Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Annual Report on Form 10-K may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, adverse changes in general economic or local market conditions, including as a result of the long-term effects of the COVID-19 pandemic, wars, terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, impacts of changes in tariffs that the United States and other countries have announced or implemented, as well as any additional new tariffs, trade restrictions or export regulations that may be implemented or reversed in the future, inflation rates, interest rates, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, expectations for future potential property dispositions, expectations for future potential leasing activity, changes in government regulations and regulatory uncertainty, uncertainty about governmental fiscal policy, geopolitical events and expenditures that cannot be anticipated, such as utility rate and usage increases, delays in construction schedules, unanticipated increases in construction costs, unanticipated repairs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, additional staffing, insurance increases and real estate tax valuation reassessments. See “Risk Factors” in Part I, Item 1A, of this Annual Report on Form 10-K. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, acquisitions, dispositions, performance or achievements. We may not update any of the forward-looking statements after the date this Annual Report on Form 10-K is filed to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.
Overview
FSP Corp., or we or the Company, operates in a single reportable segment: real estate operations. The real estate operations market involves real estate rental operations, leasing, secured financing of real estate and services provided for asset management, property management, property acquisitions, dispositions and development. Our current strategy is to focus on infill and central business district office properties in the United States sunbelt and mountain west regions as well as select opportunistic markets. We believe that the United States sunbelt and mountain west regions have macro-economic drivers that have the potential to increase occupancies and rents. We are focused on long-term growth and appreciation.
As of December 31, 2025, all of our total owned portfolio, consisting of approximately 4.8 million square feet, was located in Dallas, Denver, Houston and Minneapolis.
The main factor that affects our real estate operations is the broad economic market conditions in the United States. These market conditions affect the occupancy levels and the rent levels on both a national and local level. We have no influence on broader economic market conditions. We may look to acquire and/or develop quality properties in good locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.
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In May 2025, we announced that our Board of Directors had initiated a review of strategic alternatives in order to explore ways to maximize shareholder value.
Throughout the strategic review process, the Board of Directors and management directed its financial advisors to evaluate a broad range of strategic alternatives, including:
Portfolio-level transactions
Individual asset dispositions
Joint venture structures
Corporate-level transactions
Liquidation scenarios
Refinancing alternatives
During the period from the commencement of the strategic review process to the date of this Annual Report:
Transaction volume across many of our primary submarkets remained historically low.
Where transactions occurred, activity was frequently concentrated in lender-controlled or distressed situations and at pricing levels not reflective of stabilized intrinsic valuations.
Institutional capital in the office sector remained highly selective nationally, primarily targeting trophy or newly delivered assets in select gateway markets, or deeply discounted properties in distress scenarios. As a result, reported transaction pricing may be influenced by a limited number of transactions that are not necessarily reflective of actual achievable values on our assets.
Lending liquidity for office assets in similar markets and with comparable occupancy profiles and lease maturities has been significantly constrained relative to historical norms, further limiting the ability to execute transactions at pricing levels consistent with long-term asset values.
On February 26, 2026, we closed a $320 million secured credit facility with an affiliate of TPG Credit. We repaid in full all of our then outstanding approximately $249 million aggregate principal amount of indebtedness with borrowings under the facility. The facility has an original stated maturity of February 26, 2029, subject to potential extension of up to one year at our option, subject to certain conditions. The facility consists of (i) initial term loans in an aggregate principal amount of $275 million, and (ii) delayed draw term loans available upon the approval of the lenders party thereto in an aggregate principal amount of up to $45 million. The delayed draw term loans may be used, subject to certain conditions, to fund tenant improvements, leasing commissions, building improvements and other uses approved by the lender. See Note 12, Subsequent Events, of the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K for further information on the Credit Agreement.
We continue to believe that the intrinsic value of our real estate portfolio exceeds our current public market valuation. However, our ability to realize that value is dependent upon transaction and financing liquidity in the relevant capital markets and property submarkets, including for assets of similar quality, occupancy levels, and weighted average lease terms. Based on market evidence, transaction comparables, and discussions with potential counterparties, we, in consultation with our professional advisors, have determined that, to date, market conditions have not been supportive of transactions at pricing levels that would reasonably reflect the intrinsic value of our assets. Accordingly, we believe that pursuing asset sales or liquidation under such market conditions would likely not maximize value for our shareholders. We believe that current transaction activity in many office markets continues to reflect limited capital availability and highly selective buyer demand rather than the underlying long-term value of institutional quality assets.
Our review of potential strategic alternatives remains ongoing and continues to include evaluation of a range of alternatives, including asset sales.
During the year ended December 31, 2024, our disposition strategy resulted in aggregate gross sale proceeds of $100.0 million, and we repaid an aggregate amount of $154.7 million of our debt previously outstanding under the BofA Term Loan, BMO Term Loan, Series A Notes and Series B Notes (each as defined in Liquidity and Capital Resources below). During the year ended December 31, 2025, we used disposition proceeds of $1.4 million received from escrow proceeds relating to dispositions in 2024, to repay outstanding debt.
