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EX-32.2 - EX-32.2 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex322beb237.htm
EX-32.1 - EX-32.1 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex3212807b4.htm
EX-31.2 - EX-31.2 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex312c26fbe.htm
EX-31.1 - EX-31.1 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex311c6280c.htm
EX-23.1 - EX-23.1 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex231652a90.htm
EX-21.1 - EX-21.1 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex21169d5d6.htm
EX-12 - EX-12 - FRANKLIN STREET PROPERTIES CORP /MA/fsp-20171231ex12ecaf19c.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to            

 

Commission File No. 001-32470

FRANKLIN STREET PROPERTIES CORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

Maryland

 

04-3578653

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

401 Edgewater Place, Suite 200, Wakefield, Massachusetts

 

01880

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (781) 557-1300

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class:

 

Name of each exchange on which registered:

Common Stock, $.0001 par value per share

 

NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☒ No ☐.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐ No ☒.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes ☒ No ☐.

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

 

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to ue the extended tranition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒.

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing sale price as reported on NYSE American, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2017, was approximately $1,141,886,293.

 

There were 107,231,155 shares of common stock of the registrant outstanding as of February 8, 2018.

 

Documents incorporated by reference: The registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934, as amended, to be used in connection with the registrant’s Annual Meeting of Stockholders to be held on May 10, 2018 (the “Proxy Statement”).  The information required in response to Items 10 — 14 of Part III of this Form 10-K, other than that contained in Part I under the caption, “Directors and Executive Officers of FSP Corp.,” is hereby incorporated by reference to the Proxy Statement.

 

 

 


 

TABLE OF CONTENTS

 

PART I 

 

 

1

Item 1. 

 

Business

1

Item 1A. 

 

Risk Factors

7

Item 1B. 

 

Unresolved Staff Comments

15

Item 2. 

 

Properties

16

Item 3. 

 

Legal Proceedings

22

Item 4. 

 

Mine Safety Disclosures

22

 

 

 

 

PART II 

 

 

22

Item 5. 

 

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

22

 

 

Stock Performance Graph

23

Item 6. 

 

Selected Financial Data

24

Item 7. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

48

Item 8. 

 

Financial Statements and Supplementary Data

49

Item 9. 

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

49

Item 9A. 

 

Controls and Procedures

49

Item 9B. 

 

Other Information

50

 

 

 

 

PART III 

 

 

51

Item 10. 

 

Directors, Executive Officers and Corporate Governance

51

Item 11. 

 

Executive Compensation

51

Item 12. 

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

51

Item 13. 

 

Certain Relationships and Related Transactions, and Director Independence

51

Item 14. 

 

Principal Accounting Fees and Services

51

 

 

 

 

PART IV 

 

 

52

Item 15. 

 

Exhibits, Financial Statement Schedules

52

Item 16 

 

Form 10K Summary

55

 

 

 

 

SIGNATURES 

56

 

 

 


 

PART I

 

Item 1.Business

 

History

 

Our company, Franklin Street Properties Corp., which we refer to as FSP Corp., the Company, we or our, is a Maryland corporation that operates in a manner intended to qualify as a real estate investment trust, or REIT, for federal income tax purposes.  Our common stock is traded on the NYSE American under the symbol “FSP”.  FSP Corp. is the successor to Franklin Street Partners Limited Partnership, or the FSP Partnership, which was originally formed as a Massachusetts general partnership in January 1997 as the successor to a Massachusetts general partnership that was formed in 1981.  On January 1, 2002, the FSP Partnership converted into FSP Corp., which we refer to as the conversion.  As a result of this conversion, the FSP Partnership ceased to exist and we succeeded to the business of the FSP Partnership.  In the conversion, each unit of both general and limited partnership interests in the FSP Partnership was converted into one share of our common stock. As a result of the conversion, we hold, directly and indirectly, 100% of the interest in three former subsidiaries of the FSP Partnership:  FSP Investments LLC, FSP Property Management LLC, and FSP Holdings LLC.  We operate some of our business through these subsidiaries.

 

Our Business

 

We are a REIT focused on commercial real estate investments primarily in office markets and currently operate in only one segment: real estate operations.  The principal revenue sources for our real estate operations include rental income from real estate leasing, interest income from secured loans made on office properties, property dispositions and fee income from asset/property management and development.

 

Our current strategy is to invest in select urban infill and central business district properties, with primary emphasis on our five core markets of Atlanta, Dallas, Denver, Houston and Minneapolis.  We believe that our five core markets have macro-economic drivers that have the potential to increase occupancies and rents.  We will also monitor other markets for opportunistic investments.  We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as current income.

 

Previously we also operated in an investment banking segment, which was discontinued in December 2011.  Our investment banking segment generated brokerage commissions, loan origination fees, development services and other fees related to the organization of single-purpose entities that own real estate and the private placement of equity in those entities.  We refer to these entities, which are organized as corporations and operated in a manner intended to qualify as REITs, as Sponsored REITs.  On December 15, 2011, we announced that our broker/dealer subsidiary, FSP Investments LLC, would no longer sponsor the syndication of shares of preferred stock in newly-formed Sponsored REITs.  On July 15, 2014, FSP Investments LLC withdrew its registration as a broker/dealer with FINRA.

 

From time-to-time we may acquire real estate or invest in real estate by making secured loans on real estate.  We may also pursue on a selective basis the sale of our properties to take advantage of the value creation and demand for our properties, or for geographic or property specific reasons.

 

Real Estate

 

We own and operate a portfolio of real estate consisting of 34 office properties as of December 31, 2017. We derive rental revenue from income paid to us by tenants of these properties.  We also have one property that is being redeveloped and currently is classified as non-operating.  See Item 2 of this Annual Report on Form 10-K for more information about our properties.  From time-to-time we dispose of properties generating gains or losses in an ongoing effort to improve and upgrade our portfolio.  We also held preferred stock investments in two Sponsored REITs as of December 31, 2017, from which we record our share of income or loss under the equity method of accounting, and from which we receive dividends.

 

1


 

We provide asset management, property management, property accounting, investor and/or development services to our portfolio and certain of our Sponsored REITs through our subsidiaries FSP Investments LLC and FSP Property Management LLC.  FSP Corp. recognizes revenue from its receipt of fee income from Sponsored REITs that have not been consolidated or acquired by us.  Neither FSP Investments LLC nor FSP Property Management LLC receives any rental income.

 

From time-to-time we may make secured loans to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes.  We anticipate that these loans will be repaid at their maturity or earlier from long-term financings of the underlying properties, cash flows from the underlying properties or some other capital event.  We refer to these loans as Sponsored REIT Loans.  We had four Sponsored REIT Loans secured by real estate outstanding as of December 31, 2017, from which we derive interest income.

 

Investment Objectives

 

Our investment objectives are to create shareholder value by increasing revenue from rental, dividend,  interest and fee income and net gains from sales of properties and increase the cash available for distribution in the form of dividends to our stockholders.  We expect that we will continue to derive real estate revenue from owned properties and Sponsored REIT Loans and fees from asset management, property management and investor services.  We may also acquire additional real properties.

 

We may acquire, and have acquired, real properties in any geographic area of the United States and of any property type.  We own 34 properties that are located in 10 different states as of December 31, 2017.  We also have one property that is being redeveloped and currently is classified as non-operating.  See Item 2 of this Annual Report on Form 10-K for more information about our properties.

