UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) | |
or organization) |
(Address of principal executive offices)(Zip Code)
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ | ||
Non-accelerated Filer ☐ | Smaller Reporting Company | |
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock outstanding as of October 24, 2024, was
Franklin Street Properties Corp.
Form 10-Q
Quarterly Report
September 30, 2024
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1.Financial Statements
Franklin Street Properties Corp.
Consolidated Balance Sheets
(Unaudited)
September 30, | December 31, |
| |||||
(in thousands, except share and par value amounts) |
| 2024 |
| 2023 |
| ||
Assets: | |||||||
Real estate assets: | |||||||
Land (amounts related to variable interest entities ("VIEs") of $ |
| $ | |
| $ | | |
Buildings and improvements (amounts related to VIEs of $ |
| |
| | |||
Fixtures and equipment |
| |
| | |||
| |
| | ||||
Less accumulated depreciation (amounts related to VIEs of $ |
| |
| | |||
Real estate assets, net (amounts related to VIEs of $ |
| |
| | |||
Acquired real estate leases, less accumulated amortization of $ |
| |
| | |||
Assets held for sale | | | |||||
Cash, cash equivalents and restricted cash (amounts related to VIEs of $ |
| |
| | |||
Tenant rent receivables |
| |
| | |||
Straight-line rent receivable |
| |
| | |||
Prepaid expenses and other assets |
| |
| | |||
Office computers and furniture, net of accumulated depreciation of $ |
| |
| | |||
Deferred leasing commissions, net of accumulated amortization of $ |
| |
| | |||
Total assets |
| $ | |
| $ | | |
Liabilities and Stockholders’ Equity: | |||||||
Liabilities: | |||||||
Bank note payable |
| $ | — |
| $ | | |
Term loans payable, less unamortized financing costs of $ |
| |
| | |||
Series A & Series B Senior Notes, less unamortized financing costs of $ | | | |||||
Accounts payable and accrued expenses (amounts related to VIEs of $ |
| |
| | |||
Accrued compensation |
| |
| | |||
Tenant security deposits |
| |
| | |||
Lease liability | | | |||||
Acquired unfavorable real estate leases, less accumulated amortization of $ |
| |
| | |||
Total liabilities |
| |
| | |||
Commitments and contingencies | |||||||
Stockholders’ Equity: | |||||||
Preferred stock, $ |
|
| |||||
Common stock, $ |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Accumulated other comprehensive income |
| — |
| | |||
Accumulated distributions in excess of accumulated earnings |
| ( |
| ( | |||
Total stockholders’ equity |
| |
| | |||
Total liabilities and stockholders’ equity |
| $ | |
| $ | |
The accompanying notes are an integral part of these consolidated financial statements.
3
Franklin Street Properties Corp.
Consolidated Statements of Operations
(Unaudited)
| ||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||
(in thousands, except per share amounts) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenues: | ||||||||||||
Rental | $ | | $ | | $ | | $ | | ||||
Other |
| |
| — |
| |
| | ||||
Total revenues |
| |
| |
| |
| | ||||
Expenses: | ||||||||||||
Real estate operating expenses |
| |
| |
| |
| | ||||
Real estate taxes and insurance |
| |
| |
| |
| | ||||
Depreciation and amortization |
| |
| |
| |
| | ||||
General and administrative |
| |
| |
| |
| | ||||
Interest |
| |
| |
| |
| | ||||
Total expenses |
| |
| |
| |
| | ||||
Loss on extinguishment of debt | ( | ( | ( | ( | ||||||||
Gain on consolidation of Sponsored REIT | — | — | — | | ||||||||
Loss on sale of properties and impairment of assets held for sale, net | ( | ( | ( |
| ( | |||||||
Interest income |
| |
| — |
| |
| — | ||||
Loss before taxes |
| ( |
| ( |
| ( |
| ( | ||||
Tax expense |
| |
| |
| |
| | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average number of shares outstanding, basic and diluted |
| |
| |
| |
| | ||||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
4
Franklin Street Properties Corp.