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In March 2026, our Board of Directors determined to suspend quarterly cash dividends to reduce operating expenses and to redeploy that capital into leasing efforts intended to enhance the value of our portfolio. In addition, the Credit Agreement provides that we may not declare dividends in excess of the greater of $0.01 per share or such amount as is required to maintain our status as a REIT. Any future declaration and payment of dividends will be determined from time to time by our Board of Directors and will depend on, among other things, our results of operations, cash flows, liquidity, financial condition, capital requirements and other factors the Board of Directors deems relevant.
Trends and Uncertainties
Long-Term Impact of COVID-19 Pandemic
Uncertainty still surrounds the long-term impact of the COVID-19 pandemic on the commercial real estate market and our business. Many of our tenants still do not fully occupy the space that they lease. The impact of the COVID-19 pandemic continues to present material uncertainty and risk with respect to the performance of our properties and our financial results, such as the potential negative impact to the businesses of our tenants, the impact of work-from-home and return-to-work policies, the potential negative impact to leasing efforts and occupancy at our properties, uncertainty regarding future rent collection levels or requests for rent concessions from our tenants, the occurrence of a default under any of our debt agreements, the potential for increased borrowing costs, negative impacts on our ability to refinance existing indebtedness or to secure new sources of capital on favorable terms decreases in values of our real estate assets, and uncertainty regarding government and regulatory policy. We are unable to estimate the full extent of the long-term impact that the COVID-19 pandemic has had and will have on our future financial results at this time. See “The long-term impact of the COVID-19 pandemic has had and may continue to have an impact on our financial condition and results of operations. This impact could be materially to the extent that the long-term impact of the COVID-19 pandemic, or future pandemics, cause tenants to be to pay their rent or reduce the demand for commercial real estate, or cause other impacts described below.” in Item 1A. “Risk Factors ”.
Economic Conditions
The global economy continues to experience significant disruptions as a result of various factors, including changes in U.S. trade or other policies or those policies of other nations, geopolitical events such as the conflicts in Ukraine and the Middle East, increasing tensions with China and Iran, tensions between the U.S. and Europe related to the sovereignty of Greenland, major political shifts domestically or internationally and continuing supply chain difficulties. In addition, various economic factors, including but not limited to, impacts of changes in tariffs that the United States and other countries have announced or implemented, as well as any additional new tariffs, trade restrictions or export regulations that may be implemented or reversed in the future, inflation and interest rates, may adversely affect the economy of the United States. Economic conditions directly affect the demand for office space, our primary income producing asset. In addition, the broad economic market conditions in the United States are typically affected by numerous other factors, including but not limited to, employment levels, energy prices, uncertainty about government fiscal, monetary, trade and tax policies, changes in currency exchange rates, the regulatory environment and the availability of credit. If interest rates increase, then the interest costs on our unhedged variable rate debt would be adversely affected, which could in turn affect our cash flow, our ability to pay principal and interest on our debt and our ability to make distributions to stockholders. As of December 31, 2025, approximately 50.6% of our total debt constituted unhedged variable rate debt. Increased interest rates could also decrease the amount third parties are willing to pay for our assets and limit our ability to incur new debt or refinance existing debt when it matures. As of the date of this report, the impact of current economic conditions and geopolitical events and the long-term impact of the COVID-19 pandemic are affecting the demand for office space in the United States.
Real Estate Operations
As of December 31, 2025, our real estate portfolio was comprised of 14 owned properties, which we refer to as our owned properties. Our owned properties were approximately 68.9% leased as of December 31, 2025, a decrease from 70.3% leased as of December 31, 2024. The 1.4% decrease in leased space was primarily a result of lease expirations exceeding new executed leases during the year ended December 31, 2025. As of December 31, 2025, we had
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approximately 1,497,000 square feet of vacancy in our owned properties compared to approximately 1,428,000 square feet of vacancy at December 31, 2024. During the year ended December 31, 2025, we leased approximately 413,000 square feet of office space in our owned properties, of which approximately 320,000 square feet were with existing tenants, at a weighted average term of 5.7 years. On average, tenant improvements for such leases were $23.02 per square foot, lease commissions were $9.24 per square foot and rent concessions were approximately four months of free rent. Average GAAP base rents under such leases were $32.42 per square foot, or 5.7% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2024.
As of December 31, 2025, leases for approximately 7.6% and 10.4% of the square footage in our owned portfolio are scheduled to expire during 2026 and 2027, respectively. As the first quarter of 2026 begins, we believe that:
approximately half of our operating properties are stabilized with leased occupancy of 75% or more; and
our remaining operating properties are value-add in nature with leased occupancy of less than 75%.
Existing vacancy is being actively marketed to numerous potential tenants. While leasing activity at our properties has continued, we believe that the impact of geopolitical events, current economic conditions and the long-term impact of the COVID-19 pandemic may limit or delay new tenant leasing during at least the first quarter of 2026 and potentially in future periods.
