated REITs was $6.8 million for the year ended December 31, 2018. All of
our investments in non-consolidated REITs were liquidated during 2018. The equity in income during the year ended
December 31, 2018 consisted of equity in income from our preferred stock investment in East Wacker of $7.2 million,
which sold its property on September 24, 2018, and was partially offset by equity in loss from our preferred stock
investment in Grand Boulevard of $0.1 million, which sold its property on July 19, 2018. In addition, for the three
months ended June 30, 2018, we recognized an impairment charge of $0.3 million, which represented the other-than-
temporary decline in the fair value below the carrying value of the Company’s investments in non-consolidated REITs.
Net income
Net income for the year ended December 31, 2019 was $6.5 million compared to net income of $13.1 million
for the year ended December 31, 2018, for the reasons described above.
32
The following table shows financial results for the years ended December 31, 2018 and 2017.
(in thousands)
Revenues:
Rental
Related party revenue:
Management fees and interest income from loans
Other
Total revenues
Expenses:
Real estate operating expenses
Real estate taxes and insurance
Depreciation and amortization
General and administrative
Interest
Total expenses
Gain (loss) on sale of properties
Other
Income (loss) before taxes on income and equity in
income (loss) of non-consolidated REITs
Taxes on income
Equity in income (losses) of non-consolidated REITs
Year ended December 31,
2017
2018
Change
$ 263,777 $ 267,265 $ (3,488)
5,061
32
268,870
5,285
38
272,588
70,703
45,857
94,230
13,070
38,374
262,234
71,212
45,841
101,258
13,471
32,387
264,169
(224)
(6)
(3,718)
(509)
16
(7,028)
(401)
5,987
(1,935)
—
—
(18,481)
(1,878)
18,481
1,878
6,636
360
6,793
(11,940)
400
(3,604)
18,576
(40)
10,397
Net income (loss)
$ 13,069 $ (15,944) $ 29,013
Comparison of the year ended December 31, 2018 to the year ended December 31, 2017
Revenues
Total revenues decreased by approximately $3.7 million to $268.9 million for the year ended December 31,
2018, as compared to the year ended December 31, 2017. The decrease was primarily a result of:
A decrease in rental revenue of approximately $3.5 million arising primarily from the loss of rental income
from leases that expired in 2018 and 2017 and from the loss of revenue from properties that we sold on January
6, 2017 and October 20, 2017. The decrease was partially offset by rental income earned from leases
commencing in 2018 and 2017. Our leased space in our operating properties decreased 0.7% to 89.0% at
December 31, 2018 compared to 89.7% at December 31, 2017, lease expirations exceeding new leases signed
and partially as a result of classification of two properties as redevelopment properties.
A decrease in management fee income of approximately $0.1 million primarily as a result of the liquidation of
three Sponsored REITs during 2018 and one Sponsored REIT during 2017.
A decrease in interest income from loans to Sponsored REITs of approximately $0.1 million as a result of
repayments of Sponsored REIT Loans, which was partially offset by higher interest rates in 2018 compared to
2017.
Expenses
Total expenses decreased by $1.9 million to $262.2 million for the year ended December 31, 2018, as compared
to the year ended December 31, 2017. The decrease was primarily a result of:
A decrease in depreciation and amortization of approximately $7.0 million, which were primarily attributable to
the disposition of two properties during 2017.
A decrease in real estate operating expenses of $0.5 million.
33
A decrease in general and administrative expenses of $0.4 million as a result of decreases in personnel
expenses. We had 38 employees as of February 7, 2019 and December 31, 2018, and 39 employees as of
December 31, 2017.
These decreases were partially offset by:
An increase in interest expense of approximately $6.0 million to $38.4 million for the year ended December 31,
2018 compared to the same period in 2017. The increase was primarily attributable to interest accruing on the
Senior Notes (as defined below), which were issued on December 20, 2017 at a weighted average rate of
approximately 4.10%, and used to reduce the outstanding balance on the BAML Revolver, a 0.19% increase in
the average interest rate on the BAML Term Loan, higher short-term interest rates on the BAML Revolver and
JPM Term Loan, and an increase in amortization of deferred financing costs during the year ended December
31, 2018, as compared to the same period in 2017.
