Franklin Street Properties Corp 10-Q for FY2021 Q3
Franklin Street Properties Corp (FSP)
About this 10-Q
Franklin Street Properties Corp filed this 10-Q on November 8, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $50.8M
- down 18.4% from $62.25M a year earlier
- Diluted EPS
- $0.04
- compared with -$0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation | | (I.R.S. Employer Identification No.) |
or organization) | | |
(Address of principal executive offices)(Zip Code)
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
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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.
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).
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 ☐ | | |
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Non-accelerated Filer ☐ | | Smaller Reporting Company |
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| | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock outstanding as of October 29, 2021 was
Franklin Street Properties Corp.
Form 10-Q
Quarterly Report
September 30, 2021
Table of Contents
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| | | Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | | 3 |
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| | | Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 | | 7 |
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| | | | 8-19 | |
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| | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 20 | |
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PART I — FINANCIAL INFORMATION
Item 1.Financial Statements
Franklin Street Properties Corp.
Consolidated Balance Sheets
(Unaudited)
| | September 30, | | December 31, |
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(in thousands, except share and par value amounts) |
| 2021 |
| 2020 |
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Assets: | | | | | | | |
Real estate assets: | | | | | | | |
Land |
| $ | |
| $ | | |
Buildings and improvements | |
| | |
| | |
Fixtures and equipment | |
| | |
| | |
| |
| | |
| | |
Less accumulated depreciation | |
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Real estate assets, net | |
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Acquired real estate leases, less accumulated amortization of $ | |
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Cash, cash equivalents and restricted cash | |
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Tenant rent receivables | |
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Straight-line rent receivable | |
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Prepaid expenses and other assets | |
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Related party mortgage loan receivables | |
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Office computers and furniture, net of accumulated depreciation of $ | |
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Deferred leasing commissions, net of accumulated amortization of $ | |
| | |
| | |
Total assets |
| $ | |
| $ | | |
| | | | | | | |
Liabilities and Stockholders’ Equity: | | | | | | | |
Liabilities: | | | | | | | |
Bank note payable |
| $ | — |
| $ | | |
Term loans payable, less unamortized financing costs of $ | |
| | |
| | |
Series A & Series B Senior Notes, less unamortized financing costs of $ | | | | | | | |
Accounts payable and accrued expenses | |
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Accrued compensation | |
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Tenant security deposits | |
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Lease liability | | | | | | | |
Other liabilities: derivative liabilities | |
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Acquired unfavorable real estate leases, less accumulated amortization of $ | |
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Total liabilities | |
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Commitments and contingencies | | | | | | | |
| | | | | | | |
Stockholders’ Equity: | | | | | | | |
Preferred stock, $ | |
| |
| | ||
Common stock, $ | |
| | |
| | |
Additional paid-in capital | |
| | |
| | |
Accumulated other comprehensive loss | |
| ( | |
| ( | |
Accumulated distributions in excess of accumulated earnings | |
| ( | |
| ( | |
Total stockholders’ equity | |
| | |
| | |
Total liabilities and stockholders’ equity |
| $ | |
| $ | | |
The accompanying notes are an integral part of these consolidated financial statements.
3
Franklin Street Properties Corp.
Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
(in thousands, except per share amounts) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
| | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | |
Rental | | $ | | | $ | | | $ | | | $ | | |
Related party revenue: | | | | | | | | | | | | | |
Management fees and interest income from loans | |
| | |
| | |
| | |
| | |
Other | |
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Total revenues | |
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| | |
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Expenses: | | | | | | | | | | | | | |
Real estate operating expenses | |
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| | |
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Real estate taxes and insurance | |
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Depreciation and amortization | |
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General and administrative | |
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Interest | |
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Total expenses | |
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| | |
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| | | | | | | | | | | | | |
Loss on extinguishment of debt | | | ( | | | — | | | ( | | | — | |
Gain on sale of properties, net | | | | | | — | | | | |
| — | |
Income (loss) before taxes and equity in income of non-consolidated REITs | |
| | |
| ( | |
| | |
| ( | |
Tax expense | |
| | |
| | |
| | |
| | |
Equity in income of non-consolidated REITs | |
| | |
| — | |
| | |
| — | |
| | | | | | | | | | | | | |
Net Income (loss) | | $ | | | $ | ( | | $ | | | $ | ( | |
| | | | | | | | | | | | | |
Weighted average number of , and | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | |
Net income (loss) , and | | $ | | | $ | ( | | $ | | | $ | ( | |
The accompanying notes are an integral part of these consolidated financial statements.
4
Franklin Street Properties Corp.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| | For the | | For the | | ||||||||
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
| | | | | | | | | | | | | |
Net income (loss) | | $ | | | $ | ( | | $ | | | $ | ( | |
| | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | |
Unrealized gain (loss) on derivative financial instruments | |
| | |
| | |
| | |
| ( | |
| |
| | | | | | | | | | | |
Total other comprehensive income (loss) | |
| | |
| | |
| | |
| ( | |
| | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | | | $ | | | $ | | | $ | ( | |
The accompanying notes are an integral part of these consolidated financial statements.
5
Franklin Street Properties Corp.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
| | | | | | | | | | Accumulated | | Distributions | | | |
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| | | | | | | Additional | | other | | in excess of | | Total |
| ||||
| | Common Stock | | Paid-In | | comprehensive | | accumulated | | Stockholders’ |
| |||||||
(in thousands, except per share amounts) |
| Shares |
| Amount |
| Capital |
| income (loss) |
| earnings |
| Equity |
| |||||
| | | | | | | | | | | | | | | | | |
|
Balance, December 31, 2019 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
Comprehensive loss |
| — |
| | — |
| | — |
| | ( |
| | ( |
| | ( | |
Distributions $ |
| — |
| | — |
| | — |
| | — |
| | ( |
| | ( | |
Balance, March 31, 2020 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
Comprehensive income (loss) |
| — |
| | — |
| | — |
| | |
| | ( |
| | ( | |
Equity-based compensation | | | | | — | | | | | | | | | | | | | |
Distributions $ |
| — |
| | — |
| | — |
| | — |
| | ( |
| | ( | |
Balance, June 30, 2020 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
Comprehensive income (loss) |
| — |
| | — |
| | — |
| | |
| | ( |
| | | |
Distributions $ |
| — |
| | — |
| | — |
| | — |
| | ( |
| | ( | |
Balance, September 30, 2020 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
| | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
Comprehensive income (loss) |
| — |
| | — |
| | — |
| | |
| | ( |
| | ( | |
Distributions $ |
| — |
| | — |
| | — |
| | — |
| | ( |
| | ( | |
Balance, March 31, 2021 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
Comprehensive income |
| — |
| | — |
| | — |
| | |
| | |
| | | |
Equity-based compensation | | | | | — | | | | | | | | | | | | | |
Distributions $ |
| — |
| | — |
| | — |
| | — |
| | ( |
| | ( | |
Balance, June 30, 2021 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
Comprehensive income (loss) |
| — |
| | — |
| | — |
| | |
| | |
| | | |
Repurchased shares | | ( |
| | — |
| | ( |
| | — |
| | — |
| | ( | |
Distributions $ |
| — |
| | — |
| | — |
| | — |
| | ( |
| | ( | |
Balance, September 30, 2021 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | | |
The accompanying notes are an integral part of these consolidated financial statements.
6
Franklin Street Properties Corp.
Consolidated Statements of Cash Flows
(Unaudited)
| | For the Nine Months Ended September 30, | ||||
(in thousands) |
| 2021 |
| 2020 | ||
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | | | $ | ( |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
Depreciation and amortization expense | |
| | |
| |
Amortization of above and below market leases | |
| ( | |
| ( |
Shares issued as compensation | | | | |
| |
Loss on extinguishment of debt | | | | | | — |
Gain on sale of properties, net | |
| ( | |
| — |
Equity in income of non-consolidated REITs | |
| ( | |
| — |
Distributions from non-consolidated REITs | |
| | |
| — |
Decrease in allowance for doubtful accounts | |
| — | |
| ( |
Changes in operating assets and liabilities: | | | | | | |
Tenant rent receivables | |
| | |
| ( |
Straight-line rents | |
| ( | |
| ( |
Lease acquisition costs | |
| ( | |
| ( |
Prepaid expenses and other assets | |
| ( | |
| ( |
Accounts payable and accrued expenses | |
| ( | |
| |
Accrued compensation | |
| ( | |
| |
Tenant security deposits | |
| ( | |
| |
Payment of deferred leasing commissions | |
| ( | |
| ( |
Net cash provided by operating activities | |
| | |
| |
Cash flows from investing activities: | | | | | | |
Property improvements, fixtures and equipment | | | ( | | | ( |
Proceeds received on sales of real estate assets | | | | | | — |
Net cash provided by (used in) investing activities | |
| | |
| ( |
Cash flows from financing activities: | | | | | | |
Distributions to stockholders | |
| ( | |
| ( |
Stock repurchases | |
| ( | |
| — |
Borrowings under bank note payable | |
| | |
| |
Repayments of bank note payable | |
| ( | |
| ( |
Repayment of term loan payable | |
| ( | |
| — |
Net cash provided by (used in) financing activities | |
| ( | |
| |
Net increase (decrease) in cash, cash equivalents and restricted cash | |
| | |
| ( |
Cash, cash equivalents and restricted cash, beginning of year | |
| | |
| |
Cash, cash equivalents and restricted cash, end of period | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for: | | | | | | |
Interest | | $ | | | $ | |
Taxes | | $ | | | $ | |
Non-cash investing activities: | | | | | | |
Accrued costs for purchases of real estate assets | | $ | | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards
Organization
Franklin Street Properties Corp. (“FSP Corp.” or the “Company”) holds, directly and indirectly,
As of September 30, 2021, the Company owned and operated a portfolio of real estate consisting of
Properties
The following table summarizes the Company’s number of operating properties and rentable square feet of real estate. As of September 30, 2021 and September 30, 2020, the Company had
| | | | | |
| | As of September 30, |
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|
| 2021 |
| 2020 |
|
Operating Properties: | | | | | |
Number of properties |
| |
| | |
Rentable square feet |
| |
| | |
Basis of Presentation
The unaudited consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission.
The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other period.
Financial Instruments
As disclosed in Note 4, the Company’s derivatives are recorded at fair value using Level 2 inputs. The Company estimates that the carrying values of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued expenses, accrued compensation, and tenant security deposits approximate their fair values based on their short-term
8
maturity and the bank note and term loans payable approximate their fair values as they bear interest at variable interest rates or at rates that are at market for similar investments.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows.
| | | | | | |
|
| September 30, |
| September 30, | ||
(in thousands) | | 2021 | | 2020 | ||
Cash and cash equivalents | | $ | | | $ | |
Restricted cash | |
| | |
| — |
Total cash, cash equivalents and restricted cash | | $ | | | $ | |
Restricted cash consists of escrows arising from property sales. Cash held in escrow is paid when the related issue is resolved.
Recent Accounting Standards
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently assessing the potential impact that the adoption of ASU 2020-04 may have on its consolidated financial statements.
2. Related Party Transactions and Investments in Non-Consolidated Entities
Investment in Sponsored REITs:
At each of September 30, 2021 and December 31, 2020, the Company held a non-controlling common stock interest in
Management fees and interest income from loans:
Asset management fees range from
From time to time the Company may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. The Company reviews the need for an allowance under CECL for Sponsored REIT Loans each reporting period. The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s fair value, operating results and existing cash balances are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid at maturity or earlier from refinancing, long term financings of the underlying property, cash flows from the underlying property or some other capital event. The
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outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately
The following is a summary of the sole Sponsored REIT Loan outstanding as of September 30, 2021:
| | | | | | | | | | | | |
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|
| Maximum |
| Amount | Interest |
| ||
(dollars in thousands, except footnotes) |
| | | Maturity | | Amount | | Outstanding | Rate at |
| ||
Sponsored REIT |
| Location | | Date | | of Loan | | 30-Sep-21 | 30-Sep-21 |
| ||
| | | | | | | | | | | |
|
Mortgage loan secured by property | | | | | | | | | | | | |
FSP Monument Circle LLC (1) | | Indianapolis, IN | | 6-Dec-22 | | $ | | | $ | | | % |
| | | | | | | | | | | | |
| | | | | | $ | | | $ | | | |
| (1) | The interest rate is a fixed rate and this mortgage loan includes an origination fee of $ |
The Company recognized interest income and fees from the Sponsored REIT Loan of approximately $
On December 6, 2020, the Company entered into a second amendment to the Sponsored REIT Loan with FSP Monument Circle LLC which qualified as a troubled debt restructuring. The amendment extended the maturity date of the loan for
3. Bank Note Payable, Term Loans Payable and Senior Notes
JPM Term Loan
On August 2, 2018, the Company entered into an Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender (“JPMorgan”), and the other lending institutions party thereto (the “JPM Credit Agreement”), which provided a single unsecured bridge loan in the aggregate principal amount of $
Although the interest rate on the JPM Term Loan was variable under the JPM Credit Agreement, the Company fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions. On March 7, 2019, the Company entered into ISDA Master Agreements with various financial institutions to hedge a $
BMO Term Loan
On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal (“BMO”), as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $
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Term Loan”), of which $
The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (
Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate by entering into interest rate swap transactions. On August 26, 2013, the Company entered into an ISDA Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at
The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or the administrative agent under the BMO Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BMO Term Loan financial covenants as of September 30, 2021.
BAML Credit Facility
On July 21, 2016, the Company entered into a First Amendment (the “BAML First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BAML Second Amendment”), to the Second Amended and Restated Credit Agreement dated October 29, 2014 among the Company, the lending institutions party thereto and Bank of America, N.A., as administrative agent, L/C Issuer and Swing Line Lender (as amended by the BAML First Amendment and the BAML Second Amendment, the “BAML Credit Facility”) that continued an existing unsecured revolving line of credit (the “BAML Revolver”) and extended the maturity of an existing term loan (the “BAML Term Loan”).
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BAML Revolver Highlights
| ● | The BAML Revolver is for borrowings, at the Company's election, of up to $ |
| ● | Borrowings made pursuant to the BAML Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date of January 12, 2022. The Company has the right to extend the maturity date of the BAML Revolver by |
| ● | The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $ |
As of September 30, 2021, there were
Based upon the Company’s credit rating, as of September 30, 2021, the interest rate on the BAML Revolver was
BAML Term Loan Highlights
| ● | The original principal amount of the BAML Term Loan was $ |
| ● | The BAML Term Loan matures on January 12, 2023. |
| ● | The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $ |
The BAML Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (
The interest rate on the BAML Credit Facility was variable at September 30, 2021. Previously the Company had fixed the base LIBOR interest rate on the BAML Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BAML Term Loan at
BAML Credit Facility General Information
The BAML Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in
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business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BAML Credit Facility also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BAML Credit Facility provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BAML Credit Facility). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BAML Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BAML Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BAML Credit Facility and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BAML Credit Facility financial covenants as of September 30, 2021.
The Company may use the proceeds of the loans under the BAML Credit Facility to finance the acquisition of real properties and for other permitted investments; to finance investments associated with Sponsored REITs to refinance or retire indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the BAML Credit Facility.
Senior Notes
On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes. Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $
The Senior Notes bear interest depending on the Company’s credit rating. As of September 30, 2021, the Series A Notes bear interest at
The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BAML Credit Facility, the BMO Credit Agreement and the JPM Credit Agreement. The Senior Notes financial covenants require, among other things, the maintenance of a fixed charge coverage ratio of at least
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4. Financial Instruments: Derivatives and Hedging
On July 22, 2016, the Company entered into interest rate swap tranactions that fixed the interest rate for the period beginning on September 27, 2017 and ended on September 27, 2021 on the BAML Term Loan (the “2017 Interest Rate Swap”). On March 7, 2019, the Company entered into interest rate swap tranactions that fixed the interest rate for the period beginning on March 29, 2019 and ending on November 30, 2021 on a $
On June 4, 2021, the Company paid approximately $
The Interest Rate Swaps qualify as cash flow hedges and have been recognized on the consolidated balance sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.
The following table summarizes the notional and fair value of the Company’s derivative financial instruments at September 30, 2021 and December 31, 2020. The notional value is an indication of the extent of the Company’s involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.
|
| Notional |
| Strike |
| Effective |
| Expiration |
| Fair Value (2) at |
| |||||
(in thousands) | | Value | | Rate | | Date | | Date | | September 30, 2021 |
| December 31, 2020 |
| |||
| | | | | | | | | | | | |
| | |
|
2017 Interest Rate Swap | | $ | |
| | % | Sep-17 |
| Sep-21 | | $ | — | | $ | ( | |
2019 JPM Interest Rate Swap | | $ | |
| | % | Mar-19 |
| Nov-21 | | $ | — | | $ | ( | |
2019 BMO Interest Rate Swap (1) | | $ | |
| | % | Aug-20 |
| Jan-24 | | $ | ( | | $ | ( | |
| | | | | | | | | | | | | | | | |
(1) The Notional Value decreased to $ | | |||||||||||||||
(2) Classified within Level 2 of the fair value hierarchy. | | |||||||||||||||
On September 30, 2021, the 2019 BMO Interest Rate Swap was reported as a liability with a fair value of approximately $
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The gain/(loss) on the Company’s Interest Rate Swaps that was recorded in other comprehensive income (loss) (OCI) and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2021 and 2020, respectively, was as follows:
(in thousands) | | Nine Months Ended September 30, | ||||
Interest Rate Swaps in Cash Flow Hedging Relationships: |
| 2021 |
| 2020 | ||
| | | | | | |
Amounts of gain (loss) recognized in OCI | | $ | | | $ | ( |
Amounts of previously recorded gain/(loss) reclassified from OCI into Interest Expense | | $ | ( | | $ | ( |
| | | | | | |
Total amount of Interest Expense presented in the consolidated statements of operations | | $ | | | $ | |
Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified into earnings as an increase or reduction to interest expense in the same periods in which the hedged interest payments affect earnings. The Company estimates that approximately $
The Company is hedging the exposure to variability in anticipated future interest payments on existing debt.
The BMO Term Loan, BAML Term Loan and JPM Term Loan hedging transactions used derivative instruments that involve certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in either or both of the contracts. The Company requires its derivatives contracts to be with counterparties that have investment grade ratings. As a result, the Company does not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that the Company will be able to adequately protect against the foregoing risks or that it will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.
The fair value of the Company’s derivative instruments are determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve and are adjusted to reflect credit or nonperformance risk. The risk is estimated by the Company using credit spreads and risk premiums that are observable in the market. These financial instruments were classified within Level 2 of the fair value hierarchy and were classified as an asset or liability on the consolidated balance sheets.
The Company’s derivatives are recorded at fair value in other assets: derivative asset and other liabilities: derivative liability in the consolidated balance sheets and the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the consolidated statements of comprehensive income (loss).
5. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted average number of Company shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were
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6. Stockholders’ Equity
As of September 30, 2021, the Company had
| | Dividends Per | | Total |
| ||
Quarter Paid |
| Share |
| Dividends |
| ||
| | | | | | | |
First quarter of 2021 |
| $ | |
| $ | | |
Second quarter of 2021 |
| $ | |
| $ | | |
Third quarter of 2021 |
| $ | |
| $ | | |
| | | | | | | |
First quarter of 2020 |
| $ | |
| $ | | |
Second quarter of 2020 |
| $ | |
| $ | | |
Third quarter of 2020 |
| $ | |
| $ | | |
Equity-Based Compensation
On May 20, 2002, the stockholders of the Company approved the 2002 Stock Incentive Plan (the “Plan”). The Plan is an equity-based incentive compensation plan, and provides for the grants of up to a maximum of
On June 4, 2020, the Company granted
|
| Shares Available | | Compensation | ||
| | for Grant | | Cost | ||
| | | | | | |
Balance December 31, 2019 | | | | | $ | |
Shares granted 2020 | | | ( | | | |
Balance December 31, 2020 | | | | | $ | |
Shares granted 2021 | | | ( | | | |
Balance September 30, 2021 | | | | | $ | |
| | | | | | |
Repurchase of Common Stock
On June 23, 2021, the Board of Directors of the Company authorized the repurchase of up to $
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A summary of the repurchase of common stock by the Company is shown in the following table:
(Cost in thousands) | | | Shares Repurchased | | Cost | |
Balance December 31, 2020 |
| | |
| $ | |
Repurchase of shares | | | | | | |
Balance, September 30, 2021 | | | | | $ | |
7. Income Taxes
General
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, the Company generally is entitled to a tax deduction for distributions paid to its shareholders, thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level only. The Company must comply with a variety of restrictions to maintain its status as a REIT. These restrictions include the type of income it can earn, the type of assets it can hold, the number of shareholders it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed annually.