While we cannot generally predict when an existing vacancy in our owned properties will be leased or if existing tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which could be above or below the expiring rates. Also, we believe the potential exists for any of our tenants to default on its lease or to seek the protection of bankruptcy. If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for distribution to our stockholders.
Real Estate Acquisition and Investment Activity
During 2025:
we continued to explore additional potential real estate investment opportunities.
During 2024:
on September 27, 2024, we agreed to extend the maturity date of our loan to Monument Circle that was secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan, to September 30, 2025.
During 2023:
on September 26, 2023, we agreed to extend the maturity date of the Sponsored REIT Loan, to September 30, 2024.
Property Dispositions and Assets Held for Sale
During 2025, we sold an office property located in Indianapolis, Indiana on June 6, 2025, for a gross sale price of $6 million, at a loss of $12.9 million.
During 2024, we sold an office property located in Richardson, Texas on January 26, 2024, for a gross sales price of $35 million. The property was classified as held for sale as of December 31, 2023, and an impairment of $2.1 million had been recorded during the year ended December 31, 2023. An additional $5,000 of costs related to the sale were recorded during the three months ended March 31, 2024. During the three months ended June 30, 2024, the Company entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately
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$31.0 million at an expected loss of $13.2 million, which was recorded as an impairment. The property was sold on July 8, 2024, at the expected loss. During the three months ended September 30, 2024, we entered into a new agreement to sell a property in Atlanta, Georgia, which was previously classified as an asset held for sale during 2023 pursuant to a previous agreement that was terminated on November 15, 2023. We increased the expected loss on this property by $6.6 million to $27.2 million when we entered into this new agreement to sell the property for a gross sales price of $34.0 million. The property was sold on October 23, 2024, with a $0.4 million increase to loss from final sales adjustments on the date of sale.
During 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023, for a gross sales price of $29.1 million, at a gain of approximately $8.4 million. During the three months ended June 30, 2023, we entered into an agreement to sell a property in Charlotte, North Carolina at an expected loss of $0.8 million, which was recorded as an impairment, and we classified the property as an asset held for sale as of June 30, 2023. The property was sold on August 9, 2023, for a gross sales price of $9.2 million, at a loss of $0.8 million, which had been our expected loss. During the three months ended September 30, 2023, we recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project. In addition, during the three months ended September 30, 2023, we executed purchase and sale agreements with four different unrelated purchasers for the potential sale of four properties. Three of these potential dispositions were classified as assets held for sale as of September 30, 2023. On October 26, 2023, we completed the sale of one of the assets held for sale as of September 30, 2023, an office building located in Plano, Texas for a gross sales price of $48.0 million at a of approximately $10.6 million. On December 6, 2023, we sold another of the assets held for sale, an office property located in Miami, Florida for a gross sales price of $68.0 million at a of approximately $18.9 million. The one remaining asset held for sale was expected to sell for a gross sales price of $40.0 million at a of approximately $20.5 million, which was recorded as an as of September 30, 2023; however, on November 15, 2023, we received notice from the buyer indicating that the buyer was the transaction and directing the deposit and interest be disbursed to us.
We used, or intend to use, the proceeds of the dispositions primarily to repay outstanding indebtedness.
The dispositions of these properties did not represent a strategic shift that has a major effect on our operations and financial results. Our current strategy is to continue to invest in the sunbelt and mountain west regions of the United States. Accordingly, the properties sold remained classified within continuing operations for all periods presented.
We continue to believe that the current price of our common stock does not accurately reflect the intrinsic value of our underlying real estate assets, and we will seek to increase shareholder value by (1) pursuing the sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) striving to lease vacant space. As we continue to execute this strategy, our revenue, Funds From Operations, and capital expenditures may decrease in the short term. Proceeds from dispositions are intended to be used primarily for the repayment of debt.
Critical Accounting Estimates
We have certain critical accounting policies that are subject to judgments and estimates by our management and uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. The accounting policies that we believe are most critical to the understanding of our financial position and results of operations, and that require significant management estimates and judgments, are discussed below. Significant estimates in the consolidated financial statements include purchase price allocations and impairment considerations.
Critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly presents our results of operations. Our
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most critical accounting policies involve our investments in sponsored REITs and our investments in real property. These policies affect our:
allocation of purchase price; and
assessment of the carrying values and impairments of long lived assets;
These policies involve significant judgments made based upon our experience, including judgments about current valuations, ultimate realizable value, current and future economic conditions and competitive factors in the markets in which our properties are located. Competition, economic conditions and other factors may cause occupancy declines in the future. In the future we may need to revise our carrying value assessments to incorporate information which is not now known and such revisions could decrease the carrying values of our assets.
Allocation of Purchase Price
We allocate the value of real estate acquired among land, buildings, improvements and identified intangible assets and liabilities, which may consist of the value of above market and below market leases, the value of in-place leases, and the value of tenant relationships. Purchase price allocations and the determination of the useful lives are based on management’s estimates. Under some circumstances we may rely upon studies commissioned from independent real estate appraisal firms in determining the purchase price allocations.