 

From time to time, as market conditions warrant, we may sell properties owned by us.  We sold an office property located in Milpitas, California on January 6, 2017 at a $2.3 million gain and an office property located in Baltimore, Maryland on October 20, 2017 at a $20.8 million loss.  We sold an office property located in Maryland Heights, Missouri on April 5, 2016 at a $4.2 million gain and an office property located in Federal Way, Washington on December 16, 2016 at a $7.1 million loss.  We sold an office property located in Plano, Texas on February 23, 2015 at a $1.5 million gain, an office property located in Eden Prairie, Minnesota on March 31, 2015 at a $9.0 million gain, an office property located in Charlotte, North Carolina on May 13, 2015 at a $0.9 million gain and an office property located in San Jose, California on December 9, 2015 at a $12.3 million gain.  When we sell a property, we either distribute some or all of the sale proceeds to our stockholders as a distribution or retain some or all of such proceeds for investment in real properties or other corporate activities.

 

We rely on the following principles in selecting real properties for acquisition by FSP Corp. and managing them after acquisition:

 

·

we seek to buy or develop investment properties at a price which produces value for investors and avoid overpaying for real estate merely to outbid competitors;

·

we seek to buy or develop properties in excellent locations with substantial infrastructure in place around them and avoid investing in locations where the future construction of such infrastructure is speculative;

·

we seek to buy or develop properties that are well-constructed and designed to appeal to a broad base of users and avoid properties where quality has been sacrificed for cost savings in construction or which appeal only to a narrow group of users;

·

we aggressively manage, maintain and upgrade our properties and refuse to neglect or undercapitalize management, maintenance and capital improvement programs; and

·

we believe that we have the ability to hold properties through down cycles because we generally do not have mortgage debt on the Company, which could place the properties at risk of foreclosure.  As of February 8, 2018, none of our owned properties was subject to mortgage debt.

 

2


 

Competition

 

With respect to our real estate investments, we face competition in each of the markets where our properties are located.  In order to establish, maintain or increase the rental revenues for a property, it must be competitive on location, cost and amenities with other buildings of similar use.  Some of our competitors may have significantly more resources than we do and may be able to offer more attractive rental rates or services.  On the other hand, some of our competitors may be smaller or have less fixed overhead costs, less cash or other resources that make them willing or able to accept lower rents in order to maintain a certain occupancy level.  In markets where there is not currently significant existing property competition, our competitors may decide to enter the market and build new buildings to compete with our existing projects or those in a development stage.  Our competition is not only with other developers, but also with property users who choose to own their building or a portion of the building in the form of an office condominium.  Competitive conditions are affected by larger market forces beyond our control, such as general economic conditions, which may increase competition among landlords for quality tenants, and individual decisions by tenants that are beyond our control.

 

Employees

 

We had 39 employees as of December 31, 2017 and 39 employees as of February 8, 2018.

 

Available Information

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, and, in accordance therewith, we file reports and other information with the Securities and Exchange Commission, or SEC.  The reports and other information we file can be inspected and copied at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Such reports and other information may also be obtained from the web site that the SEC maintains at http://www.sec.gov.  Further information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

 

We make available, free of charge through our website http://www.fspreit.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with the SEC.

 

We will voluntarily provide paper copies of our filings and code of ethics upon written request received at the address on the cover of this Annual Report on Form 10-K, free of charge.

 

3


 

Directors and Executive Officers of FSP Corp.

 

The following table sets forth the names, ages and positions of all our directors and executive officers as of February 8, 2018.

 

 

 

 

 

 

 

Name

    

Age

    

Position

 

George J. Carter (6)

 

69

 

Chief Executive Officer and Chairman of the Board

 

John N. Burke (1) (2) (3) (5) (7)

 

56

 

Director

 

Brian N. Hansen (1) (2) (3) (4) (9)

 

46

 

Director

 

Kenneth Hoxsie (1) (3) (5)

 

67

 

Director

 

Dennis J. McGillicuddy (1) (4)

 

76

 

Director

 

Georgia Murray (1) (2) (6) (8) (10)

 

67

 

Director

 

Kathryn P. O'Neil (2) (3) (5)

 

54

 

Director

 

Jeffrey B. Carter

 

46

 

President and Chief Investment Officer

 

Scott H. Carter

 

46

 

Executive Vice President, General Counsel and Secretary

 

John G. Demeritt

 

57

 

Executive Vice President, Chief Financial Officer and Treasurer

 

John F. Donahue

 

51

 

Executive Vice President

 

Eriel Anchondo

 

40

 

Executive Vice President and Chief Operating Officer

 


(1)

Member of the Audit Committee

(2)

Member of the Compensation Committee

(3)

Member of the Nominating and Corporate Governance Committee

(4)

Class I Director

(5)

Class II Director

(6)

Class III Director

(7)

Chair of the Audit Committee

(8)

Chair of the Compensation Committee

(9)

Chair of the Nominating and Corporate Governance Committee

(10)

Lead Independent Director

 

George J. Carter, age 69, is Chief Executive Officer and has been Chairman of the Board of Directors of FSP Corp. since 2002.  Mr. Carter also was the President of FSP Corp. from 2002 to May 2016.  Mr. Carter is responsible for all aspects of the business of FSP Corp. and its affiliates, with special emphasis on the evaluation, acquisition and structuring of real estate investments.  Prior to the conversion, he was President of the general partner of the FSP Partnership and was responsible for all aspects of the business of the FSP Partnership and its affiliates.  From 1992 through 1996 he was President of Boston Financial Securities, Inc. (“Boston Financial”).  Prior to joining Boston Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a commercial shipyard in Gloucester, Massachusetts.  From 1979 to 1988, Mr. Carter served as Managing Director in charge of marketing at First Winthrop Corporation, a national real estate and investment banking firm headquartered in Boston, Massachusetts.  Prior to that, he held a number of positions in the brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes & Co.  Mr. Carter is a graduate of the University of Miami (B.S.).

 

John N. Burke, age 56, has been a Director of FSP Corp. since 2004 and Chair of the Audit Committee since June 2004. Mr. Burke is a certified public accountant with over 30 years of experience in the practice of public accounting working with both private and publicly traded companies with extensive experience serving clients in the real estate and REIT industry. His experience includes analysis and evaluation of financial reporting, accounting systems, internal controls and audit matters. Mr. Burke has been involved as an advisor on several public offerings, private equity and debt financings and merger and acquisition transactions. Mr. Burke’s consulting experience includes a wide range of accounting, tax and business planning matters. Prior to starting his own firm in 2003, Mr. Burke was an Audit Partner in the Boston office of BDO USA, LLP. Mr. Burke is a member of the American Institute of Certified Public Accountants and the Massachusetts Society of CPAs. Mr. Burke earned an M.S. in Taxation and studied undergraduate accounting at Bentley University.

 

4


 

Brian N. Hansen, age 46, has been a Director of FSP Corp. since 2012 and Chair of the Nominating and Corporate Governance Committee since 2013. Since 2007, Mr. Hansen has served as President and Chief Operating Officer of Confluence Investment Management LLC, a St. Louis based Registered Investment Advisor. Prior to founding Confluence in 2007, Mr. Hansen served as a Managing Director in A.G. Edwards’ Financial Institutions & Real Estate Investment Banking practice. While at A.G. Edwards, Mr. Hansen advised a wide variety of Real Estate Investment Trusts on numerous capital markets transactions, including public and private offerings of debt and equity securities as well as the analysis of various merger & acquisition opportunities. Prior to joining A.G. Edwards, Mr. Hansen served as a Manager in Arthur Andersen LLP’s Audit & Business Advisory practice. Mr. Hansen has served on the boards of a number of non-profit entities and currently serves on the Investment Committee of the Archdiocese of St. Louis.  Mr. Hansen earned his M.B.A. from the Kellogg School of Management at Northwestern University and his Bachelor of Science in Commerce from DePaul University. Mr. Hansen is a Certified Public Accountant.