One such restriction is that the Company generally cannot own more than
Income taxes are recorded based on the future tax effects of the difference between the tax and financial reporting bases of the Company’s assets and liabilities. In estimating future tax consequences, potential future events are considered except for potential changes in income tax law or in rates.
The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2017 and thereafter.
Net operating losses
Section 382 of the Code restricts a corporation’s ability to use NOLs to offset future taxable income following certain “ownership changes.” Such ownership changes occurred with past mergers and accordingly a portion of the NOLs incurred by the Sponsored REITs available for use by the Company in any particular future taxable year will be limited. To the extent that the Company does not utilize the full amount of the annual NOLs limit, the unused amount may be carried forward to offset taxable income in future years. NOLs generated prior to December 31, 2018 will expire 20 years after the year in which they arise, and the last of the Company’s NOLs will expire in 2027. A valuation allowance is provided for the full amount of the NOLs as the realization of any tax benefits from such NOLs is not assured. The gross amount of NOLs available to the Company was $
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Income Tax Expense
The Company is subject to a business tax known as the Revised Texas Franchise Tax. Some of the Company’s leases allow reimbursement by tenants for these amounts because the Revised Texas Franchise Tax replaces a portion of the property tax for school districts. Because the tax base on the Revised Texas Franchise Tax is derived from an income based measure, it is considered an income tax. The Company recorded a provision for the Revised Texas Franchise Tax of $
The income tax expense reflected in the consolidated statements of operations relates primarily to a franchise tax on the Company’s Texas properties.
| | | | | | | |
| | For the Nine Months Ended September 30, |
| ||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| ||
| | | | | | |
|
Revised Texas Franchise Tax | | $ | | | $ | | |
Other Taxes | |
| — | |
| — | |
Tax expense | | $ | | | $ | | |
Taxes on income are a current tax expense.
8. Leases
Leases as a Lessor:
The Company is a lessor of commercial real estate with operations that include the leasing of office and industrial properties. Many of the leases with customers contain options to extend leases at a fair market rate and may also include options to terminate leases. The Company considers several inputs when evaluating the amount it expects to derive from its leased assets at the end of the lease terms, such as the remaining useful life, expected market conditions, fair value of lease payments, expected fair values of underlying assets, and expected deployment of the underlying assets. The Company’s strategy to address its risk for the residual value in its commercial real estate is to re-lease the commercial space.
The Company has elected to apply the practical expedient to not separate non-lease components from the related lease component of real estate leases. This combined component is primarily comprised of fixed lease payments, early termination fees, common area maintenance cost reimbursements, and parking lease payments. The Company applies ASC 842-Leases to the combined lease and non-lease components.
A minority of the Company’s leases are subject to annual changes in the Consumer Price Index (“CPI”). Although increases in the CPI are not estimated as part of the Company’s measurement of straight-line rent revenue, to the extent that the actual CPI is greater or less than the CPI at lease commencement, there could be changes to realized income or loss.
For the nine months ended September 30, 2021 and 2020, the Company recognized the following amounts of income relating to lease payments:
Income relating to lease payments: | | | ||||
| | Nine Months Ended | ||||
(in thousands) |
| September 30, 2021 |
| September 30, 2020 | ||
Income from leases (1) | | $ | | | $ | |
| | $ | | | $ | |
| | | | | | |
(1) Amounts recognized from variable lease payments were $ | | | | | | |
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9. Dispositions of properties
In 2021, the Company determined that further debt reduction would provide greater financial flexibility and potentially increase shareholder value. Accordingly, the Company adopted a strategy to dispose of certain properties in 2021 where it believes its valuation objective has been met. The Company sold
The Company reports the results of operations of its properties in its consolidated statements of operations, which includes rental income, rental operating expenses, real estate taxes and insurance and depreciation and amortization.
The operating results for the properties that the Company disposed of are summarized below:
|
| For the Three Months Ended | | For the Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Rental revenue | | $ | | | $ | | | $ | | | $ | |
Rental operating expenses | |
| ( | |
| ( | |
| ( | |
| ( |
Real estate taxes and insurance | |
| | |
| ( | |
| ( | |
| ( |
Depreciation and amortization | |
| ( | |
| ( | |
| ( | |
| ( |
Income from dispositions | | $ | | | $ | | | $ | | | $ | |
10. Subsequent Events
On October 5, 2021, the Company entered into a Purchase and Sale Agreement with a third-party buyer for the disposition of
On October 8, 2021, the Board of Directors of the Company declared a cash distribution of $
On October 22, 2021, the Company sold the 999 Peachtreee property located in Atlanta Georgia for a sales price of approximately $
On October 29, 2021, the Company agreed to amend and restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2020. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Quarterly Report on Form 10-Q may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, adverse changes in general economic or local market conditions, including as a result of the COVID-19 pandemic and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future property dispositions, uncertainty relating to the completion and timing of the disposition of the properties under agreement, expectations for potential repurchases of our common stock and the potential payment of special dividends, changes in interest rates as a result of economic market conditions 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, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenus as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A. “Risk Factors” below. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We may not update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.
Overview
FSP Corp., or we or the Company, operates in a single reportable segment: real estate operations. The real estate operations market involves real estate rental operations, leasing, secured financing of real estate and services provided for asset management, property management, property acquisitions, dispositions and development. Our current strategy is to invest in infill and central business district office properties in the United States sunbelt and mountain west regions as well as select opportunistic markets. We believe that the United States sunbelt and mountain west regions have macro-economic drivers that have the potential to increase occupancies and rents. We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income.
As of September 30, 2021, approximately 6.6 million square feet, or approximately 84.6% of our total owned portfolio, was located in Atlanta, Dallas, Denver, Houston and Minneapolis.
The main factor that affects our real estate operations is the broad economic market conditions in the United States. These market conditions affect the occupancy levels and the rent levels on both a national and local level. We have no influence on broader economic/market conditions. We look to acquire and/or develop quality properties in good locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.
We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets and intend to continue our strategy of seeking to increase shareholder value through the sale of select properties where we believe that our short to intermediate term valuation objectives have been met. Pursuant to this strategy, we anticipate that dispositions in 2021 will result in estimated gross proceeds in the range of approximately $563 million to $600 million. As of October 25, 2021, we had disposed of real estate assets for aggregate gross proceeds of approximately $563 million and repaid approximately $508 million of debt. As we continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures are likely to decrease in the short term. Proceeds from dispositions are intended to be
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used for the repayment of debt, repurchases of our common stock, any special dividends required to meet REIT requirements, and other general corporate purposes.
Further to this strategy, on May 27, 2021, we sold One Ravinia, Two Ravinia and One Overton Park in Atlanta Georgia for aggregate gross proceeds of approximately $219.5 million. On June 29, 2021, we sold Loudoun Technology Center in Sterling, Virginia for gross proceeds of approximately $17.25 million. On August 31, 2021, we sold River Crossing in Indianapolis, Indiana for gross proceeds of $35 million. On September 23, 2021, we sold Timberlake and Timberlake East, in Chesterfield, Missouri for aggregate gross proceeds of $67 million. During the three months ended June 30, 2021, we repaid approximately $155 million of term loan indebtedness and the approximately $47.5 million that had been drawn under our revolving line of credit. During the three months ended September 30, 2021, we repaid $90 million of term loan indebtedness.
On October 5, 2021, we entered into a Purchase and Sale Agreement with a third-party buyer for the disposition of two properties located in Chantilly, Virginia for a purchase price of approximately $40 million. Assuming satisfaction of certain customary conditions to close, including successful completion by the buyer of a due diligence inspection period, the closing of the sale of the properties is expected to take place during the fourth quarter of 2021.
On October 22, 2021, we sold 999 Peachtree in Atlanta Georgia for gross proceeds of approximately $223.9 million. On October 25, 2021, the Company repaid $15.0 million of the BAML Revolver and $200.0 million of the BAML Term Loan using proceeds from the sale of the property.
On June 15, 2021, the credit rating for our senior unsecured debt was downgraded by Moody’s Investor Service to Ba1 from Baa3. The interest rate applicable to borrowings under our credit facilities is based in part on the rating of our debt. We anticipate that as a result of this downgrade we will incur an additional approximately $0.8 million in additional interest costs over the balance of 2021 and $3.2 million in additional interest costs over a full twelve month period based on our borrowings as of September 30, 2021.
Trends and Uncertainties
COVID-19 Outbreak
Beginning in January 2020, there was a global outbreak of COVID-19, which continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. It has already disrupted global travel supply chains, adversely impacted global commercial activity, and its long-term economic impact remains uncertain. Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects on the population, including the spread of more contagious variants of the virus, as well as the availability and effectiveness of vaccines, therapeutics and any responses taken on a national and local level by government authorities and businesses. The travel restrictions, limits on hours of operations and/or closures of various businesses and other efforts to curb the spread of COVID-19 significantly disrupted business activity globally, including in the markets where we own properties. Many of our tenants have been subject to various quarantine restrictions, and do not fully occupy the space that they lease. The pandemic has had an adverse impact on economic and market conditions in various sectors of the economy. However, the evolving nature of the pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our business. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the potential negative impact to leasing efforts and occupancy at our properties, the potential closure of certain of our assets for an extended period, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms, fluctuations in our level of dividends, increased costs of operations, our ability to complete required capital expenditures in a timely manner and on budget, decrease in values of our real estate assets, changes in law and/or regulation, and uncertainty regarding government and regulatory policy. We are unable to estimate the impact the COVID-19 pandemic will have on our future financial results at this time. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
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We have been following and directing our vendors to follow the guidelines from the Centers for Disease Control and other applicable authorities to minimize the spread of COVID-19 among our employees, tenants, vendors and visitors, as well as at our properties. During the nine months ended September 30, 2021, all of our properties remained open for business. Some of our tenants have requested rent concessions, and more tenants may request rent concessions or may not pay rent in the future. Future rent concession requests or nonpayment of rent could lead to increased rent delinquencies and/or defaults under leases, a lower demand for rentable space leading to increased concessions or lower occupancy, extended lease terms, increased tenant improvement capital expenditures, or reduced rental rates to maintain occupancies. We review each rent concession request on a case by case basis and may or may not provide rent concessions, depending on the specific circumstances involved. Cash, cash equivalents and restricted cash were $9.7 million as of September 30, 2021. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BAML Revolver ($600 million as of September 30, 2021) will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income from our real estate properties.
Economic Conditions
The economy in the United States has been adversely impacted as a result of the COVID-19 pandemic. Economic conditions directly affect the demand for office space, our primary income producing asset. The broad economic market conditions in the United States are typically affected by numerous factors, including but not limited to, inflation and employment levels, energy prices, the pace of economic growth and/or recessionary concerns, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, geopolitical events, the regulatory environment, the availability of credit, and interest rates. As of the date of this report, the impact of the COVID-19 pandemic and related fallout from containment and mitigation measures, such as work from home arrangements and the closing of various businesses, is adversely affecting current economic conditions in the United States.
Real Estate Operations
As of September 30, 2021, our real estate portfolio was comprised of 26 operating properties, which we refer to as our operating properties, and one redevelopment property, which we refer to as our redevelopment property, that is in the process of being redeveloped. We collectively refer to our operating and our redevelopment properties as our owned portfolio. Our 26 operating properties were approximately 80.0% leased as of September 30, 2021, a decrease from 85.0% leased as of December 31, 2020. The 5.0% decrease in leased space was a result of the impact from the disposition of four properties in the second quarter of 2021, the disposition of three properties in the third quarter of 2021 and of lease expirations and terminations, which exceeded leasing completed during the nine months ended September 30, 2021. As of September 30, 2021, we had approximately 1,536,000 square feet of vacancy in our operating properties compared to approximately 1,397,000 square feet of vacancy at December 31, 2020. During the nine months ended September 30, 2021, we leased approximately 892,000 square feet of office space, of which approximately 622,000 square feet were with existing tenants, at a weighted average term of 7.8 years. On average, tenant improvements for such leases were $25.08 per square foot, lease commissions were $11.61 per square foot and rent concessions were approximately eight months of free rent. Average GAAP base rents under such leases were $30.10 per square foot, or 2.0% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2020.
We reclassify redevelopment properties as operating properties when the property redevelopment is complete and leasing has stabilized. Given the length of the redevelopment and lease-up process, the reclassification of a property may take a significant amount of time.
As of September 30, 2021, our sole redevelopment property was an approximately 111,000 square foot property known as Stonecroft in Chantilly, Virginia. The redevelopment of Stonecroft commenced in August 2020. We expect to incur redevelopment costs (excluding lease-up costs) of $5.1 million, which includes significant interior work to make the space suitable for multiple tenants. As of September 30, 2021, we had incurred approximately $3.6 million in redevelopment costs. We anticipate completing the redevelopment during the fourth quarter of 2021. On October 5, 2021, we entered into a
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Purchase and Sale Agreement with a third-party buyer for the disposition of Stonecroft and our other office property located in Chantilly, Virginia for a purchase price of approximately $40 million. Assuming satisfaction of certain customary conditions to close, including successful completion by the buyer of a due diligence inspection period, the closing of the sale of the properties is expected to take place during the fourth quarter of 2021. We expect to incur the remaining redevelopment costs of approximately $1.6 million prior to the anticipated closing of the sale of the property in the fourth quarter of 2021. If the expected sale of Stonecroft does not occur, we expect to incur additional lease-up and stabilization costs prior to the property becoming an operating property.
Our property known as Blue Lagoon in Miami, Florida, was substantially completed during the first quarter of 2021, and had previously been classified as a redevelopment property. As of September 30, 2021, the property had leases signed and a tenant occupying approximately 73.1% of the rentable square feet of the property.
As of September 30, 2021, leases for approximately 0.9% and 7.9% of the square footage in our owned portfolio are scheduled to expire during 2021 and 2022, respectively. As the fourth quarter of 2021 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the COVID-19 pandemic and related containment and mitigation measures may limit or delay new tenant leasing during at least the fourth quarter of 2021 and potentially in future periods.
While we cannot generally predict when an existing vacancy in our owned portfolio will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates. Also, we believe the potential exists for any of our tenants to default on its lease or to seek the protection of bankruptcy. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.
Dispositions of Properties
We sold three office properties located in Atlanta, Georgia on May 27, 2021 with an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021 with a sales price of approximately $35 million, at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. On October 22, 2021, the Company sold 999 Peachtree in Atlanta Georgia for a sales price of approximately $223.9 million, at a gain of approximately $86.8 million. We used the proceeds of the dispositions principally to repay outstanding indebtedness. The dispositions of these properties did not represent a strategic shift that has a major effect on our operations and financial results. Atlanta, Georgia is in the sunbelt region of the United States, and our current strategy is to continue to invest in this region. Accordingly, the properties sold remained classified within continuing operations for all periods presented.
Critical Accounting Policies
We have certain critical accounting policies that are subject to judgments and estimates by our management and uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. The accounting policies that we believe are most critical to the understanding of our financial position and results of operations, and that require significant management estimates and judgments, are discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.
23
Critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and assessments are consistently applied and produce financial information that fairly presents our results of operations.
Recent Accounting Standards
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company is currently assessing the potential impact that the adoption of ASU 2020-04 may have on its consolidated financial statements.
Results of Operations
The following table shows financial results for the three months ended September 30, 2021 and 2020:
| | Three months ended September 30, | | |||||||
(in thousands) |
| 2021 |
| 2020 |
| Change |
| |||
Revenues: | | | | | | | | | | |
Rental | | $ | 50,326 | | $ | 61,834 | | $ | (11,508) | |
Related party revenue: | | | | | | | | | | |
Management fees and interest income from loans | |
| 419 | |
| 400 | |
| 19 | |
Other | |
| 57 | |
| 13 | |
| 44 | |
Total revenues | |
| 50,802 | |
| 62,247 | |
| (11,445) | |
Expenses: | | | | | | | | | | |
Real estate operating expenses | |
| 14,373 | |
| 16,730 | |
| (2,357) | |
Real estate taxes and insurance | |
| 10,200 | |
| 12,279 | |
| (2,079) | |
Depreciation and amortization | |
| 18,862 | |
| 22,076 | |
| (3,214) | |
General and administrative | |
| 3,749 | |
| 3,817 | |
| (68) | |
Interest | |
| 7,928 | |
| 8,953 | |
| (1,025) | |
Total expenses | |
| 55,112 | |
| 63,855 | |
| (8,743) | |
| | | | | | | | | | |
Loss on extinguishment of debt | | | (236) | | | — | | | (236) | |
Gain on sale of properties, net | |
| 8,632 | |
| — | |
| 8,632 | |
Income (loss) before taxes and equity in income of non-consolidated REITs | |
| 4,086 | |
| (1,608) | |
| 5,694 | |
Tax expense | |
| 51 | |
| 71 | |
| (20) | |
Equity in income of non-consolidated REITs | |
| 421 | |
| — | |
| 421 | |
| | | | | | | | | | |
Net income (loss) | | $ | 4,456 | | $ | (1,679) | | $ | 6,135 | |
Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020:
Revenues
Total revenues decreased by $11.5 million to $50.8 million for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The decrease was primarily a result of:
| ● | A decrease in rental revenue of approximately $11.5 million arising primarily from the sale of eight properties in the last twelve months and a tenant bankruptcy in December 2020 and other losses of rental income from leases that expired after September 30, 2020 and during the three months ended September 30, 2021, compared to the three months ended September 30, 2020. These decreases were partially offset by rental income earned from leases commencing after September 30, 2020. Our |
24
| leased space in our operating properties was 80.0% at September 30, 2021 and 85.6% at September 30, 2020. |
Expenses
Total expenses decreased by $8.7 million to $55.1 million for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The decrease was primarily a result of:
| ● | A decrease in real estate operating expenses and real estate taxes and insurance of approximately $4.4 million primarlity attributable to the property dispositions noted above. |
| ● | A decrease in depreciation and amortization of approximately $3.2 million primarlity attributable to the property dispositions noted above. |
| ● | A decrease in general and administrative expenses of $0.1 million, which was primarily from lower professional fees. |
| ● | A decrease to interest expense of approximately $1.0 million. The decrease was primarily from lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset by higher interest rates during the three months ended September 30, 2021 compared to the same period in 2020. |
Loss on extinguishment of debt
During the three months ended September 30, 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.2 million related to unamortized deferred financing costs on the date of the repayment.
Gain on sale of properties, net
During the three months ended September 30, 2021, we sold an office property located in Indianapolis, Indiana on August 31, 2021, with a sales price of approximately $35 million at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. There were no property sales during the three months ended September 30, 2020.
Tax expense on income
Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $20,000 during the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
Net income (loss)
Net income for the three months ended September 30, 2021 was $4.5 million compared to a net loss of $1.7 million for the three months ended September 30, 2020, for the reasons described above.
