# FRANKLIN STREET PROPERTIES CORP /MA/ (FSP) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from FRANKLIN STREET PROPERTIES CORP /MA/'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1031316/000155837022001193/fsp-20211231x10k.htm Accession: 0001558370-22-001193 Filing date: 2022-02-15 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/FSP/ All MD&A years: /company/FSP/mda/ Next year: /company/FSP/mda/fy2022/ (FY 2022) Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Annual Report on Form 10-K may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, 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, expectations for potential repurchases of our common stock and the potential payment of special dividends, changes in interest rates as a result of economic market conditions, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments. See “Risk Factors” in Item 1A. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We may not update any of the forward-looking statements after the date this Annual Report on Form 10-K is filed to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law. ​ Overview ​ FSP Corp., or we or the Company, operates in a single reportable segment: real estate operations. The real estate operations market involves real estate rental operations, leasing, secured financing of real estate and services provided for asset management, property management, property acquisitions, dispositions and development. Our current strategy is to invest in infill and central business district office properties in the United States sunbelt and mountain west regions as well as select opportunistic markets. We believe that the United States sunbelt and mountain west regions have macro-economic drivers that have the potential to increase occupancies and rents. We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income. ​ As of December 31, 2021, approximately 6.0 million square feet, or approximately 86.3% 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 the strategy we initially adopted in 2021 of seeking to increase shareholder value through the sale of select properties where we believe that short to intermediate term valuation potential has been reached. Pursuant to this strategy, we anticipate that dispositions in 2022 will result in estimated gross proceeds in the range of approximately $250 million to $350 million. As we continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures are likely to decrease in the short term. Proceeds from dispositions are intended to be used for the repayment of debt, repurchases of our common stock, any special dividends required to meet REIT requirements, and other general corporate purposes. ​ 25 Table of Contents For the year ended December 31, 2021, our disposition strategy resulted in gross sale proceeds of approximately $603 million, and we repaid approximately $508 million of debt. Specifically, on May 27, 2021, we sold One Ravinia, Two Ravinia and One Overton Park in Atlanta Georgia for aggregate gross proceeds of approximately $219.5 million, on June 29, 2021, we sold Loudoun Technology Center in Sterling, Virginia for gross proceeds of approximately $17.25 million, on August 31, 2021, we sold River Crossing in Indianapolis, Indiana for gross proceeds of $35 million, on September 23, 2021, we sold Timberlake and Timberlake East, in Chesterfield, Missouri for aggregate gross proceeds of $67 million, on October 22, 2021, we sold 999 Peachtree in Atlanta Georgia for gross proceeds of approximately $223.9 million and on November 16, 2021, we sold two office properties in Chantilly, Virginia for aggregate gross proceeds of approximately $40 million. During the three months ended June 30, 2021, we repaid approximately $155 million of term loan indebtedness and the approximately $47.5 million that had been drawn under our revolving line of credit. During the three months ended September 30, 2021, we repaid $90 million of term loan indebtedness. During the three months ended December 31, 2021, we repaid approximately $215 million of indebtedness. ​ 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 $2.4 million in additional interest costs over a full twelve month period based on our borrowings as of December 31, 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, administration rates 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 “Risk Factors” in Item 1A. ​ 26 Table of Contents We have been following and directing our vendors to follow the guidelines from the Centers for Disease Control and other applicable authorities to minimize the spread of COVID-19 among our employees, tenants, vendors and visitors, as well as at our properties. During the year ended December 31, 2021, 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 $40.8 million as of December 31, 2021. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BofA Revolver ($202.5 million available as of February 14, 2022), 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 and the amount, timing and terms of any property dispositions. ​ Economic Conditions ​ Various sectors of the economy in the United States have 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. In addition, the broad economic market conditions in the United States are typically affected by numerous factors, including but not limited to, inflation and employment levels, energy prices, the pace of economic growth and/or recessionary concerns, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, geopolitical events, the regulatory environment, the availability of credit, and interest rates. 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 the demand for office space in the United States. ​ ​ Real Estate Operations ​ As of December 31, 2021, our real estate portfolio was comprised of 24 operating properties, which we also refer to as our owned properties. Previously we had redevelopment properties, which we referred to as our redevelopment properties, that were in the process of being redeveloped, or were completed but not yet stabilized. Our 24 operating properties were approximately 78.4% leased as of December 31, 2021, a decrease from 85.0% leased as of December 31, 2020. The 6.6% decrease in leased space was a result of the impact from the disposition of ten properties in 2021and lease expirations and terminations, which exceeded leasing completed during the year ended December 31, 2021. As of December 31, 2021, we had approximately 1,496,000 square feet of vacancy in our operating properties compared to approximately 1,397,000 square feet of vacancy at December 31, 2020. During the year ended December 31, 2021, we leased approximately 1,035,000 square feet of office space, of which approximately 665,000 square feet were with existing tenants, at a weighted average term of 7.7 years. On average, tenant improvements for such leases were $25.89 per square foot, lease commissions were $11.45 per square foot and rent concessions were approximately seven months of free rent. Average GAAP base rents under such leases were $30.86 per square foot, or 2.5% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2020. ​ As of December 31, 2021, we had no redevelopment properties. On November 16, 2021, we sold a property known as Stonecroft in Chantilly, Virginia and another property located in Chantilly, Virginia for aggregate gross sales proceeds of approximately $40 million. Stonecroft had been our sole redevelopment property prior to its sale. ​ 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 December 31, 2021, the property had leases signed and a tenant occupying approximately 73.6% of the rentable square feet of the property. ​ 27 Table of Contents As of December 31, 2021, leases for approximately 7.3% and 4.5% of the square footage in our owned portfolio are scheduled to expire during 2022 and 2023, respectively. As the first quarter of 2022 begins, we believe that our operating properties are stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the COVID-19 outbreak and related containment and mitigation measures may limit or delay new tenant leasing during at least the first quarter of 2022 and potentially in future periods. ​ While we cannot generally predict when an existing vacancy in our owned portfolio will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates. Also, we believe the potential exists for any of our tenants to default on its lease or to seek the protection of bankruptcy. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders. ​ ​ Real Estate Acquisition and Investment Activity ​ During 2021: [[GREPCENT_TABLE]] [["","\u25cf","on October 29, 2021, the Company agreed to amend and restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $21 million to $24 million. In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023. As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to vote their shares in favor of any sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","we continued to actively explore additional potential real estate investment opportunities."]] [[/GREPCENT_TABLE]] ​ During 2020: [[GREPCENT_TABLE]] [["","\u25cf","we continued to actively explore additional potential real estate investment opportunities."]] [[/GREPCENT_TABLE]] ​ During 2019: [[GREPCENT_TABLE]] [["","\u25cf","during the year ended December 31, 2019, we received approximately $1.1 million as full repayment of a Sponsored REIT Loan with FSP Satellite Place Corp. (\u201cSatellite Place\u201d) and we received approximately $51 million as full repayment of a Sponsored REIT Loan with FSP Energy Tower I Corp.;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","on February 2, 2019, we received a cash distribution of approximately $0.2 million from the liquidating trust of Grand Boulevard (defined below) and on July 29, 2021, we received a final liquidating distribution of approximately $0.1 million; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","on April 3, 2019 we received a cash distribution of approximately $1.0 million from the liquidating trust of East Wacker (defined below);"]] [[/GREPCENT_TABLE]] ​ ​ Property Dispositions and Assets Held for Sale ​ We sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property in Dulles, Virginia on June 29, 2021 for a sales price of approximately $17.3 million, at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021 for a sales price of approximately $35 million, at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 for 28 Table of Contents an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. On October 22, 2021, we sold an office property in Atlanta Georgia for a sales price of approximately $223.9 million, at a gain of approximately $86.8 million. On November 16, 2021, we sold two office properties in Chantilly, Virginia for an aggregate sales price of approximately $40 million, at a loss of approximately $2.9 million. There were no properties held for sale as of December 31, 2021. ​ We used the proceeds of the dispositions principally to repay outstanding indebtedness. ​ The dispositions of these properties did not represent a strategic shift that has a major effect on our operations and financial results. Our current strategy is to continue to invest in the sunbelt region of the United States. Accordingly, the properties sold remained classified within continuing operations for all periods presented. ​ In 2020, we sold an office property located in Durham, North Carolina, for a sales price of approximately $89.7 million, at a gain of approximately $41.9 million. The disposal of this property did not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the property remained classified within continuing operations for all periods presented and there were no assets held for sale at December 31, 2020 or December 31, 2019. ​ 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 the strategy we initially adopted in 2021 of seeking to increase shareholder value through the sale of select properties where we believe that short to intermediate term valuation potential has been reached. Pursuant to this strategy, we anticipate that dispositions in 2022 will result in estimated gross proceeds in the range of approximately $250 million to $350 million. As we continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures are likely to decrease in the short term. Proceeds from dispositions are intended to be used for the repayment of debt, repurchases of our common stock, any special dividends required to meet REIT requirements, and other general corporate purposes. ​ Critical Accounting Estimates ​ We have certain critical accounting policies that are subject to judgments and estimates by our management and uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. The accounting policies that we believe are most critical to the understanding of our financial position and results of operations, and that require significant management estimates and judgments, are discussed below. Significant estimates in the consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment considerations and the valuation of derivatives. ​ Critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in Sponsored REITs and our investments in real property. These policies affect our: ​ [[GREPCENT_TABLE]] [["","\u25cf","allocation of purchase price;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","allowance for doubtful accounts;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","allowance for loan losses on mortgage loans;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","assessment of the carrying values and impairments of long lived assets;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","useful lives of fixed assets and intangibles;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","valuation of derivatives;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","classification of leases; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","ownership of stock in a Sponsored REIT and related interests."]] [[/GREPCENT_TABLE]] ​ 29 Table of Contents These policies involve significant judgments made based upon our experience, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located. Competition, economic conditions and other factors may cause occupancy declines in the future. In the future we may need to revise our carrying value assessments to incorporate information which is not now known and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets. ​ Allocation of Purchase Price ​ We allocate the value of real estate acquired among land, buildings, improvements and identified intangible assets and liabilities, which may consist of the value of above market and below market leases, the value of in-place leases, and the value of tenant relationships. Purchase price allocations and the determination of the useful lives are based on management’s estimates. Under some circumstances we may rely upon studies commissioned from independent real estate appraisal firms in determining the purchase price allocations. ​ Purchase price allocated to land and building and improvements is based on management’s determination of the relative fair values of these assets assuming the property was vacant. Management determines the fair value of a property using methods similar to those used by independent appraisers. Purchase price allocated to above or below market leases is based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases including consideration of potential lease renewals and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable terms of the respective leases. This aggregate value is allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value because such value and its consequence to amortization expense is immaterial for acquisitions reflected in our financial statements. Factors considered by us in performing these analyses include (i) an estimate of carrying costs during the expected lease-up periods, including real estate taxes, insurance and other operating income and expenses, and (ii) costs to execute similar leases in current market conditions, such as leasing commissions, legal and other related costs. If future acquisitions result in our allocating material amounts to the value of tenant relationships, those amounts would be separately allocated and amortized over the estimated life of the relationships. ​ Allowance for Doubtful Accounts ​ We provided an allowance for doubtful accounts based on collectability. We recognize the effect of a change in our assessment of whether the collectability of operating lease receivables are probable as an adjustment to lease income rather than bad debt expense. ​ Impairment ​ We periodically evaluate our real estate properties for impairment indicators. These indicators may include declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life or legislative, economic or market changes that permanently reduce the value of our investments. If indicators of impairment are present, we evaluate the carrying value of the property by comparing it to its expected future undiscounted cash flows. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to the present value of these expected future cash flows. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. If we misjudge or estimate incorrectly or if future tenant profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate or fail to record a charge when we should have done so, or the amount of such charges may be inaccurate. ​ Depreciation and Amortization Expense ​ We compute depreciation expense using the straight-line method over estimated useful lives of up to 39 years for buildings and improvements, and up to 15 years for personal property. Costs incurred in connection with leasing 30 Table of Contents (primarily tenant improvements and leasing commissions) are capitalized and amortized over the lease period. The allocated cost of land is not depreciated. The value of above or below-market leases is amortized over the remaining non-cancelable periods of the respective leases as an adjustment to rental income. The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is also amortized over the remaining non-cancelable periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease are written off. Inappropriate allocation of acquisition costs, or incorrect estimates of useful lives, could result in depreciation and amortization expenses which do not appropriately reflect the allocation of our capital expenditures over future periods, as is required by generally accepted accounting principles. ​ Derivative Instruments ​ We recognize derivatives on the balance sheet at fair value. Derivatives that do not qualify, or are not designated as hedge relationships, must be adjusted to fair value through income. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability. To the extent hedges are effective, a corresponding amount, adjusted for swap payments, is recorded in accumulated other comprehensive income within stockholders’ equity. Amounts are then reclassified from accumulated other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings. The ineffective portion of 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. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. We currently have no fair value hedges outstanding. Fair values of derivatives are subject to significant variability based on changes in interest rates and counterparty credit risk. To the extent we enter into fair value hedges in the future, the results of such variability could be a significant increase or decrease in our derivative assets, derivative liabilities, book equity, and/or earnings. ​ Lease Classification ​ Some of our real estate properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, operating leases. Each time we enter a new lease or materially modify an existing lease we evaluate whether it is appropriately classified as a financing lease or as an operating lease. The classification of a lease as financing or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a property, discount rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases. ​ Ownership of Stock in a Sponsored REIT and Related Interests ​ We held preferred stock interests in two Sponsored REITs, both of which were liquidated during 2018. As a result of our common and preferred stock interests in these two Sponsored REITs, we exercised influence over, but did not control these entities. These preferred stock interests were accounted for using the equity method. Under the equity method of accounting our cost basis was adjusted by our share of the Sponsored REITs’ operations and distributions received. We also agreed to vote our preferred shares (i) with respect to any merger in the same manner that a majority of the other stockholders of the Sponsored REIT vote for or against the merger and (ii) with respect to any other matter presented to a vote by the stockholders of these Sponsored REITs in the same proportion as shares voted by other stockholders of that Sponsored REIT. ​ The equity investments in Sponsored REITS were reviewed for impairment each reporting period. The Company recorded impairment charges when events or circumstances indicate a decline in the fair value below the carrying value of the investment has occurred and such decline is other than temporary. ​ ​ 31 Table of Contents Results of Operations ​ The following table shows financial results for the years ended December 31, 2021 and 2020. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended December 31,","\u200b"],["(in thousands)","","2021","","2020","","Change"],["Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Rental","\u200b","$","207,581","\u200b","$","244,207","\u200b","$","(36,626)","\u200b"],["Related party revenue:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Management fees and interest income from loans","\u200b","","1,700","\u200b","","1,610","\u200b","","90","\u200b"],["Other","\u200b","","77","\u200b","","31","\u200b","","46","\u200b"],["Total revenues","\u200b","","209,358","\u200b","","245,848","\u200b","","(36,490)","\u200b"],["Expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Real estate operating expenses","\u200b","","60,881","\u200b","","66,940","\u200b","","(6,059)","\u200b"],["Real estate taxes and insurance","\u200b","","41,061","\u200b","","48,390","\u200b","","(7,329)","\u200b"],["Depreciation and amortization","\u200b","","78,544","\u200b","","88,558","\u200b","","(10,014)","\u200b"],["General and administrative","\u200b","","15,898","\u200b","","14,997","\u200b","","901","\u200b"],["Interest","\u200b","","32,273","\u200b","","36,026","\u200b","","(3,753)","\u200b"],["Total expenses","\u200b","","228,657","\u200b","","254,911","\u200b","","(26,254)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loss on extinguishment of debt","\u200b","\u200b","(901)","\u200b","\u200b","\u2014","\u200b","\u200b","(901)","\u200b"],["Gain on sale of properties, net","\u200b","","113,134","\u200b","","41,928","\u200b","","71,206","\u200b"],["Income before taxes on income and equity in income of non-consolidated REITs","\u200b","","92,934","\u200b","","32,865","\u200b","","60,069","\u200b"],["Tax expense on income","\u200b","","638","\u200b","","250","\u200b","","388","\u200b"],["Equity in income of non-consolidated REITs","\u200b","","421","\u200b","","\u2014","\u200b","","421","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income","\u200b","$","92,717","\u200b","$","32,615","\u200b","$","60,102","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]] [[/GREPCENT_TABLE]] ​ Comparison of the year ended December 31, 2021 to the year ended December 31, 2020 ​ Revenues ​ Total revenues decreased by $36.5 million to $209.4 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was primarily a result of: ​ [[GREPCENT_TABLE]] [["","\u25cf","A decrease in rental revenue of approximately $36.6 million arising primarily from the sale of ten properties in the last twelve months and a tenant bankruptcy in December 2020 and other losses of rental income from leases that expired after December 31, 2020. These decreases were partially offset by rental income earned from leases commencing after December 31, 2020. Our leased space in our operating properties was 78.4% at December 31, 2021 and 85.0% at December 31, 2020."]] [[/GREPCENT_TABLE]] ​ Expenses ​ Total expenses decreased by $26.3 million to $228.7 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The decrease was primarily a result of: ​ [[GREPCENT_TABLE]] [["","\u25cf","A decrease in real estate operating expenses and real estate taxes and insurance of approximately $13.4 million, primarily as a result of the sale of ten properties in the last twelve months."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","A decrease to depreciation and amortization of approximately $10.0 million, primarily as a result of the sale of ten properties in the last twelve months."]] [[/GREPCENT_TABLE]] 32 Table of Contents [[GREPCENT_TABLE]] [["","\u25cf","A decrease in interest expense of approximately $3.8 million. The decrease was primarily from debt repayments made during 2021 and lower interest rates during the year ended December 31, 2021 compared to the year ended December 31, 2020."]] [[/GREPCENT_TABLE]] ​ These decreases were partially offset by: ​ [[GREPCENT_TABLE]] [["","\u25cf","An increase in general and administrative expenses of $0.9 million, which was primarily attributable to an increase in public company related expenses."]] [[/GREPCENT_TABLE]] ​ Loss on extinguishment of debt ​ During the year ended December 31, 2021, we repaid debt and incurred a loss on extinguishment of debt of $0.9 million related to unamortized deferred financing costs on the dates of the repayments. ​ Gain on sale of properties, net ​ During the year ended December 31, 2021, we sold three office properties located in Atlanta, Georgia on May 27, 2021 for an aggregate sales price of approximately $219.5 million, at a net gain of approximately $22.8 million. We sold an office property in Dulles, Virginia on June 29, 2021 for a sales price of approximately $17.3 million, at a loss of $2.1 million. We sold an office property located in Indianapolis, Indiana on August 31, 2021, for a sales price of approximately $35 million, at a loss of approximately $1.7 million. We sold two office properties