 

Kenneth A. Hoxsie, age 67, has been a Director of FSP Corp. since January 2016.  Mr. Hoxsie was a Partner at the international law firm of Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) until his retirement on December 31, 2015.  He joined Hale and Dorr (the predecessor of WilmerHale) in 1981, subsequently worked at Copley Real Estate Advisors, an institutional real estate investment advisory firm, and rejoined Hale and Dorr in 1994. Mr. Hoxsie has over 30 years’ experience in real estate capital markets transactions, fund formation, public company counseling and mergers and acquisitions and has advised the Company since its formation in 1997. Mr. Hoxsie earned his J.D. (Cum Laude) from Harvard Law School, his M.A. from Harvard University and his B.A. (Summa Cum Laude) from Amherst College, where he was elected to Phi Beta Kappa. 

 

Dennis J. McGillicuddy, age 76, has been a Director of FSP Corp. since May 2002.  Mr. McGillicuddy graduated from the University of Florida with a B.A. degree and from the University of Florida Law School with a J.D. degree.  In 1968, Mr. McGillicuddy joined Barry Silverstein in founding Coaxial Communications, a cable television company.  In 1998 and 1999, Coaxial sold its cable systems.  Mr. McGillicuddy has served on the boards of various charitable organizations. He is currently president of the Board of Trustees of Florida Studio Theater, a professional non-profit theater organization, and he serves as a Co-Chair, together with his wife, of Embracing Our Differences, an annual month-long art exhibit that promotes the values of diversity and inclusion.  Mr. McGillicuddy also is a director of All-Star Children’s Foundation, an organization engaged in creating a new paradigm for foster care.  He also is a member of the Advisory Board of the Center For Mindfulness In Medicine, Health Care & Society, University of Massachusetts Medical School.

 

Georgia Murray, age 67, has been a Director of FSP Corp. since April 2005, Chair of the Compensation Committee since October 2006 and Lead Independent Director since February 2014.  Ms. Murray is retired from Lend Lease Real Estate Investments, Inc., where she served as a Principal from November 1999 until May 2000.  From 1973 through October 1999, Ms. Murray worked at The Boston Financial Group, Inc., serving as Senior Vice President and a Director at times during her tenure.  Boston Financial was an affiliate of the Boston Financial Group, Inc.  She is a past Trustee of the Urban Land Institute and a past President of the Multifamily Housing Institute.  Ms. Murray previously served on the Board of Directors of Capital Crossing Bank.  She also serves on the boards of numerous non-profit entities.  Ms. Murray is a graduate of Newton College.

 

Kathryn P. O’Neil, age 54, has been a Director of FSP Corp. since January 2016. Ms. O’Neil was a Director at Bain Capital in the Investor Relations area where she focused on Private Equity and had oversight of the Investment Advisory sector from 2011 until her retirement in 2014. From 1999 to 2007, Ms. O’Neil was a Partner at FLAG Capital Management LLC, a manager of fund-of-funds investment vehicles in private equity, venture capital, real estate and natural resources.  Previously, Ms. O’Neil was an Investment Consultant at Cambridge Associates where she specialized in Alternative Assets.  Ms. O’Neil currently serves on a variety of non-profit boards, including the Board of Directors and Finance Committee of Horizon’s for Homeless Children, the President’s Council and Investment Committee for the Trustees of Reservations, and the Board of Overseers of the Peabody Essex Museum, where she is a member of the Finance, Audit, and Investment Committees.  Ms. O’Neil is a Trustee Emeritus of Colby College and a former member of the Board of Overseers of the Boston Museum of Science. Ms. O’Neil holds a B.A. (Summa Cum Laude) and M.A. (Honorary) from Colby College where she was elected to Phi Beta Kappa.  Ms. O’Neil received her M.B.A. from The Harvard Graduate School of Business Administration. 

 

5


 

Jeffrey B. Carter, age 46, is President and Chief Investment Officer of FSP Corp.  Mr. Carter served as Executive Vice President and Chief Investment Officer from February 2012 until May 2016, when he was appointed as President in addition to his position as Chief Investment Officer.  Previously, Mr. Carter served as Senior Vice President and Director of Acquisitions of FSP Corp. from 2005 to 2012 and as Vice President - Acquisitions from 2003 to 2005.  Mr. Carter oversees the day-to-day execution of the Company’s strategic objectives and business plan.  In addition, Mr. Carter is primarily responsible for developing and implementing the Company’s investment strategy, including coordination of acquisitions and dispositions.  Prior to joining FSP Corp., Mr. Carter worked in Trust Administration for Northern Trust Bank in Miami, Florida.  Mr. Carter is a graduate of Arizona State University (B.A.), The George Washington University (M.A.) and Cornell University (M.B.A.).  Mr. Carter’s father, George J. Carter, serves as Chief Executive Officer and Chairman of the Board of Directors of FSP Corp. and Mr. Carter’s brother, Scott H. Carter, serves as Executive Vice President, General Counsel and Secretary of FSP Corp.

 

Scott H. Carter, age 46, is Executive Vice President, General Counsel and Secretary of FSP Corp.  Mr. Carter has served as General Counsel since February 2008.  Mr. Carter joined FSP Corp. in October 2005 as Senior Vice President and In-house Counsel.  Mr. Carter is primarily responsible for the management of all of the legal affairs of FSP Corp. and its affiliates.  Prior to joining FSP Corp. in October 2005, Mr. Carter was associated with the law firm of Nixon Peabody LLP, which he originally joined in 1999.  At Nixon Peabody LLP, Mr. Carter concentrated his practice on the areas of real estate syndication, acquisitions and finance.  Mr. Carter received a Bachelor of Business Administration (B.B.A.) degree in Finance and Marketing and a Juris Doctor (J.D.) degree from the University of Miami.  Mr. Carter is admitted to practice law in the Commonwealth of Massachusetts.  Mr. Carter’s father, George J. Carter, serves as Chief Executive Officer and Chairman of the Board of Directors of FSP Corp. and Mr. Carter’s brother, Jeffrey B. Carter, serves as President and Chief Investment Officer of FSP Corp.

 

John G. Demeritt, age 57, is Executive Vice President, Chief Financial Officer and Treasurer of FSP Corp. and has been Chief Financial Officer since March 2005.  Mr. Demeritt previously served as Senior Vice President, Finance and Principal Accounting Officer from September 2004 to March 2005.  Prior to September 2004, Mr. Demeritt was a Manager with Caturano & Company, an independent accounting firm (which later merged with McGladrey) where he focused on Sarbanes Oxley compliance.  Previously, from March 2002 to March 2004 he provided consulting services to public and private companies where he focused on SEC filings, evaluation of business processes and acquisition integration.  During 2001 and 2002 he was Vice President of Financial Planning & Analysis at Cabot Industrial Trust, a publicly traded real estate investment trust, which was acquired by CalWest in December 2001.  From October 1995 to December 2000 he was Controller and Officer of The Meditrust Companies, a publicly traded real estate investment trust (formerly known as The La Quinta Companies, which was then acquired by the Blackstone Group), where he was involved with a number of merger and financing transactions.  Prior to that, from 1986 to 1995 he had financial and accounting responsibilities at three other public companies, and was previously associated with Laventhol & Horwath, an independent accounting firm from 1983 to 1986.  Mr. Demeritt is a Certified Public Accountant and holds a Bachelor of Science degree from Babson College.