25
The following table shows financial results for the nine months ended September 30, 2021 and 2020:
| | Nine months ended September 30, | | |||||||
(in thousands) |
| 2021 |
| 2020 |
| Change |
| |||
Revenues: | | | | | | | | | | |
Rental | | $ | 164,671 | | $ | 184,799 | | $ | (20,128) | |
Related party revenue: | | | | | | | | | | |
Management fees and interest income from loans | |
| 1,246 | |
| 1,208 | |
| 38 | |
Other | |
| 69 | |
| 31 | |
| 38 | |
Total revenues | |
| 165,986 | |
| 186,038 | |
| (20,052) | |
Expenses: | | | | | | | | | | |
Real estate operating expenses | |
| 45,664 | |
| 49,498 | |
| (3,834) | |
Real estate taxes and insurance | |
| 34,461 | |
| 36,348 | |
| (1,887) | |
Depreciation and amortization | |
| 62,379 | |
| 66,659 | |
| (4,280) | |
General and administrative | |
| 11,857 | |
| 11,159 | |
| 698 | |
Interest | |
| 26,582 | |
| 26,996 | |
| (414) | |
Total expenses | |
| 180,943 | |
| 190,660 | |
| (9,717) | |
| | | | | | | | | | |
Loss on extinguishment of debt | | | (403) | | | — | | | (403) | |
Gain on sale of properties, net | |
| 29,258 | |
| — | |
| 29,258 | |
Income (loss) before taxes on income and equity in income of non-consolidated REITs | |
| 13,898 | |
| (4,622) | |
| 18,520 | |
Tax expense on income | |
| 174 | |
| 203 | |
| (29) | |
Equity in income of non-consolidated REITs | |
| 421 | |
| — | |
| 421 | |
| | | | | | | | | | |
Net income (loss) | | $ | 14,145 | | $ | (4,825) | | $ | 18,970 | |
| | | | | | | | | | |
Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020:
Revenues
Total revenues decreased by $20.1 million to $166.0 million for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The decrease was primarily a result of:
| ● | A decrease in rental revenue of approximately $20.1 million arising primarily from the sale of eight properties in the last twelve months and a tenant bankruptcy in December 2020 and other loss of rental income from leases that expired after September 30, 2020 during the nine months ended September 30, 2021 compared the same period in 2020. These decreases were partially offset by rental income earned from leases commencing after September 30, 2020. Our leased space in our operating properties was 80.0% at September 30, 2021 and 85.6% at September 30, 2020. |
Expenses
Total expenses decreased by $9.7 million to $180.9 million for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The decrease was primarily a result of:
| ● | A decrease in real estate operating expenses and real estate taxes and insurance of approximately $5.7 million primarlity attributable to the property dispositions noted above. |
| ● | A decrease in depreciation and amortization of approximately $4.3 million primarlity attributable to the property dispositions noted above. |
| ● | A decrease in interest expense of approximately $0.4 million. The decrease was primarily from lower interest expense as a result of a lower principal amount of debt outstanding, which was partially offset |
26
| by higher interest rates during the nine months ended September 30, 2021 compared to the same period in 2020. |
These decreases were partially offset by:
| ● | An increase general and administrative expenses of approximately $0.7 million, which was primarily from professional fees. |
Loss on extinguishment of debt
During the nine months ended September 30, 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.4 million related to unamortized deferred financing costs on the date of the repayment.
Gain on sale of properties, net
During the nine months ended September 30, 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 with an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property in Dulles, Virginia on June 29, 2021 at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021, with a sales price of approximately $35 million at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 with an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. There were no property sales during the nine months ended September 30, 2020.
Tax expense on income
Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $29,000 during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
Net income (loss)
Net income for the nine months ended September 30, 2021 was $14.1 million compared to a net loss of $4.8 million for the nine months ended September 30, 2020, for the reasons described above.
27
Non-GAAP Financial Measures
Funds From Operations
The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, hedge ineffectiveness, acquisition costs of newly acquired properties that are not capitalized and lease acquisition costs that are not capitalized plus depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges on mortgage loans, properties or investments in non-consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs.
FFO should not be considered as an alternative to net income or loss (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs.
Other real estate companies and the National Association of Real Estate Investment Trusts, or NAREIT, may define this term in a different manner. We have included the NAREIT FFO definition as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the NAREIT definition or may interpret the current NAREIT definition differently than we do.
We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be examined in connection with net income or loss and cash flows from operating, investing and financing activities in the consolidated financial statements.
The calculations of FFO are shown in the following table:
| For the | | For the | | | |||||||||
| | Three Months Ended | | Nine Months Ended | | | ||||||||
| | September 30, | | September 30, | | | ||||||||
(in thousands): |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| | ||||
Net income (loss) | | $ | 4,456 | $ | | (1,679) | | $ | 14,145 | $ | | (4,825) | | |
Gain on sale of properties | |
| (8,632) |
| — | |
| (29,258) |
| — | | | ||
Equity in income of non-consolidated REITs | |
| (421) | |
| — | |
| (421) | |
| — | | |
FFO from non-consolidated REITs | |
| 421 | |
| — | |
| 421 | |
| — | | |
Depreciation and amortization | |
| 18,861 | |
| 21,989 | |
| 62,340 | |
| 66,424 | | |
NAREIT FFO | |
| 14,685 | |
| 20,310 | |
| 47,227 | |
| 61,599 | | |
Lease Acquisition costs | |
| 112 | |
| 136 | |
| 297 | |
| 333 | | |
| | | | | | | | | | | | | | |
Funds From Operations | | $ | 14,797 | | $ | 20,446 | | $ | 47,524 | | $ | 61,932 | | |
Net Operating Income (NOI)
The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus selling, general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on extinguishment of debt, gains or losses on the sale of assets and excludes non-property specific income and expenses. The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Same Store. The comparative Same Store results include properties held for the periods presented and exclude properties that are redevelopment properties. We also
28
exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions. The calculations of NOI are shown in the following table:
Net Operating Income (NOI)*
| | Rentable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||
| | Square | | | | | | | | | | | Nine Months | | | | | | | | | | | Nine Months | | | | | |
| ||
| | Feet | | Three Months Ended | | Ended | | Three Months Ended | | Ended | | Inc | | % |
| |||||||||||||||||
(in thousands) |
| or RSF |
| 31-Mar-21 |
| 30-Jun-21 |
| 30-Sep-21 |
| 30-Sep-21 |
| 31-Mar-20 |
| 30-Jun-20 |
| 30-Sep-20 |
| 30-Sep-20 |
| (Dec) |
| Change |
| |||||||||
Region | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
East |
| 437 |
| $ | 592 |
| $ | 685 |
| $ | 642 |
| $ | 1,919 |
| $ | 896 |
| $ | 1,218 |
| $ | 591 |
| $ | 2,705 |
| $ | (786) |
| (29.1) | % |
MidWest |
| 1,000 | |
| 3,139 | |
| 3,184 | |
| 3,470 | |
| 9,793 | |
| 3,412 | |
| 3,062 | |
| 3,000 | |
| 9,474 | |
| 319 |
| 3.4 | % |
South |
| 3,202 | |
| 9,555 | |
| 9,207 | |
| 8,482 | |
| 27,244 | |
| 10,312 | |
| 9,975 | |
| 10,387 | |
| 30,674 | |
| (3,430) |
| (11.2) | % |
West |
| 2,625 | |
| 10,369 | |
| 9,901 | |
| 10,144 | |
| 30,414 | |
| 11,463 | |
| 11,211 | |
| 10,975 | |
| 33,649 | |
| (3,235) |
| (9.6) | % |
Property NOI* from Operating Properties |
| 7,264 | |
| 23,655 | |
| 22,977 | |
| 22,738 | |
| 69,370 | |
| 26,083 | |
| 25,466 | |
| 24,953 | |
| 76,502 | |
| (7,132) |
| (9.3) | % |
Dispositions and Redevelopment Properties (a) | | 519 | |
| 6,106 | |
| 5,023 | | | 2,625 | |
| 13,754 | |
| 6,791 | |
| 6,730 | | | 7,244 | |
| 20,765 | |
| (7,011) |
| (5.2) | % |
Property NOI* | | 7,783 |
| $ | 29,761 |
| $ | 28,000 |
| $ | 25,363 |
| $ | 83,124 |
| $ | 32,874 |
| $ | 32,196 |
| $ | 32,197 |
| $ | 97,267 |
| $ | (14,143) |
| (14.5) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
Same Store | | |
| $ | 23,655 |
| $ | 22,977 |
| $ | 22,738 |
| $ | 69,370 |
| $ | 26,083 |
| $ | 25,466 |
| $ | 24,953 |
| $ | 76,502 |
| $ | (7,132) |
| (9.3) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less Nonrecurring | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Items in NOI* (b) | | | |
| 32 | |
| 34 | | | 281 | |
| 347 | |
| 26 | |
| 810 | | | 351 | |
| 1,187 | |
| (840) |
| 0.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comparative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Same Store | | |
| $ | 23,623 |
| $ | 22,943 |
| $ | 22,457 |
| $ | 69,023 |
| $ | 26,057 |
| $ | 24,656 |
| $ | 24,602 |
| $ | 75,315 |
| $ | (6,292) |
| (8.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Nine Months | | | | | | | | | | |
| Nine Months | | | | | | |
| | | | Three Months Ended | |
| Ended | | Three Months Ended | |
| Ended | | | | | | | ||||||||||||||
Reconciliation to Net Income (Loss) | | | | 31-Mar-21 | | | 30-Jun-21 | | | 30-Sep-21 | | | 30-Sep-21 | | 31-Mar-20 | | | 30-Jun-20 | | | 30-Sep-20 | | | 30-Sep-20 | | | | | | | ||
Net income (loss) | | |
| $ | (6,460) |
| $ | 16,149 |
| $ | 4,456 |
| $ | 14,145 |
| $ | (1,071) |
| $ | (2,075) |
| $ | (1,679) |
| $ | (4,825) | | | | | | |
Add (deduct): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss on extinguishment of debt | | | | | — | | | 167 | | | 236 | | | 403 | | | — | | | — | | | — | | | — | | | | | | |
Gain on sale of properties, net | | | |
| — | |
| (20,626) | | | (8,632) | |
| (29,258) | |
| — | |
| — | | | — | |
| — | | | | | | |
Management fee income | | | |
| (465) | |
| (403) | | | (380) | |
| (1,248) | |
| (478) | |
| (446) | | | (484) | |
| (1,408) | | | | | | |
Depreciation and amortization | | | |
| 24,381 | |
| 19,136 | | | 18,861 | |
| 62,378 | |
| 22,338 | |
| 22,245 | | | 22,076 | |
| 66,659 | | | | | | |
Amortization of above/below market leases | | | |
| (32) | |
| (6) | | | — | |
| (38) | |
| (73) | |
| (75) | | | (86) | |
| (234) | | | | | | |
General and administrative | | | |
| 4,146 | |
| 3,962 | | | 3,749 | |
| 11,857 | |
| 3,525 | |
| 3,817 | | | 3,817 | |
| 11,159 | | | | | | |
Interest expense | | | |
| 8,600 | |
| 10,054 | | | 7,928 | |
| 26,582 | |
| 9,063 | |
| 8,980 | | | 8,953 | |
| 26,996 | | | | | | |
Interest income | | | |
| (394) | |
| (399) | | | (404) | |
| (1,197) | |
| (382) | |
| (381) | | | (386) | |
| (1,149) | | | | | | |
Equity in income of non-consolidated REITs | | | |
| — | |
| — | | | (421) | |
| (421) | |
| — | |
| | | | | |
| — | | | | | | |
Non-property specific items, net | | | |
| (15) | |
| (34) | | | (30) | |
| (79) | |
| (48) | |
| 131 | | | (14) | |
| 69 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property NOI* | | |
| $ | 29,761 |
| $ | 28,000 |
| $ | 25,363 |
| $ | 83,124 |
| $ | 32,874 |
| $ | 32,196 |
| $ | 32,197 |
| $ | 97,267 | | | | | | |
| (a) | We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized. We also include properties that have been placed in service, but that do not have operating activity for all periods presented. |
| (b) | Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability. |
*Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.
29
The information presented below provides the weighted average GAAP rent per square foot for the nine months ended September 30, 2021 for our properties and weighted occupancy square feet and percentages. GAAP rent includes the impact of tenant concessions and reimbursements. This table does not include information about properties held by our investments in non-consolidated REITs or those to which we have provided Sponsored REIT Loans.
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
| |
|
| | | | | | | | | | | | Occupied | | Weighted |
| |
| | | | | | Year Built | | | | Weighted | | Percentage as of | | Average |
| |
| | | | | | or | | Net Rentable | | Occupied | | September 30, | | Rent per Occupied |
| |
Property Name | | City | | State | | Renovated | | Square Feet | | Sq. Ft. | | 2021 (a) | | Square Feet (b) |
| |
| | | | | | | | | | | | | | | |
|
Forest Park | | Charlotte | | NC | | 1999/2020 | | 64,198 | | 31,534 | | 49.1 | % | $ | 25.29 | |
Meadow Point | | Chantilly | | VA | | 1999 | | 138,537 | | 97,419 | | 70.3 | % | | 26.15 | |
Innsbrook | | Glen Allen | | VA | | 1999 | | 298,183 | | 170,680 | | 57.2 | % |
| 18.66 | |
Stonecroft (c) | | Chantilly | | VA | | 2008 | | 111,469 | | — | | — | % |
| — | |
East total | | | | | | | | 612,387 | | 299,633 | | 48.9 | % |
| 21.79 | |
Northwest Point | | Elk Grove Village | | IL | | 1999 | | 177,095 | | 177,095 | | 100.0 | % |
| 30.27 | |
909 Davis Street | | Evanston | | IL | | 2002 | | 195,098 | | 182,105 | | 93.3 | % |
| 41.83 | |
121 South 8th Street | | Minneapolis | | MN | | 1974 | | 298,121 | | 256,056 | | 85.9 | % |
| 23.33 | |
801 Marquette Ave | | Minneapolis | | MN | | 1923/2017 | | 129,821 | | 71,713 | | 55.2 | % | | 15.72 | |
Plaza Seven | | Minneapolis | | MN | | 1987 | | 330,096 | | 282,529 | | 85.6 | % |
| 33.27 | |
Midwest total | | | | | | | | 1,130,231 | | 969,498 | | 85.8 | % |
| 30.41 | |
Blue Lagoon Drive | | Miami | | FL | | 2002/2021 | | 213,182 | | 138,611 | | 65.0 | % | | 26.21 | |
Park Ten | | Houston | | TX | | 1999 | | 157,609 | | 113,195 | | 71.8 | % |
| 30.25 | |
Addison Circle | | Addison | | TX | | 1999 | | 289,325 | | 242,194 | | 83.7 | % |
| 32.30 | |
Collins Crossing | | Richardson | | TX | | 1999 | | 300,887 | | 251,241 |
| 83.5 | % | | 27.40 | |
Eldridge Green | | Houston | | TX | | 1999 | | 248,399 | | 248,399 |
| 100.0 | % | | 27.89 | |
Park Ten Phase II | | Houston | | TX | | 2006 | | 156,746 | | 148,924 |
| 95.0 | % | | 29.20 | |
Liberty Plaza | | Addison | | TX | | 1985 | | 217,191 | | 160,396 |
| 73.9 | % | | 21.84 | |
Legacy Tennyson Center | | Plano | | TX | | 1999/2008 | | 207,049 | | 98,638 |
| 47.6 | % | | 23.75 | |
One Legacy Circle | | Plano | | TX | | 2008 | | 214,110 | | 120,672 |
| 56.4 | % | | 38.46 | |
Westchase I & II | | Houston | | TX | | 1983/2008 | | 629,025 | | 330,364 |
| 52.5 | % | | 28.05 | |
Pershing Park Plaza | | Atlanta | | GA | | 1989 | | 160,145 | | 96,824 | | 60.5 | % | | 33.58 | |
999 Peachtree | | Atlanta | | GA | | 1987 | | 621,946 | | 524,425 |
| 84.3 | % | | 34.60 | |
South Total | | | | | | | | 3,415,614 | | 2,473,883 |
| 72.4 | % | | 29.99 | |
380 Interlocken | | Broomfield | | CO | | 2000 | | 240,359 | | 155,440 |
| 64.7 | % | | 33.00 | |
1999 Broadway | | Denver | | CO | | 1986 | | 680,255 | | 461,825 |
| 67.9 | % | | 33.69 | |
1001 17th Street | | Denver | | CO | | 1977/2006 | | 655,420 | | 625,205 |
| 95.4 | % | | 37.02 | |
600 17th Street | | Denver | | CO | | 1982 | | 610,730 | | 518,937 |
| 85.0 | % | | 32.90 | |
Greenwood Plaza | | Englewood | | CO | | 2000 | | 196,236 | | 196,236 |
| 100.0 | % | | 25.13 | |
390 Interlocken | | Broomfield | | CO | | 2002 | | 241,512 | | 239,991 |
| 99.4 | % | | 32.99 | |
West Total | | | | | | | | 2,624,512 | | 2,197,634 |
| 83.7 | % | | 33.56 | |
| | | | | | | | | | | | | | | | |
Total Owned Properties | | | | | | | | 7,782,744 | | 5,940,648 | | 76.3 | % | $ | 30.97 | |
| (a) | Based on weighted occupied square feet for the nine months ended September 30 2021, including month-to-month tenants, divided by the Property’s net rentable square footage. |
| (b) | Represents annualized GAAP rental revenue for the nine months ended September 30, 2021, per weighted occupied square foot. |
| (c) | We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized. |
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Liquidity and Capital Resources
Cash, cash equivalents and restricted cash were $9.7 million and $4.2 million at September 30, 2021 and December 31, 2020, respectively. The increase of $5.6 million is attributable to $26.9 million provided by operating activities, plus $264.3 million provided by investing activities less $285.7 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. We have extension options on our BAML Revolver (discussed below), which management expects to exercise, or we may seek to replace this indebtedness with new loans or extend the current loans. Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income from our real estate properties.
Operating Activities
Cash provided by operating activities for the nine months ended September 30, 2021 of $26.9 million is primarily attributable to net income of $14.1 million less $29.3 million of gains on sale of properties, net, plus the add-back of $61.6 million of non-cash expenses, plus a decrease in tenant rent receivables of $5.0 million and proceeds received from a liquidating distribution from a non-consoldiated REIT of $0.4 million. These increases were partially offset by an increase in payment of deferred leasing commissions of $10.9 million, a decrease in accounts payable and accrued compensation of $8.8 million, an increase in tenant security deposits of $2.5 million, an increase in lease acquisition costs of $1.7 million and an increase in prepaid expenses and other assets of $1.0 million.
Investing Activities
Cash provided by investing activities for the nine months ended September 30, 2021 of $264.3 million is primarily attributable to proceeds from the sale of seven properties of $319.3 million less purchases of other real estate assets and office equipment investments of $55.0 million.
Financing Activities
Cash used in financing activities for the nine months ended September 30, 2021 of $285.7 million is primarily attributable to repayment of the JPM Term Loan (as defined below) of $100.0 million, repayment of a tranche of the BMO Term Loan (as defined below) of $55.0 million, repayment of a portion of the BAML Term Loan (as defined below) of $90 million, net repayments on the BAML Revolver (as defined below) of $3.5 million, stock repurchases of $8.2 million and distributions paid to stockholders of $29.0 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 provided a single unsecured bridge loan in the aggregate principal amount of $150 million (the “JPM Term Loan”). On December 24, 2020, the Company repaid a $50 million portion of the JPM Term Loan with a portion of the proceeds from the December 23, 2020 sale of its Durham, North Carolina property, and $100 million remained fully advanced and outstanding under the JPM Term Loan. On June 4, 2021, the Company repaid the remaining $100 million outstanding on the loan, which had been scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The repayment was made with a portion of the proceeds from the May 27, 2021 sales of the three Atlanta properties.
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Although the interest rate on the JPM Term Loan was variable under the JPM Credit Agreement, the Company fixed the LIBOR-based rate on a portion of the JPM Term Loan by entering into interest rate swap transactions. On March 7, 2019, the Company entered into ISDA Master Agreements with various financial institutions to hedge a $100 million portion of the future LIBOR-based rate risk under the JPM Credit Agreement. Effective March 29, 2019, the Company fixed the LIBOR-based rate at 2.44% per annum on a $100 million portion of the JPM Term Loan until November 30, 2021. On June 4, 2021, the Company paid approximately $1.2 million to terminate the interest rate swap, which was scheduled to mature on November 30, 2021.
BMO Term Loan
On September 27, 2018, the Company entered into a Second Amended and Restated Credit Agreement with the lending institutions party thereto and Bank of Montreal, as administrative agent (the “BMO Credit Agreement”). The BMO Credit Agreement provides for a single, unsecured term loan borrowing in the initial amount of $220 million (the “BMO Term Loan”), of which $165 million remains fully advanced and outstanding. The BMO Term Loan initially consisted of a $55 million tranche A term loan and a $165 million tranche B term loan. On June 4, 2021, the Company repaid the tranche A term loan that was scheduled to mature on November 30, 2021, and incurred a loss on extinguishment of debt of $0.1 million related to unamortized deferred financing costs. The repayment was made with a portion of the proceeds from the May 27, 2021 sales of the three Atlanta properties. The $165 million tranche B term loan matures on January 31, 2024. The BMO Credit Agreement also includes an accordion feature that allows up to $100 million of additional loans, subject to receipt of lender commitments and satisfaction of certain customary conditions.
The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the Company’s credit rating (165 basis points over LIBOR at September 30, 2021) or (ii) a number of basis points over the base rate depending on the Company’s credit rating (65 basis points over the base rate at September 30, 2021).