Purchase price allocated to land and building and improvements is based on management’s determination of the relative fair values of these assets assuming the property was vacant. Management determines the fair value of a property using methods similar to those used by independent appraisers. Purchase price allocated to above or below market leases is based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases including consideration of potential lease renewals and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable terms of the respective leases. This aggregate value is allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value because such value and its consequence to amortization expense is immaterial for acquisitions reflected in our financial statements. Factors considered by us in performing these analyses include (i) an estimate of carrying costs during the expected lease-up periods, including real estate taxes, insurance and other operating income and expenses, and (ii) costs to execute similar leases in current market conditions, such as leasing commissions, legal and other related costs. If future acquisitions result in our allocating material amounts to the value of tenant relationships, those amounts would be separately allocated and amortized over the estimated life of the relationships.
Impairment
We periodically evaluate our real estate properties for impairment indicators. These indicators may include lower or declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life or legislative, economic or market changes that permanently reduce the value of our investments. If indicators of impairment are present, we evaluate the carrying value of the property by comparing it to its expected future undiscounted cash flows. A property’s value is impaired only if management’s estimate of future undiscounted cash flows to be generated by the property over its estimated holding period is less than the carrying value of the property. If there are different potential outcomes for a property, we will take a probability weighted approach to estimating future cash flows. If we determine that impairment has occurred, the affected assets are reduced to their fair value. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. If we or estimate or if future tenant , market or industry factors differ from our expectations, we may record an charge which is or to record a charge when we should have done so, or the amount of such charges may be .
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Results of Operations
The following table shows financial results for the years ended December 31, 2025 and 2024.
Year ended December 31,
(in thousands)
Change
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
Loss on sale of properties and impairment of assets held for sale, net
Interest income
Loss before taxes
Tax expense
Net loss
Comparison of the year ended December 31, 2025 to the year ended December 31, 2024
Revenues
Total revenues decreased by $12.9 million to $107.2 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily a result of :
A decrease in rental revenue of approximately $12.9 million arising primarily from the sale of one property in 2025 and three properties in 2024 and other losses of rental income from lease expirations during the periods presented. These decreases were partially offset by rental income earned from leases commencing after December 31, 2024. Our leased space in our owned properties was 68.9% as of December 31, 2025 and 70.3% as of December 31, 2024 .
Expenses
Total expenses decreased by $12.8 million to $140.0 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily a result of:
A decrease in real estate operating expenses and real estate taxes and insurance of approximately $7.5 million, which was primarily attributable to the property dispositions noted above.
A decrease in depreciation and amortization of approximately $2.2 million, which was primarily attributable to the property dispositions noted above.
A decrease in general and administrative expenses of $1.5 million, which was primarily attributable to lower professional fees and public company expenses of $0.9 million and lower personnel costs of $0.6 million during 2025 and higher fees and costs incurred from the loan amendment we entered into on February 21, 2024 during the year ended December 31, 2024.
A decrease in interest expense of approximately $1.7 million. The decrease was primarily due to a lower principal amount of debt outstanding during the year ended December 31, 2025 compared to
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the year ended December 31, 2024 and was partially offset by higher interest rates that went into effect on April 1, 2025 under the loan amendment we entered into on February 21, 2024.
Loss on extinguishment of debt
During the years ended December 31, 2025 and December 31, 2024, we repaid debt and incurred a loss on extinguishment of debt of approximately $12,000 and $1,042,000, respectively, related to unamortized deferred financing costs on the dates of the repayments.
Loss on sale of properties and impairment of assets held for sale, net
On April 7, 2025, Monument Circle entered into a purchase and sale agreement to sell its property located in Indianapolis, Indiana for a gross sales price of $6.0 million. We estimated the fair value of this property, less estimated costs to sell, based on the purchase price set forth in the letter of intent to purchase the property that Monument Circle entered into with the third party, which resulted in recording an impairment charge of $13.3 million during the three months ended March 31, 2025 that was decreased by $0.4 million during the three months ended June 30, 2025 for final sale adjustments after the sale was completed on June 6, 2025.
During the three months ended September 30, 2023, we entered into an agreement to sell a property in Atlanta, Georgia for a gross sales price of approximately $40.0 million at an expected loss of $20.5 million. We recorded an impairment on this asset held for sale as of September 30, 2023. During the three months ended September 30, 2024, we increased the expected loss on the property in Atlanta, Georgia by $6.6 million after we entered into a new agreement to sell the property for a gross sales price of $34.0 million.
During the year ended December 31, 2024, we sold an office property located in Richardson, Texas on January 26, 2024, for a sales price of $35.0 million at a loss of approximately $2.1 million. The property was classified as held for sale as of December 31, 2023, and an impairment loss of $2.1 million was recorded during the year ended December 31, 2023. An additional $5,000 of costs related to the sale were recorded during the three months ended March 31, 2024.
During the year ended December 31, 2024, we entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately $31.0 million at an expected loss of $13.2 million, which was recorded as an impairment, and we classified the property as an asset held for sale as of June 30, 2024. The property was sold on July 8, 2024, at the expected loss. During the three months ended September 30, 2024, an additional $0.7 million in costs related to the sale of properties previously sold were recorded.