Consolidated Statements of Comprehensive Loss
(Unaudited)
For the | For the | |||||||||||
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive income (loss): | ||||||||||||
Unrealized gain on derivative financial instruments |
| — |
| — |
| — |
| | ||||
Reclassification from accumulated other comprehensive income into interest expense | — | ( | ( | ( | ||||||||
| ||||||||||||
Total other comprehensive loss |
| |
| ( |
| ( |
| ( | ||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
5
Franklin Street Properties Corp.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Accumulated | Distributions |
| ||||||||||||||||
Additional | other | in excess of | Total |
| ||||||||||||||
Common Stock | Paid-In | comprehensive | accumulated | Stockholders’ |
| |||||||||||||
(in thousands, except per share amounts) |
| Shares |
| Amount |
| Capital |
| income (loss) |
| earnings |
| Equity |
| |||||
| ||||||||||||||||||
Balance, December 31, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Comprehensive income (loss) |
| — |
| — |
| — |
| ( |
| |
| | ||||||
Distributions $ |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, March 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Comprehensive loss |
| — |
| — |
| — |
| ( |
| ( |
| ( | ||||||
Equity-based compensation | | — | | — | — | | ||||||||||||
Distributions $ |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, June 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Comprehensive loss |
| — |
| — |
| — |
| ( |
| ( |
| ( | ||||||
Distributions $ |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, September 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Balance, December 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Comprehensive loss |
| — |
| — |
| — |
| ( |
| ( |
| ( | ||||||
Distributions $ |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, March 31, 2024 |
| | $ | | $ | | $ | — | $ | ( | $ | | ||||||
Comprehensive loss |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Equity-based compensation | | — | | — | — | | ||||||||||||
Distributions $ |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, June 30, 2024 |
| | $ | | $ | | $ | — | $ | ( | $ | | ||||||
Comprehensive loss |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Distributions $ |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, September 30, 2024 |
| | $ | | $ | | $ | — | $ | ( | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
6
Franklin Street Properties Corp.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, | ||||||
(in thousands) |
| 2024 |
| 2023 | ||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
Depreciation and amortization expense |
| |
| | ||
Amortization of above and below market leases |
| ( |
| ( | ||
Shares issued as compensation | |
| | |||
Amortization of other comprehensive income into interest expense | ( | ( | ||||
Loss on extinguishment of debt | | | ||||
Gain on consolidation of Sponsored REIT | — | ( | ||||
Loss on sale of properties and impairment of assets held for sale, net |
| |
| | ||
Changes in operating assets and liabilities: | ||||||
Tenant rent receivables |
| |
| ( | ||
Straight-line rents |
| |
| | ||
Lease acquisition costs |
| ( |
| ( | ||
Prepaid expenses and other assets |
| |
| ( | ||
Accounts payable and accrued expenses |
| ( |
| ( | ||
Accrued compensation |
| ( |
| ( | ||
Tenant security deposits |
| ( |
| ( | ||
Payment of deferred leasing commissions |
| ( |
| ( | ||
Net cash provided by operating activities |
| |
| | ||
Cash flows from investing activities: | ||||||
Property improvements, fixtures and equipment | ( | ( | ||||
Consolidation of Sponsored REIT |
| — | | |||
Proceeds received from sales of properties | | | ||||
Net cash provided by investing activities |
| |
| | ||
Cash flows from financing activities: | ||||||
Distributions to stockholders |
| ( |
| ( | ||
Proceeds received from termination of interest rate swap |
| — |
| | ||
Borrowings under Bank note payable |
| — |
| | ||
Repayments of Bank note payable |
| ( |
| ( | ||
Repayments of Term loans payable |
| ( |
| ( | ||
Repayments of Series A&B Senior Notes | ( |
| — | |||
Deferred financing costs |
| ( |
| ( | ||
Net cash used in financing activities |
| ( |
| ( | ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| ( |
| | ||
Cash, cash equivalents and restricted cash, beginning of year |
| |
| | ||
Cash, cash equivalents and restricted cash, end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for: | ||||||
Interest | $ | | $ | | ||
Taxes | $ | | $ | | ||
Non-cash investing activities: | ||||||
Accrued costs for purchases of real estate assets | $ | | $ | | ||
Investment in related party mortgage loan receivable converted to real estate assets and acquired real estate leases in conjunction with variable interest entity consolidation | $ | — | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
7
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization, Properties, Basis of Presentation, Financial Instruments and Recent Accounting Standards
Organization
Franklin Street Properties Corp. (“FSP Corp.” or the “Company”) holds, directly and indirectly,
As of September 30, 2024, the Company owned and operated a portfolio of real estate consisting of
Properties
The following table summarizes the Company’s number of owned and consolidated properties and rentable square feet of real estate.