Although the interest rate on the BMO Term Loan is variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate by entering into interest rate swap transactions. On August 26, 2013, the Company entered into an ISDA Master Agreement with Bank of Montreal that fixed the base LIBOR interest rate on the BMO Term Loan at 2.32% per annum, which matured on August 26, 2020. On February 20, 2019, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BMO Term Loan at 2.39% per annum for the period beginning on August 26, 2020 and ending January 31, 2024. Accordingly, based upon the Company’s credit rating, as of September 30, 2021, the effective interest rate on the BMO Term Loan was 4.04% per annum. On June 4, 2021, the Company paid approximately $0.6 million to terminate the portion of the interest rate swap on tranche A, which was scheduled to mature on November 30, 2021.
The BMO Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BMO Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BMO Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BMO Credit Agreement). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BMO Credit Agreement immediately due and payable, terminate the lenders’ commitments to make loans under the BMO Credit Agreement, and enforce any and all rights of the lenders or administrative agent under the BMO Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. We were in compliance with the BMO Term Loan financial covenants as of September 30, 2021.
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BAML Credit Facility
On July 21, 2016, the Company entered into a First Amendment (the “BAML First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BAML Second Amendment”), to the Second Amended and Restated Credit Agreement dated October 29, 2014 among the Company, the lending institutions party thereto and Bank of America, N.A., as administrative agent, L/C Issuer and Swing Line Lender (as amended by the BAML First Amendment and the BAML Second Amendment, the “BAML Credit Facility”) that continued an existing unsecured revolving line of credit (the “BAML Revolver”) and an existing term loan (the “BAML Term Loan”).
BAML Revolver Highlights
| ● | The BAML Revolver is for borrowings, at the Company's election, of up to $600 million. Borrowings made pursuant to the BAML Revolver may be revolving loans, swing line loans or letters of credit, the combined sum of which may not exceed $600 million outstanding at any time. |
| ● | Borrowings made pursuant to the BAML Revolver may be borrowed, repaid and reborrowed from time to time until the initial maturity date of January 12, 2022. The Company has the right to extend the maturity date of the BAML Revolver by two additional six month periods, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions. |
| ● | The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $500 million of additional borrowing capacity applicable to the BAML Revolver and/or the BAML Term Loan, subject to receipt of lender commitments and satisfaction of certain customary conditions. |
As of September 30, 2021, there were no borrowings outstanding under the BAML Revolver. The BAML Revolver bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.55% over LIBOR at September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating (0.55% over the base rate at September 30, 2021). The BAML Credit Facility also obligates the Company to pay an annual facility fee in an amount that is also based on the Company’s credit rating. The facility fee is assessed against the total amount of the BAML Revolver, or $600 million (0.30% at September 30, 2021).
Based upon the Company’s credit rating, as of September 30, 2021, the interest rate on the BAML Revolver would have been 1.63% per annum had any borrowings been outstanding. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the nine months ended September 30, 2021 was approximately 1.32% per annum. As of December 31, 2020, there were $3.5 million of borrowings outstanding under the BAML Revolver. The weighted average interest rate on all amounts outstanding on the BAML Revolver during the year ended December 31, 2020 was approximately 1.65% per annum.
BAML Term Loan Highlights
| ● | The original principal amount of the BAML Term Loan was $400 million. On September 30, 2021, the Company repaid a $90 million portion of the BAML Term Loan. As of September 30, 2021, $310 million remained outstanding under the BAML Term Loan. |
| ● | The BAML Term Loan matures on January 12, 2023. |
| ● | The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $500 million of additional borrowing capacity applicable to the BAML Revolver and/or the BAML Term Loan, subject to receipt of lender commitments and satisfaction of certain customary conditions. |
The BAML Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.75% over LIBOR at September 30, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating (0.75% over the base rate at September 30, 2021).
The interest rate on the BAML Credit Facility was variable at September 30, 2021. Previously the Company had fixed the base LIBOR interest rate on the BAML Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on
33
the BAML Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ended on September 27, 2021. Based upon the Company’s credit rating, as of September 30, 2021, the interest rate on the BAML Term Loan was 1.83% per annum. The weighted average variable interest rate on all amounts outstanding under the BAML Term Loan after the expiration of the interest rate swaps, from September 28 through September 30, 2021 was approximately 1.84% per annum.
BAML Credit Facility General Information
The BAML Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BAML Credit Facility also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. The BAML Credit Facility provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, certain cross defaults and a change in control of the Company (as defined in the BAML Credit Facility). In the event of a default by the Company, the administrative agent may, and at the request of the requisite number of lenders shall, declare all obligations under the BAML Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BAML Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BAML Credit Facility and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, the commitments of lenders will be automatically terminated and all outstanding obligations of the Company will become immediately due and payable. The Company was in compliance with the BAML Credit Facility financial covenants as of September 30, 2021.
The Company may use the proceeds of the loans under the BAML Credit Facility to finance the acquisition of real properties and for other permitted investments; to finance investments associated with Sponsored REITs to refinance or retire indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the BAML Credit Facility.
Senior Notes
On October 24, 2017, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with the various purchasers named therein (the “Purchasers”) in connection with a private placement of senior unsecured notes. Under the Note Purchase Agreement, the Company agreed to sell to the Purchasers an aggregate principal amount of $200 million of senior unsecured notes consisting of (i) Series A Senior Notes due December 20, 2024 in an aggregate principal amount of $116 million (the “Series A Notes”) and (ii) Series B Senior Notes due December 20, 2027 in an aggregate principal amount of $84 million (the “Series B Notes,” and, together with the Series A Notes, the “Senior Notes”). On December 20, 2017, the Senior Notes were funded and proceeds were used to reduce the outstanding balance of the BAML Revolver.
The Senior Notes bear interest depending on the Company’s credit rating. As of September 30, 2021, the Series A Notes bear interest at 4.49% per annum and the Series B Notes bear interest at 4.76% per annum.
The Note Purchase Agreement contains customary financial covenants, including a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, and a maximum unencumbered leverage ratio. The Note Purchase Agreement also contains restrictive covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into transactions with affiliates, merge, consolidate, create liens, make certain restricted payments, enter into certain agreements or prepay certain indebtedness. Such financial and restrictive covenants are substantially similar to the corresponding covenants contained in the BAML Credit Facility, the BMO Credit Agreement and the JPM Credit Agreement. The Senior Notes financial covenants require, among other things, the maintenance of a fixed charge coverage ratio of at least 1.50; a maximum leverage ratio and an unsecured leverage ratio of no more than 60% (65% if there were a significant acquisition for a short period of time). In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material
34
indebtedness or certain other private placements of debt of the Company and its subsidiaries. The Note Purchase Agreement contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Purchasers may, among other remedies, accelerate the payment of all obligations. The Company was in compliance with the Senior Notes financial covenants as of September 30, 2021.
Stock Repurchase Program
On June 23, 2021, we announced a share repurchase program under which we are authorized to repurchase up to $50 million of our common stock. The share repurchase program may be suspended or discontinued at any time. During the three months ended September 30, 2021, we repurchased 1,762,038 shares of common stock at an average price per share of $4.68. As of September 30, 2021, $41.8 million remained authorized for repurchase under the program. Future repurchases of common stock will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors.
Equity Securities
From time to time, we expect to issue debt securities, common stock, preferred stock or depository shares under a registration statement to fund the acquisition of additional properties, to pay down any existing debt financing and for other corporate purposes.
Contingencies
From time to time, we may provide financing to Sponsored REITs in the form of a construction loan and/or a revolving line of credit secured by a mortgage. As of September 30, 2021, we had one secured loan outstanding for $21 million principal amount with one Sponsored REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes. We anticipate that the outstanding amounts of this loan will be repaid from sale of the collateral.
We may be subject to various legal proceedings and claims that arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations.
Related Party Transactions
We intend to draw on the BAML Credit Facility in the future for a variety of corporate purposes, including the acquisition of properties that we acquire directly for our portfolio and for Sponsored REIT Loans as described below.
Loans to Sponsored REITs
Sponsored REIT Loans
From time to time we may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. We anticipate that advances made under these facilities will be repaid at their maturity date or earlier from refinancing, long term financings of the underlying properties, cash flows from the underlying properties or another capital event. Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two to three years.
Our Sponsored REIT Loans subject us to credit risk. However, we believe that our position as asset manager of each of the Sponsored REITs helps mitigate that risk by providing us with unique insight and the ability to rely on qualitative analysis of the Sponsored REITs. Before making a Sponsored REIT Loan, we consider a variety of subjective factors, including the quality of the underlying real estate, leasing, the financial condition of the applicable Sponsored REIT and local
35
and national market conditions. These factors are subject to change and we do not apply a formula or assign relative weights to the factors. Instead, we make a subjective determination after considering such factors collectively.
Additional information about our Sponsored REIT Loans outstanding as of September 30, 2021, including a summary table of our Sponsored REIT Loans, is incorporated herein by reference to Part 1, Item 1, Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans” and Note 10 “Subsequent Events”, in the Notes to Consolidated Financial Statements included in this report.
Other Considerations
We generally pay the ordinary annual operating expenses of our properties from the rental revenue generated by the properties. For the three and nine months ended September 30, 2021 and 2020, respectively, the rental income exceeded the expenses for each individual property, with the exception of 801 Marquette for the three and nine months ended September 30, 2021, Pershing Park for the three months ended September 30, 2021 and Stonecroft for the three and nine months ended September 30, 2020.
801 Marquette has approximately 130,000 square feet of rentable space, which is 91.8% leased as of September 30, 2021. During the three months ended September 30, 2021, we determined that a lease was not collectible and wrote off related rents and receivables against rental income. The tenant continues to occupy the space and is on a cash basis for revenue recognition. The property had $22,000 in rental income and $334,000 of operating expenses for the three months ended September 30, 2021 and had $852,000 of rental income and $1,026,000 or operating expenses for the nine months ended September 30, 2021.
Pershing Park has approximately 160,000 square feet of rentable space, which was 12.4% leased at June 30, 2021 due to a large tenant departure on May 31, 2021. During the three months ended September 30, 2021, we signed a lease with a new tenant for approximately 100,000 square feet that has not commenced. The property had $178,000 of rental income and $510,000 of operating expenses for the three months ended September 30, 2021.
Stonecroft had approximately 111,000 square feet of rentable space and became vacant in December 2019. We had no rental income and operating expenses of $69,000 related to this property during the three months ended September 30, 2020. We had no rental income and operating expenses of $514,000 related to this property during the nine months ended September 30, 2020.
Off-Balance Sheet Arrangements and Contractual Obligations
There have been no material changes to our contractual obligations and off-balance-sheet arrangements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Rate Risk
We are exposed to changes in interest rates primarily from our floating rate borrowing arrangements. We use interest rate derivative instruments to manage exposure to interest rate changes. As of September 30, 2021 and December 31, 2020, if market rates on our outstanding borrowings under the BAML Revolver and the BAML Term Loan not subject to an interest rate swap increased by 10% at maturity, or approximately 18 and 13 basis points, respectively, over the current variable rate, the increase in interest expense would decrease future earnings and cash flows by $0.6 million and $5,000 annually, respectively. Based upon our credit rating, the interest rate on the BAML Revolver as of September 30, 2021 had amounts been outstanding would have been LIBOR plus 155 basis points, or 1.63% per annum. Based upon our credit rating, the interest rate on the BAML Term Loan as of September 30, 2021 was LIBOR plus 175 basis points, or 1.83% per annum. No amounts were drawn on the BAML Revolver and $310 million was outstanding on the BAML Term Loan as of September 30, 2021. We do not believe that the interest rate risk on the BAML Revolver and the BAML Term Loan are material as of September 30, 2021.
Although the interest rates on the BMO Term Loan, the BAML Term Loan and the JPM Term Loan are variable, the Company fixed the base LIBOR interest rates on the BMO Term Loan and the BAML Term Loan, and the LIBOR-based rate on the remaining $100 million portion of the JPM Term Loan, by entering into interest rate swap agreements. On July 22, 2016, the Company fixed the interest rate for the period beginning on September 27, 2017 and ended on September 27, 2021 on the BAML Term Loan with multiple interest rate swap agreements (the “2017 Interest Rate Swap”). On March 7, 2019, the Company fixed the interest rate for the period beginning on March 29, 2019 and ending on November 30, 2021 for the notional value of $100 million on the JPM Term Loan with interest rate swap agreements (the “2019 JPM Interest Rate Swap”). On June 4, 2021, the Company paid approximately $1.2 million to terminate the 2019 JPM Interest Rate Swap, which was scheduled to mature on November 30, 2021. On February 20, 2019, the Company fixed the interest rate for the period beginning August 26, 2020 and ending January 31, 2024 on the BMO Term Loan with interest rate swap agreements (the “2019 BMO Interest Rate Swap”). On June 4, 2021, the Company paid approximately $0.6 million to terminate $55 million in Notional Value on the 2019 BMO Interest Rate Swap, which was scheduled to mature on November 30, 2021. Accordingly, based upon our credit rating, as of September 30, 2021, the interest rate on the BMO Term Loan was 4.04% per annum. The fair value of these interest rate swaps are affected by changes in market interest rates. We believe that we have mitigated interest rate risk with respect to the BMO Term Loan through the 2019 BMO Interest Rate Swap until January 31, 2024. This interest rate swap was our only derivative instrument as of September 30, 2021.
The table below lists our derivative instruments, which are hedging variable cash flows related to interest on our BAML Term Loan, BMO Term Loan and a portion of the JPM Term Loan as of September 30, 2021 and December 31, 2020 (in thousands):
|
| Notional |
| Strike |
| Effective |
| Expiration | | Fair Value (2) at | |||||
(in thousands) | | Value | | Rate | | Date | | Date | | September 30, 2021 |
| December 31, 2020 | |||
| | | | | | | | | | | | |
| | |
2017 Interest Rate Swap | | $ | 400,000 |
| 1.12 | % | Sep-17 |
| Sep-21 | | $ | — | | $ | (2,947) |
2019 JPM Interest Rate Swap | | $ | 100,000 |
| 2.44 | % | Mar-19 |
| Nov-21 | | $ | — | | $ | (2,102) |
2019 BMO Interest Rate Swap (1) | | $ | 165,000 |
| 2.39 | % | Aug-20 |
| Jan-24 | | $ | (7,583) | | $ | (12,262) |
| | | | | | | | | | | | | | | |
(1) The Notional Value was $220 million and decreased to $165 million on June 4, 2021. | | | | | | | | | | | | | | | |
(2) Classified within Level 2 of the fair value hierarchy. | | | | | | | | | | | | | | | |
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Our BMO Term Loan, BAML Term Loan and JPM Term Loan hedging transactions used derivative instruments that involve certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in either or both of the contracts. We require our derivatives contracts to be with counterparties that have investment grade ratings. As a result, we do not anticipate that any counterparty will fail to meet its obligations. However, there can be no assurance that we will be able to adequately protect against the foregoing risks or that we will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.
The Company’s derivatives are recorded at fair value in other assets and liabilities in the consolidated balance sheets, the effective portion of the derivatives’ fair value is recorded to other comprehensive income (loss) in the consolidated statements of comprehensive income (loss).
The following table presents, as of September 30, 2021, our contractual variable rate borrowings under our BAML Revolver, which matures on January 12, 2022, under our BAML Term Loan, which matures on January 12, 2023, under our BMO Term Loan Tranche B, which matures on January 31, 2024, under our Series A Notes, which mature on December 20, 2024, and under our Series B Notes, which mature on December 20, 2027. Under the BAML Revolver, we have the right to extend the initial maturity date with two additional six month extensions, or until January 12, 2023, upon payment of a fee and satisfaction of certain customary conditions.
| | Payment due by period |
| |||||||||||||||||||
| | (in thousands) |
| |||||||||||||||||||
|
| Total |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| 2025 |
| Thereafter |
| |||||||
BAML Revolver | | $ | — | | $ | — | | $ | — | | $ | | | $ | — | | $ | — | | $ | — | |
BAML Term Loan | |
| 310,000 | | | — | |
| — | |
| 310,000 | |
| — | |
| — | | | — | |
BMO Term Loan Tranche B | | | 165,000 | | | — | | | — | | | — | | | 165,000 | | | — | | | — | |
Series A Notes | | | 116,000 | | | — | | | — | | | — | |
| 116,000 | |
| — | |
| — | |
Series B Notes | |
| 84,000 | | | — | | | — | | | — | |
| — | |
| — | |
| 84,000 | |
Total | | $ | 675,000 | | $ | — | | $ | — | | $ | 310,000 | | $ | 281,000 | | $ | — | | $ | 84,000 | |
Item 4. Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended September 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position, cash flows or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2020 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 23, 2021, FSP Corp. announced that the Board of Directors of FSP Corp. had authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time.
The following table provides information about purchases by Franklin Street Properties Corp. during the quarter ended September 30, 2021 of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934:
Issuer Purchases of Equity Securities
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
July 1, 2021 through July 31, 2021 | 0 | N/A | 0 | $50,000,000 |
August 1, 2021 through August 31, 2021 | 681,158 | $4.81 | 681,158 | $46,725,733 |
September 1, 2021 through September 30, 2021 | 1,080,880 | $4.60 | 1,080,880 | $41,755,544 |
Total: | 1,762,038 | $4.68 | 1,762,038 | $41,755,544 |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit No. |
| Description |
| | |
3.1 (1) | | |
| | |
3.2 (2) | | |
| | |
10.1* | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1* | | |
| | |
32.2* | | |
| | |
101* | | The following materials from FSP Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Comprehensive Income (Loss); and (vi) the Notes to Consolidated Financial Statements. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
Footnotes |
| Description |
| | |
(1) | | |
(2) | | |
| | |
| | |
* | | Filed herewith. |
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FRANKLIN STREET PROPERTIES CORP. |
Date |
| Signature |
| Title |
| | | | |
Date: November 8, 2021 | | /s/ George J. Carter | | Chief Executive Officer and Director |
| | George J. Carter | | (Principal Executive Officer) |
| | | | |
| | | | |
Date: November 8, 2021 | | /s/ John G. Demeritt | | Chief Financial Officer |
| | John G. Demeritt | | (Principal Financial Officer) |
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Exhibit 10.1
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of the 29th day of September, 2021 (the “Effective Date”), by and between FSP 999 PEACHTREE STREET LLC, a Delaware limited liability company (“Seller”), and PIEDMONT OPERATING PARTNERSHIP, LP, a Delaware limited partnership (“Buyer”). FIDELITY NATIONAL TITLE INSURANCE COMPANY (the “Escrow Agent”) joins in this Agreement for the limited purposes set forth in Section 15.
BACKGROUND
A.This Agreement is made with reference to all of Seller’s right, title and interest in and to the following real and personal property (collectively, the “Property”):
(1)All that land which is located in Atlanta, Fulton County, Georgia and legally described on Exhibit A attached hereto (the “Land”), together with all easements, rights and privileges appurtenant thereto;
(2)The building (the “Building”) known as 999 Peachtree and having an address of 999 Peachtree Street, Atlanta, Georgia 30309, together with any other improvements, structures, fixtures and parking areas located on the Land, and appurtenant thereto (the Building and such improvements, structures, fixtures and parking areas being hereinafter collectively referred to as the “Improvements”, and the Land and the Improvements being hereinafter collectively referred to as the “Real Property”);
(3)The tenant leases relating to the Improvements, and other occupancy agreements with tenants occupying or using all or any portion of the Real Property together with all amendments thereto (collectively, the “Leases”), and any guaranties applicable thereto and all security deposits, letters of credit, advance rental, or like payments held by Seller (collectively, the “Security Deposits”), if any, held by Seller in connection with the Leases, but not any subleases or licenses claiming by or through such Leases;
(4)All fixtures, equipment, furniture, furnishings, appliances, supplies and other personal property of every nature and description located on, attached or pertaining to, or otherwise used in connection with, the Real Property, owned by Seller and located on or within the Real Property, but expressly excluding any of the foregoing owned or leased by any tenant and any personal property owned by a third party and leased to Seller (collectively, the “Personalty”); and
(5)All of the following intangible rights and property used or useful in connection with the foregoing: the (i) Contracts (as defined and to the extent set forth in Section 3.5 hereof), (ii) plans, specifications and drawings, and (iii) to the extent the following items are assignable: (a) development rights, (b) contract rights, (c) guarantees and/or warranties (express or implied) inuring to the benefit of Seller and relating to the Property, (d) licenses, permits and approvals (including any certificates of occupancy), (e) service marks, logos or any trade names (including “999 Peachtree,” color palettes and fonts) but not including any reference to “Franklin Street Partners”, “Franklin Street Properties” or “FSP”, (f) existing photos, (g) street numbers,
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telephone numbers, websites, domain names, content of current property website, social media accounts, email addresses, and (h) all other intangible rights and property owned and used by Seller solely in connection with the Property (collectively, the “Intangible Property”).
