The forward looking statements included in this report are made only as of the date of this report, and except as otherwise required by
federal securities law, we do not have any obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.
We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our initial public offering
(IPO) of shares of common stock. We contributed the net proceeds of the IPO to our Operating Partnership in exchange for common units in our Operating Partnership. Both we and our Operating Partnership commenced operations upon
completion of the IPO and certain related formation transactions.
As of June 30, 2018, we owned 22 properties comprised of 46 office buildings with a total of approximately 4.9 million square feet of
net rentable area (NRA). As of June 30, 2018, our properties were approximately 89.6% occupied.
Historically, most leases for our properties were on a full-service gross or net lease basis, and we expect to continue to use such leases in
the future. A full-service gross lease generally has a base year expense stop, whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating
expenses are billed to the tenant based on such tenants proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the
base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment
does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected in tenant
recoveries. All tenants in the Lake Vista Pointe, FRP Ingenuity Drive, Sorrento Mesa and Superior Pointe properties have triple net leases. Certain tenants of AmberGlen, FRP Collection and 2525 McKinnon have leases on a triple net basis. We are also
a lessor for a fee simple ground lease at the AmberGlen property. All of our remaining leases are full-service gross leases.
We focus on owning
and acquiring office properties in our target markets. Our target markets generally possess what we believe are favorable economic growth trends, growing populations with above-average employment growth forecasts, a large number of government
offices, large international, national and regional employers across diversified industries, are generally
low-cost
centers for business operations, and exhibit favorable occupancy trends. We utilize our
managements market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term
value appreciation. Our target markets are attractive, among other reasons, because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public REITs and
there is a relatively low level of participation of large institutional investors. We believe that these factors result in attractive pricing levels and risk-adjusted returns.
The
amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease
terminations. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental rates for our portfolio of properties are generally
in-line
or slightly below the current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns or regional
downturns affecting our markets or submarkets or downturns in our tenants industries that impair our ability to renew or
re-let
space and the ability of our tenants to fulfill their lease commitments, as
in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet
our investment criteria.
Our Properties
As of June 30, 2018, we owned 22 office complexes comprised of 46 office buildings with a total of approximately 4.9 million square
feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, San Diego and Tampa. The following table presents an overview of our portfolio as of June 30, 2018 (properties listed by descending NRA by market).
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Metropolitan
Area
|
|
Property
|
|
Economic
Interest
|
|
|
NRA
(000s Square
Feet)
|
|
|
In Place
Occupancy
|
|
|
Annualized Base
Rent per Square
Foot
|
|
|
Annualized
Gross Rent per
Square Foot
(1)
|
|
|
Annualized Base
Rent
(2)
($000s)
|
|
Tampa, FL
(21.2% of NRA)
|
|
Park Tower
|
|
|
94.8
|
%
|
|
|
470
|
|
|
|
85.0
|
%
|
|
$
|
24.03
|
|
|
$
|
24.03
|
|
|
$
|
9,599
|
|
|
City Center
|
|
|
95.0
|
%
|
|
|
241
|
|
|
|
98.5
|
%
|
|
$
|
24.96
|
|
|
$
|
24.96
|
|
|
$
|
5,930
|
|
|
Intellicenter
|
|
|
100.0
|
%
|
|
|
204
|
|
|
|
100.0
|
%
|
|
$
|
23.36
|
|
|
$
|
23.36
|
|
|
$
|
4,754
|
|
|
Carillon Point
|
|
|
100.0
|
%
|
|
|
124
|
|
|
|
100.0
|
%
|
|
$
|
27.36
|
|
|
$
|
27.36
|