Interest Income
During the years ended December 31, 2025 and December 31, 2024, we invested disposition proceeds in an interest-bearing account and earned $1.0 million and $2.1 million, respectively, in interest income.
Tax expense on income
Included in income taxes is an estimate of federal income taxes of $31,000 from the sale of Monument Circle and the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $189,000 during the year ended December 31, 2025, compared to $216,000 during the year ended December 31, 2024.
Net loss
Net loss for the year ended December 31, 2025 was $45.0 million, compared to a net loss of $52.7 million for the year ended December 31, 2024, for the reasons described above.
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The following table shows financial results for the years ended December 31, 2024 and 2023.
Year ended December 31,
(in thousands)
Change
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 impairments of assets held for sale, net
Interest income
Loss before taxes
Tax expense
Net loss
Comparison of the year ended December 31, 2024 to the year ended December 31, 2023
Revenues
Total revenues decreased by $25.6 million to $120.1 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The decrease was primarily a result of:
A decrease in rental revenue of approximately $25.4 million arising primarily from the sale of three properties during 2024 and four properties in 2023 and other losses of rental income from lease expirations during the periods presented. These decreases were partially offset by rental income earned from leases commencing after December 31, 2023. Our leased space in our owned properties and Monument Circle was 67.5% as of December 31, 2024, as compared to 71.5% as of December 31, 2023.
A decrease in other income of $0.2 million during 2024 compared to 2023 from a deposit that was forfeited by a potential buyer in 2023 for a property in Atlanta, Georgia that we had under agreement when the transaction was terminated.
Expenses
Total expenses decreased by $18.2 million to $152.8 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The decrease was primarily a result of:
A decrease in real estate operating expenses and real estate taxes and insurance of approximately $10.2 million was primarily attributable to the property dispositions noted above.
A decrease in depreciation and amortization of approximately $10.0 million was primarily attributable to the property dispositions noted above.
A decrease in general and administrative expenses of $0.1 million, which was primarily attributable to lower personnel costs, which were partially offset by higher professional fees
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related to debt transactions completed in 2024 and the costs associated with adding a new director to our Board of Directors in the fourth quarter of 2024.
These decreases were partially offset by:
An increase in interest expense of approximately $2.1 million. The increase was primarily due to higher interest expense as a result of higher interest rates under the loan amendments we entered into in February 2024, which are described below and was partially offset by a lower principal amount of debt outstanding compared to the year ended December 31, 2023.
Loss on extinguishment of debt
During the years ended December 31, 2024 and December 31, 2023, we repaid debt and incurred a loss on extinguishment of debt of approximately $1.1 million and $0.1 million, respectively, related to unamortized deferred financing costs on the dates of the repayments.
Gain on consolidation of Sponsored REIT
During the year ended December 31, 2023, we recorded a gain on consolidation of Sponsored REIT as a result of reducing the Monument Circle loan loss reserve, which resulted in a $0.4 million gain.
Gain and loss on sale of properties and impairment of assets held for sale, net
During the three months ended March 31, 2023, we sold an office property located in Elk Grove, Illinois on March 10, 2023, for a gross sales price of $29.1 million, at a gain of approximately $8.4 million.
During the three months ended September 30, 2023, we sold an office property located in Charlotte, North Carolina known as Forest Park, for a sales price of $9.2 million at a loss of approximately $0.8 million. During the three months ended September 30, 2023, we also recorded a gain on sale of $53,000 as a result of conveying approximately 7,826 square feet of land at our Addison, Texas property to the Town of Addison as part of a road revitalization project and increased the loss on sale of Forest Park by $38,000 as a result of final sales adjustments.
During the three months ended September 30, 2023, we entered into an agreement to sell a property in Miami, Florida, known as Blue Lagoon, for a gross sales price of approximately $68.0 million at an expected loss of $19.2 million that was recorded as an impairment loss. We completed the sale of the property on December 6, 2023 at an actual loss of $18.9 million. During the three months ended September 30, 2023, we entered into an agreement to sell a property in Atlanta, Georgia for a gross sales price of approximately $40.0 million, at an expected loss of $20.5 million that was recorded as an impairment loss. On October 26, 2023, we completed the sale of an asset held for sale as of September 30, 2023, which was an office building located in Plano, Texas for a gross sales price of $48.0 million at a gain of approximately $10.6 million. During the three months ended September 30, 2023, we entered into a purchase and sales agreement, which was subsequently amended, to sell a property located in Richardson, Texas for a gross sales price of $35 million, at an expected loss of $2.1 million that was recorded as an during the three months ended December 31, 2023. The property sold on January 26, 2024, at the expected .
During the three months ended June 30, 2024, we entered into an agreement to sell a property in Glen Allen, Virginia for a gross sales price of approximately $31.0 million at an expected loss of $13.2 million that was recorded as an impairment, and we classified the property as an asset held for sale as of June 30, 2024. The property was sold on July 8, 2024, at the expected loss. During the three months ended September 30, 2024, an additional $0.7 million in costs related to the sale of properties previously sold were recorded.