B.Seller is prepared to sell, transfer and convey the Property to Buyer, and Buyer is prepared to purchase and accept the same from Seller, all for the purchase price and on the other terms and conditions hereinafter set forth.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:
1.Sale and Purchase. Seller hereby agrees to sell, transfer and convey the Property to Buyer, and Buyer hereby agrees to purchase and accept the Property from Seller, in each case for the purchase price and on and subject to the other terms and conditions set forth in this Agreement.
2.Purchase Price. The purchase price for the Property (the “Purchase Price”) shall be TWO HUNDRED TWENTY-THREE MILLION NINE HUNDRED THOUSAND AND 00/100 DOLLARS ($223,900,000.00), which, subject to the terms and conditions hereinafter set forth, shall be paid to Seller by Buyer as follows:
2.1.Initial Deposit. No later than two (2) Business Days (as hereinafter defined) after the Effective Date, Buyer shall deliver to Escrow Agent, in immediately available funds, to be held in escrow and delivered in accordance with this Agreement, a cash deposit in the amount of FOUR MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($4,500,000.00) (together with any interest earned thereon, the “Initial Deposit”).
2.2.Second Deposit. No later than two (2) Business Days after the expiration of the Inspection Period (as hereinafter defined), Buyer shall deliver to Escrow Agent, in immediately available funds, to be held in escrow and delivered in accordance with this Agreement, a second cash deposit in the amount of FOUR MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($4,500,000.00) (together with any interest earned thereon, the “Second Deposit”, and together with the Initial Deposit, collectively, the “Deposit”).
2.3.Payment at Closing. At the consummation of the transaction contemplated hereby (the “Closing”), Buyer shall deliver to Escrow Agent cash in an amount equal to the Purchase Price, subject to adjustments and apportionments as set forth herein, less the Deposit (to the extent previously funded). The Purchase Price, subject to adjustments and apportionments as set forth herein, shall be paid at Closing by wire transfer of immediately available funds, transferred to the order or accounts of Seller or such other persons as Seller may designate in writing. The delivery and recording of documents and the disbursement of funds shall be effectuated through the Escrow Agent at the Closing and pursuant to the closing instructions from the parties hereto, which closing instructions shall not modify or diminish the parties’ respective obligations hereunder.
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3.Representations and Warranties of Seller. Subject to all matters disclosed (i) in any document delivered to Buyer by Seller through the Box Data Room site set up by Seller for the transaction contemplated under this Agreement or otherwise, (ii) in the Due Diligence Certificate (as hereinafter defined), (iii) any exhibit attached hereto and (iv) subject to any information of which Buyer obtains actual knowledge prior to the Closing (all such matters being referred to herein as “Exception Matters”), Seller represents and warrants to Buyer with respect to itself and the Property as follows:
3.1.Authority. Seller is a Delaware limited liability company, and has all requisite power and authority to enter into this Agreement and perform its obligations hereunder. The execution and delivery of this Agreement have been duly authorized.
3.2.No Conflict. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Seller do not and will not conflict with or result in the breach of any material terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, or encumbrance upon any of the property or assets of Seller by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Seller is a party or which is or purports to be binding upon Seller or which otherwise affects Seller, which will not be discharged, assumed or released at Closing.
3.3.Leases. Other than as set forth on that certain Due Diligence Certificate dated as of the Effective Date and issued by Seller to Buyer with respect to certain matters relating to the Property (the “Due Diligence Certificate”), (a) there are no leases or occupancy agreements (excluding any subleases or licenses claiming by or through a Lease) currently in effect which affect the Real Property, (b) all the Leases are in full force and effect, (c) Seller has provided Buyer with true, correct, and complete copies of all of the Leases and (d) no tenant under any Lease has any option to purchase the Property or any portion thereof, nor any rights of first refusal with respect to the same. The Due Diligence Certificate lists all amendments to and modifications of the Leases, all base rent paid more than thirty (30) days in advance, and all Security Deposits and the form thereof. Seller further represents and warrants that, except as set forth in the Due Diligence Certificate, (i) Seller has paid all agents’ and brokers’ commissions and fees incurred in connection with the Leases executed prior to the Effective Date (but excluding any such commissions or fees attributable to extension, renewal or expansion options under such Leases that are exercised after the Effective Date), (ii) there are no outstanding agreements entered into by Seller with brokers or agents for the payment of commissions or fees for the procurement of tenants and/or occupants that will be binding on Buyer and/or the Property after Closing, (iii) other than general landlord maintenance obligations under the Leases, there are no outstanding landlord improvement obligations under a Lease, or any tenant improvement allowances or free rent periods which remain unpaid or outstanding under any Lease, (iv) Seller has not received any notices of any items of work, repair, maintenance or construction to be completed by Seller pursuant to any Lease and, to Seller’s knowledge, there is no such work to be done, and (v) neither Seller nor any tenant under any Lease is in monetary default under any Lease, Seller has not given or received any notice of default under the Leases which has not been cured, to Seller’s actual knowledge, no material non-monetary default exists under any Leases, and Seller has no knowledge of any fact or facts which would now or with the giving of notice or the passage of time be a default under the terms thereof by Seller, as landlord under the Leases or any tenant under the Leases.
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3.4.No Condemnation. Seller has not received any written notice, and Seller has no actual knowledge, of any pending or contemplated condemnation, eminent domain or similar proceeding with respect to all or any portion of the Real Property.
3.5.Contracts. There are no construction, management, leasing, service, equipment, supply, maintenance or concession agreements to which Seller is a Party and which are in effect with respect to the Real Property or the Personalty that will be binding on Buyer and/or the Property after Closing (collectively, “Contracts”), except as set forth in the Due Diligence Certificate.Neither Seller nor any other party under any Contract is in monetary default or has given written notice of any existing material non-monetary default under any of the Contracts, and to Seller’s actual knowledge, no such default exists under any such Contract except as set forth on the Due Diligence Certificate.
3.6.Compliance. Seller has not received written notice from any governmental agency or other body of any existing violations of any federal, state, county or municipal laws, ordinances, orders, codes, regulations or requirements affecting the Real Property which have not been cured.
3.7.Litigation. There is no litigation, action, suit or proceeding in court, arbitration or before any governmental commission, bureau, agency, or other governmental instrumentality, or to Seller’s actual knowledge, investigation before any governmental commission, bureau, agency, or other governmental instrumentality, that is pending to which Seller is a party arising out of the ownership, management or operation of the Property or that is against the Property, and to Seller’s knowledge, no such investigation, litigation, action, suit or proceeding is threatened against Seller or the Property.
3.8.FIRPTA. Seller is not a “foreign person” as defined in Section 1445(f)(3) of the Internal Revenue Code.
3.9.No Bankruptcy. There are no creditors’ attachments or executions, general assignments in collection of debts for the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy which are pending, or to Seller’s knowledge, threatened against Seller. Seller has not (a) made a general assignment for the benefit of creditors, (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller’s creditors, (c) suffered the appointment of a receiver to take possession of all, or substantially all, of Seller’s assets, (d) suffered the attachment or other judicial seizure of all, or substantially all, of Seller’s assets, (e) admitted in writing its inability to pay its debts as they come due, or (f) made an offer of settlement, extension or composition to its creditors generally, and Seller has not planned or contemplated, and is not planning or contemplating, any of the foregoing.
3.10.No Other Options. Other than this Agreement, the Property is not subject to any outstanding agreement(s) of sale or options, rights of first refusal, rights of first offer, or other rights of purchase.
3.11.OFAC. Neither Seller, nor any of its employees, officers or directors is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Assets Control of the Department of the Treasury (“OFAC”), (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any
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similar statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action. The foregoing representation shall not apply to the holders of equity interests in Seller.
3.12.Capital Projects. Except as set forth in the Due Diligence Certificate, there are no capital projects being performed by Seller and which are currently in progress affecting the Real Property. The foregoing representation shall not apply to any work or projects being performed by or on behalf of any tenants at the Property.
3A.Limitations Regarding Representations and Warranties. As used in this Agreement, or in any other agreement, document, certificate or instrument delivered by Seller to Buyer, the phrase “to Seller’s actual knowledge”, “to the best of Seller’s actual knowledge” or any similar phrase shall mean the actual, not constructive or imputed, knowledge of Leo H. Daley, in his capacity as Executive Vice President of FSP Property Management LLC, and not individually, without any obligation on such individual’s part to make any independent investigation of the matters being represented and warranted, or to make any inquiry of any other persons, or to search or examine any files, records, books, correspondence and the like.
Except for any Exception Matters that arise out of the intentional acts or intentional omissions of Seller in violation of the express terms of this Agreement, Seller shall have no liability whatsoever to Buyer with respect to any Exception Matters, whether or not Closing occurs hereunder. If prior to 5:00 p.m. Eastern Time Zone (U.S.A.) on the date that is five (5) Business Days before the date of the expiration of the Inspection Period Buyer obtains actual knowledge of either any facts or circumstances that render Seller’s representations and warranties inaccurate or false in any respect (“Changed Conditions”) or Exception Matters and does not terminate this Agreement in accordance with Section 4.4 hereof, Buyer shall consummate the acquisition of the Property subject to such Exception Matters and such Changed Conditions. If Buyer first obtains actual knowledge of any Exception Matters or Changed Conditions between 5:00 p.m. Eastern Time Zone (U.S.A.) on the date that is five (5) Business Days before the date of the expiration of the Inspection Period and the Closing, which Exception Matters, in Buyer’s sole but reasonable discretion, materially and adversely affect the value to Buyer of the transactions contemplated by this Agreement, Buyer may terminate this Agreement and receive a refund of the Deposit (to the extent previously funded) upon written notice given on or before the date that is five (5) Business Days after Buyer obtains such actual knowledge of such Changed Conditions or Exception Matters. If (i) any representation of Seller in this Section was untrue in any material respect when made or (ii) any Changed Condition arises as a result of the intentional acts or omissions of Seller in violation of the express terms of this Agreement, then Buyer shall also have the remedies set forth in Section 10.2 of this Agreement. Upon any such termination of this Agreement, neither party shall have any further rights or obligations hereunder except as expressly provided for herein. Buyer agrees to inform Seller promptly in writing if it obtains knowledge that any representation or warranty of Seller is inaccurate in any material respect, or if it believes that Seller has failed to deliver to Buyer any document or material which Seller is obligated to deliver hereunder.
4.Conditions Precedent to Buyer’s Obligations. All of Buyer’s obligations hereunder are expressly conditioned on the satisfaction at or before the time of Closing hereunder, or at or
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before such earlier time as may be expressly stated below, of each of the following conditions (any one or more of which may be waived in writing in whole or in part by Buyer, at Buyer’s option):
4.1.Accuracy of Representations. All of the representations and warranties of Seller contained in this Agreement shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same effect as if made on and as of such date, except for any changes in such representations and warranties resulting from matters which are not prohibited by the terms of this Agreement.
4.2.Performance. Seller shall have performed, observed and complied with all material covenants, agreements and conditions required by this Agreement to be performed, observed and complied with on its part prior to or as of Closing hereunder.
4.3.Documents and Deliveries. All instruments and documents, including those documents contemplated in Section 7.2, required on Seller’s part to effectuate this Agreement and the transactions contemplated hereby shall be delivered to Buyer and shall be in form and substance consistent with the requirements herein.
4.4.Inspection Period; Access; Purchase “As Is”. Before the Effective Date, Seller has delivered to Buyer the Leases, Contracts and other documents and materials related to the Property (together with such other documents and materials as Seller may make available to Buyer, the “Property Materials”). Seller agrees that it shall furnish such additional Property Materials to the extent in Seller’s possession and control as may be reasonably requested by Buyer, Buyer hereby agreeing that Seller shall have no obligation to provide Buyer with any materials which are confidential, privileged or proprietary in nature, such as (but not limited to) internal memoranda and analyses, appraisals, financial projections, client and investor correspondence and other similar materials (the “Proprietary Materials”). Buyer hereby acknowledges and agrees that, except for the Contracts and the Leases, (a) Seller has not independently verified the accuracy of completeness of any of the Property Materials, (b) Seller makes no representation or warranty, express or implied, as to the accuracy, completeness or content of the Property Materials, and (c) Seller shall have no liability to Buyer as a result of any inaccuracy or incompleteness of any of the Property Materials. In the event that the Closing does not occur in accordance with the terms of this Agreement, Buyer shall either, at Buyer’s election, (i) return to Seller all of the Property Materials, or (ii) provide Seller with written confirmation that the Property Materials have been destroyed. Notwithstanding the foregoing, Buyer shall be permitted to retain one copy of the Property Materials if, in Buyer’s reasonable judgment, such retention is required by law, necessary for regulatory reasons.
4.4.1.During the term of this Agreement, Buyer, its agents and representatives, shall be entitled to enter upon the Real Property during normal business hours (as reasonably coordinated through Seller’s property manager), including all leased areas, upon receipt by Seller of notice via both telephonic and electronic mail to Toby Daley ((781) 557-1342) / email: tdaley@fspreit.com) at least one (1) Business Day in advance of the intended entry, to (a) perform inspections and tests of the Real Property (except to the extent such inspections and tests are expressly prohibited under this Agreement), including surveys, non-invasive environmental studies (including Phase I environmental site assessment), pest and engineering inspections, non-invasive examinations and tests of structural and mechanical systems within the Improvements,
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(b) make investigations with regard to zoning, building code title and other legal requirements, (c) review the terms and provisions of all Leases, Contracts, management agreements, permits, surveys, engineering reports, appraisals, environmental reports, plans and specifications title insurance policies, (d) examine the books and records of Seller and Seller’s property manager (including financial statements) within possession of Seller or subject to Seller’s control relating to the income and expenses of the Property (except to the extent the same are confidential or proprietary in nature), and (e) conduct interviews with tenants, subtenants, occupants and/or licensees of the Property (provided that Seller shall have the opportunity for a representative of Seller to be present during such interviews provided that such interview may proceed if Seller’s representative does not appear), all subject to all of the rights, obligations and limitations set forth in this Section 4.4.1.
Notwithstanding the foregoing, Buyer, its agents, contractors, consultants, employees, designees, representatives, engineers, subcontractors, accountants or attorneys (collectively, “Buyer’s Agents”) shall not be permitted to interfere unreasonably with Seller’s operations at the Property or interfere with any tenant’s operations at the Property except in accordance with the terms of the applicable tenant Lease, and the scheduling of any inspections shall take into account the timing and availability of access to tenants’ premises, subject to tenants’ rights under the Leases or otherwise. Neither Buyer nor Buyer’s Agents shall communicate with any tenant (including any subtenant, employee, invitee or agent thereof) without the prior written consent of Seller; provide that Buyer shall have the right to perform interviews in accordance with the immediately preceding paragraph. Furthermore, and notwithstanding anything to the contrary contained in this Section 4.4.1, Buyer acknowledges and agrees that unless otherwise approved by Seller in writing, Buyer’s inspection rights hereunder shall not include the right to conduct (a) air or water sampling/testing or (b) physically invasive testing, including without limitation, soil sampling/testing, the penetration of walls or ceilings or the penetration of foundation slab. If Buyer wishes to engage in any testing which is invasive, which will damage or disturb any portion of the Property, which will involve sampling, which will involve testing of subsurface soils or groundwater, or which will involve any of the items described in the immediately preceding sentence, Buyer shall first obtain Seller’s prior consent thereto, which may be withheld by Seller in its sole and absolute discretion. Buyer shall promptly repair any damage to the Real Property caused by any such inspections, samples, tests or investigations performed under this Section 4.4.1.
Buyer hereby agrees to indemnify and hold harmless Seller, Seller’s partners and the shareholders, officers, managers, directors, employees, agents, partners, members, successors and assigns of each of the foregoing (collectively, the “Indemnified Parties”) from and against any mechanics’ lien or claim therefor, any claim, cause of action, lawsuit, damage, liability, loss, cost or expense (including, without limitation, attorneys’ fees) arising out of any (i) entry on to the Real Property by Buyer or any of Buyer’s Agents or (ii) out of any inspections, samples, investigations or tests conducted by Buyer or any of Buyer’s Agents; provided, however, the foregoing indemnity shall not apply to (a) any liability arising out of any condition discovered as a result of such inspections, samples, investigations or tests so long as such condition was not actually caused and/or exacerbated by Buyer or Buyer’s Agents, (b) the extent of the negligence or misconduct of Seller or any Indemnified Parties, or (c) diminution in the market value of the Property resulting from the information disclosed by any
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such investigation or tests (unless due to the negligence or willful misconduct of Buyer or Buyer’s Agents). Prior to any entry upon the Real Property by Buyer or any of Buyer’s Agents, Buyer shall deliver to Seller an certificate acknowledging an endorsement to the commercial general liability insurance policy of Buyer and/or any of Buyer’s Agents, as applicable, which evidences that Buyer and/or any of Buyer’s Agents, as applicable, are carrying a commercial general liability insurance policy covering (i) the activities of Buyer and/or any Buyer’s Agents, as applicable, on or upon the Real Property, and (ii) Buyer’s indemnity obligation above. Such endorsement to such insurance policy shall evidence that such insurance policy shall have a per occurrence limit of at least $1,000,000 and an aggregate limit of at least $2,000,000, shall name Seller as an additional insured, shall be primary and non-contributing with any other insurance available to Seller, shall contain a full waiver of subrogation clause, and insure Buyer’s indemnity obligations hereunder.
The provisions of this Section 4.4.1 shall survive Closing or the termination of this Agreement; provided that Buyer’s indemnity obligations under this Section 4.1.1 shall only survive the termination of this Agreement for a period of twelve (12) months.
4.4.2.The term “Inspection Period,” as used herein, shall mean the period commencing on the Effective Date and ending at 5:00 p.m. Eastern Time Zone (U.S.A.) on October 15, 2021. Buyer may terminate this Agreement in its sole discretion, for any reason or for no reason, in Buyer’s sole and absolute discretion, by giving written notice of such election to Seller on any day prior to and including the final day of the Inspection Period, in which event the Deposit (to the extent previously funded) shall be returned forthwith to Buyer, and, except as expressly set forth herein, no party shall have any further liability or obligation hereunder. The foregoing acknowledgement shall survive any termination of this Agreement. In the absence of such written notice, the contingency provided for in this Section 4.4.2 no longer shall be applicable, this Agreement shall continue in full force and effect, and the Deposit shall be deemed earned by Seller and nonrefundable to Buyer, except as otherwise set forth in this Agreement.
4.4.3.EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN ANY OF THE CLOSING DOCUMENTS EXECUTED AND DELIVERED BY SELLER TO BUYER PURSUANT TO SECTION 7.2 HEREOF (THE “CLOSING DOCUMENTS”), IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
BUYER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO BUYER AND BUYER SHALL ACCEPT THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS”, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT OR ANY OF THE CLOSING DOCUMENTS. BUYER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESS OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, ANY PROSPECTUS DISTRIBUTED WITH RESPECT TO THE PROPERTY)
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MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR ANY OF THE CLOSING DOCUMENTS. BUYER ALSO ACKNOWLEDGES THAT THE PURCHASE PRICE REFLECTS AND TAKES INTO ACCOUNT THAT THE PROPERTY IS BEING SOLD “AS-IS.”
BUYER REPRESENTS TO SELLER THAT BUYER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS BUYER DEEMS NECESSARY OR DESIRABLE TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO. UPON CLOSING, BUYER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY BUYER’S INVESTIGATIONS, AND, SUBJECT TO BUYER’S RIGHTS UNDER SECTION 10.2, BUYER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER AND THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH BUYER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER AND THE INDEMNIFIED PARTIES AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY.
THE PROVISIONS OF THIS SECTION SHALL SURVIVE CLOSING OR ANY TERMINATION OF THIS AGREEMENT.