As of September 30, |
| ||||
| 2024 |
| 2023 |
| |
Owned and Consolidated Properties: | |||||
Number of properties (1) |
| |
| | |
Rentable square feet |
| |
| |
(1) Includes
Basis of Presentation
The unaudited consolidated financial statements of the Company include all of the accounts of the Company and its majority-owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission.
The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period.
Financial Instruments
As disclosed in Note 4, the Company’s derivatives were recorded at fair value using Level 2 inputs prior to their termination on February 8, 2023. The Company estimates that the carrying values of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued expenses, accrued compensation, and tenant security deposits
8
approximate their fair values based on their short-term maturity and the bank note and term loans payable approximate their fair values as they bear interest at variable interest rates or at rates that are at market for similar investments.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows.
| September 30, |
| September 30, | |||
(in thousands) | 2024 | 2023 | ||||
Cash and cash equivalents (1) | $ | | $ | | ||
Restricted cash |
| |
| — | ||
Total cash, cash equivalents and restricted cash | $ | | $ | | ||
(1) Includes $ |
Restricted cash consists of escrows arising from property sales. Cash held in escrow is paid based on the terms of the closing agreements for the sale.
Variable Interest Entities (VIEs)
The Company determines whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity in which the Company holds a, direct or indirect, variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. The Company makes judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.
The Company analyzes any investments in VIEs to determine if the Company is the primary beneficiary. In evaluating whether the Company is the primary beneficiary, the Company evaluates its direct and indirect economic interests in the entity. Determining which reporting entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct a proposed sale of the property or merger of the company. In addition, the Company considers the rights of other investors to participate in those decisions, to replace the manager and to amend the corporate charter. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and considers that conclusion upon a reconsideration event.
As of January 1, 2023, the Company’s relationship with the Sponsored REIT was considered a VIE and the Company became the primary beneficiary. Upon this reconsideration event, the entity is included within the Company’s consolidated financial statements and all intercompany accounts and transactions have been eliminated in consolidation. A gain on consolidation of approximately $
9
The consolidation value of Monument Circle was allocated to real estate investments and leases, including lease origination costs. Lease origination costs represent the value associated with acquiring an in-place lease (i.e. the market cost to execute a similar lease, including leasing commission, legal, vacancy, and other related costs). The value assigned to building approximates the replacement cost; the value assigned to land approximates its appraised value; and the value assigned to leases approximate their fair value. Other assets and liabilities are recorded at their historical costs, which approximates fair value.
The Company assessed the fair value of the acquired real estate leases based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 in the fair value hierarchy.
The following table summarizes the estimated fair value of the assets acquired at the date of consolidation, January 1, 2023:
(in thousands) | ||
Real estate assets | $ | |
Value of acquired real estate leases | | |
Total | $ | |
The following is quantitative information about significant unobservable inputs in the Company’s Level 3 measurement of the assets acquired in the consolidation of Monument Circle and were measured at fair value on a nonrecurring basis at January 1, 2023:
| Fair Value (1) at |
|
| Significant |
| Range | Weighted | |||||||||
Description | January 1, 2023 | Valuation Technique | Unobservable Input | Min | Max |
| Average (2) | |||||||||
(in thousands) |
| |||||||||||||||
Monument Circle Consolidation | $ | |
| Exit Cap Rate |
| | % | | % | | % | |||||
Discount Rate | | % | | % | | % | ||||||||||
(1) Classified within Level 3 of the fair value hierarchy. | ||||||||||||||||
(2) Unobservable inputs were weighted based on the fair value of the related instrument. |
The relationships and investments related to the Sponsored REIT are summarized in Note 2.