 

John F. Donahue, age 51, is Executive Vice President of FSP Corp. and President of FSP Property Management LLC and has held those positions since May 2016.  Mr. Donahue is primarily responsible for the oversight of the management of all of the real estate assets of FSP Corp. and its affiliates.  Mr. Donahue joined FSP Corp. in August 2001 as Vice President of FSP Property Management LLC.  From 2001 to May 2016, Mr. Donahue was responsible for the management of certain of the real estate assets of FSP Corp. and its affiliates.  From 1992 to 2001, Mr. Donahue worked in the pension fund advisory business for GE Capital and AEW Capital Management with oversight of office, research and development, industrial and land investments. From 1989 to 1992, Mr. Donahue worked for Krupp Realty in various accounting and finance roles. Mr. Donahue holds a Bachelor of Science in Business Administration degree from Bryant College. 

 

Eriel Anchondo, age 40, is Executive Vice President and Chief Operating Officer of FSP Corp. and has held those positions since May 2016.  Mr. Anchondo joined FSP Corp. in 2015 as Senior Vice President of Operations.  Mr. Anchondo is responsible for ensuring that the Company has the proper operational controls, administrative and reporting procedures, and people systems and infrastructure in place to effectively grow the organization and maintain financial strength and operating efficiency. Prior to joining FSP Corp., from July 2014 to December 2014, Mr. Anchondo provided consulting services to the retail banking division of ISBAN, which is part of the Technology and Operations

6


 

division of the Santander Group of financial institutions.  From May 2007 to July 2013, Mr. Anchondo was employed by Mercer, a global consulting leader in talent, health, retirement, and investments, as an Employee Education Manager across all lines of Mercer’s business. From May 2005 to May 2007, Mr. Anchondo was a Communications Consultant at New York Life Investment Management. From December 2002 to May 2005, Mr. Anchondo worked in the Preferred Client Services Group at Putnam Investments. Mr. Anchondo is a graduate of Boston University (B.A.) and Cornell University (M.B.A.).   

 

Except for Eriel Anchondo, who joined FSP Corp. in 2015, each of the above executive officers has been a full-time employee of FSP Corp. for the past five fiscal years.

 

George J. Carter, Jeffrey B. Carter, John G. Demeritt and John F. Donahue are each also a director of FSP 303 East Wacker Drive Corp., which is a public reporting company and a Sponsored REIT. Each of these directors holds office from the time of his or her election until the next annual meeting and until a successor is elected and qualified, or until such director’s earlier death, resignation or removal.

 

Item 1ARisk Factors

 

The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time-to-time.

 

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

 

Because economic conditions in the United States may affect real estate values, occupancy levels and property income, current and future economic conditions in the United States could have a material adverse impact on our earnings and financial condition.  Economic conditions may be affected by numerous factors, including but not limited to, the pace of economic growth and/or recessionary concerns, inflation, increases in the levels of unemployment, energy prices, changes in currency exchange rates, uncertainty about government fiscal and tax policy, geopolitical events, the regulatory environment, the availability of credit and interest rates.  Future economic factors may negatively affect real estate values, occupancy levels and property income.

 

If a Sponsored REIT defaults on a Sponsored REIT Loan, we may be required to request additional draws, keep balances outstanding on our existing debt, exercise any maturity date extension rights, seek new debt or use our cash balance to repay our existing debt, which may reduce cash available for distribution to our stockholders or for other corporate purposes.

 

From time-to-time, we may make secured loans to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes.  We refer to these loans as Sponsored REIT Loans.  We anticipate that each Sponsored REIT Loan will be repaid at maturity or earlier from long term financing of the property securing the loan, cash flows from that underlying property or some other capital event.  If a Sponsored REIT defaults on a Sponsored REIT Loan, the Sponsored REIT could be unable to fully repay the Sponsored REIT Loan and we may have to satisfy our obligations under our existing debt through other means, including without limitation, requesting additional draws, keeping balances outstanding, exercising any maturity date extension rights, seeking new debt, and/or using our cash balance.  If that happens, we may have less cash available for distribution to our stockholders or for other corporate purposes.

 

Our operating results and financial condition could be adversely affected if we are unable to refinance the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes.

 

There can be no assurance that we will be able to refinance the revolving line of credit portion of the BAML Credit Facility (as defined in Note 4 to the Consolidated Financial Statements) upon its maturity on January 12, 2022 (subject to two six month extensions until January 12, 2023), the term loan portion of the BAML Credit Facility upon its maturity on January 12, 2023, the BMO Term Loan (as defined in Note 4 to the Consolidated Financial Statements) upon

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its maturity on August 26, 2020, the JPM Term Loan (as defined in Note 4 to the Consolidated Financial Statements) upon its maturity on November 30, 2018, the Series A Notes (as defined in Note 4 to the Consolidated Financial Statements) upon their maturity on December 20, 2024 or the Series B Notes (as defined in Note 4 to the Consolidated Financial Statements) upon their maturity on December 20, 2027, that any such refinancings would be on terms as favorable as the terms of the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes, or the Series B Notes, or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes.  If we are unable to refinance the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes at maturity or meet our payment obligations, the amount of our distributable cash flow and our financial condition would be adversely affected.

 

Failure to comply with covenants in the documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes could adversely affect our financial condition.

 

The documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes and the Series B Notes contain customary affirmative and negative covenants, including limitations with respect to indebtedness, liens, investments, mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes and the Series B Notes  contain some or all of the following financial covenants: minimum tangible net worth; maximum leverage ratio; maximum secured leverage ratio;  minimum fixed charge coverage ratio; maximum unencumbered leverage ratio; and minimum unsecured interest coverage.  Our continued ability to borrow under the BAML Credit Facility, the BMO Term Loan, and the JPM Term Loan is subject to compliance with our financial and other covenants.  Failure to comply with such covenants could cause a default under the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes, and we may then be required to repay them with capital from other sources.  Under those circumstances, other sources of capital may not be available to us, or be available only on unattractive terms.

 

We may use the BAML Credit Facility, the BMO Term Loan, and the JPM Term Loan to finance the acquisition of real properties and for other permitted investments, to finance investments associated with Sponsored REITs, to refinance or retire indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the respective documents.  If we breach covenants in the documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes, the lenders can declare a default.  A default under documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes, or the Series B Notes could result in difficulty financing growth in our business and could also result in a reduction in the cash available for distribution to our stockholders or for other corporate purposes.  A default under documents evidencing the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes or the Series B Notes could materially and adversely affect our financial condition and results of operations.

 

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

 

As of December 31, 2017, we had approximately $78 million of indebtedness under the revolving line of credit portion of our BAML Credit Facility that bears interest at variable rates based on our credit rating, and we may incur more of such indebtedness in the future.  Borrowings under the revolving line of credit portion of our BAML Credit Facility may not exceed $600 million outstanding at any time.  As of December 31, 2017, $400 million was drawn and outstanding under the term loan portion of our BAML Credit Facility.  The BAML Credit Facility includes an accordion feature that allows for an aggregate amount of up to $500 million of additional borrowing capacity.  On July 22, 2016, we fixed the base LIBOR rate on the term loan portion of the BAML Credit Facility at 1.12% until September 27, 2021 by entering into an interest rate swap agreement. 

 

As of December 31, 2017, $220 million was drawn and outstanding under the BMO Term Loan, although such amount may be increased by up to an additional $50 million through the exercise of an accordion feature.  On

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August 26, 2013, we fixed the base LIBOR rate on the BMO Term Loan at 2.32% for seven years until August 26, 2020 by entering into an interest rate swap agreement. 

 

As of December 31, 2017, $150 million was drawn and outstanding under the JPM Term Loan.  The JPM Term Loan bears interest at variable rates based on our credit rating.