located in Chesterfield, Missouri on September 23, 2021 for an aggregate sales price of approximately $67 million, at a gain of approximately $10.3 million. We sold an office property located in Atlanta, Georgia on October 22, 2021, for a sales price of approximately $223.9 million, at a gain of approximately $86.8 million. We sold two office properties located in Chantilly, Virginia on November 16, 2021, for an aggregate sales price of approximately $40 million, at a loss of approximately $2.9 million. ​ During the year ended December 31, 2020, we sold an office property located in Durham, North Carolina on December 23, 2020 for a sales price of approximately $89.7 million, at a gain of approximately $41.9 million. ​ Tax expense on income ​ Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which decreased $16,000 during the year ended December 31, 2021, as compared to the year ended December 31, 2020. We incurred $404,000 in state income taxes as a result of using some net operating loss carryforwards, which are not fully useable for some state income tax purposes during the year ended December 31, 2021. ​ Net income ​ Net income for the year ended December 31, 2021 was $92.7 million compared to a net income of $32.6 million for the year ended December 31, 2020, for the reasons described above. ​ ​ 33 Table of Contents The following table shows financial results for the years ended December 31, 2020 and 2019. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended December 31,","\u200b"],["(in thousands)","","2020","","2019","","Change"],["Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Rental","\u200b","$","244,207","\u200b","$","265,527","\u200b","$","(21,320)","\u200b"],["Related party revenue:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Management fees and interest income from loans","\u200b","","1,610","\u200b","","3,517","\u200b","","(1,907)","\u200b"],["Other","\u200b","","31","\u200b","","21","\u200b","","10","\u200b"],["Total revenues","\u200b","","245,848","\u200b","","269,065","\u200b","","(23,217)","\u200b"],["Expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Real estate operating expenses","\u200b","","66,940","\u200b","","72,311","\u200b","","(5,371)","\u200b"],["Real estate taxes and insurance","\u200b","","48,390","\u200b","","47,871","\u200b","","519","\u200b"],["Depreciation and amortization","\u200b","","88,558","\u200b","","90,909","\u200b","","(2,351)","\u200b"],["General and administrative","\u200b","","14,997","\u200b","","14,473","\u200b","","524","\u200b"],["Interest","\u200b","","36,026","\u200b","","36,757","\u200b","","(731)","\u200b"],["Total expenses","\u200b","","254,911","\u200b","","262,321","\u200b","","(7,410)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Gain on sale of property","\u200b","","41,928","\u200b","","\u2014","\u200b","","41,928","\u200b"],["Income before taxes on income","\u200b","","32,865","\u200b","","6,744","\u200b","","26,121","\u200b"],["Taxes on income","\u200b","","250","\u200b","","269","\u200b","","(19)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income","\u200b","$","32,615","\u200b","$","6,475","\u200b","$","26,140","\u200b"]] [[/GREPCENT_TABLE]] ​ Comparison of the year ended December 31, 2020 to the year ended December 31, 2019 ​ Revenue ​ Total revenues decreased by $23.2 million to $245.8 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The decrease was primarily a result of: ​ [[GREPCENT_TABLE]] [["","\u25cf","A decrease in rental revenue of approximately $21.3 million arising primarily from the loss of rental income from leases that expired after December 31, 2019 and during the year ended December 31, 2020, compared to the year ended December 31, 2019. In December 2020, a tenant filed for bankruptcy and was put on a cash basis resulting in a $3.1 million charge against revenue to write-off receivables from the lease. These decreases were partially offset by rental income earned from leases commencing after December 31, 2019. Our leased space in our operating properties was 85.0% at December 31, 2020 and 87.6% at December 31, 2019."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","A decrease of approximately $1.8 million in interest income from Sponsored REIT Loans primarily as a result of repayment of approximately $51 million of these loans in June 2019."]] [[/GREPCENT_TABLE]] ​ Expenses ​ Total expenses decreased by $7.4 million to $255.0 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The decrease was primarily a result of: ​ [[GREPCENT_TABLE]] [["","\u25cf","A decrease in real estate operating expenses and real estate taxes and insurance of approximately $4.8 million."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","A decrease to depreciation and amortization of approximately $2.4 million."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","A decrease in interest expense of approximately $0.7 million. The decrease was primarily from lower interest rates during the year ended December 31, 2020 compared to the year ended December 31, 2019."]] [[/GREPCENT_TABLE]] ​ ​ 34 Table of Contents These decreases were partially offset by: ​ [[GREPCENT_TABLE]] [["","\u25cf","An increase in general and administrative expenses of $0.5 million, which was primarily attributable to an increase in public company related expenses."]] [[/GREPCENT_TABLE]] ​ Gain on sale of property ​ We sold an office property located in Durham, North Carolina on December 23, 2020 for a sales price of approximately $89.7 million, at a gain of approximately $41.9 million. We did not sell any properties during the year ended December 31, 2019. ​ 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 $144,000 and federal and other income taxes, which increased by $125,000, during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily as a result of a refund arising due to the provisions of the Tax Cuts and Jobs Act of 2017 during the year ended December 31, 2019. ​ Net income ​ Net income for the year ended December 31, 2020 was $32.6 million compared to a net income of $6.5 million for the year ended December 31, 2019, for the reasons described above. ​ 35 Table of Contents Non-GAAP Financial Measures ​ Funds From Operations ​ The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, hedge ineffectiveness, acquisition costs of newly acquired properties that are not capitalized and lease acquisition costs that are not capitalized plus depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges on properties or investments in non-consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs. ​ FFO should not be considered as an alternative to net income (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs. ​ Other real estate companies and the National Association of Real Estate Investment Trusts, or NAREIT may define this term in a different manner. We have included the NAREIT FFO definition as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the NAREIT definition or may interpret the current NAREIT definition differently than we do. ​ We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be examined in connection with net income and cash flows from operating, investing and financing activities in the consolidated financial statements. ​ The calculations of FFO are shown in the following table: [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","For the Year December 31,"],["(in thousands):","","\u200b","2021","","2020","","2019"],["Net income","\u200b","\u200b","$","92,717","\u200b","$","32,615","\u200b","$","6,475","\u200b"],["Gain on sale of properties","\u200b","\u200b","","(113,134)","","(41,928)","\u200b","","\u2014","\u200b"],["Equity in income of non-consolidated REITs","\u200b","\u200b","","(421)","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["FFO from non-consolidated REITs","\u200b","\u200b","","421","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Depreciation and amortization","\u200b","\u200b","","78,509","\u200b","","88,244","\u200b","","90,507","\u200b"],["NAREIT FFO","\u200b","\u200b","","58,092","\u200b","","78,931","\u200b","","96,982","\u200b"],["Lease Acquisition costs","\u200b","\u200b","","387","\u200b","","467","\u200b","","560","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Funds From Operations","\u200b","\u200b","$","58,479","\u200b","$","79,398","\u200b","$","97,542","\u200b"]] [[/GREPCENT_TABLE]] ​ Net Operating Income (NOI) ​ The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus selling, general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on the sale of assets and excludes non-property specific income and expenses. The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Same Store. The comparative Same Store results include properties held for the periods presented and exclude properties