During the three months ended September 30, 2024, we entered into a new agreement to sell a property in Atlanta, Georgia, which was classified as an asset held for sale, for a gross sales price of $34.0 million, and recorded an additional impairment loss of $6.6 million based on the fair value less cost to sell. The property sold on October 23, 2024, with a $0.4 million increase to loss from final sales adjustments on the date of sale.
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Interest Income
Interest income increased $1.5 million to $2.1 million during the year ended December 31, 2024, compared to the year ended December 31, 2023. During the three months ended December 31, 2023, we invested disposition proceeds in an interest-bearing account and earned $0.6 million in interest income. During 2024, we used a portion of the disposition proceeds to reduce debt and earned $2.1 million in interest income from proceeds that remained invested.
Tax expense on income
Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties, which was $0.2 million during the year ended December 31, 2024, compared to $0.3 million during the year ended December 31, 2023.
Net loss
Net loss for year ended December 31, 2024, was $52.7 million compared to $48.1 million for the year ended December 31, 2023, for the reasons described above.
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Non-GAAP Financial Measures
Funds From Operations
The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, hedge ineffectiveness, acquisition costs of newly acquired properties that are not capitalized and lease acquisition costs that are not capitalized plus depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges on properties or investments in non-consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs. We exclude FFO from any Sponsored REIT that is consolidated from the calculation of FFO.
FFO should not be considered as an alternative to net income or loss (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs.
Other real estate companies and the National Association of Real Estate Investment Trusts, or NAREIT, may define this term in a different manner. We have included the NAREIT FFO definition as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the NAREIT definition or may interpret the current NAREIT definition differently than we do.
We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be examined in connection with net income or loss and cash flows from operating, investing and financing activities in the consolidated financial statements.
The calculations of FFO are shown in the following table:
For the year ended December 31,
(in thousands):
Net loss
Gain on consolidation of Sponsored REIT
Loss on sale of properties and impairment of asset held for sale, net
Depreciation and amortization
NAREIT FFO
Lease Acquisition costs
Funds From Operations
Net Operating Income (NOI)
The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus selling, general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on the sale of assets and excludes non-property specific income and expenses. We exclude the NOI from any Sponsored REIT that is consolidated from the calculation of NOI. The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Same Store. The comparative Same Store results include properties held for the periods presented and exclude acquired properties. We also exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy
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settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions. The calculations of NOI are shown in the following table:
Net Operating Income (NOI)
Year
Year
(in thousands)
Rentable
Ended
Ended
Inc
Region
Square Feet
31-Dec-25
31-Dec-24
(Dec)
Change
MidWest
South
West
Property NOI from the continuing portfolio
Dispositions, Non-Operating, Development or Redevelopment
Property NOI
Same Store
Less Nonrecurring
Items in NOI (a)
Comparative
Same Store
Year
Year
Ended
Ended
Reconciliation to Net loss
31-Dec-25
31-Dec-24
Net loss
Add (deduct):
Loss on extinguishment of debt
Gain on consolidation of Sponsored REIT
Gain on sale of property
Management fee income
Depreciation and amortization
Amortization of above/below market leases
General and administrative
Interest expense
Interest income
Non-property specific items, net
Property NOI
Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.
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Liquidity and Capital Resources
Cash and cash equivalents were $30.6 million and $42.7 million at December 31, 2025 and December 31, 2024, respectively. The decrease of $12.1 million is attributable to $3.7 million provided by operating activities, less $10.3 million used in investing activities less $5.5 million used in financing activities.
On February 26, 2026 (the “Closing Date”), we entered into a Credit Agreement (the “Credit Agreement”) with Alter Domus (US) LLC, as administrative agent, and Silver Oak Capital LLC, an affiliate of TPG Credit (collectively, the lenders from time-to-time party thereto (the “Lenders”). The Credit Agreement provides for a secured credit facility for aggregate principal commitments of up to $320 million, consisting of (i) initial term loans in an aggregate principal amount of $275 million (the “Initial Term Loans”), and (ii) delayed draw term loans available upon the approval of the Lenders after the Closing Date in an aggregate principal amount of up to $45 million (the “Delayed Draw Term Loans” and together with the Initial Term Loans, the “Term Loans”). The Delayed Draw Term Loans may be used, subject to certain conditions, to fund tenant improvements, leasing commissions, building improvements and other uses approved by the Lenders. The Term Loans are not subject to amortization and have an initial stated maturity date of February 26, 2029. The maturity date is subject to potential extension of up to one year at the option of the Company, subject to the satisfaction of certain conditions. We used the proceeds of the Initial Term Loans on the Date to refinance and retire all outstanding indebtedness under the BMO Term Loan, BofA Term Loan and the Senior Notes (each as defined below). See Note 12, Subsequent Events, of the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K for further information on the Credit Agreement.
Management believes that existing cash and cash anticipated to be generated internally by operations, including property dispositions, will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. Although there is no guarantee that we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations and property dispositions. We believe that we have adequate funds to cover unusual expenses and capital improvements, in addition to normal operating expenses.