Recent Accounting Standards
In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 adds interim and annual disclosure requirements to GAAP at the request of the Securities and Exchange Commission. The guidance in ASU 2023-06 is required to be applied prospectively and the GAAP requirements will be effective when the removal of the related SEC disclosure requirements is effective. If the SEC does not act to remove its related requirements by June 30, 2027, any related FASB amendments will be removed from the Accounting Standards Codification and will not be effective. The Company does not anticipate that the adoption of ASU 2023-06 will have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires public entities to disclose significant segment expense and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The guidance in ASU 2023-07 is applied retrospectively to all periods presented in the financial statements and is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not anticipate that the adoption of ASU 2023-07 will have a material impact on the consolidated financial statements.
10
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the transparency and decision usefulness of income tax disclosures and disclosures about income taxes paid. The guidance in ASU 2023-09 should be applied prospectively but may be applied retrospectively for each period presented. ASU 2023-09 is effective for public entities for fiscal years beginning after December 15, 2024. The Company does not anticipate that the adoption of ASU 2023-09 will have a material impact on the consolidated financial statements.
2. Related Party Transactions and Investments in Non-Consolidated Entities
Management fees and interest income from loans:
Asset management fees range from
Prior to the consolidation of Monument Circle on January 1, 2023, the Company held the Sponsored REIT Loan, which was reported in the balance sheet as a related party mortgage loan receivable. The Company reviewed the need for an allowance under the current expected credit loss model for the Sponsored REIT Loan at each reporting period. The measurement of expected credit losses was based upon historical experiences, current conditions, and reasonable and supportable forecasts that affected the collectability of the reported amount. The Company elected to apply the practical expedient for financial assets secured by collateral in instances where the borrower was experiencing financial difficulty and repayment of the Sponsored REIT Loan was expected to be provided substantially through operation or sale of the collateral. The Company used the fair value of the collateral at the reporting date, and an adjustment to the allowance for expected credit losses was recorded when the amortized cost basis of the financial asset exceeded the fair value of the collateral, less costs to sell.
The Company regularly evaluated the extent and impact of any credit deterioration that could affect performance and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s fair value, operating results and existing cash balances were considered and used to assess whether cash flows from operations were sufficient to cover the current and future operating and debt service requirements. The Company also evaluated the borrower’s competency in managing and operating the secured property and considered the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. The Company applied normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. The outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and the balances within the borrower’s cash accounts.
|
|
|
|
|
|
The Company recognized
On October 29, 2021, the Company agreed to amend and restate the then existing Sponsored REIT Loan to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $
The Company recorded a $
11
For the Nine Months Ended September 30, | ||||||
(In thousands) |
| 2024 |
| 2023 | ||
Beginning allowance for credit losses | $ | | $ | ( | ||
Additional increases to the allowance for credit losses | | | ||||
Reductions to the allowance for credit losses | | | ||||
Ending allowance for credit losses | $ | | $ | |
3. Bank Note Payable, Term Loans Payable and Senior Notes
BMO Term Loan
As of September 30, 2024, the Company has a term loan borrowing in the aggregate principal amount of approximately $
On February 21, 2024, as part of the BMO Second Amendment, the Company repaid an approximately $
Effective February 21, 2024, upon entering into the BMO Second Amendment, the BMO Term Loan bears interest at either (i)
As of September 30, 2024, the interest rate on the BMO Term Loan was
12
variable interest rate on all amounts outstanding under the BMO Term Loan from February 8, 2023, which is when the Company terminated its outstanding interest rate swaps applicable to the BMO Term Loan as described below, through December 31, 2023, was approximately
Although the interest rate on the BMO Term Loan was variable under the BMO Credit Agreement, the Company fixed the base LIBOR interest rate that previously applied to the BMO Term Loan by entering into interest rate swap transactions. 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
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, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge the Company’s equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of the Company’s common stock, going concern qualifications to the Company’s financial statements, and transactions with affiliates. In addition, the BMO Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $
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.