that are redevelopment properties. We also exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be 36 Table of Contents 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: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Net Operating Income (NOI)*"],["\u200b","","\u200b","","Year","","Year","","\u200b","\u200b","","\u200b"],["(in thousands)","\u200b","Rentable","\u200b","Ended","\u200b","Ended","\u200b","Inc","\u200b","%"],["Region","\u200b","Square Feet","\u200b","31-Dec-21","\u200b","31-Dec-20","\u200b","(Dec)","\u200b","Change","\u200b"],["East","","298","\u200b","$","1,615","\u200b","$","1,537","\u200b","$","78","","5.1","%"],["MidWest","","1,000","\u200b","","13,085","\u200b","","12,614","\u200b","","471","","3.7","%"],["South","","2,581","\u200b","","23,757","\u200b","","26,244","\u200b","","(2,487)","","(9.5)","%"],["West","","2,625","\u200b","","40,518","\u200b","","44,656","\u200b","","(4,138)","","(9.3)","%"],["Property NOI from the continuing portfolio","","6,504","\u200b","","78,975","\u200b","","85,051","\u200b","","(6,076)","","(7.1)","%"],["Dispositions, Non-Operating, Development or Redevelopment","\u200b","\u200b","\u200b","","25,106","\u200b","","41,596","\u200b","","(16,490)","","(10.7)","%"],["Property NOI","\u200b","\u200b","\u200b","$","104,081","\u200b","$","126,647","\u200b","$","(22,566)","","(17.8)","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Same Store","\u200b","\u200b","\u200b","$","78,975","\u200b","$","85,051","\u200b","$","(6,076)","","(7.1)","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Less Nonrecurring","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Items in NOI (a)","\u200b","\u200b","\u200b","","510","\u200b","","1,532","\u200b","","(1,022)","","1.0","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Comparative","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Same Store","\u200b","\u200b","\u200b","$","78,465","\u200b","$","83,519","\u200b","$","(5,054)","","(6.1)","%"]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year","\u200b","Year","\u200b"],["\u200b","\u200b","Ended","\u200b","Ended","\u200b"],["Reconciliation to Net income","","31-Dec-21","\u200b","31-Dec-20","\u200b"],["Net Income","\u200b","$","92,717","\u200b","$","32,615","\u200b"],["Add (deduct):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loss on extinguishment of debt","\u200b","\u200b","901","\u200b","\u200b","\u2014","\u200b"],["Gain on sale of property","\u200b","","(113,134)","\u200b","","(41,928)","\u200b"],["Management fee income","\u200b","","(1,559)","\u200b","","(1,872)","\u200b"],["Depreciation and amortization","\u200b","","78,544","\u200b","","88,558","\u200b"],["Amortization of above/below market leases","\u200b","","(34)","\u200b","","(313)","\u200b"],["General and administrative","\u200b","","15,898","\u200b","","14,997","\u200b"],["Interest expense","\u200b","","32,273","\u200b","","36,026","\u200b"],["Interest income","\u200b","","(1,639)","\u200b","","(1,540)","\u200b"],["Equity in losses of non-consolidated REITs","\u200b","","(421)","\u200b","","\u2014","\u200b"],["Non-property specific items, net","\u200b","","535","\u200b","","104","\u200b"],["Property NOI","\u200b","$","104,081","\u200b","$","126,647","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(a)","Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["*","Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs."]] [[/GREPCENT_TABLE]] ​ ​ 37 Table of Contents Liquidity and Capital Resources ​ Cash and cash equivalents were $40.8 million and $4.2 million at December 31, 2020 and December 31, 2019, respectively. The increase of $36.6 million is attributable to $36.3 million provided by operating activities, plus $505.5 million provided by investing activities and less $505.2 million used in financing activities. Management believes that existing cash, cash anticipated to be generated internally by operations and our existing availability under the BofA Revolver ($202.5 million available as of February 14, 2022), will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income from our real properties and our interest costs. ​ Operating Activities ​ Cash provided by our operating activities of $36.3 million is primarily attributable to net income of $92.7 million excluding the gain on sale of a property of $113.1 million plus the add-back of $77.9 million of non-cash expenses, plus a decrease in tenant rent receivables of $5.7 million, proceeds received from a liquidating distribution from a non-consoldiated REIT of $0.4 million and a decrease in prepaid expenses and other assets of $0.1 million. These increases were partially offset by a $12.2 million increase in payments of deferred leasing commissions, a $10.3 million increase in accounts payable and accrued expenses, an increase in tenant security deposits of $2.5 million and an increase in lease acquisition costs of $2.4 million. ​ Investing Activities ​ Cash provided by investing activities for the year ended December 31, 2021 of $505.5 million is primarily attributable to proceeds from the sale of ten properties of $573.3 million and partially offset by capital expenditures and office equipment investments of approximately $64.8 million and an increase in mortgage lending to a non-consolidated REIT of $3.0 million. ​ Financing Activities ​ Cash used in financing activities for the year ended December 31, 2021 of $505.2 million is primarily attributable to repayment of the JPM Term Loan in the amount of $100.0 million, repayment of a tranche of the BMO Term Loan in the amount of $55.0 million, repayment of a portion of the BofA Term Loan in the amount of $290 million, net repayments on the Former BofA Revolver in the amount of $3.5 million, stock repurchases in the amount of $18.2 million and distributions paid to stockholders in the amount of $38.5 million. ​ Liquidity beyond the next 12 months ​ Our ability to generate cash adequate to meet our needs is dependent primarily on income from real estate investments, the sale of real estate investments, leveraging of real estate investments, availability of bank borrowings, proceeds from public offerings of stock, private placement of debt and access to the capital markets. The acquisition of new properties, the payment of expenses related to real estate operations, capital improvement expenses, debt service payments, general and administrative expenses, and distribution requirements place demands on our liquidity. ​ We intend to operate our properties from the cash flows generated by our properties. However, our expenses are affected by various factors, including inflation. See Part I, Item 1A, Risk Factors for additional factors. Increases in operating expenses are predominantly borne by our tenants. To the extent that increases cannot be passed on to our tenants through rent reimbursements, such expenses would reduce the amount of available cash flow, which can adversely affect the market value of the applicable property. ​ We have used a variety of sources to fund our cash needs in addition to our free cash flow generated from our investments in real estate. In the past, we considered borrowing on our unsecured line of credit facility, adding or 38 Table of Contents refinancing existing term debt or raising capital through public offerings or At The Market (ATM) programs of our common stock. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Contractual Obligations. We believe these sources of funds will provide sufficient funds to adequately meet our obligations beyond the next twelve months. ​ 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. ​ 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 December 31, 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 December 31, 2021). ​ ​ The margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the following grid: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","CREDIT","","LIBOR RATE","","BASE RATE"],["LEVEL","\u200b","RATING","\u200b","MARGIN","\u200b","MARGIN"],["I","\u200b","A-","/","A3","(or higher)","","85.0","bps","\u2014","bps"],["II","\u200b","BBB+","/","Baa1","\u200b","","90.0","bps","\u2014","bps"],["III","\u200b","BBB","/","Baa2","\u200b","","100.0","bps","\u2014","bps"],["IV","\u200b","BBB-","/","Baa3","\u200b","","125.0","bps","25.0","bps"],["V","\u200b","BBB-","/","Baa3","\u200b","","165.0","bps","65.0","bps"]] [[/GREPCENT_TABLE]] ​ 39 Table of Contents For purposes of the BMO Term Loan, base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50%, and (iii) the one month LIBOR based rate for such day plus 1.00%. As of December 31, 2021, the Company’s credit rating from Moody’s Investors Service was Ba1. ​ 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 December 31, 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 