Operating Activities
Cash provided by our operating activities for the year ended December 31, 2025 of $3.7 million was primarily attributable to a net loss of $45.0 million excluding $12.9 million from a loss on the sale of a property, plus the add-back of $45.7 million of non-cash expenses, less a decrease in accounts payable and accrued compensation of $4.6 million, less an increase in payment of deferred leasing commissions of $4.2 million, less an increase in lease acquisition costs of $1.2 million, less a decrease in prepaid expenses of $0.7 million and plus a decrease in tenant receivables of $0.8 million.
Investing Activities
Cash used in investing activities for the year ended December 31, 2025 of $10.3 million was primarily attributable to capital expenditures and office equipment investments of approximately $16.4 million, which was partially offset by proceeds from the disposition of one property of $6.1 million.
Financing Activities
Cash used in financing activities for the year ended December 31, 2025 of $5.5 million is primarily attributable to payment of distributions to stockholders of $4.1 million and the repayment of $1.4 million of our debt.
Liquidity beyond the next 12 months
As of March 5, 2026, we had aggregate outstanding indebtedness of $275 million. Our ability to generate cash adequate to satisfy our debt obligations as they mature and meet our operating needs is dependent primarily on income from real estate investments, the sale of real estate investments, leveraging of real estate investments, proceeds from public offerings of stock, private placement of debt and access to the capital markets. The acquisition of new properties, the payment of expenses related to real estate operations, capital improvement expenses, debt service payments, general and administrative expenses, and distribution requirements place demands on our liquidity.
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We intend to operate our properties from the cash flows generated by our properties. However, our expenses are affected by various factors, including inflation. See Part I, Item 1A, Risk Factors for additional factors. Increases in operating expenses are predominantly borne by our tenants. To the extent that increases cannot be passed on to our tenants through rent reimbursements, such expenses would reduce the amount of available cash flow, which can adversely affect the market value of the applicable property.
We have used a variety of sources to fund our cash needs in addition to our free cash flow generated from our investments in real estate. We have considered raising capital through public offerings or At The Market (ATM) programs of our common stock. We believe these sources of funds will provide sufficient funds to adequately meet our obligations beyond the next twelve months.
BMO Term Loan
As of December 31, 2025, we had a term loan borrowing in the aggregate principal amount of approximately $70.7 million, which we refer to as the BMO Term Loan, with Bank of Montreal, as administrative agent, and the other lending institutions party thereto, which would have matured on April 1, 2026. The BMO Term Loan was subject to the terms of the Second Amended and Restated Credit Agreement dated September 27, 2018, which we refer to as the Original BMO Credit Agreement, as amended by the First Amendment to Second Amended and Restated Credit Agreement dated February 10, 2023, which we refer to as the BMO First Amendment, and the Second Amendment to Second Amended and Restated Credit Agreement dated February 21, 2024, which we refer to as the BMO Second Amendment. We refer to the Original BMO Credit Agreement, as amended by the BMO First Amendment and the BMO Second Amendment, as the BMO Credit Agreement.
As of December 31, 2024, the interest rate on the BMO Term Loan was 8.00% per annum. The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.34% for the year ended December 31, 2024. Effective April 1, 2025, the interest rate on the BMO Term Loan increased from 8.00% per annum to 9.00% per annum. As of December 31, 2025, the interest rate on the BMO Term Loan was 9.00% per annum. The weighted average variable interest rate on all amounts outstanding under the BMO Term Loan was 8.75% for the year ended December 31, 2025.
The BMO Credit Agreement contained customary affirmative and negative covenants for credit facilities of this type. The BMO Credit Agreement also contained financial covenants that required us to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. We were in compliance with the BMO Term Loan financial covenants as of December 31, 2025. The BMO Credit Agreement also provided 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 (as defined in the BMO Credit Agreement).
BofA Term Loan
As of December 31, 2025, we had a term loan borrowing in the amount of approximately $55.3 million, which we refer to as the BofA Term Loan, with Bank of America, N.A. as administrative agent, and other lending institutions party thereto, which would have matured on April 1, 2026. The BofA Term Loan was subject to the terms of the Credit Agreement dated January 10, 2022, which we refer to as the Original BofA Credit Agreement, as amended by the First Amendment to Credit Agreement dated February 10, 2023, which we refer to as the BofA First Amendment, and the Second Amendment to Credit Agreement dated February 21, 2024, which we refer to as the BofA Second Amendment. We refer to the Original BofA Credit Agreement, as amended by the BofA First Amendment and the BofA Second Amendment, as the BofA Credit Agreement.
As of December 31, 2024, the interest rate on the BofA Term Loan was 8.00% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was approximately 8.34% per annum for the year ended December 31, 2024. Effective April 1, 2025, the interest rate on the BofA Term Loan increased from 8.00% per annum to 9.00% per annum. As of December 31, 2025, the interest rate on the BofA Term
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Loan was 9.00% per annum. The weighted average variable interest rate on all amounts outstanding under the BofA Term Loan was 8.75% for the year ended December 31, 2025.