Equity in income (loss) of non-consolidated REITs
Equity in income from non-consolidated REITs is $6.8 million for the year ended December 31, 2018 compared
to equity in loss of $3.6 million during the year ended December 31, 2017. The equity in income (loss) during the year
ended December 31, 2018 consisted of equity in income from our preferred stock investment in East Wacker of $7.2
million, which sold its property on September 24, 2018, and was partially offset by equity in loss from our preferred
stock investment in Grand Boulevard of $0.1 million, which sold its property on July 19, 2018. In addition, during the
three months ended June 30, 2018 and December 31, 2017, respectively, we recognized an impairment charge of $0.3
million and $2.5 million, respectively, which represented the other-than-temporary decline in the fair value below the
carrying value of the Company’s investments in non-consolidated REITs.
Gains (loss) on sale of properties
During the three months ended December 31, 2016, we reached an agreement to sell an office property located
in Milpitas, California. The property was classified as an asset held for sale at December 31, 2016 and was sold on
January 6, 2017 at a $2.3 million gain. During the three months ended June 30, 2017, we reached a decision to classify
our office property located in Baltimore, Maryland as an asset held for sale. The property was expected to sell within
one year at a loss, which was recorded as a provision for loss on a property held for sale of $20.5 million and the
property was classified as an asset held for sale of $31.9 million at June 30, 2017. During the three months ended
September 30, 2017, we increased the provision for loss by $0.3 million to $20.7 million and the property was classified
as an asset held for sale in the amount of $31.6 million at September 30, 2017. We sold the property on October 20,
2017 for net proceeds of $31.6 million resulting in a total loss of $20.8 million.
Other
Other expense of $1.9 million during the year ended December 31, 2017 was attributable to hedge
ineffectiveness from our derivatives’ fair value prior to October 18, 2017. The ineffective portion of the derivatives’ fair
value was recognized directly into earnings each quarter as hedge ineffectiveness.
Taxes on income
Included in income taxes is the Revised Texas Franchise Tax, a tax on revenues from Texas properties, which
decreased $36,000 and federal and other income taxes decreased $4,000 for year ended December 31, 2018 compared to
the same period in 2017.
Net income (loss)
Net income for the year ended December 31, 2018 was $13.1 million compared to a net loss of $15.9 million
for the year ended December 31, 2017, for the reasons described above.
34
Non-GAAP Financial Measures
Funds From Operations
The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as
management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to
equity holders. The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains
(or losses) from sales of property, hedge ineffectiveness, acquisition costs of newly acquired properties that are not
capitalized and lease acquisition costs that are not capitalized plus depreciation and amortization, including amortization
of acquired above and below market lease intangibles and impairment charges on properties or investments in non-
consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate
share of FFO from, non-consolidated REITs.
FFO should not be considered as an alternative to net income (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 and cash flows from operating, investing and financing activities in the
consolidated financial statements.
The calculations of FFO are shown in the following table:
(in thousands):
Net income
(Gain) loss on sale of properties and properties held for sale
Equity in income of non-consolidated REITs
FFO from non-consolidated REITs
Depreciation and amortization
NAREIT FFO
Lease Acquisition costs
Funds From Operations
Net Operating Income (NOI)
For the Year Ended December 31,
2017
2018
2019
$ 6,475
—
—
—
90,507
96,982
560
$ 13,069 $ (15,944)
18,481
3,604
3,173
100,227
109,541
18
—
(6,793)
2,511
93,674
102,461
—
$ 97,542 $ 102,461 $ 111,437
The Company provides property performance based on NOI. Management believes that investors are interested
in this information. NOI is a non-GAAP financial measure that the Company defines as net income (the most directly
comparable GAAP financial measure) plus general and administrative expenses, depreciation and amortization,
including amortization of acquired above and below market lease intangibles and impairment charges, interest expense,
less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains
or losses on the sale of assets and excludes non-property specific income and expenses. The information presented
includes footnotes and the data is shown by region with properties owned in both periods, which we call Same Store.