 

In the future, if interest rates increase, then the interest costs on our unhedged variable rate debt will also increase, which could adversely affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders. In addition, rising interest rates could limit our ability to incur new debt or to refinance existing debt when it matures.  From time to time, we may enter into additional interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors.  While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risks that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges.  In addition, an increase in interest rates could decrease the amount third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions. 

 

Downgrades in our credit ratings could increase our borrowing costs or reduce our access to funding sources in the credit and capital markets.

 

We are currently assigned a corporate credit rating from Moody’s Investors Service, Inc.  (“Moody’s”) based on its evaluation of our creditworthiness. Although our corporate credit rating from Moody’s is currently investment grade, there can be no assurance that we will not be downgraded or that our rating will remain investment grade.  If our credit rating is downgraded or other negative action is taken, we could be required, among other things, to pay additional interest and fees under the BAML Credit Facility, the BMO Term Loan, the JPM Term Loan, the Series A Notes and the Series B Notes.

 

Credit rating reductions by one or more rating agencies could also adversely affect our access to funding sources, the cost and other terms of obtaining funding as well as our overall financial condition, operating results and cash flow.

 

If we are not able to collect sufficient rents from each of our owned real properties, or investments in Sponsored REITs, or collect interest on Sponsored REIT Loans we fund, we may suffer significant operating losses or a reduction in cash available for future dividends.

 

A substantial portion of our revenue is generated by the rental income of our real properties and investments in Sponsored REITs.  If our properties do not provide us with a steady rental income or we do not collect interest income from Sponsored REIT Loans we fund, our revenues will decrease, which may cause us to incur operating losses in the future and reduce the cash available for distribution to our stockholders.

 

We may not be able to identify properties that meet our criteria for purchase.

 

Growth in our portfolio of real estate is dependent on the ability of our acquisition executives to identify properties for sale and/or development which meet the applicable investment criteria.  To the extent they fail to identify such properties, we would be unable to increase the size of our portfolio of real estate, which could reduce the cash otherwise available for distribution to our stockholders.

 

We are dependent on key personnel.

 

We depend on the efforts of George J. Carter, our Chief Executive Officer and Chairman of the Board of Directors; Jeffrey B. Carter, our President and Chief Investment Officer; Scott H. Carter, our General Counsel, Secretary and an Executive Vice President; John G. Demeritt, our Chief Financial Officer, Treasurer and an Executive Vice President; John F. Donahue, our President of FSP Property Management LLC and an Executive Vice President; and Eriel

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Anchondo, our Chief Operating Officer and an Executive Vice President.  If any of our executive officers were to resign, our operations could be adversely affected.  We do not have employment agreements with any of our executive officers. 

 

Our level of dividends may fluctuate.

 

Because our real estate occupancy levels and rental rates can fluctuate, there is no predictable recurring level of revenue from such activities and changes in interest rates or in the mix of our fixed and variable rate debt can cause our interest costs to fluctuate.  As a result of these fluctuations, the amount of cash available for distribution to our stockholders may fluctuate, which may result in our not being able to maintain or grow dividend levels in the future.

 

We face risks from tenant defaults or bankruptcies.

 

If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment.  In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.

 

The real properties held by us may significantly decrease in value.

 

As of December 31, 2017, we owned 34 properties.  We also have one property that has been redeveloped and currently is classified as non-operating.  Some or all of these properties may decline in value.  To the extent our real properties decline in value, our stockholders could lose some or all of the value of their investments.  The value of our common stock may be adversely affected if the real properties held by us decline in value since these real properties represent the majority of the tangible assets held by us.  Moreover, if we are forced to sell or lease the real property held by us below its initial purchase price or its carrying costs, respectively, or if we are forced to lease real property at below market rates because of the condition of the property, our results of operations would be adversely affected and such negative results of operations may result in lower dividends being paid to holders of our common stock.

 

New acquisitions may fail to perform as expected.

 

We may fund the acquisition of new properties with cash, by drawing on the revolving line of credit portion of our BAML Credit Facility, by assuming existing indebtedness, by entering into new indebtedness, by issuing debt securities, by issuing shares of our stock or by other means. During the year ended December 31, 2017, we did not acquire any properties.  During the year ended December 31, 2016, we acquired one property located in Minnesota, one property located in Georgia and one property located in Colorado.  During the year ended December 31, 2015, we acquired one property located in Georgia.  Newly acquired properties may fail to perform as expected, in which case, our results of operations could be adversely affected.

 

We face risks in owning, developing and operating real property.

 

An investment in us is subject to the risks incident to the ownership, development and operation of real estate-related assets.  These risks include the fact that real estate investments are generally illiquid, which may affect our ability to vary our portfolio in response to changes in economic and other conditions, as well as the risks normally associated with:

 

·

changes in general and local economic conditions;

·

the supply or demand for particular types of properties in particular markets;

·

changes in market rental rates;

·

the impact of environmental protection laws;

·

changes in tax, real estate and zoning laws; and

·

the impact of obligations and restrictions contained in title-related documents.

 

Certain significant costs, such as real estate taxes, utilities, insurance and maintenance costs, generally are not reduced even when a property’s rental income is reduced.  In addition, environmental and tax laws, interest rate levels,

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the availability of financing and other factors may affect real estate values and property income.  Furthermore, the supply of commercial space fluctuates with market conditions.

 

We may encounter significant delays in reletting vacant space, resulting in losses of income.

 

When leases expire, we may incur expenses and may not be able to re-lease the space on the same terms.  While we cannot predict when existing vacant space in properties will be leased, if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at current market rates for locations in which the buildings are located, which in some cases may be below the expiring rates.  Certain leases provide tenants the right to terminate early if they pay a fee.  If we are unable to re-lease space promptly, if the terms are significantly less favorable than anticipated or if the costs are higher, we may have to reduce distributions to our stockholders.  Typical lease terms range from five to ten years, so up to approximately 20% of our rental revenue from commercial properties could be expected to expire each year.

 

We face risks of tenant-type concentration.

 

As of December 31, 2017, approximately 16% and 10% of our tenants as a percentage of the total rentable square feet operated in the energy services industry and the legal services industry, respectively.  An economic downturn in these or any industry in which a high concentration of our tenants operate or in which a significant number of our tenants currently or may in the future operate, could negatively impact the financial condition of such tenants and cause them to fail to make timely rental payments or default on lease obligations, fail to renew their leases or renew their leases on terms less favorable to us, become bankrupt or insolvent, or otherwise become unable to satisfy their obligations to us, which could adversely affect our financial condition and results of operations.

 

We face risks from geographic concentration.

 

The properties in our portfolio as of December 31, 2017, by aggregate square footage, are distributed geographically as follows: South — 47.1%, West — 26.7%, Midwest — 15.9% and East — 10.3%.  However, within certain of those regions, we hold a larger concentration of our properties in Greater Denver, Colorado — 26.7%, Atlanta, Georgia — 20.1%,  Houston, Texas — 12.2% and Dallas, Texas — 12.6%.  We are likely to face risks to the extent that any of these areas in which we hold a larger concentration of our properties suffer deteriorating economic conditions.  Given the fact that the Dallas, Denver and Houston metropolitan areas have a significant presence in the energy sector, a prolonged period of low oil or natural gas prices, or other factors negatively impacting the energy industry could have an adverse impact on our ability to maintain the occupancy of our properties in those areas or could cause us to lease space at rates below current in-place rents, or at rates below the rates we have leased space in those areas in the prior year. In addition, factors negatively impacting the energy industry could reduce the market values of our properties in those areas, which could reduce our net asset value and adversely affect our financial condition and results of operations, or cause a decline in the value of our common stock. 