BofA Term Loan
As of September 30, 2024, the Company has a term loan borrowing in the aggregate principal amount of approximately $
13
the February 21, 2024 effective date of the BofA Second Amendment, certain of the Company’s subsidiaries guarantee the BofA Term Loan; (7) require that, within
On February 21, 2024, as part of the BofA Second Amendment, the Company repaid an approximately $
Effective February 21, 2024, upon entering into the BofA Second Amendment, the BofA Term Loan bears interest at
As of September 30, 2024, the interest rate on the BofA Term Loan was
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, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge the Company’s equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of the Company’s common stock, going concern qualifications to the Company’s financial statements, and transactions with affiliates. In addition, the BofA Credit Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $
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.
14
Senior Notes
As of September 30, 2024, the Company has senior notes in the aggregate principal amount of approximately $
On February 21, 2024, as part of the NPA First Amendment, the Company repaid an approximately $
As of September 30, 2024, the interest rate on the Series A Notes was
The Note Purchase Agreement contains customary affirmative and negative covenants, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, use of net cash proceeds from the disposition of property, assets and equity issuances, mandatory prepayments, the requirement to have certain subsidiaries provide guarantees, the requirement to pledge the Company’s equity interests in certain subsidiaries as collateral, changes in business, certain restricted payments, repurchases and redemptions of the Company’s common stock, going concern qualifications to the Company’s financial statements, transactions with affiliates, certain restrictions on severance, retention and similar arrangements applicable to the Company’s executive officers, and real estate investment trust compliance requirements. In addition, the Note Purchase Agreement also restricts the Company’s ability to make quarterly dividend distributions that exceed $
15
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.
4. Financial Instruments: Derivatives and Hedging
On February 20, 2019, the Company entered into interest rate swap transactions that fixed the interest rate for the period beginning August 26, 2020 and ending January 31, 2024 on the BMO Term Loan (the “2019 BMO Interest Rate Swap”). The variable rates that were fixed under the 2019 BMO Interest Rate Swap is described in Note 3. On February 8, 2023, the Company terminated the 2019 BMO Interest Rate Swap applicable to the BMO Term Loan and, on February 10, 2023, the Company received an aggregate of approximately $
The 2019 BMO Interest Rate Swap qualified as a cash flow hedge and has been recognized on the consolidated balance sheets at fair value. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be recognized in earnings in the same period in which the hedged interest payments affect earnings, which may increase or decrease reported net income and stockholders’ equity prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows.
The gain (loss) on the Company’s 2019 BMO Interest Rate Swap was recorded in other comprehensive income (loss) (OCI), and the accompanying consolidated statements of operations as a component of interest expense for the nine months ended September 30, 2024 and 2023, was as follows:
(in thousands) | Nine Months Ended September 30, | |||||
Interest Rate Swaps in Cash Flow Hedging Relationships: |
| 2024 |
| 2023 | ||
Amounts of gain recognized in OCI | $ | — | $ | | ||
Amounts of previously recorded gain (loss) reclassified from OCI into Interest Expense | $ | | $ | | ||
Total amount of Interest Expense presented in the consolidated statements of operations | $ | | $ | |
Over time, the realized gains in accumulated other comprehensive income were reclassified into earnings as a decrease to interest expense in the same periods in which the hedged interest payments affected earnings.
The Company hedged the exposure to variability in anticipated future interest payments on existing debt.
5. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of Company shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised or converted into shares. There were
16
6. Stockholders’ Equity
As of September 30, 2024, the Company had
Dividends Per | Total |
| |||||
Quarter Paid |
| Share |
| Dividends |
| ||
2024: | |||||||
First quarter of 2024 |
| $ | |
| $ | | |
Second quarter of 2024 |
| $ | |
| $ | | |
Third quarter of 2024 |
|