December 31, 2021. ​ BofA Revolver ​ On January 10, 2022, the Company entered into a Credit Agreement (the “BofA Credit Agreement”) with Bank of America, N.A., as administrative agent, a letter of credit issuer and a lender (“BofA”), and the other lending institutions party thereto, for a new revolving line of credit for borrowings, at the Company’s election, of up to $217.5 (the “BofA Revolver”). On February 10, 2022, the Company increased its BofA Revolver availability by $20.0 million to $237.5 million as part of the accordion feature that is available to increase borrowing capacity. Borrowings made under the BofA Revolver may be revolving loans or letters of credit, the combined sum of which may not exceed $237.5 million outstanding at any time. As of February 14, 2022, there were borrowings of $35.0 million drawn and outstanding under the BofA Revolver. Borrowings made pursuant to the BofA Revolver may be borrowed, repaid and reborrowed from time to time until the maturity date on January 12, 2024. The Company has the right to request an extension of the maturity date, subject to acceptance by the lenders and satisfaction of certain other customary conditions. The BofA Revolver includes an accordion feature that allows the Company to request an increase in borrowing capacity to an amount not exceeding $750 million in the aggregate, subject to receipt of lender commitments and satisfaction of certain customary conditions. ​ Borrowings under the BofA Revolver bear interest at a margin over either (i) the daily simple Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.11448%, or (ii) one, three or six month term SOFR, plus a corresponding adjustment of 0.11448%, 0.26161% or 0.42826%, respectively. In addition, under certain circumstances, such as if SOFR is not able to be determined, the BofA Revolver will instead bear interest at a margin over a specified base rate. The margin over SOFR or, if applicable, the base rate varies depending on the Company’s leverage ratio (1.950% over SOFR and 0.950% over the base rate at February 4, 2022). The Company is also obligated to pay an 40 Table of Contents annual facility fee and, if applicable, letter of credit fees in amounts that are also based on the Company’s leverage ratio. The facility fee is assessed against the aggregate amount of lender commitments regardless of usage (0.350% at February 4, 2022). The actual amount of the facility fee, any letter of credit fees, and the margin over SOFR or the base rate is determined based on the per annum percentages in the following grids: ​ [[GREPCENT_TABLE]] [["Level","Leverage Ratio","Daily SOFR Rate Loans, Term SOFR Loans and Letter of Credit Fees","Facility Fee","Base Rate Loans"],["I"," 35.00%","1.550%","0.300%","0.550%"],["II","\u2265 35.00% - 40.00%","1.650%","0.300%","0.650%"],["III","\u2265 40.00% - 45.00%","1.750%","0.350%","0.750%"],["IV","\u2265 45.00% - 50.00%","1.950%","0.350%","0.950%"],["V","\u2265 50.00% - 55.00%","2.150%","0.350%","1.150%"],["VI","\u2265 55.00%","2.350%","0.400%","1.350%"]] [[/GREPCENT_TABLE]] ​ In the event that the Company is assigned an investment grade credit rating, the Company has a one-time right to elect to convert to a different, credit-based pricing grid with the following per annum percentages: ​ [[GREPCENT_TABLE]] [["","","","","\u200b\u200b"],["Level","Credit Rating","Daily SOFR Rate Loans, Term SOFR Loans and Letter of Credit Fees","Facility Fee","\u200bBase Rate Loans"],["I","A-/A3 (or higher)","0.725%","0.125%","0.000%"],["II","BBB+/Baa1","0.775%","0.150%","0.000%"],["III","BBB/Baa2","0.850%","0.200%","0.000%"],["IV","BBB-/Baa3","1.050%","0.250%","0.050%"],["V","BBB-/Baa3","1.400%","0.300%","0.400%"]] [[/GREPCENT_TABLE]] ​ Base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime rate”, (ii) the Federal Funds Rate plus 1/2 of 1% (0.50%), (iii) term SOFR for one month plus 1.00% and (iv) 1.00%. If the base rate is being used because SOFR is not able to be determined, base rate is the greater of clauses (i), (ii) and (iv). ​ The BofA Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The BofA Credit Agreement also contains financial covenants that require the Company to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio and a minimum unsecured interest coverage ratio. The BofA Credit Agreement also restricts the Company’s ability to make dividend distributions that exceed of 95% of the Company’s good faith estimate of projected funds from operations for the applicable fiscal year; provided, however, that notwithstanding such restriction, the Company is permitted to make dividend distributions based on the Company’s good faith estimate of projected or estimated taxable income or otherwise as necessary to retain the Company’s status as a real estate investment trust, to meet the distribution requirements of 41 Table of Contents Section 857 of the Internal Revenue Code or to eliminate any income or excise taxes to which the Company would otherwise be subject. ​ The BofA Credit Agreement provides for customary events of default with corresponding grace periods, including failure to pay any principal or interest when due, failure to comply with the provisions of the BofA Credit Agreement, certain cross defaults and a change in control of the Company (as defined in the BofA Credit Agreement). In the event of a default by the Company, BofA, in its capacity as administrative agent, may, and at the request of the requisite number of lenders shall, declare all obligations under the BofA Credit Agreement immediately due and payable and enforce any and all rights of the lenders or BofA under the BofA Credit Agreement and related documents. For certain events of default related to bankruptcy, insolvency, and receivership, all outstanding obligations of the Company will become immediately due and payable. ​ The Company may use the net proceeds of the BofA Revolver to finance the acquisition of real properties and for other permitted investments; to finance investments associated with Sponsored REITs, to refinance or retire indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the BofA Credit Agreement. ​ BofA Credit Facility ​ On July 21, 2016, the Company entered into a First Amendment (the “BofA First Amendment”), and on October 18, 2017, the Company entered into a Second Amendment (the “BofA Second Amendment”), to the Second Amended and Restated Credit Agreement dated October 29, 2014 among the Company, the lending institutions party thereto and BofA, as administrative agent, L/C Issuer and Swing Line Lender (as amended by the BofA First Amendment and the BofA Second Amendment, the “BofA Credit Facility”) that continued an existing unsecured revolving line of credit (the “Former BofA Revolver”) and an existing term loan (the “BofA Term Loan”). Effective simultaneously with the closing of the BofA Credit Agreement on January 10, 2022, the Company delivered a notice to BofA terminating the aggregate lender commitments under the Former BofA Revolver in their entirety. ​ Former BofA Revolver Highlights ​ [[GREPCENT_TABLE]] [["","\u25cf","As of December 31, 2021 and January 10, 2022, there were no borrowings under the Former BofA Revolver."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","The Former BofA Revolver was for borrowings, at the Company's election, of up to $600 million. Borrowings made pursuant to the Former BofA Revolver could be revolving loans, swing line loans or letters of credit, the combined sum of which could not exceed $600 million outstanding at any time."]] [[/GREPCENT_TABLE]] ​ As of December 31, 2021, there were no borrowings outstanding under the Former BofA Revolver. The Former BofA Revolver bore interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.550% over LIBOR at December 31, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating (0.550% over the base rate at December 31, 2021). The BofA Credit Facility also obligated the Company to pay an annual facility fee in an amount that is also based on the Company’s credit rating. The facility fee was assessed against the total amount of the Former BofA Revolver, or $600 million (0.30% at December 31, 2021). The amount of any applicable facility fee, and the margin over LIBOR rate or base rate was determined based on the Company’s credit rating pursuant to the following grid. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","\u200b","\u200b","\u200b","","LIBOR","","\u200b","","Base"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Rate","\u200b","Facility","\u200b","Rate"],["Level","\u200b","Credit Rating","\u200b","Margin","\u200b","Fee","\u200b","Margin","\u200b"],["I","\u200b","A-","/","A3","(or higher)","","0.825","%","0.125","%","0.000","%"],["II","\u200b","BBB+","/","Baa1","\u200b","","0.875","%","0.150","%","0.000","%"],["III","\u200b","BBB","/","Baa2","\u200b","","1.000","%","0.200","%","0.000","%"],["IV","\u200b","BBB-","/","Baa3","\u200b","","1.200","%","0.250","%","0.200","%"],["V","\u200b","BBB-","/","Baa3","\u200b","","1.550","%","0.300","%","0.550","%"]] [[/GREPCENT_TABLE]] ​ For purposes of the BofA Credit Facility, base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50%, and (iii) the one 42 Table of Contents month LIBOR based rate for such day plus 1.00%. As of December 31, 2021, the Company’s credit rating from Moody’s Investors Service was Ba1. ​ The weighted average interest rate on all amounts outstanding on the Former BofA Revolver during the year ended December 31, 2021, was approximately 1.33% per annum. As of December 31, 2020, there were borrowings of $3.5 million outstanding under the Former BofA Revolver. The weighted average interest rate on all amounts outstanding on the Former BofA Revolver during the year ended December 31, 2020, was approximately 1.65% per annum. ​ BofA Term Loan Highlights ​ [[GREPCENT_TABLE]] [["","\u25cf","The original principal amount of the BofA Term Loan was $400 million. On September 30, 2021, the Company repaid a $90 million portion and on October 25, 2021, the Company repaid a $200 million portion of the BofA Term Loan and incurred a loss on extinguishment of debt of $0.7 million related to unamortized deferred financing costs. As of December 31, 2021, $110 million remained outstanding under the BofA Term Loan."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","The BofA Term Loan matures on January 12, 2023."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","The BofA Credit Facility includes an accordion feature that allows for an aggregate amount of up to $500 million of additional borrowing capacity to the Former BofA Revolver and/or the BofA Term Loan, subject to receipt of lender commitments and satisfaction of certain customary conditions."]] [[/GREPCENT_TABLE]] ​ The BofA Term Loan bears interest at either (i) a margin over LIBOR depending on the Company’s credit rating (1.75% over LIBOR at December 31, 2021) or (ii) a margin over the base rate depending on the Company’s credit rating (0.750% over the base rate at December 31, 2021). The margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the following grid: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","LIBOR Rate","","Base Rate"],["Level","\u200b","Credit Rating","\u200b","Margin","\u200b","Margin"],["I","\u200b","A-","/","A3","(or higher)","","0.900","%","0.000","%"],["II","\u200b","BBB+","/","Baa1","\u200b","","0.950","%","0.000","%"],["III","\u200b","BBB","/","Baa2","\u200b","","1.100","%","0.100","%"],["IV","\u200b","BBB-","/","Baa3","\u200b","","1.350","%","0.350","%"],["V","\u200b","BBB-","/","Baa3","\u200b","","1.750","%","0.750","%"]] [[/GREPCENT_TABLE]] ​ For purposes of the BofA Credit Facility, base rate means, for any day, a fluctuating rate per annum equal to the highest of: (i) the bank’s prime rate for such day, (ii) the Federal Funds Rate for such day, plus 0.50%, and (iii) the one month LIBOR based rate for such day plus 1.00%. As of December 31, 2021, the Company’s credit rating from Moody’s Investors Service was Ba1. ​ The interest rate on the BofA Credit Facility was variable at December 31, 2021. Previously the Company had fixed the base LIBOR interest rate on the BofA Term Loan by entering into interest rate swap transactions. On July 22, 2016, the Company entered into ISDA Master Agreements with a group of banks that fixed the base LIBOR interest rate on the BofA Term Loan at 1.12% per annum for the period beginning on September 27, 2017 and ended on September 27, 2021. Based upon the Company’s credit rating, as of December 31, 2021, the interest rate on the BofA Term Loan was 1.84% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan after the expiration of the interest rate swaps, on September 27, 2021, during the period from September 28 through December 31, 2021, was approximately 1.85% per annum. ​ BofA Credit Facility General Information ​ The BofA 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 BofA Credit Facility also contains financial 43 Table of Contents 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 BofA 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 BofA 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 BofA Credit Facility immediately due and payable, terminate the lenders’ commitments to make loans under the BofA Credit Facility, and enforce any and all rights of the lenders or administrative agent under the BofA 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. We were in compliance with the BofA Credit Facility financial covenants as of December 31, 2021. ​ The Company may use the proceeds of the loans under the BofA 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 BofA 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 $200,000,000 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 Former BofA Revolver. ​ The Senior Notes bear interest depending on the Company’s credit rating. As of December 31, 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 BofA Credit Facility, the BMO Credit Agreement and the JPM Credit Agreement. The Senior Notes financial covenants require, among other things, the maintenance of a fixed charge coverage ratio of at least 1.50; a maximum leverage ratio and an unsecured leverage ratio of no more than 60% (65% if there were a significant acquisition for a short period of time). In addition, the Note Purchase Agreement provides that the Note Purchase Agreement will automatically incorporate additional financial and other specified covenants (such as limitations on investments and distributions) that are effective from time to time under the existing credit agreements, other material indebtedness or certain other private placements of debt of the Company and its subsidiaries. The Note Purchase Agreement contains customary events of default, including payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Purchasers may, among other remedies, accelerate the payment of all obligations. We were in compliance with the Senior Notes financial covenants as of December 31, 2021. ​ Equity Offering ​ From time to time, we may 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. ​ 44 Table of Contents Stock Repurchases ​ On June 23, 2021, FSP Corp. announced that the Board of Directors of FSP Corp. had authorized the repurchase of up to $50 million of the Company’s common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. The repurchase authorization may be suspended or discontinued at any time. ​ Contingencies ​ From time to time, we may provide financing to Sponsored REITs in the form of a construction loan and/or a revolving line of credit secured by a mortgage. As of December 31, 2021, we had one loan outstanding for $24 million principal amount with one Sponsored REIT under such arrangements for the purpose of funding construction costs, capital expenditures, leasing costs or for other purposes. We anticipate that advances made under these facilities will be repaid at their maturity date or earlier from refinancing, long term financings of the underlying properties, cash flows from the underlying properties or another other capital event. ​ We may be subject to various legal proceedings and claims that arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations. ​ Related Party Transactions ​ We intend to draw on the BofA Revolver in the future for a variety of corporate purposes, including the acquisition of properties that we acquire directly for our portfolio and for Sponsored REIT Loans as described below. ​ 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 and national market conditions. These factors are subject to change and we do not apply a formula or assign relative weights to the factors. Instead, we make a subjective determination after considering such factors collectively. ​ Additional information about our Sponsored REIT Loan outstanding as of December 31, 2021, including a summary table of our Sponsored REIT Loans, is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report. ​ Other Considerations ​ We generally pay the ordinary annual operating expenses of our properties from the rental revenue generated by the properties. For the year ended December 31, 2021 and 2020, respectively, the rental income exceeded the expenses 45 Table of Contents for each individual property, with the exception of Pershing Park for the three months ended December 31, 2021 and Stonecroft for the year ended December 31, 2020. ​ 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 $125,000 of rental income and $489,000 of operating expenses for the three months ended December 31, 2021. ​ Stonecroft had