 

We compete with national, regional and local real estate operators and developers, which could adversely affect our cash flow.

 

Competition exists in every market in which our properties are currently located and in every market in which properties we may acquire in the future will be located.  We compete with, among others, national, regional and numerous local real estate operators and developers.  Such competition may adversely affect the percentage of leased space and the rental revenues of our properties, which could adversely affect our cash flow from operations and our ability to make expected distributions to our stockholders.  Some of our competitors may have more resources than we do or other competitive advantages.  Competition may be accelerated by any increase in availability of funds for investment in real estate.  For example, decreases in interest rates tend to increase the availability of funds and therefore can increase competition.  To the extent that our properties continue to operate profitably, this will likely stimulate new development of competing properties.  The extent to which we are affected by competition will depend in significant part on both local market conditions and national and global economic conditions.

 

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We are subject to possible liability relating to environmental matters, and we cannot assure you that we have identified all possible liabilities.

 

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property.  Such laws may impose liability without regard to whether the owner or operator knew of, or caused, the release of such hazardous substances.  The presence of hazardous substances on a property may adversely affect the owner’s ability to sell such property or to borrow using such property as collateral, and it may cause the owner of the property to incur substantial remediation costs.  In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in the owner incurring substantial liabilities as a result of a claim by a private party for personal injury or a claim by an adjacent property owner for property damage.

 

In addition, we cannot assure you that:

 

·

future laws, ordinances or regulations will not impose any material environmental liability;

·

proposed legislation to address climate change will not increase utility and other costs of operating our properties which, if not offset by rising rental income and/or paid by tenants, would materially and adversely affect our financial condition and results of operations;

·

the current environmental conditions of our properties will not be affected by the condition of properties in the vicinity of such properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to us;

·

tenants will not violate their leases by introducing hazardous or toxic substances into our properties that could expose us to liability under federal or state environmental laws; or

·

environmental conditions, such as the growth of bacteria and toxic mold in heating and ventilation systems or on walls, will not occur at our properties and pose a threat to human health.

 

We are subject to compliance with the Americans With Disabilities Act and fire and safety regulations, any of which could require us to make significant capital expenditures.

 

All of our properties are required to comply with the Americans With Disabilities Act (ADA), and the regulations, rules and orders that may be issued thereunder.  The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to persons with disabilities.  Compliance with ADA requirements might require, among other things, removal of access barriers.  Noncompliance with such requirements could result in the imposition of fines by the U.S. government or an award of damages to private litigants.

 

In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties.  Compliance with such requirements may require us to make substantial capital expenditures, which expenditures would reduce cash otherwise available for distribution to our stockholders.

 

We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control.

 

Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury, or OFAC, maintains a list of persons designated as terrorists or who are otherwise blocked or banned, which we refer to as Prohibited Persons.  OFAC regulations and other laws prohibit conducting business or engaging in transactions with Prohibited Persons (the “OFAC Requirements”).  Our current leases and certain other agreements require the other party to comply with the OFAC Requirements.  If a tenant or other party with whom we contract is placed on the OFAC list we may be required by the OFAC Requirements to terminate the lease or other agreement.  Any such termination could result in a loss of revenue or a damage claim by the other party that the termination was wrongful.

 

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Security breaches and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.

 

In the ordinary course of our business, we collect and store sensitive data concerning investors in the Sponsored REITS, tenants and vendors.  Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.  Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.  Any such access, disclosure or other loss of information could result in legal claims or proceedings and liability under laws that protect the privacy of personal information, and could damage our reputation.

 

Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.

 

We have significant investments in markets that may be the targets of actual or threatened terrorism attacks in the future.  As a result, some tenants in these markets may choose to relocate their businesses to other markets or to lower-profile office buildings within these markets that may be perceived to be less likely targets of future terrorist activity.  This could result in an overall decrease in the demand for office space in these markets generally or in our properties in particular, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms or both.  In addition, future terrorist attacks in these markets could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage.  As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially.  See also “We may lose capital investment or anticipated profits if an uninsured event occurs.

 

We may lose capital investment or anticipated profits if an uninsured event occurs.

 

We carry, or our tenants carry, comprehensive liability, fire and extended coverage with respect to each of our properties, with policy specification and insured limits customarily carried for similar properties.  There are, however, certain types of losses that may be either uninsurable or not economically insurable.  Should an uninsured material loss occur, we could lose both capital invested in the property and anticipated profits.

 

Our employee retention plan may prevent changes in control.

 

During February 2006, our Board of Directors approved a change in control plan, which included a form of retention agreement and discretionary payment plan.  Payments under the discretionary plan are capped at 1% of the market capitalization of FSP Corp. as reduced by the amount paid under the retention plan.  The costs associated with these two components of the plan may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change in control under circumstances that could otherwise give the holders of our common stock the opportunity to realize a greater premium over the then-prevailing market prices.

 

Further issuances of equity securities may be dilutive to current stockholders.

 

The interests of our existing stockholders could be diluted if we issue additional equity securities to finance future acquisitions, repay indebtedness or to fund other general corporate purposes.  Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other forms of secured and unsecured debt, and equity financing.

 

The price of our common stock may vary.

 

The market prices for our common stock may fluctuate with changes in market and economic conditions, including the market perception of REITs in general, and changes in our financial condition and results of operations.  Such fluctuations may depress the market price of our common stock independent of the financial performance of FSP Corp.  The market conditions for REIT stocks generally could affect the market price of our common stock.

 

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Recently enacted U.S. federal tax reform legislation could affect REITs generally, the geographic markets in which we operate, the price of our common stock and our results of operations, both positively and negatively in ways that are difficult to anticipate. 

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was enacted.  The 2017 Act includes significant changes to corporate and individual tax rates and the calculation of taxes, as well as international tax rules for U.S. domestic corporations.  As a REIT, we are generally not required to pay federal taxes otherwise applicable to regular corporations if we distribute all of our income and comply with the various tax rules governing REITs.  Stockholders, however, are generally required to pay taxes on REIT dividends.  The 2017 Act changes the way in which dividends paid on our stock are taxed by the holder of that stock and could impact the price of our common stock or how stockholders and potential investors view an investment in REITs.   In addition, while certain elements of the 2017 Act do not appear to impact us directly as a REIT, they could impact the geographic markets in which we operate and the tenants that lease space at our properties in ways, both positive and negative, that are difficult to anticipate.

 

We would incur adverse tax consequences if we failed to qualify as a real estate investment trusts or REIT.

 

The provisions of the tax code governing the taxation of real estate investment trusts are very technical and complex, and although we expect that we will be organized and will operate in a manner that will enable us to meet such requirements, no assurance can be given that we will always succeed in doing so.  In addition, as a result of our past acquisition of certain Sponsored REITs by merger, which we refer to as target REITs, we might no longer qualify as a real estate investment trust.  We could lose our ability to so qualify for a variety of reasons relating to the nature of the assets acquired from the target REITs, the identity of the stockholders of the target REITs who become our stockholders or the failure of one or more of the target REITs to have previously qualified as a real estate investment trust.  Moreover, if one or more of the target REITs that we acquired in May 2008, April 2006, April 2005 or June 2003 did not qualify as a REIT immediately prior to the consummation of its acquisition, we could be disqualified as a REIT as a result of such acquisition.