The Comparative Same Store results include properties held for the periods presented and exclude properties that are
non-operating, being developed or redeveloped, dispositions and significant nonrecurring income such as bankruptcy
settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI reported by
35
other REITs that define NOI differently. NOI should not be considered an alternative to net income 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:
(in thousands)
Region
East
MidWest
South
West
Property NOI from the continuing
portfolio
Dispositions, Non-Operating,
Development or Redevelopment
Property NOI
Same Store
Less Nonrecurring
Items in NOI (a)
Comparative
Same Store
Reconciliation to Net income
Net Income
Add (deduct):
Management fee income
Depreciation and amortization
Amortization of above/below market leases
General and administrative
Interest expense
Interest income
Equity in losses of non-consolidated REITs
Non-property specific items, net
Property NOI
Net Operating Income (NOI)*
Year
Ended
Year
Ended
Rentable
Square Feet 31-Dec-19
31-Dec-18
Inc
(Dec)
%
Change
944 $ 12,661 $ 14,704 $ (2,043) (13.9)%
(2.2)%
21,344
12.2 %
57,514
1.6 %
44,192
(467)
6,999
715
20,877
64,513
44,907
1,554
4,387
2,620
9,505
142,958
137,754
5,204
3.8 %
(488)
(7,022)
$ 142,470 $ 144,288 $ (1,818)
6,534
(5.1)%
(1.3)%
$ 142,958 $ 137,754 $ 5,204
3.8 %
8,577
6,101
2,476
(1.7)%
$ 134,381 $ 131,653 $ 2,728
2.1 %
Year
Ended
31-Dec-19
Year
Ended
31-Dec-18
$
6,475 $
13,069
(2,526)
90,909
(402)
14,473
36,757
(3,338)
—
122
142,470 $
(2,844)
94,230
(556)
13,070
38,374
(4,610)
(6,793)
348
144,288
$
(a) Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant
nonrecurring income or expenses, which may affect comparability.
*
Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.
36
Liquidity and Capital Resources
Cash and cash equivalents were $9.8 million and $11.2 million at December 31, 2019 and December 31, 2018,
respectively. The decrease of $1.4 million is attributable to $81.9 million provided by operating activities, less $19.6
million used by investing activities and $63.7 million used in financing activities. Management believes that existing
cash, cash anticipated to be generated internally by operations and our existing debt financing will be sufficient to meet
working capital requirements and anticipated capital expenditures for at least the next 12 months. Although there is no
guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from
continuing real estate operations. We believe that we have adequate funds to cover unusual expenses and capital
improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to
stockholders, however, depends in significant part upon the level of rental income from our real properties and our
interest costs.
Operating Activities
Cash provided by our operating activities of $81.9 million is primarily attributable to net income of $6.5 million
plus the add-back of $84.8 million of non-cash expenses, an increase in accounts payable and accrued expenses of $4.3
million, an increase in tenant security deposits of $3.0 million, a decrease in prepaid expenses and other assets of $2.3
million and a decrease in tenant rent receivables of $0.1 million. These increases were partially offset by a $15.1 million
increase in payments of deferred leasing commissions and a $4.0 million increase in lease acquisition costs.
Investing Activities
Cash used by investing activities for the year ended December 31, 2019 of $19.6 million is primarily
attributable to purchases of other real estate assets and office equipment investments of approximately $70.7 million and
an investment in a related party mortgage receivable of $2.4 million. These uses were partially offset by repayments
received from two related party mortgage receivables of $52.0 million and proceeds received from a liquidating trust of
$1.5 million.
Financing Activities
Cash used in financing activities for the year ended December 31, 2019 of $63.7 million is primarily
attributable to distributions paid to stockholders of $38.6 million, net repayments on the BAML Revolver (as defined
below) of $25.0 million and an increase to deferred financing costs of $0.1 million.
JPM Term Loan
On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank,
N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit
Agreement”), which provides a single unsecured bridge loan in the aggregate principal amount of $150 million (the
“JPM Term Loan”) that remains fully advanced and outstanding. The JPM Term Loan matures on November 30, 2021.
The JPM Term Loan was previously evidenced by a Credit Agreement, dated November 30, 2016, among the Company,
JPMorgan, as administrative agent and lender, and the other lending institutions party thereto, as amended by a First
Amendment, dated October 18, 2017.
The JPM Term Loan bears interest at either (i) a number of basis points over a LIBOR-based rate depending on the
Company’s credit rating (125.0 basis points over a LIBOR-based rate at December 31, 2019) or (ii) a number of basis
points over the base rate depending on the Company’s credit rating (25.0 basis points over the base rate at December 31,
2019).
37
The margin over the LIBOR-based rate or base rate is determined based on the Company’s credit rating pursuant to the
following grid:
LEVEL
I
II
III
IV
V
CREDIT
RATING
LIBOR-BASED
RATE
MARGIN
BASE RATE
MARGIN
/A3 (or higher)
A-
BBB+ /Baa1
BBB
/Baa2
BBB- /Baa3
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