The BofA Credit Agreement contained customary affirmative and negative covenants for credit facilities of this type. The BofA Credit Agreement also contained financial covenants that required us to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. We were in compliance with the BofA Term Loan financial covenants as of December 31, 2025. The BofA Credit Agreement also provided 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 (as defined in the BofA Credit Agreement).
Senior Notes
As of December 31, 2025, we had senior notes in the aggregate principal amount of approximately $122.9 million, which we refer to as the Senior Notes, which would have matured on April 1, 2026. The Senior Notes consisted of (i) Series A Senior Notes due April 1, 2026 in an aggregate principal amount of approximately $71.3 million, which we refer to as the Series A Notes, and (ii) Series B Senior Notes due April 1, 2026 in the aggregate principal amount of approximately $51.6 million, which we refer to as the Series B Notes. The Notes were subject to the terms of the Note Purchase Agreement dated October 24, 2017, which we refer to as the Original Note Purchase Agreement, as amended by the First Amendment to Note Purchase Agreement dated February 21, 2024. We refer to the Original Note Purchase Agreement, as amended by the NPA First Amendment, as the Note Purchase Agreement.
Effective April 1, 2025, the interest rates on both the Series A Notes and the Series B Notes permanently increased from 8.00% per annum to 9.00% per annum. As of December 31, 2025 and December 31, 2024, the interest rate on both the Series A Notes and the Series B Notes was 9.00% per annum and 8.00% per annum, respectively.
The Note Purchase Agreement contained customary affirmative and negative covenants. The Note Purchase Agreement also contained financial covenants that required us to maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a maximum secured recourse leverage ratio, a minimum fixed charge coverage ratio, a maximum unencumbered leverage ratio, and minimum unsecured interest coverage. We were in compliance with the Note Purchase Agreement financial covenants as of December 31, 2025.
Equity Offering
From time to time, we may issue debt securities, common stock, preferred stock or depository shares under a registration statement to fund the acquisition of additional properties, to pay down any existing debt financing and for other corporate purposes.
Contingencies
On March 9, 2026, the Company received an e-mail message from Iman Hossini, who purports to be a shareholder of the Company, demanding that the Board of Directors investigate alleged breaches of the fiduciary duty of due care and waste of corporate assets by George J. Carter, Chairman of the Board and Chief Executive Officer of the Company, Jeffrey B. Carter, President and Chief Investment Officer of the Company, and John G. Demeritt Executive Vice President and Chief Financial Officer of the Company, in connection with the Company entering into the Credit Agreement. At this time, the Company cannot predict the outcome or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.
We may be subject to various legal proceedings and claims that arise in the ordinary course of our business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations.
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Other Considerations
We generally pay the ordinary annual operating expenses of our owned properties and Monument Circle from the rental revenue generated by the properties. For the three months and year ended December 31, 2025 and 2024, respectively, the rental income exceeded the expenses for each individual property, with the exception of Monument Circle for the year ended December 31, 2025 and for the three months and year ended December 31, 2024. Monument Circle sold its property on June 6, 2025. Monument Circle had approximately $132,000 of rental income and $435,000 of operating expenses for the year ended December 31, 2025. Monument Circle had approximately $85,000 and $302,000 of rental income, and $263,000 and $1,095,000 of operating expenses, for the three months and year ended December 31, 2024, respectively.
Rental Income Commitments
Our commercial real estate operations include the leasing of office buildings subject to leases with terms greater than one year. The leases thereon expire at various dates through 2042. Approximate undiscounted cash flows of rental income from non-cancelable operating leases as of December 31, 2025 is:
Year ending
(in thousands)
December 31,
Thereafter (2031-2042)
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2025:
Payment due by period
Contractual
(in thousands)
Obligations
Total
Thereafter
BofA Term Loan (1)(2)
BMO Term Loan Tranche B (1)(2)
Series A Notes (1)(2)
Series B Notes (1)(2)
Operating Lease
Total
Amounts include principal and interest payments.
This table does not reflect the use of the proceeds of the Initial Term Loans under the Credit Agreement to refinance and retire all of the debt obligations presented in this table on February 26, 2026.
The operating lease in the table above consists of our lease of corporate office space, which commenced September 1, 2010, and was amended on October 25, 2016 and on February 7, 2024. The amended lease expires on September 30, 2026. The lease includes a base annual rent and additional rent for our share of taxes and operating costs.
Off-Balance Sheet Arrangements
Investments in Sponsored REITs
As of December 31, 2024 and 2023, we held a common stock interest in one Sponsored REIT, Monument Circle, which was fully syndicated and in which we did not share economic benefit or risk. As a common stockholder, we had no rights to the Sponsored REIT’s earnings or any related cash distributions. However, upon liquidation of the
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Sponsored REIT, we were entitled to our percentage interest as a common stockholder in any proceeds remaining after the preferred stockholders recovered their investment. Our common stock percentage interest in the sponsored REIT was less than 1%. Monument Circle and the corporation that had been its sole member were dissolved on December 9, 2025.