4.4.4.Buyer hereby agrees that, if at any time after the Closing, any third party or any governmental agency seeks to hold Buyer responsible for the presence of, or any loss, cost or damage associated with, Hazardous Materials (as defined below) in, on, above or beneath the Real Property or emanating therefrom, then Buyer waives any rights it may have against Seller, except as otherwise expressly set forth in this Agreement, in connection therewith including, without limitation, under CERCLA (as defined below), and Buyer agrees that it shall not (i) implead Seller, (ii) bring a contribution action or similar action against Seller or (iii) attempt in any way to hold Seller responsible with respect to any such matter. The provisions of this Section 4.4.4 shall survive the Closing. As used herein, “Hazardous Materials” shall mean and include, but shall not be limited to any petroleum product and all hazardous or toxic substances, wastes or substances, any substances which because of their quantities concentration, chemical, or active, flammable,
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explosive, infectious or other characteristics, constitute or may reasonably be expected to constitute or contribute to a danger or hazard to public health, safety or welfare or to the environment, including, without limitation, any hazardous or toxic waste or substances which are included under or regulated (whether now exiting or hereafter enacted or promulgated, as they may be amended from time to time) including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended (“CERCLA”), the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Toxic Substance Control Act, 15 U.S.C. §2601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §1802, the Resource Conservation and Recovery Act, 42 U.S.C. §9601, et seq., the Clean Water Act, 33 U.S.C. §1251 et seq., the Safe Drinking Water Act, 42 U.S.C. §300f et seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Federal Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., and similar federal, state and local laws and regulations adopted thereunder.
4.5.Title and Survey Matters. Buyer, at its sole cost and expense, has obtained a title report or commitment issued by the Escrow Agent with respect to the Property (the “Title Commitment”), and has delivered such Title Commitment to Seller (with copies of all available instruments listed as exceptions to title) Seller has furnished to Buyer a copy of Seller’s most recent existing survey of the Real Property (the “Existing Survey”), and Buyer may elect, at its sole cost and expense, to obtain an updated or new survey of the Real Property (the “Updated Survey”). Buyer shall provide Seller with copies of any new or updated Title Commitment and/or Updated Survey received by Buyer within three (3) days of Buyer’s receipt of same. Buyer shall have until the date which is ten (10) days prior to the end of the Inspection Period (the “Title Objection Deadline”) to approve or disapprove matters disclosed by the Title Commitment, title exception documents and the Existing Survey (or, if available, the Updated Survey) and to give written notice to Seller of any disapproval thereof, indicating in reasonable detail the nature and reasons for Buyer’s objection; and failure to give such notice of disapproval shall constitute Buyer’s approval of all such matters. In the event Buyer so notifies Seller of Buyer’s disapproval of any Title Commitment or survey matters, Seller may elect (but shall have no obligation whatsoever (except for Required Removal Exceptions and disapproved matters which Seller has expressly committed to in writing to cure) to attempt to cure any disapproved matter within thirty (30) days from receipt of such notice (the “Title Cure Period”), in which event the Closing, if it otherwise is scheduled to occur earlier, shall be extended until the earlier of (a) thirty (30) days after receipt of such notice, (b) five (5) Business Days after such matter is cured, and (c) November 2, 2021. Within five (5) days after receiving Buyer’s notice (the “Seller’s Title Notice Period”), Seller shall notify Buyer if Seller intends to attempt to effectuate such cure; provided that Seller shall be obligated, at its sole cost and expense, to remove, bond over, pay and/or satisfy prior to or at Closing, in a manner satisfactory to Escrow Agent so that Escrow Agent is willing to issue title insurance without exception, (i) any monetary liens against the Property that Seller has knowingly and intentionally placed (or allowed to be placed) on the Property, including, without limitation, mortgages, and (ii) other liens encumbering the Property that are curable solely by the payment of moneys, including, without limitation, judgments, federal, state and municipal tax liens (collectively but subject to the limitations in the immediately succeeding sentence, “Required Removal Exceptions”). Notwithstanding the foregoing, Seller shall not be obligated to satisfy any liens against the Property arising under clause (ii) of the preceding sentence for a liquidated amount that is, in the aggregate, in excess of $250,000.00 in which event such amounts (and only such amounts) that are over and above such $250,000.00 threshold shall not be deemed to be Required
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Removal Exceptions (i.e., Seller shall only be obligated to satisfy any such liens up to $250,000.00). Notwithstanding the foregoing, Required Removal Exceptions shall not include any monetary liens attributable to discreet portions of work completed as part of a Capital Project for which Buyer receives a Capital Improvements Credit. In addition, Seller may satisfy any Required Removal Exceptions by disbursement of the required funds to Escrow Agent at Closing. In the event that, prior to the expiration of Seller’s Title Notice Period, Seller fails to give such notice of its intention to attempt to effectuate such cure, or if Seller elects not to attempt to effectuate such cure, Buyer may, prior to the expiration of the Inspection Period, terminate this Agreement by written notice to Seller, in which event the Deposit (to the extent previously funded) shall be returned to Buyer, provided if Buyer does not so terminate this Agreement prior to the expiration of the Inspection Period, Buyer shall be deemed to have waived objection to any matters affecting title or survey which Seller has not agreed to cure and shall be deemed to have agreed to accept title subject thereto, without reduction in the Purchase Price. In the event Seller gives such written notice of its intention to attempt to effectuate such cure and thereafter fails to actually effectuate such cure (in a manner reasonably acceptable to Buyer) within the Title Cure Period, Buyer’s sole rights with respect thereto shall be to terminate this Agreement prior to Closing and receive a refund of the Deposit hereunder (to the extent previously funded); provided if Buyer does not so terminate this Agreement prior to Closing, Buyer shall be deemed to have waived objection to any such title and survey matters and agreed to accept title subject thereto, without reduction in the Purchase Price.
Any matters affecting title to the Property that first appear of record after the effective date of the Title Commitment but before the Closing Date (each, an “Intervening Exception”) shall be subject to Buyer’s approval, and Buyer shall have until 5:00 p.m. Eastern Time on the fifth (5th) Business Day after receipt of written notice of any Intervening Exception to either accept it or submit written disapproval. Seller shall have until 5:00 p.m. Eastern Time on the third (3rd) Business Day after receipt of such disapproval, to notify Buyer whether Seller will attempt to remove or cure the objectionable Intervening Exception before the Closing or inform Buyer that it will not remove or cure the Intervening Exception, provided that Seller shall be required to cure any Intervening Exception that is also a Required Removal Exception. If Seller fails to give such notice of its intention to attempt to remove or cure the Intervening Exception, or if Seller elects not to attempt to effectuate such removal or cure, Buyer may terminate this Agreement by written notice to Seller within three (3) Business Days after such three Business Day period, in which event the Deposit shall be returned to Buyer (to the extent previously funded). If necessary to accommodate the time periods set forth in this paragraph, Seller may elect to extend the Closing to November 2, 2021 for the purpose of removing or curing an Intervening Exception. Notwithstanding anything contained herein to the contrary, in no event shall any lien or similar matter caused by any tenant at the Property constitute an Intervening Exception and Buyer shall have no right to terminate this Agreement as a result thereof.
Subject to the satisfaction of the Escrow Agent’s requirements of Buyer described in the Title Commitment and Buyer’s confirmation that its pro rata portion of any unpaid property taxes due for 2021 shall be paid by the Escrow Agent from Buyer funds at Closing, it shall be a condition to Buyer’s obligation to close the transactions hereunder that Escrow Agent shall be irrevocably committed to deliver to Buyer at Closing a 2016 ALTA Owner’s Policy of Title Insurance, insuring Buyer’s title to the Real Property in the full amount of the Purchase Price, with the standard written exceptions deleted (other than for property taxes for 2022, not yet due and payable), insuring the
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“gap,” and subject only to the exceptions to title approved or deemed approved by Buyer pursuant to this Section 4.5, dated as of the date the Deed is recorded (the “Title Policy”); provided, however, that Buyer and Seller agree and acknowledge that it shall not be deemed to be a failure of a condition to Buyer’s obligation to close the transaction hereunder if Escrow Agent fails to delete any standard written exception based on the fact that any required Seller indemnification excludes any lien, right to a lien or other encumbrance arising from (i) any Contract, including any Uncompleted Capital Contract, that has been fully paid for prior to or at Closing and for which Seller has furnished to Escrow Agent and Buyer unconditional lien waivers and/or other evidence of full payment and (ii) any portion of any Capital Project that has not been fully completed prior to Closing, but for which Seller assigns the Uncompleted Capital Contract to Buyer at Closing and for which Buyer receives a Capital Improvements Credit at Closing.
4.6.Tenant Estoppel Certificates. It shall be a condition to Buyer’s obligation to close the transactions hereunder that the Estoppel Certificate Requirement (as defined below) has been satisfied. For purposes of this Agreement, an “Estoppel Certificate” or “Estoppel Certificates” shall mean estoppel certificates dated within thirty (30) days of the originally scheduled Closing Date of this Agreement either (a) in the form of Exhibit B attached hereto, or if applicable, (b) in such form as is permitted under any particular tenant Lease. For purposes of this Agreement, the “Estoppel Certificate Requirement” shall mean receipt of Estoppel Certificates duly executed by each of (i) Common Grounds 999 Peachtree, LLC, (ii) Eversheds Sutherland (US) LLP, (iii) M. Arthur Gensler Jr. & Associates, Inc., and (iv) Oxford Industries, Inc. (collectively, the “Required Tenants”) and from such other tenants who, together with the Required Tenants, lease at least seventy percent (70%) of the leased square footage of the Property. Seller shall prepare Estoppel Certificates in the form of Exhibit B attached hereto and shall provide Buyer with three (3) Business Days to review the same. Seller shall review and incorporate any changes provided by Buyer during such three (3) Business Day period to the extent Seller reasonably deems appropriate; provided, however, that Buyer shall be deemed to have approved the draft Estoppel Certificates after expiration of such three (3) Business Day period. Seller shall use commercially reasonable efforts to obtain such executed Estoppel Certificates from each Tenant under a Lease of more than 1,000 square feet, but in no event shall Seller be required to expend any material funds, make any concessions to tenants or place (or threaten to place) any tenant in default in connection therewith. Seller will deliver to Buyer copies of each executed Estoppel Certificate promptly following Seller’s receipt thereof. An Estoppel Certificate shall be deemed to satisfy the Estoppel Certificate Requirement as long as it does not contain any material inconsistency with the representations of Seller contained herein or with the terms of the Lease, and shall be deemed satisfactory notwithstanding the respective tenant’s qualifying any statement or certification therein by a “best of knowledge” standard or similar provision. Seller shall have the one time right to extend the Closing Date to November 2, 2021 to attempt to satisfy the Estoppel Certificate Requirement, by notice to Buyer at least three (3) Business Days prior to the scheduled Closing Date.
4.7.Non-Tenant Estoppel Certificates. To the extent Buyer seeks to obtain an estoppel certificate in connection with the Property from any entity that is not a tenant of the Property (a “Non-Tenant Estoppel Certificate”), Buyer shall provide a form Non-Tenant Estoppel Certificate to Seller and, subject to Seller’s review and approval of the same in its reasonable discretion, Seller shall use commercially reasonable efforts to deliver the same to such non-tenant entity; provided, however, delivery of any executed Non-Tenant Estoppel Certificates shall not be
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a condition to Closing (except to the extent Seller expressly agrees in writing to obtain such Non-Tenant Estoppel Certificate in accordance with the terms of Section 4.5). Seller shall not be required to expend any funds, make any concessions to non-tenants or place (or threaten to place) any party in default in connection with obtaining Non-Tenant Estoppel Certificates.
5.Failure of Conditions. In the event Seller shall not be able to convey title to the Property on the Closing Date in accordance with the provisions of this Agreement or any of the conditions precedent to the obligation of Buyer to proceed with the Closing set forth in Section 4 have not been fulfilled on or before the Closing Date, then Buyer shall have the option, exercisable by written notice to Seller prior to Closing, of (a) accepting at Closing such title as Seller is able to convey and/or waiving any unsatisfied condition precedent, with no deduction from or adjustment of the Purchase Price, or (b) declining to proceed to Closing. In the latter event, except as expressly set forth herein, all obligations, liabilities and rights of the parties under this Agreement shall terminate, and the Deposit (together with interest thereon) shall be returned to Buyer (to the extent previously funded). Nothing in this Section 5 shall limit Buyer’s remedies under Section 10.2.
The continued accuracy in all material respects of the representations and warranties set forth in Section 16 hereof shall be a condition precedent to Seller’s obligation to close hereunder. If any representation or warranty set forth in Section 16 shall not be correct in any material respect at or before Closing, the same shall be considered a default of Buyer hereunder, entitling Seller to terminate this Agreement and receive the Deposit hereunder upon written notice to Buyer of its election to do so.
6.Pre-Closing Matters.
6.1.Leasing Matters. From and after the Effective Date, Seller shall not, without the written consent of Buyer (which consent may be withheld in Buyer’s sole discretion), (i) effect any change in any Lease, (ii) renew or extend the term of any Lease, unless the same is an extension or expansion expressly permitted to be exercised by the tenant pursuant to the terms of an existing Lease, or (iii) enter into any new Lease or cancel or terminate any Lease. When seeking consent to a new or modified Lease, Seller shall provide notice of the identity of the tenant, a term sheet or letter of intent containing material business terms (including, without limitation, rent, expense base, concessions, tenant improvement allowances, brokerage commissions, and expansion and extension options), whatever credit and background information with respect to such tenant as Seller customarily obtains in connection with similar leases, the form of lease or modification, and any other information or documentation reasonably requested by Buyer. Buyer shall be deemed to have consented to any proposed Lease or Lease modification if it has not responded to Seller within five (5) Business Days after receipt of such information. Seller shall deliver to Buyer copies of executed versions of any such documents within three (3) Business Days after the full execution and delivery thereof.
6.2.Adjustment of New Leasing Expenses. Any tenant improvement allowances or costs, landlord work costs, free rent (including, without limitation, any partial abatement of rent) and/or commissions under new Leases or extensions or expansions of existing Leases shall be apportioned between Seller and Buyer as of the date of the Closing in accordance with the remaining provisions of this Section 6.2. Seller shall be responsible for the cost of any
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tenant improvement allowances or costs, landlord work costs (including any landlord work costs not yet completed as of Closing), free rent (including, without limitation, any partial abatement of rent), other similar tenant inducement costs, and commissions under Leases which have been entered into, or extensions or expansions exercised, in each case prior to the Effective Date. Buyer shall be responsible for the cost of any tenant improvement allowances and costs, landlord work costs, free rent (including, without limitation, any partial abatement of rent), other similar tenant inducement costs, and commissions under (i) any new Leases entered into on or after the Effective Date in accordance with Section 6.1 above, and (ii) any extensions or expansions of existing Leases, the term of which extension or expansion commences following the Effective Date. To the extent that said costs are the responsibility of Buyer, they shall be credited to Seller at Closing, if paid by Seller prior to Closing, or paid by Buyer, if due after Closing. To the extent that said costs are the responsibility of Seller, they shall be credited to Buyer at Closing, if not paid by Seller prior to Closing. Seller represents and warrants that as of the Effective Date, the Due Diligence Certificate accurately reflects all tenant improvement allowances or costs, landlord work costs, free rent and/or commissions under Leases. The provisions of this Section 6.2 shall survive the Closing indefinitely.
6.3.Capital Projects. Prior to Closing, Seller, at Seller’s sole cost and expense, shall continue to pursue the completion of the capital projects in progress at the Property as of the Effective Date that are set forth in the Due Diligence Certificate in the ordinary course and all other capital projects at the Property in progress as of or commenced by Seller before Closing (the “Capital Projects”), but completion thereof shall not be a condition to Closing. Notwithstanding the foregoing, for each foregoing Capital Project that is not completed prior to the Closing Date (each such contract being listed on the Due Diligence Certificate (or which is otherwise commenced prior to Closing) and referred to herein as an “Uncompleted Capital Contract”), (i) Seller shall assign to Buyer at Closing any Uncompleted Capital Contract; (ii) Buyer shall assume at Closing that Uncompleted Capital Contract and full responsibility for the obligations under that Uncompleted Capital Contract, including responsibility for performing and completing the work set forth therein and all payment obligations thereunder; (iii) Seller shall pay or provide Buyer a credit at Closing equal to the contract amount of the Uncompleted Capital Contract assumed by Buyer less amounts paid by Seller pursuant to the Uncompleted Capital Contract prior to the Closing Date as certified by Seller (the “Capital Improvements Credit”), and (iv) a portion of the Purchase Price proceeds payable to Seller in an aggregate amount equal to 25% of the Capital Improvements Credit (the “Capital Improvements Holdback”) shall remain held by Escrow Agent in accordance with the Surviving Escrow Agreement (as defined below). Pursuant to the Surviving Escrow Agreement, if the remaining cost actually incurred by Buyer to complete the Capital Projects in accordance with the Uncompleted Capital Contracts (but without giving effect to any elective change orders (i.e., change orders not necessitated by applicable law or conditions existing on the Property at or prior to Closing) made in connection therewith or pursuant thereto) exceeds the Capital Improvements Credit, Buyer shall be entitled to a reimbursement from the Capital Improvements Holdback in accordance with the terms of the Surviving Escrow Agreement. Buyer’s written request for disbursement shall include reasonable supporting documentation of costs incurred by Buyer to complete the Capital Projects. The provisions of this Section 6.3 shall not apply to any work or projects performed by or on behalf of any tenants at the Property.
6.4.Termination for Default. Notwithstanding anything in this Agreement to the contrary, until the expiration of the Inspection Period, Seller may cancel or terminate any Lease
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or commence collection, unlawful detainer or other remedial action against any tenant without Buyer’s consent upon the occurrence of a default by the tenant under said Lease. Seller shall deliver to Buyer copies of all default notices and correspondence delivered to or received from any of the tenants in connection with the Leases after the Effective Date.
6.5.Operation of Property. From and after the Effective Date, Seller shall (i) operate, maintain and manage the Property in the same manner as Seller has in the past, and in all events in accordance with applicable laws, including continuing repair and preventative maintenance and maintenance of adequate insurance with respect thereto, (ii) maintain in existence all licenses, permits and approvals of Seller that are now in existence with respect to, and are required for, the ownership, operation or improvement of the Property, and are of a continuing nature, and (iii) maintain the insurance policies for the Property consistent with past practice in full force and effect. From and after the Effective Date, other than in connection with Capital Projects, Seller shall not, without Buyer’s prior written consent, (a) make any material structural alterations or additions to the Property except as may be required by any of the Leases, (b) change or attempt to change the current zoning of the Real Property, or (c) cancel, amend or modify, in a manner materially adverse to the Property, any license or permit held by Seller with respect to the Property or any part thereof which would be binding upon Buyer after the Closing.
6.6.Contracts. All Contracts shall be assigned to and assumed by Buyer at Closing. Seller shall be obligated to comply with any notice and consent requirements (if any) under any Contracts to the extent necessary to effectuate the assignment of such Contracts at Closing. Notwithstanding the foregoing, Seller shall, at its expense and by the time of Closing, terminate its contracts with Seller’s property management company and leasing manager, provided that Buyer shall assume and be responsible for any commission or other amounts payable under any broker or commission agreements relating to new Leases at the Real Property in accordance with Section 6.2 hereof. Subject to the terms of this Section 6.6, from and after the Effective Date, Seller shall provide Buyer with copies of any new Contracts. During the term of this Agreement, other than in the event of an emergency that poses an imminent threat to life or property, Seller shall not enter into any new Contracts which would be binding on Buyer following Closing without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed. Buyer shall be deemed to have consented to any proposed new Contract if Buyer has not responded within three (3) Business Days after Seller’s request for consent thereto.
6.7.No Marketing of the Property. During the pendency of this Agreement, Seller shall not (i) market, solicit, negotiate, or enter into any contract or other written agreement for marketing, brokering or sale of the Property or any interest in Seller with any other party, or (ii) voluntarily sell all or any portion of the Property.
6.8.No Liens on the Property. During the pendency of this Agreement, Seller shall not voluntarily create any liens or easements on any portion of the Property without the prior written consent of Buyer, which shall not be unreasonably withheld, conditioned or delayed.
6.9.Survival. The provisions of this Section 6 shall survive Closing or the termination of this Agreement.
7.Closing; Deliveries.
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7.1.Time of Closing. The Closing shall take place by 5:00 p.m. Eastern Time on October 22, 2021 (subject, however, to extension pursuant to Sections 4.5 and 4.6) (the “Closing Date”) at the offices of the Escrow Agent, unless otherwise agreed to in writing by both Seller and Buyer. If the Closing Date falls on a day which is not a Business Day, the Closing Date shall be the next Business Day.
7.2.Seller Deliveries. At Closing, Seller shall deliver to Escrow Agent the following with respect to the Property:
7.2.1.A limited warranty deed (the “Deed”) to the Real Property from Seller, duly executed and acknowledged by Seller and substantially in the form attached hereto as Exhibit C, subject only to such title matters as are approved (or deemed approved) pursuant to Section 4.5.