approximately 111,000 square feet of rentable space and became vacant in December 2019. We had no rental income and no operating expenses during the three months ended December 31, 2020 and we had no rental income and operating expenses of $514,000 for the year ended December 31, 2020. We sold this property on November 16, 2021, at a loss of approximately $4.8 million. ​ Rental Income Commitments ​ Our commercial real estate operations include the leasing of office buildings subject to leases with terms greater than one year. The leases thereon expire at various dates through 2037. Approximate undiscounted cash flows of rental income from non-cancelable operating leases as of December 31, 2021 is: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year ending"],["(in thousands)","\u200b","December 31,"],["2022","\u200b","$","100,269","\u200b"],["2023","\u200b","","103,107","\u200b"],["2024","\u200b","","97,792","\u200b"],["2025","\u200b","","83,596","\u200b"],["2026","\u200b","","70,718","\u200b"],["Thereafter (2027-2037)","\u200b","","259,673","\u200b"],["\u200b","\u200b","$","715,155","\u200b"]] [[/GREPCENT_TABLE]] ​ Contractual Obligations ​ The following table sets forth our contractual obligations as of December 31, 2021: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Payment due by period"],["Contractual","\u200b","(in thousands)"],["Obligations","","Total","","2022","","2023","","2024","","2025","","2026","","Thereafter","\u200b"],["Former BofA Revolver (1) (2)","\u200b","$","59","\u200b","$","59","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b"],["BofA Term Loan (3) (4)","\u200b","","112,104","\u200b","","2,037","\u200b","","110,067","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["BMO Term Loan Tranche B (3) (5)","\u200b","\u200b","178,888","\u200b","\u200b","6,666","\u200b","\u200b","6,666","\u200b","\u200b","165,556","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Series A Notes (3)","\u200b","\u200b","131,482","\u200b","\u200b","5,208","\u200b","\u200b","5,208","\u200b","\u200b","121,066","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Series B Notes (3)","\u200b","\u200b","107,870","\u200b","\u200b","3,998","\u200b","\u200b","3,998","\u200b","\u200b","3,998","\u200b","\u200b","3,998","\u200b","\u200b","3,998","\u200b","\u200b","87,880","\u200b"],["Operating Lease","\u200b","","1,225","\u200b","","438","\u200b","","447","\u200b","","340","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["Total","\u200b","$","531,628","\u200b","$","18,406","\u200b","$","126,386","\u200b","$","290,960","\u200b","$","3,998","\u200b","$","3,998","\u200b","$","87,880","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(1)","Amounts include principal and interest payments."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(2)","Amounts reflect a facility fee calculated as 0.30% of the $600 million available to be drawn."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(3)","Amounts include principal and interest payments."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(4)","The BofA Term Loan interest was estimated based on the variable rate in effect as of December 31, 2021, which was at an annual rate of 1.85%."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(5)","The BMO Term Loan has an interest rate swap with an effective interest rate of 4.04% per annum as of December 31, 2021, which was used for estimating interest."]] [[/GREPCENT_TABLE]] ​ The operating lease in the table above consists of our lease of corporate office space, which commenced September 1, 2010, and was amended on October 25, 2016. The amended lease expires on September 30, 2024 and has 46 Table of Contents one five year renewal option. The lease includes a base annual rent and additional rent for our share of taxes and operating costs. ​ In addition to the amounts in the table above, from time to time, we may provide Sponsored REIT Loans to our Sponsored REITs. As of December 31, 2021, we had one Sponsored REIT Loan with $24 million principal amount outstanding. Additional information about our Sponsored REIT Loan outstanding as of December 31, 2021, including a summary table of our Sponsored REIT Loan, is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report. ​ Off-Balance Sheet Arrangements ​ Investments in Sponsored REITs ​ Previously we operated in the investment banking segment, and in December 2011, we discontinued those activities. The investment banking segment involved the structuring of real estate investments and broker/dealer services that included the organization of Sponsored REITs, the acquisition and development of real estate on behalf of Sponsored REITs and the raising of capital to equitize the Sponsored REITs through sale of preferred stock in private placements. On December 15, 2011, we announced that our broker/dealer subsidiary, FSP Investments LLC, would no longer sponsor the syndication of shares of preferred stock in newly-formed Sponsored REITs. On July 15, 2014, FSP Investments LLC withdrew its registration as a broker/dealer with FINRA. ​ The Sponsored REITs own real estate, purchases of which were financed through the private placement of equity in those entities, typically through syndication. These Sponsored REITs are operated in a manner intended to qualify as real estate investment trusts. We earned fees related to the sale of preferred stock in the Sponsored REITs in these syndications. The Sponsored REITs issued both common stock and preferred stock. The common stock is owned by FSP Corp. Generally the preferred stock is owned by unaffiliated investors, however, we held an interest in preferred shares of two Sponsored REITs, which were liquidated during 2018. In addition, directors and officers of FSP Corp., have from time to time invested in Sponsored REITs. Following consummation of the offerings, the preferred stockholders in each of the Sponsored REITs were entitled to 100% of the Sponsored REIT’s cash distributions. Subsequent to the completion of the offering of preferred shares, except for the preferred stock we previously owned, we do not share in any of the Sponsored REIT’s earnings, or any related dividend, and the common stock ownership interests have virtually no economic benefit or risk. ​ As a common stockholder, we have no rights to the Sponsored REIT’s earnings or any related cash distributions. However, upon liquidation of a Sponsored REIT, we are entitled to our percentage interest as a common stockholder in any proceeds remaining after the preferred stockholders have recovered their investment. Our common stock percentage interest in each Sponsored REIT is less than 1%. The affirmative vote of the holders of a majority of the Sponsored REIT’s preferred stockholders is required for any actions involving merger, sale of property, amendment to charter or issuance of additional capital stock. In addition, all of the Sponsored REITs allow the holders of more than 50% of the outstanding preferred shares to remove (without cause) and replace one or more members of that Sponsored REIT’s board of directors. ​ We previously acquired a preferred stock interest in three Sponsored REITs, including one that sold the property owned by it on September 24, 2018, one that sold the property owned by it on July 19, 2018 and one that sold the property owned by it on December 20, 2012 and each made a liquidating distribution to us; and one we acquired on May 15, 2008 by cash merger and another we acquired on April 30, 2006 by merger. As a result of our common stock interest and during the period we owned our preferred stock interests in the remaining two Sponsored REITs, we exercised influence over, but did not control these entities. These preferred share investments were accounted for using the equity method. Under the equity method of accounting our cost basis was adjusted by our share of the Sponsored REITs’ operations and distributions received. We also agreed to vote our preferred shares in any matter presented to a vote by the stockholders of these Sponsored REITs in the same proportion as shares voted by other stockholders of the Sponsored REITs. ​ 47 Table of Contents At December 31, 2021, 2020 and 2019, we held a common stock interest in 2 Sponsored REITs, all of which were fully syndicated and in which we do not share economic benefit or risk. ​ From time to time, we may provide Sponsored REIT Loans to our Sponsored REITs. As of December 31, 2021, we had one Sponsored REIT Loan with $24 million principal amount outstanding. Additional information about our Sponsored REIT Loan outstanding as of December 31, 2021, including a summary table of our Sponsored REIT Loan, is incorporated herein by reference to Note 3, “Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in this report. ​