 

If in any taxable year we do not qualify as a real estate investment trust, we would be taxed as a corporation and distributions to our stockholders would not be deductible by us in computing our taxable income. In addition, if we were to fail to qualify as a real estate investment trust, we could be disqualified from treatment as a real estate investment trust in the year in which such failure occurred and for the next four taxable years and, consequently, we would be taxed as a regular corporation during such years.  Failure to qualify for even one taxable year could result in a significant reduction of our cash available for distribution to our stockholders or could require us to incur indebtedness or liquidate investments in order to generate sufficient funds to pay the resulting federal income tax liabilities.

 

Provisions in our organizational documents may prevent changes in control.

 

Our Articles of Incorporation and Bylaws contain provisions, described below, which may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change of control under circumstances that could otherwise give the holders of our common stock the opportunity to realize a premium over the then-prevailing market prices.

 

Ownership Limits.  In order for us to maintain our qualification as a real estate investment trust, the holders of our common stock may be limited to owning, either directly or under applicable attribution rules of the Internal Revenue Code, no more than 9.8% of the lesser of the value or the number of our equity shares, and no holder of common stock may acquire or transfer shares that would result in our shares of common stock being beneficially owned by fewer than 100 persons. Such ownership limit may have the effect of preventing an acquisition of control of us without the approval of our board of directors.  Our Articles of Incorporation give our board of directors the right to refuse to give effect to the acquisition or transfer of shares by a stockholder in violation of these provisions.

 

Staggered Board.  Our board of directors is divided into three classes.  The terms of these classes are staggered and will expire in 2018, 2019 and 2020, respectively.  Directors of each class are elected for a three-year term upon the expiration of the respective term of each class.  The staggered terms for directors may affect our stockholders’ ability to effect a change in control even if a change in control may be in the stockholders’ best interests.

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Preferred Stock. Our Articles of Incorporation authorize our board of directors to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share, and to establish the preferences and rights of any such shares issued. The issuance of preferred stock could have the effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interest.

 

Increase of Authorized Stock.  Our board of directors, without any vote or consent of the stockholders, may increase the number of authorized shares of any class or series of stock or the aggregate number of authorized shares we have authority to issue. The ability to increase the number of authorized shares and issue such shares could have the effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interest.

 

Amendment of Bylaws.  Our board of directors has the sole power to amend our Bylaws.  This power could have the effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interests.

 

Stockholder Meetings. Our Bylaws require advance notice for stockholder proposals to be considered at annual and special meetings of stockholders and for stockholder nominations for election of directors at annual and special meetings of stockholders.  The advance notice provisions require a proponent to provide us with detailed information about the proponent and/or nominee.  Our Bylaws also provide that stockholders entitled to cast more than 50% of all the votes entitled to be cast at a meeting must join in a request by stockholders to call a special meeting of stockholders and that a specific process for the meeting request must be followed.  These provisions could have the effect of delaying or preventing a change in control even if a change in control may be in the best interests of our stockholders.

 

Supermajority Votes Required.  Our Articles of Incorporation require the affirmative vote of the holders of no less than 80% of the shares of capital stock outstanding and entitled to vote in order (i) to amend the provisions of our Articles of Incorporation relating to the classification of directors, removal of directors, limitation of liability of officers and directors or indemnification of officers and directors or (ii) to amend our Articles of Incorporation to impose cumulative voting in the election of directors.  These provisions could have the effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interest.

 

Item 1B.Unresolved Staff Comments.

 

None.

15


 

Item 2.Properties

 

Set forth below is information regarding our properties as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

Approx.

    

Percent

    

Approx.

    

    

 

 

 

Date of

 

Square

 

Leased as

 

Number

 

 

 

Property Location

 

Purchase (1)

 

Feet

 

of 12/31/17

 

of Tenants

 

Major Tenants (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

 

 

 

 

600 Forest Point Circle

 

7/8/99

 

62,212

 

100

%  

 1

 

American National Red Cross

 

Charlotte, NC 28273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14151 Park Meadow Drive

 

3/15/01

 

138,537

 

100

%  

 5

 

American Systems Corporation

 

Chantilly, VA 20151

 

 

 

 

 

 

 

 

 

Omniplex World Services

 

 

 

 

 

 

 

 

 

 

 

Booz Allen Hamilton, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

1370 & 1390 Timberlake

 

5/24/01

 

234,496

 

100

%  

 4

 

Centene Management Company, LLC

 

Manor Parkway,

 

 

 

 

 

 

 

 

 

Amdocs, Inc.

 

Chesterfield, MO 63017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50 Northwest Point Rd.

 

12/5/01

 

177,095

 

100

%  

 2

 

Citicorp Credit Services, Inc.

 

Elk Grove Village, IL 60005

 

 

 

 

 

 

 

 

 

NCS Pearson, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

1350 Timberlake Manor Parkway

 

3/4/02

 

117,036

 

100

%  

 3

 

Centene Management Company, LLC

 

Chesterfield, MO 63017

 

 

 

 

 

 

 

 

 

Edgewell Personal Care Company

 

 

 

 

 

 

 

 

 

 

 

 

 

16285 Park Ten Place

 

6/27/02

 

157,460

 

69

%  

 8

 

Bluware, Inc.

 

Houston, TX 77084

 

 

 

 

 

 

 

 

 

Subsea Solutions LLC

 

 

 

 

 

 

 

 

 

 

 

Blade Energy

 

 

 

 

 

 

 

 

 

 

 

BAE Systems Land & Armaments, LP

 

 

 

 

 

 

 

 

 

 

 

 

 

15601 Dallas Parkway

 

9/30/02

 

288,794

 

100

%  

13

 

Federal National Mortgage Association

 

Addison, TX 75001

 

 

 

 

 

 

 

 

 

Cyxtera Management Inc.

 

 

 

 

 

 

 

 

 

 

 

Compass Production Partners, LP

 

 

 

 

 

 

 

 

 

 

 

 

 

1500 & 1600 Greenville Ave.

 

3/3/03

 

300,887

 

100

%  

 5

 

ARGO Data Resource Corp.

 

Richardson, TX 75080

 

 

 

 

 

 

 

 

 

VCE Company, LLC

 

 

 

 

 

 

 

 

 

 

 

Id Software, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

6550 & 6560 Greenwood Plaza

 

2/24/05

 

196,236

 

100

%  

 4

 

DIRECTV, Inc.

 

Englewood, CO 80111

 

 

 

 

 

 

 

 

 

Kaiser Foundation Health Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

3815-3925 River Crossing Pkwy

 

7/6/05

 

205,059

 

96

%  

15

 

Somerset CPAs, P.C.

 

Indianapolis, IN 46240

 

 

 

 

 

 

 

 

 

Crowe Horwath, LLP

 

 

 

 

 

 

 

 

 

 

 

Blackboard, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

5055 & 5057 Keller Springs Rd.

 

2/24/06

 

218,934

 

91

%  

27

 

See Footnote 3

 

Addison, TX 75001

 

 

 

 

 

 

 

 

 

 

 

16


 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

Approx.

    

Percent

    

Approx.

    

    

 

 

 

Date of

 

Square

 

Leased as

 

Number

 

 

 

Property Location

 

Purchase (1)

 

Feet

 

of 12/31/17

 

of Tenants

 

Major Tenants (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

5505 Blue Lagoon Drive

 

11/6/03

 

212,619

 

100

%  

 1

 

Burger King Corporation

 

Miami, FL 33126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5600, 5620 & 5640 Cox Road

 

7/16/03

 

298,456

 

100

%  

 6

 

SunTrust Bank

 

Glen Allen, VA 23060

 

 

 

 

 

 

 

 

 

General Electric Company

 

 

 

 

 

 

 

 

 

 

 

ChemTreat, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

1293 Eldridge Parkway

 

1/16/04

 

248,399

 

100

%  

 1

 

CITGO Petroleum Corporation

 

Houston, TX 77077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

380 Interlocken Crescent

 

8/15/03

 

240,358

 

86

%  

 9

 

VMWare, Inc.