7.2.2.A quitclaim deed in form reasonably acceptable to Buyer and Seller quitclaiming Seller’s interest in the legal description set forth in the survey obtained by Buyer pursuant to Section 4.5, subject to Seller’s reasonable approval of such legal description.
7.2.3.A bill of sale for the Personalty from Seller, substantially in the form attached hereto as Exhibit D, duly executed by Seller.
7.2.4.An assignment and assumption of Leases, Contracts and Security Deposits (the “Assignment and Assumption of Leases, Contracts and Security Deposits”) from Seller, substantially in the form attached hereto as Exhibit E, duly executed by Seller.
7.2.5.An assignment of the Intangible Property (the “Assignment of Intangible Property”) from Seller, substantially in the form attached hereto as Exhibit F, duly executed by Seller.
7.2.6.A notice to the tenants of the Building (the “Tenant Notice Letter”) from Seller advising of the sale of the Building and directing that rent and other payments thereafter be sent to Buyer at the address provided by Buyer at Closing, substantially in the form attached hereto as Exhibit G, duly executed by Seller.
7.2.7.An owner’s affidavit in the form attached hereto as Exhibit J, which shall include a statement pursuant to the Commercial Real Estate Broker Lien Act that no broker is involved.
7.2.8.A Non-Foreign Affidavit as required by the Foreign Investors in Real Property Tax Act (“FIRPTA”), as amended, in the form of Exhibit H, duly executed by Seller.
7.2.9.A certification by Seller substantially in the form attached hereto as Exhibit I that all representations and warranties made by Seller in Section 3 of this Agreement are true and correct in all material respects on the Closing Date, except as may be set forth in such certificate.
7.2.10.A 1099-S in the form reasonably acceptable to Buyer and Escrow Agent, duly executed by Seller.
7.2.11.Either an affidavit of gain, affidavit of no gain, or an affidavit of residence or other appropriate evidence that Seller is exempt from the withholding requirements of O.C.G.A.
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§ 48-7-128 (failing which Buyer shall be fully authorized to withhold and pay to the appropriate taxing authority the amount required to be withheld pursuant to said § 48-7-128).
7.2.12.A Surviving Escrow Agreement (as defined below) in the form attached hereto as Exhibit K, duly executed by Seller.
7.2.13.Keys or combinations to all locks at the Property, to the extent in Seller’s possession. Buyer hereby acknowledges and agrees that Seller shall be permitted to make the items described in this Section 7.2.13 available to Buyer at the Property in lieu of delivering them to Escrow Agent.
7.2.14.Originals or copies of the Leases and copies of lease files at the Real Property, and originals or copies of any Contracts (except the Proprietary Materials), to the extent in Seller’s possession. Buyer hereby acknowledges and agrees that Seller shall be permitted to make the items described in this Section 7.2.14 available to Buyer at the Building in lieu of delivering them to Escrow Agent.
7.2.15.Executed copies of state, county and local transfer declarations, as applicable.
7.2.16.Such documents and instruments as are necessary or reasonably required by Buyer or the title insurer to evidence the authority of Seller and its signatories to execute the instruments to be executed by Seller in connection with the transactions contemplated herein, and evidence that the execution of such instruments is the official act of Seller.
7.2.17.Such other documents, affidavits or certificates as are customary or may be reasonably required by the Escrow Agent or may be agreed upon by Seller and Buyer to consummate the sale of the Property.
7.2.18.A joint closing statement, in form mutually acceptable to Seller and Buyer, setting forth the prorations and adjustments to the Purchase Price with respect to the Property to be made pursuant to this Agreement (the “Closing Statement”), duly executed by Seller.
7.3.Buyer Deliveries. At Closing, Buyer shall deliver to Escrow Agent the following:
7.3.1.In accordance with Seller’s instructions, a wire transfer in the amount required under Section 2.2 hereof (subject to the adjustments provided for in this Agreement).
7.3.2.A certification by Buyer substantially in the form attached hereto as Exhibit I that all representations and warranties made by Buyer in Section 16 of this Agreement are true and correct in all material respects on the Closing Date, except as may be set forth in such certificate.
7.3.3.The Assignment and Assumption of Leases, Contracts and Security Deposits, duly executed by Buyer.
7.3.4.The Assignment of Intangible Property, duly executed by Buyer.
7.3.5.The Surviving Escrow Agreement, duly executed by Buyer.
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7.3.6.Executed copies of state, county and local transfer declarations, as applicable.
7.3.7.Such documents and instruments as are necessary or reasonably required by Seller or the title insurer to evidence the authority of Buyer and its signatories to execute the instruments to be executed by Buyer in connection with the transactions contemplated herein, and evidence that the execution of such instruments is the official act of Buyer.
7.3.8.The Closing Statement, duly executed by Buyer.
8.Apportionments; Taxes; Expenses.
8.1.Apportionments.
8.1.1.Taxes and Operating Expenses. All real estate taxes, charges and assessments affecting the Property (“Taxes”), all charges for water, electricity, sewer, gas, telephone and all other utilities (“Operating Expenses”), to the extent not paid directly by tenants, and all common area maintenance charges billed to tenants on an estimated basis (“CAM Charges”) shall be prorated on a per diem basis as of the Closing Date. Buyer shall be entitled to all income and responsible for all expenses for the period beginning at 12:01 a.m. (Eastern Time Zone (U.S.A.)) on the Closing Date, except as set forth herein and Seller shall have no responsibility for any expenses incurred by Buyer following Closing. Any proration of Taxes shall be done on a cash basis based on Taxes payable during the fiscal year in which Closing occurs. If any Taxes have not been finally assessed as of the Closing Date for the current fiscal year of the taxing authority, then the same shall be adjusted at Closing based upon the most recently issued bills therefor, and Seller and Buyer agree to re-prorate such Taxes by appropriate payments between themselves within thirty (30) days following the date final bills are issued. If any Operating Expenses or CAM Charges cannot conclusively be determined as of the Closing Date, then the same shall be adjusted at Closing based upon the most recently issued bills thus far, and shall promptly be re-adjusted when and if final bills are issued. Buyer hereby agrees to assume all non-delinquent assessments affecting the Property, whether special or general, as well as those assessments applicable to the period of time from and after the Closing; provided that Seller shall be obligated to pay all taxes applicable to the period of time prior to Closing to the extent set forth above.
If Seller is presently prosecuting tax abatement proceedings, after the Closing, Seller shall continue to be authorized to prosecute such proceedings, and, except as required to be reimbursed to any tenant under any Lease, shall be entitled to its pro rata share of any such abatement proceeds; provided, however, to the extent any such tax abatement proceedings relate to the fiscal year in which the Closing occurs, Seller shall not settle any such proceeding without Buyer’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed). Buyer agrees, to the extent reasonably necessary for Seller to continue to prosecute such proceedings, to reasonably cooperate (at no material liability to Buyer) with Seller, at Seller’s expense, and, except as required to be reimbursed to any tenant under any Lease, also agrees to promptly endorse or pay over to Seller any abatement amounts for such years received by Buyer (including, without limitation, Seller’s pro rata share of any such amounts relating to the year in which Closing occurs as well as Buyer’s share of any costs or fees payable in connection with such appeal).
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8.1.2.Rent. Except for delinquent rent, all rent and other income received under the Leases shall be prorated to the Closing Date. Delinquent rent shall not be prorated but shall remain the property of Seller. Payments received from tenants from and after the Closing Date shall be applied first to rents then due for the current period but not yet paid and then to delinquent rents, if any, in inverse order of maturity. For a period of six (6) months after the Closing Date, Buyer shall use commercially reasonable efforts to collect delinquent rents for the benefit of Seller, but shall not be required to terminate any Leases or evict any tenants. Notwithstanding the foregoing, Buyer shall not be required to institute any legal or collection proceedings to collect any delinquent rent. In no event shall Seller have the right after Closing to contact or pursue any remedy against any tenant under any Lease affecting the Property owing delinquent rents and/or any other amounts to Seller.
8.1.3.Charges under Contracts. The unpaid monetary obligations of Seller with respect to any of the Contracts shall be prorated on a per diem basis as of Closing Date and credited to Buyer at Closing.
8.1.4.Security Deposits. The cash Security Deposits (together with any accrued interest thereon as may be required by law or contract), to the extent not theretofore applied by Seller, shall be credited to Buyer as of the Closing Date. In the event any Security Deposits are in the form of a letter of credit, Seller shall (i) at Closing deliver the originals of any letters of credit, and execute and deliver to Buyer such instruments as the issuers of such letters of credit shall reasonably require in order to transfer the same to Buyer, and (ii) after Closing, Seller shall cooperate with Buyer to change the named beneficiary under such letters of credit to Buyer so long as Seller does not incur any additional liability or expense in connection therewith. Seller shall be liable for the payment of any fees imposed by the issuer of any letter of credit to be transferred except to the extent the same are the responsibility of the tenant under a Lease. Except with the prior written consent of Buyer, Seller shall not apply any Security Deposits to any obligations due to Seller under the Leases.
8.1.5.Bankruptcy Distributions. Any portion of bankruptcy distributions (whether or not Seller has filed a proof of claim as of the date hereof) or payments pursuant to (a) settlement agreements (whether prepared by Seller’s in-house counsel or outside counsel), (b) arrearage payment plans by letters signed by Seller or its agent(s), (c) lease termination agreements, (d) promissory notes, or (e) judgments (whether already obtained by Seller or which result from lawsuits or proceedings filed prior to the Closing) providing for the payment of specified sums, either in a lump sum or in installments, in all cases which are applicable to the time period prior to the Closing Date but payable after the Closing Date and actually received by Buyer, shall be credited to and payable to Seller.
8.1.6.Correction of Prorations. In the event any prorations, apportionments, adjustments, or computation shall prove to be incorrect for any reason (including errors or omissions), then either party shall be entitled to an adjustment to correct the same within thirty (30) days after written notice to the other party, provided that all such adjustments shall be made, if at all, on or before a date which is one hundred fifty (150) days after the calendar year in which the Closing occurs.
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8.1.7.Survival. The provisions of this Section 8.1 shall survive the Closing to the extent any monies may be payable pursuant to this Section 8.1 to either party subsequent to the transfer of title to the Property to Buyer. Any reimbursements payable by any tenant under the terms of any Lease affecting the Property as of the Closing Date, which reimbursements pertain to such tenant’s pro rata share of increased operating expenses or common area maintenance costs incurred with respect to the Property at any time prior to the Closing, shall, to the extent not capable of being prorated at Closing, be prorated upon Buyer’s actual receipt of any such reimbursements, on the basis of the respective share of such costs or expenses paid by Seller and Buyer during the period in respect of which such reimbursements are payable; and Buyer agrees to pay to Seller, Seller’s pro rata portion of such reimbursements within thirty (30) days after Buyer’s receipt thereof. Conversely, if any tenant under any such Lease shall become entitled at any time after Closing to a refund of tenant reimbursements actually paid by such tenant prior to Closing, then, Seller shall, within thirty (30) days following Buyer’s demand therefor, pay to Buyer any amount equal to Seller’s pro rata share of such reimbursement refund obligations, said proration to be calculated on the same basis as hereinabove set forth. It is agreed that adjustment billings to tenants for operating expenses, common area maintenance charges, taxes or insurance premiums for the accounting year in which the Closing occurs shall be billed by Buyer and shall be adjusted between Seller and Buyer based upon the respective percentages of the total related expenses paid by each of Buyer and Seller for such accounting year. To satisfy Buyer’s foregoing obligation to bill tenants for the full calendar year in which the Closing takes place, at Closing, Seller shall provide Buyer with general ledgers for the calendar year in which the Closing takes place, through the Closing Date. Notwithstanding the foregoing, all adjustments and prorations shall become final and no further adjustments or prorations shall be done one hundred fifty (150) days following the end of the calendar year in which the Closing takes place.
8.2.Closing Costs. Seller shall pay one-half of the costs and fees of the Escrow Agent, recording costs or other charges imposed upon recordation of releases of Seller’s existing indebtedness and for any title curative matters for which Seller commits to cure, as well as all of any real estate transfer taxes applicable to the conveyance of the Property. Buyer agrees to pay recording costs or other charges imposed upon recordation of the Deed for the Property. Buyer shall also pay all costs associated with any lender’s and owner’s title insurance policy (including all endorsements), the cost of any new or updated survey that it elects to obtain, the costs of its due diligence studies and reports, and one half of the costs and fees of the Escrow Agent. Seller and Buyer shall each pay the costs of their own counsel, accountants and third party consultants.
9.Damage or Destruction; Condemnation; Insurance.
If there shall occur any material damage or destruction to the Property by fire or other casualty, or if any portion of the Property is taken or is threatened in writing to be taken pursuant to eminent domain proceedings, Seller shall promptly notify Buyer of the event after Seller gains knowledge of the same. If at any time prior to the Closing Date there is damage or destruction to the Property (or any portion thereof) for which (i) the cost for repair of which exceeds an amount equal to five percent (5%) of the Purchase Price and the Property (or any portion thereof) cannot be restored to the original condition prior to Closing, (ii) causes access and/or parking to the Property to be materially adversely affected and the same cannot be restored within sixty (60) days after such casualty, (iii) the damage or destruction results in the Property violating any laws or failing to comply with zoning or any covenants, conditions or restrictions
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affecting the Property, in each case that cannot be remedied within sixty (60) days after such casualty, (iv) damage or destruction entitles any tenant occupying one or more full floor plates to terminate its Lease or abate its rent thereunder (and business interruption insurance is insufficient to cover the full amount of such rent abatement), or (v) there is any damage or destruction which is not fully insured and for which Buyer will not receive, at Seller’s election, a credit in the amount of the uninsured portion of such damage or destruction at Closing (any such event, a “Material Event”), or if all or any material portion of the Property (or any portion thereof) are condemned or taken by eminent domain proceedings by any public authority that results in a Material Event, then, at the option of Buyer exercised within ten (10) Business Days following notice of such damage, destruction, condemnation or taking, this Agreement shall terminate, and the Deposit (to the extent previously funded) shall be returned to Buyer, and except as expressly set forth herein, neither party shall have any further liability or obligation to the other hereunder. For the avoidance of doubt, any termination of this Agreement pursuant to this Section 9 or otherwise shall be of the entire Agreement, and under no circumstances shall Seller be obligated to sell, or Buyer be entitled to purchase, less than all of the Property.
If there is any damage or destruction or condemnation or taking, regardless of the cost of any repair, and if Buyer elects not to, or is not entitled to, terminate this Agreement as herein provided, then (a) in the case of a taking, all condemnation proceeds paid or payable to Seller shall belong to Buyer and shall be paid over and assigned to Buyer at Closing; and (b) in the case of a casualty, the applicable Seller shall assign to Buyer all rights to any insurance proceeds paid or payable under the applicable insurance policies, less any costs of collection and any sums expended in restoration, and Seller’s insurance policy deductible (if any) shall be a credit to Buyer against the Purchase Price.
10.Remedies.
10.1.Buyer Default. In the event Buyer breaches or fails, without legal excuse to complete the purchase of the Property or to perform its obligations under this Agreement when it is obligated to do so, and such failure neither is a repetitive failure by Buyer nor continues for five (5) Business Days after written notice from Seller to Buyer regarding the same (provided that such five (5) Business Day period shall not be applicable in connection with a failure by Buyer to perform any of its obligations on the scheduled Closing Date), then Seller shall, as its SOLE AND EXCLUSIVE remedy therefor, be entitled to terminate this Agreement and receive the Deposit, plus all interest earned and accrued thereon, as liquidated damages (and not as a penalty) in lieu of, and as full compensation for, all other rights or claims of Seller against Buyer by reason of such default (other than with respect to the indemnification and restoration obligations of Buyer contained herein). Thereupon this Agreement shall terminate and the parties shall be relieved of all further obligations and liabilities hereunder, except as expressly set forth herein, including, but not limited to, Buyer’s indemnification and restoration obligations. Buyer and Seller acknowledge that the damages to Seller resulting from Buyer’s breach would be difficult, if not impossible, to ascertain with any accuracy, and that the liquidated damage amount set forth in this Section 10.1 represents both parties’ best efforts to approximate such potential damages. Other than its right to receive the Deposit, Seller expressly waives its rights to seek damages against Buyer in the event of Buyer’s default hereunder. The provisions of this Section 10.1 shall not limit the obligations of Buyer to indemnify Seller as set forth herein.
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10.2.Seller Default. In the event Seller materially breaches or fails, without legal excuse, to complete the sale of the Property or to perform its obligations under this Agreement when it is obligated to do so, and such failure neither is a repetitive failure by Seller nor continues for five (5) Business Days after written notice from Buyer to Seller regarding the same (provided that such five (5) Business Day period shall not be applicable in connection with a failure by Seller to perform any of its obligations on the scheduled Closing Date) Buyer may, as its SOLE AND EXCLUSIVE remedy therefor, subject to the next paragraph of this Section 10.2, either (a) enforce specific performance of this Agreement against Seller, or (b) terminate this Agreement and receive a return of the Deposit (to the extent previously funded). In the latter case, Seller shall promptly reimburse Buyer for Buyer’s actual verifiable out-of-pocket costs and expenses incurred in connection with this Agreement or as a result of Seller’s default hereunder not to exceed a total amount of $100,000 (the “Third Party Costs”). Notwithstanding the foregoing, solely in the event that Seller defaults under this Agreement by transferring the Property to another person or entity (other than to or as directed by Buyer) prior to the Closing such that specific performance is no longer an available remedy (a “Transfer Default”), then, in addition to its remedies set forth above, Buyer shall have the right to bring an action against Seller for Buyer’s actual damages, provided that in no event shall the liability of Seller for any Transfer Default exceed an amount equal to the amount by which the purchase price paid by such other person or entity exceeds the amount of the Purchase Price set forth in this Agreement. Other than its right to recover its Third Party Costs or damages resulting from a Transfer Default, Buyer expressly waives its rights to seek damages against Seller in the event of Seller’s default hereunder. Buyer shall be deemed to have elected to terminate this Agreement and receive a return of the Deposit if Buyer fails to provide Seller with written notice, within thirty (30) days following the date upon which the Closing was to have occurred, of Buyer’s intent to file a suit for specific performance or if Buyer fails to file such suit within forty-five (45) days after such written notice.
Notwithstanding anything to the contrary contained in this Agreement, Buyer agrees that its recourse against Seller under this Agreement or under any other agreement, document, certificate or instrument delivered by Seller to Buyer, or under any law applicable to the Property or this transaction, shall be strictly limited to Seller’s interest in the Property (or upon consummation of the transaction contemplated hereunder, to the net proceeds of the sale thereof actually received by Seller), and that in no event shall Buyer seek or obtain any recovery or judgment against any of Seller’s other assets (if any) or against any of the Indemnified Parties. Following the Closing and subject to the Cap (defined below), Seller shall indemnify and hold Buyer, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “Buyer-Related Entities”) harmless from and against any and all direct and actual costs, fees, expenses, damages, deficiencies, interest and penalties (including, without limitation, reasonable attorneys’ fees and disbursements) suffered or incurred by any such indemnified party in connection with any and all losses, liabilities, claims, damages and expenses (“Losses”), to the extent directly arising out of (a) any breach of any representation or warranty of Seller contained in this Agreement, or in any certificate, instrument or other document delivered pursuant to this Agreement (each, a “Closing Document”), and (b) any breach of any covenant of Seller contained in this Agreement which survives the Closing or in any Closing Document. Buyer agrees that Seller shall have no liability to Buyer or any Buyer-Related Entities for any Losses unless the valid claims for all such breaches collectively aggregate more than One Hundred Thousand Dollars ($100,000.00) (the “Floor”), in which event the full amount of such valid claims shall be actionable, up to the cap set forth in the
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following sentence. Further, Buyer agrees that any recovery against Seller for any Losses, shall be limited to Buyer’s or any Buyer-Related Entities’ direct and actual damages, up to (but not exceeding) Three Million Dollars ($3,000,000.00) (the “Cap”) in the aggregate, and that in no event shall Buyer or any Buyer-Related Entities be entitled to seek or obtain any other damages of any kind, including, without limitation, consequential, indirect or punitive damages. The foregoing provisions of this Section 10.2 shall survive for six (6) months after Closing (which six (6) month period shall be extended for such additional period of time until the final resolution of any suit or action in a court of competent jurisdiction properly and timely filed by Purchaser in the time period permitted under Section 17.8).