 

Broomfield, CO 80021

 

 

 

 

 

 

 

 

 

Cooley LLP

 

 

 

 

 

 

 

 

 

 

 

Sierra Financial Services, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

3625 Cumberland Boulevard

 

6/27/06

 

387,267

 

61

%  

19

 

Randstad General Partner (US)

 

Atlanta, GA 30339

 

 

 

 

 

 

 

 

 

Gas South LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

390 Interlocken Crescent

 

12/21/06

 

241,751

 

99

%  

 9

 

Vail Holdings, Inc.

 

Broomfield, CO 80021

 

 

 

 

 

 

 

 

 

AppExtremes, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

16290 Katy Freeway

 

9/28/05

 

156,746

 

 1

%  

 1

 

 

 

Houston, TX 77094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45925 Horseshoe Drive

 

12/23/08

 

136,658

 

96

%  

 3

 

Giesecke & Devrient America, Inc.

 

Sterling, VA 20166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4807 Stonecroft Blvd.

 

6/26/09

 

111,469

 

100

%  

 1

 

Northrop Grumman Systems Corp.

 

Chantilly, VA 20151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

121 South Eighth Street

 

6/29/10

 

293,422

 

82

%  

38

 

Schwegman, Lundberg & Woessner

 

Minneapolis, MN 55402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

801 Marquette Ave. South

 

6/29/10

 

 —

 

 —

%  

 —

 

 

 

Minneapolis, MN 55402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4820 Emperor Boulevard

 

3/4/11

 

259,531

 

100

%  

 1

 

QuintilesIMS Health Incorporated

 

Durham, NC 27703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5100 & 5160 Tennyson Pkwy

 

3/10/11

 

202,600

 

86

%  

 4

 

Denbury Onshore LLC

 

Plano, TX 75024

 

 

 

 

 

 

 

 

 

Worldventures Holdings, LLC

 

 

 

 

 

 

 

 

 

 

 

ARK-LA-TEX  Financial Services, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

7500 Dallas Parkway

 

3/24/11

 

214,110

 

100

%  

 4

 

ADS Alliance Data Systems, Inc.

 

Plano, TX 75024

 

 

 

 

 

 

 

 

 

Americorp., Inc. d/b/a Altair Global

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17


 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

Approx.

    

Percent

    

Approx.

    

    

 

 

 

Date of

 

Square

 

Leased as

 

Number

 

 

 

Property Location

 

Purchase (1)

 

Feet

 

of 12/31/17

 

of Tenants

 

Major Tenants (2)

 

909 Davis Street

 

9/30/11

 

196,581

 

92

%  

 9

 

Houghton Mifflin Co.

 

Evanston, IL 60201

 

 

 

 

 

 

 

 

 

Honor Finance, LLC

 

 

 

 

 

 

 

 

 

 

 

Northshore University Healthsystem

 

 

 

 

 

 

 

 

 

 

 

Industrious EVN 909 Davis Street

 

 

 

 

 

 

 

 

 

 

 

 

 

One Ravinia Drive

 

7/31/12

 

386,602

 

92

%  

10

 

T-Mobile South LLC

 

Atlanta, GA 30301

 

 

 

 

 

 

 

 

 

Internap Network Services Corporation

 

 

 

 

 

 

 

 

 

 

 

Cedar Document Technologies, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Two Ravinia Drive

 

4/8/15

 

411,047

 

75

%  

40

 

See Footnote 3

 

Atlanta, GA 30301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10370 & 10350 Richmond Ave.

 

11/1/12

 

629,025

 

88

%  

43

 

Petrobras America, Inc.

 

Houston, TX 77042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1999 Broadway

 

5/22/13

 

676,379

 

80

%  

31

 

United States Government

 

Denver, CO 80202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

999 Peachtree Street

 

7/1/13

 

621,946

 

95

%  

40

 

Eversheds Sutherland (US) LLP

 

Atlanta, GA 30301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1001 17th Street

 

8/28/13

 

655,413

 

97

%  

20

 

Newfield Exploration

 

Denver, CO 80202

 

 

 

 

 

 

 

 

 

WPX Energy. Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

45 South Seventh Street

 

6/6/16

 

326,483

 

97

%  

28

 

PricewaterhouseCoopers LLP

 

Minneapolis, MN 55402

 

 

 

 

 

 

 

 

 

Northland Securities, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

1420 Peachtree Street, NE

 

8/10/16

 

160,145

 

97

%  

 3

 

Jones Day

 

Atlanta, GA 30301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

600 17th Street

 

12/1/16

 

598,231

 

87

%  

41

 

EOG Resources, Inc.

 

Denver, CO 80202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Office

 

 

 

9,761,984

 

90

%  

 

 

 

 


(1)

Date of purchase or merged entity date of purchase.

(2)

Major tenants that occupy 10% or more of the space in an individual property.

(3)

No tenant occupies more than 10% of the space.

 

All of the properties listed above are owned, directly or indirectly, by us.  None of our properties are subject to any mortgage loans.  We have no material undeveloped or unimproved properties, or proposed programs for material renovation, improvement or development of any of our properties in 2018.  We believe that our properties are adequately covered by insurance as of December 31, 2017. 

18


 

 

The information presented below provides the weighted average GAAP rent per square foot for the year ending December 31, 2017 for our properties and weighted occupancy square feet and percentages.  GAAP rent includes the impact of tenant concessions and reimbursements.  This table does not include information about properties held by our investments in nonconsolidated REITs or those which we have provided Sponsored REIT Loans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

    

    

    

    

    

    

    

Weighted

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupied

 

Weighted

 

 

 

 

 

 

 

Year Built

 

 

 

Weighted

 

Percentage as of

 

Average

 

 

 

 

 

 

 

or

 

Net Rentable

 

Occupied

 

December 31,

 

Rent per Occupied

 

Property Name

 

City

 

State

 

Renovated

 

Square Feet

 

Sq. Ft.

 

2017 (a)

 

Square Feet (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forest Park

 

Charlotte

 

NC

 

1999

 

62,212

 

62,212

 

100.0

%  

$

14.06

 

Meadow Point

 

Chantilly

 

VA

 

1999

 

138,537

 

138,537

 

100.0

%  

 

26.27

 

Innsbrook

 

Glen Allen

 

VA

 

1999

 

298,456

 

298,456

 

100.0

%  

 

18.21

 

Loudoun Tech Center

 

Dulles

 

VA

 

1999

 

136,658

 

128,308

 

93.9

%  

 

18.12

 

Stonecroft

 

Chantilly

 

VA

 

2008

 

111,469

 

111,469

 

100.0

%  

 

38.02

 

Emperor Boulevard

 

Durham

 

NC

 

2009

 

259,531

 

259,531

 

100.0

%  

 

34.20

 

 East total

 

 

 

 

 

 

 

1,006,863

 

998,513

 

99.2

%  

 

25.43

 

Northwest Point

 

Elk Grove Village

 

IL

 

1999

 

177,095

 

177,095

 

100.0

%  

 

23.20

 

909 Davis Street

 

Evanston

 

IL

 

2002

 

196,581

 

153,078

 

77.9

%  

 

28.92

 

River Crossing

 

Indianapolis

 

IN

 

1998

 

205,059

 

195,872

 

95.5

%  

 

23.10

 

Timberlake

 

Chesterfield

 

MO

 

1999

 

234,496

 

234,496

 

100.0

%  

 

26.09

 

Timberlake East