Notwithstanding anything to the contrary contained herein, if the Closing of the transactions hereunder shall have occurred, Buyer shall have no liability to Seller (and Seller shall make no claim against Buyer) for a breach of any representation or warranty or any other covenant, agreement or obligation of Buyer that survives Closing, or for indemnification, under this Agreement or any document, certificate or instrument delivered by Buyer to Seller in connection with this Agreement, unless the valid claims for all such breaches and indemnifications collectively aggregate to more than the "Floor", in which case Seller shall be entitled to recover the amounts up to and exceeding the Floor. Notwithstanding the preceding sentence, the liability of Buyer under this Agreement and such documents shall not exceed the Cap and that in no event shall Seller be entitled to seek or obtain any other damages of any kind, including, without limitation, consequential, indirect or punitive damages. Notwithstanding anything to the contrary contained herein, the preceding Cap on a party’s liability will not apply to (i) claims based upon a party’s fraud, (ii) indemnification obligations set forth in Sections 4.4.1 and 14, (iii) the corrections of any prorations made under Section 8.1.6, or (iv) a Transfer Default by Seller. The foregoing provisions of this Section 10.2 shall survive for six (6) months after Closing (which six (6) month period shall be extended for such additional period of time until the final resolution of any suit or action in a court of competent jurisdiction properly and timely filed by Purchaser in the time period permitted under Section 17.8).
10.3.Escrow Holdback.
10.3.1.At Closing, a portion of the Purchase Price proceeds payable to Seller in an aggregate amount equal to Two Million Dollars ($2,000,000.00) (the “Holdback”) shall remain held by Escrow Agent in accordance with the provisions of this Section 10.3. The Holdback shall be security for any claims made by Buyer with respect to Seller’s liability after the Closing for any Buyer claims under this Agreement, and shall be held by Escrow Agent pursuant to the terms of an escrow agreement in the form attached as Exhibit K hereto (the “Surviving Escrow Agreement”). Seller, Buyer and Escrow Agent shall execute and deliver the Surviving Escrow Agreement at Closing.
10.3.2.Following final determination or settlement of the amount of any costs, liabilities, damages or expenses, if any, for which Seller is liable following the Closing, Seller and Buyer shall jointly execute a written instruction to the Escrow Agent setting forth the aggregate amount in dollars of the applicable loss that the Escrow Agent is required to disburse funds from the Holdback. From time to time, the Escrow Agent will disburse funds from the Holdback as Escrow Agent may be directed in joint written instructions of Seller and Buyer or as directed by court order.
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10.3.3.In the event that there have been no claims asserted by Buyer in excess of the amount of the Floor on or prior to the last day of the Survival Period (time being of the essence as to such date), Escrow Agent shall automatically disburse an amount equal to the Holdback to Seller on the first Business Day after the expiration of the Survival Period.
11.Confidentiality; Press Releases. At all times prior to the Closing, Buyer agrees to keep confidential and not to use, other than in connection with its determination whether to proceed with the purchase of the Property in accordance with Section 4.4 hereof, any of the documents, material or information regarding the Property supplied to Buyer by Seller or by any third party at Seller’s request, including, without limitation any environmental site assessment reports furnished to Buyer except to Buyer’s agents, officers, directors, partners, lenders, prospective partners and lenders, employees, advisors, attorneys and accountants on a “need to know” basis and only to the extent reasonably necessary to analyze the feasibility and desirability of the purchase of the Property. In addition, prior to the Closing, neither Buyer nor Seller shall issue any press release, public statements, disclosures or other information to the public regarding the transaction contemplated herein, except as may be expressly approved in advance by the non-requesting party, which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Buyer and Seller shall be permitted to make such disclosures as are required by the law (and only to the extent required by law), including the securities laws and laws relating to financial reporting or in connection with asserting or defending any claim relating to the Property or this Agreement. The provisions of this Section 11 shall survive the Closing for a period one (1) year and shall survive any earlier termination of this Agreement indefinitely.
12.Possession. Possession of the Property shall be surrendered to Buyer at Closing, subject only to the rights of tenants under the Leases.
13.Notices. All notices and other communications provided for herein shall be in writing and shall be sent to the address set forth below (or such other address as a party may hereafter designate for itself by notice to the other parties as required hereby) of the party for whom such notice or communication is intended:
13.1.If to Seller:
c/o Franklin Street Properties Corp.
401 Edgewater Place, Suite 200
Wakefield, Massachusetts 01880
Email: scarter@fspreit.com
Attention: Scott H. Carter, Esq.
With a copy to:
Sheppard Mullin Richter & Hampton LLP
30 Rockefeller Plaza
New York, New York 10112
Email: bgurtman@sheppardmullin.com
Attention: Brian N. Gurtman, Esq.
If to Buyer:
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c/o Piedmont Office Realty Trust
5565 Glenridge Connector, Suite 450
Atlanta, Georgia 30342
Email: brad.pittman@piedmontreit.com
Attention: Brad Pittman
With a copy to:
Eversheds Sutherland (US) LLP
999 Peachtree Street
Atlanta, Georgia 30309
Email: clayhowell@eversheds-sutherland.com
Attention: D. Clayton Howell
If to the Escrow Agent to:
Fidelity National Title Insurance Company
3301 Windy Ridge Parkway,
Suite 300
Atlanta, GA 30339
Email: laura.kaltz@fntg.com
Attention: Laura W. Kaltz
Any such notice or communication shall be sufficient if sent by registered or certified mail, return receipt requested, postage prepaid; by hand delivery; by overnight courier service; or by e-mail delivery (provided that such e-mail delivery is confirmed by the sender or such email is followed by delivery service or by mail in the manner previously described within one (1) Business Day after such e-mail transmission is sent). Any such notice or communication shall be effective when delivered or when delivery is refused.
14.Brokers. Buyer and Seller each represents to the other that it has not dealt with any broker or agent in connection with this transaction. Each party hereby indemnifies and holds harmless the other party from all loss, cost and expense (including reasonable attorneys’ fees actually incurred) arising out of a breach of its representation or undertaking set forth in this Section 14. The provisions of this Section 14 shall survive Closing or the termination of this Agreement.
15.Escrow Agent. Escrow Agent shall hold the Deposit and Holdback Amount in accordance with the terms and provisions of this Agreement, subject to the following:
15.1.Obligations. Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against Escrow Agent.
15.2.Reliance. Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes, and any statement or assertion contained in such
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writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instrument in connection with the provisions of this Agreement has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited in escrow, nor as to the identity, authority, or right of any person executing the same, and Escrow Agent’s duties under this Agreement shall be limited to those provided in this Agreement. Notwithstanding anything herein to the contrary, if Escrow Agent receives written notice of Buyer’s election to terminate this Agreement prior to the expiration of the Inspection Period, Escrow Agent shall promptly disburse to Buyer the Deposit.
15.3.Indemnification. Unless Escrow Agent discharges any of its duties under this Agreement in a grossly negligent manner or is guilty of willful misconduct with regard to its duties under this Agreement, Seller and Buyer shall indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or other expenses, fees, or charges of any character or nature, which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in such connection Seller and Buyer shall indemnify Escrow Agent against any and all expenses (including reasonable attorneys’ fees actually incurred) and the cost of defending any action, suit or proceeding or resisting any claim in such capacity.
15.4.Disputes. If the parties (including Escrow Agent) shall be in disagreement about the interpretation of this Agreement, or about their respective rights and obligations, or the propriety of any action contemplated by Escrow Agent, or the application of the Deposit, Escrow Agent shall hold the Deposit until the receipt of written instructions from both Buyer and Seller or a final order of a court of competent jurisdiction. In addition, in any such event, Escrow Agent may, but shall not be required to, file an action in interpleader to resolve the disagreement. Escrow Agent shall be indemnified for all costs and reasonable attorneys’ fees actually incurred in its capacity as Escrow Agent in connection with any such interpleader action and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in the interpleader action is received.
15.5.Counsel. Escrow Agent may consult with counsel of its own choice and have full and complete authorization and protection in accordance with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind, unless caused by its gross negligence or willful misconduct.
15.6.Interest. All deposits into the escrow shall be held by the Escrow Agent in an interest-bearing account. All interest earned on the Deposit shall be deemed to be part of the Deposit and shall accrue to the benefit of Buyer except to the extent the Deposit becomes payable to Seller pursuant to Section 10.1. In such event the interest earned on the Deposit shall accrue to the benefit of the Seller.
16.Representations of Buyer. Buyer represents and warrants that:
16.1.Authority. Buyer is a limited partnership (or, if assigned in accordance with the terms of Section 17.1, a limited liability company) duly organized, validly existing and in good
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standing under the laws of the State of Delaware, duly qualified to transact business in the State of Georgia and has all requisite power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Buyer has been duly authorized.
16.2.No Conflict. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder on the part of Buyer does not and will not violate any applicable law, ordinance, statute, rule, regulation, order, decree or judgment, conflict with or result in the breach of any material terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, or encumbrance upon any of the property or assets of Buyer by reason of the terms of any contract, mortgage, lien, lease, agreement, indenture, instrument or judgment to which Buyer is a party or which is or purports to be binding upon Buyer or which otherwise affects Buyer, which will not be discharged, assumed or released at Closing. No action by any federal, state or municipal or other governmental department, commission, board, bureau or instrumentality is necessary to make this Agreement a valid instrument binding upon Buyer in accordance with its terms.
16.3.Source of Funds. Buyer has available to it unrestricted funds which it may use in its sole discretion to pay the full Purchase Price and otherwise comply with the provisions of this Agreement. Buyer acknowledges and agrees that its obligations hereunder are not contingent upon Buyer obtaining financing for the purchase of the Property.
16.4.Bankruptcy Matters. Buyer has not (a) made a general assignment for the benefit of creditors, (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Buyer’s creditors, (c) suffered the appointment of a receiver to take possession of all, or substantially all, of Buyer’s assets, (d) suffered the attachment or other judicial seizure of all, or substantially all, of Buyer’s assets, (e) admitted in writing its inability to pay its debts as they come due, or (f) made an offer of settlement, extension or composition to its creditors generally, and Buyer has not planned or contemplated, and is not planning or contemplating, any of the foregoing.
16.5.OFAC. Buyer is in compliance with the requirements of Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the “Order”) and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation or orders are collectively hereinafter referred to as the “Orders”). Neither Buyer nor any of its affiliates (a) is listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the “Lists”), (b) is a Person (as defined in the Order) who has been determined by competent authority to be subject to the prohibitions contained in the Orders, or (c) is owned or controlled by (including without limitation by virtue of such person being a director or owning voting shares or interests), or acts for or on behalf of, any person on the Lists or any other person who has been determined by competent authority to be subject to the prohibitions contained in the Orders. Buyer is not acting, directly or indirectly for, or on behalf of, any person, group, entity or nation named by any Executive Order (including the September 24, 2001,
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Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism) or the United States Treasury Department as a terrorist, “Specially Designated National and Blocked Person,” or other banned or blocked person, entity, or nation pursuant to any Law that is enforced or administered by the Office of Foreign Assets Control, and is not engaging in the transactions contemplated herein, directly or indirectly, on behalf of, or instigating or facilitating the transactions contemplated herein, directly or indirectly, on behalf of, any such person, group, entity or nation.
17.Miscellaneous.
17.1.Assignability. Buyer may not assign this Agreement, in whole or in part, without first obtaining Seller’s written consent, which consent may be withheld in Seller’s sole discretion; provided, however, no consent shall be required for an assignment of this Agreement to a partnership, limited liability company or other entity that Buyer demonstrates, to Seller’s reasonable satisfaction, Piedmont Operating Partnership, L.P., directly or indirectly, controls and owns an equity interest in, and provided further that: (a) any assignee must execute an assumption of the obligations of Buyer hereunder, in a form reasonably acceptable to Seller, (b) any such assignment shall not impose any obligations on Seller, and (c) Buyer must provide Seller with notice of such assignment shall no later than five (5) Business Days prior to Closing. Any assignment in contravention of this provision shall be void. No assignment shall release Buyer herein named from any obligation or liability under this Agreement. Any assignee shall be deemed to have made any and all representations and warranties made by Buyer hereunder and shall be bound by any covenant of Buyer hereunder, as if the assignee were the original signatory hereto. No assignment by Buyer under this Section 17.1 shall require Seller to update or modify any Estoppel Certificate requested or delivered in accordance with Section 4.6 hereof.
17.2.Governing Law; Bind and Inure. This Agreement shall be governed by the law of the State of Georgia and shall bind and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, assigns and personal representatives.
17.3.Recording. Seller and Buyer covenant and agree that in no event will such party record or cause to be recorded this Agreement or any memorandum hereof and that such party’s breach of this provision shall represent a material default by such party, and the non-recording party shall have all of the rights and remedies provided herein, including the remedies set forth in Sections 10.1 and 10.2, as applicable.
17.4.Time of the Essence. Time is of the essence as to the obligations of Buyer and Seller under each and every provision of this Agreement.
17.5.Headings. The headings preceding the text of the paragraphs and subparagraphs hereof are inserted solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.
17.6.Counterparts. This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g.,
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www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
17.7.Exhibits. All Exhibits which are referred to herein and which are attached hereto or bound separately and initialed by the parties are expressly made and constitute a part of this Agreement.
17.8.Survival. Unless otherwise expressly stated in this Agreement, each of the warranties and representations of Seller and Buyer shall survive the Closing and delivery of the Deeds and other Closing documents by Seller to Buyer for a period of six (6) months after the Closing Date (the “Survival Period”) before which the party claiming such breach must have provided written notice to the other party before such expiration and shall have filed a suit or action in a court of competent jurisdiction on or before the date that is sixty (60) days after the expiration of such Survival Period and any claim based on a breach of any of the representations or warranties not specified in such action shall be deemed irrevocably waived upon the expiration of the Survival Period; provided, however, that any recourse sought under such suit or action shall be limited as provided in Section 10.2 hereof. Unless expressly made to survive, all obligations and covenants of Seller contained herein shall be deemed to have been merged into the Deeds and shall not survive the Closing.
17.9.Use of Proceeds to Clear Title. To enable Seller to make conveyance as herein provided, Seller may, at the time of Closing, use the Purchase Price or any portion thereof to clear the title of any or all encumbrances or interests, provided that provision reasonably satisfactory to Buyer’s attorney is made for prompt recording of all instruments so procured in accordance with conveyancing practice in the jurisdiction in which the Property is located.
17.10.Submission not an Offer or Option. The submission of this Agreement or a summary of some or all of its provisions for examination or negotiation by Buyer or Seller does not constitute an offer by Seller or Buyer to enter into an agreement to sell or purchase the Property (or any portion thereof), and no party shall be bound to the others with respect to any such purchase and sale until a definitive agreement satisfactory to Buyer and Seller in their sole discretion is executed and delivered by Seller and Buyer.
17.11.Entire Agreement; Amendments. This Agreement and the Exhibits hereto set forth all of the promises, covenants, agreements, conditions and undertakings between the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as contained herein. This Agreement may not be changed orally but only by an agreement in writing, duly executed by or on behalf of the party or parties against whom enforcement of any waiver, change, modification, consent or discharge is sought.
17.12.No Third Party Beneficiaries. The warranties, representations, agreements and undertakings contained herein shall not be deemed to have been made for the benefit of any person or entity other than the parties hereto. The provisions of this Section 17.12 shall survive Closing or the sooner termination of this Agreement.
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17.13.Further Assurances.Each party agrees, at any time and from time to time at or after Closing, to execute, acknowledge where appropriate, and deliver or cause to be executed, acknowledged and delivered such further instruments and documents and to take such other action as Seller, Buyer or the Escrow Agent, as applicable, may reasonably request to carry out the intents and purposes of this Agreement (provided the same do not increase in any material respect the costs to, or liabilities or obligations of, such party in a manner not otherwise provided in this Agreement). The provisions of this Section 17.13 shall survive Closing.
17.14.Waiver of Jury Trial. THE RESPECTIVE PARTIES HERETO SHALL AND HEREBY DO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR FOR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE. THE PROVISIONS OF THIS SECTION 17.14 SHALL SURVIVE CLOSING OR EARLIER TERMINATION OF THIS AGREEMENT.
17.15.Litigation. If any legal action or other proceeding (including arbitration) is brought for the enforcement of this Agreement or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the prevailing party or parties shall be entitled to recover its reasonable fees and costs, including reasonable attorneys’ fees actually incurred, court costs and other costs incurred in such action or proceeding (at trial and on appeal in connection with such proceeding), in addition to any other relief to which it or they may be entitled. For purposes of this Section 17.15, (a) the term “prevailing party” shall be deemed to be that party who obtains substantially the result sought, whether by settlement, arbitration, mediation, judgment or otherwise, and (b) the term “attorneys’ fees” shall include the actual attorneys’ fees actually incurred in retaining counsel for advice, negotiations, suit, appeal and any other legal proceeding, including mediation and arbitration. The provisions of this Section 17.15 shall survive Closing or earlier termination of this Agreement.
17.16.Business Days. The phrase “Business Days” as used herein shall mean the days of Monday through Friday, excepting only federal holidays. If the last day upon which performance hereunder would otherwise be required or permitted is not a Business Day, then the time for such performance shall be automatically extended to the next day that is a Business Day.
17.17.Regulation S-X; Rule 3-14. Seller shall provide Buyer or its accountants with such certifications and representations from a person of Seller (to the best of such person’s actual knowledge) as to such books and records as Buyer or its accountants shall reasonably require in order to enable Buyer or its accountants to prepare such audited financial statements in accordance with the requirements of Regulation S-X, Rule 3-14, of the U.S. Securities and Exchange Commission. Buyer shall be responsible for all out-of-pocket costs or expenses reasonably incurred by Seller in connection with the preparation of such certifications and representations. This obligation shall survive the Closing until the second anniversary of the Closing Date.
17.18.Section 1031 Exchange. Either party may consummate the purchase or sale (as applicable) of the Property as part of a so-called like kind exchange (an “Exchange”) pursuant
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to § 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), provided that: (a) the Closing shall not be delayed or affected by reason of the Exchange nor shall the consummation or accomplishment of an Exchange be a condition precedent or condition subsequent to the exchanging party’s obligations under this Agreement, (b) the exchanging party shall effect its Exchange through an assignment of this Agreement, or its rights under this Agreement, to a qualified intermediary, (c) neither party shall be required to take an assignment of the purchase agreement for the relinquished or replacement property or be required to acquire or hold title to any real property for purposes of consummating an Exchange desired by the other party, and (d) the exchanging party shall pay any additional costs that would not otherwise have been incurred by the non-exchanging party had the exchanging party not consummated the transaction through an Exchange, including, without limitation, reimbursement of the non-exchanging party for any costs and expenses it otherwise would not have incurred but for the Exchange (such payment obligation shall survive Closing or any termination of this Agreement). Neither party shall by this Agreement or acquiescence to an Exchange desired by the other party have its rights under this Agreement affected or diminished in any manner or be responsible for compliance with or be deemed to have warranted to the exchanging party that its Exchange in fact complies with § 1031 of the Code.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.
SELLER: | | |
| | |
FSP 999 PEACHTREE STREET LLC, | | |
a Delaware limited liability company | | |
| | |
| | |
By: | /s/ Jeffrey B. Carter | |
| Name: Jeffrey B. Carter | |
| Title: President | |
[signatures continue on next page]
BUYER: | | ||
| | ||
PIEDMONT OPERATING PARTNERSHIP, LP, | | ||
a Delaware limited partnership | | ||
| | ||
By: Piedmont Office Realty Trust, Inc., | | ||
a Maryland Corporation, its sole General Partner | | ||
| | ||
By: | /s/ Robert E. Bowers | | |
| Name: Robert E. Bowers | | |
| Title: Executive Vice President | | |
| | ||
| | ||
| | ||
ESCROW AGENT: | | ||
| | ||
FIDELITY NATIONAL TITLE INSURANCE COMPANY | | ||
| | ||
By: | /s/ Laura Kaltz | | |
| Name: Laura Kaltz | | |
| Title: AVP | | |
Exhibit 31.1
CERTIFICATIONS
I, George J. Carter, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Franklin Street Properties Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 8, 2021 | /s/ George J. Carter |
| George J. Carter |
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, John G. Demeritt, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Franklin Street Properties Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
Date: November 8, 2021 | /s/ John G. Demeritt |
| John G. Demeritt |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Franklin Street Properties Corp. (the “Company”) for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, George J. Carter, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
Date: November 8, 2021 | /s/ George J. Carter |
| George J. Carter |
| Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Franklin Street Properties Corp. (the “Company”) for the period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John G. Demeritt, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
Date: November 8, 2021 | /s/ John G. Demeritt |
| John G. Demeritt |
| Chief Financial Officer |