|
|
$
|
3,398
|
|
Denver, CO
(19.7%)
|
|
Cherry Creek
|
|
|
100.0
|
%
|
|
|
356
|
|
|
|
100.0
|
%
|
|
$
|
18.10
|
|
|
$
|
18.10
|
|
|
$
|
6,438
|
|
|
Plaza 25
|
|
|
100.0
|
%
|
|
|
196
|
|
|
|
59.8
|
%
|
|
$
|
20.14
|
|
|
$
|
20.14
|
|
|
$
|
2,359
|
|
|
DTC Crossroads
|
|
|
100.0
|
%
|
|
|
189
|
|
|
|
71.7
|
%
|
|
$
|
25.12
|
|
|
$
|
25.12
|
|
|
$
|
3,407
|
|
|
Superior Pointe
|
|
|
100.0
|
%
|
|
|
151
|
|
|
|
92.1
|
%
|
|
$
|
16.88
|
|
|
$
|
28.88
|
|
|
$
|
2,342
|
|
|
Logan Tower
|
|
|
100.0
|
%
|
|
|
71
|
|
|
|
76.9
|
%
|
|
$
|
20.33
|
|
|
$
|
20.33
|
|
|
$
|
1,105
|
|
San Diego, CA
(13.7%)
|
|
Sorrento Mesa
|
|
|
100.0
|
%
|
|
|
385
|
|
|
|
76.2
|
%
|
|
$
|
24.04
|
|
|
$
|
29.04
|
|
|
$
|
7,041
|
|
|
Mission City
|
|
|
100.0
|
%
|
|
|
286
|
|
|
|
88.3
|
%
|
|
$
|
34.38
|
|
|
$
|
34.38
|
|
|
$
|
8,680
|
|
Phoenix, AZ
(17.9%)
|
|
Pima Center
|
|
|
100.0
|
%
|
|
|
272
|
|
|
|
99.4
|
%
|
|
$
|
26.70
|
|
|
$
|
26.70
|
|
|
$
|
7,214
|
|
|
SanTan
|
|
|
100.0
|
%
|
|
|
267
|
|
|
|
98.6
|
%
|
|
$
|
27.13
|
|
|
$
|
27.13
|
|
|
$
|
7,131
|
|
|
5090 N 40th St
|
|
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100.0
|
%
|
|
|
175
|
|
|
|
92.4
|
%
|
|
$
|
28.62
|
|
|
$
|
28.62
|
|
|
$
|
4,622
|
|
|
Papago Tech
|
|
|
100.0
|
%
|
|
|
163
|
|
|
|
98.0
|
%
|
|
$
|
20.17
|
|
|
$
|
20.17
|
|
|
$
|
3,219
|
|
Dallas, TX
(11.8%)
|
|
190 Office Center
|
|
|
100.0
|
%
|
|
|
303
|
|
|
|
88.9
|
%
|
|
$
|
24.64
|
|
|
$
|
24.64
|
|
|
$
|
6,645
|
|
|
Lake Vista Pointe
|
|
|
100.0
|
%
|
|
|
163
|
|
|
|
100.0
|
%
|
|
$
|
15.50
|
|
|
$
|
23.50
|
|
|
$
|
2,532
|
|
|
2525 McKinnon
|
|
|
100.0
|
%
|
|
|
111
|
|
|
|
93.0
|
%
|
|
$
|
27.01
|
|
|
$
|
42.32
|
|
|
$
|
2,795
|
|
Orlando, FL
(11.6%)
|
|
FRP Collection
|
|
|
95.0
|
%
|
|
|
272
|
|
|
|
75.5
|
%
|
|
$
|
25.19
|
|
|
$
|
27.12
|
|
|
$
|
5,165
|
|
|
Central Fairwinds
|
|
|
90.0
|
%
|
|
|
168
|
|
|
|
95.6
|
%
|
|
$
|
24.31
|
|
|
$
|
24.31
|
|
|
$
|
3,908
|
|
|
FRP Ingenuity Drive
|
|
|
100.0
|
%
|
|
|
125
|
|
|
|
100.0
|
%
|
|
$
|
21.00
|
|
|
$
|
29.00
|
|
|
$
|
2,615
|
|
Portland, OR
(4.1%)
|
|
AmberGlen
|
|
|
76.0
|
%
|
|
|
201
|
|
|
|
94.8
|
%
|
|
$
|
19.99
|
|
|
$
|
22.64
|
|
|
$
|
3,813
|
|
Total / Weighted AverageJune 30, 2018
(3)
|
|
|
|
4,893
|
|
|
|
89.6
|
%
|
|
$
|
23.89
|
|
|
$
|
25.69
|
|
|
$
|
104,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For Superior Pointe, FRP Ingenuity Drive, Lake Vista Pointe, and Sorrento Mesa the annualized base rent per square foot on a triple net basis was increased by $12, $8, $8, and $5 respectively, to estimate a gross
equivalent base rent. AmberGlen has a net lease for one tenant which has been
grossed-up
by $7 on a pro rata basis. FRP Collection has net leases for three tenants which have been grossed up by $8 on a
pro-rata
basis. 2525 McKinnon has net leases for nine tenants which have been grossed up by $16 on a
pro-rata
basis.
|
(2)
|
Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2018 by (ii) 12.
|
(3)
|
Averages weighted based on the propertys NRA, adjusted for occupancy.
|
Operating Expenses
Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these
expenses over tenants base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.
17
Conditions in Our Markets
Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment
rates, natural hazards and other factors, may impact our overall performance.
Summary of Significant Accounting Policies
The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated
financial statements for the year ended December 31, 2017 included in our Annual Report on Form
10-K
for the year ended December 31, 2017 except for the adoption of ASU
2014-09
Revenue From Contracts with Customers, ASU
2016-01
Recognition and Measurement of Financial Assets and Financial Liabilities, ASU
2016-15
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments and ASU
2016-18
Statement of Cash Flows: Restricted Cash as outlined in Note 2
of the condensed consolidated financial statements.
Results of Operations
Comparison of Three Months Ended June 30, 2018 to June 30, 2017
Total Revenue.
Revenue includes net rental income, including parking, signage and other income, as well as the recovery of
operating costs and property taxes from tenants. Total revenues increased $5.0 million, or 20%, to $30.2 million for the three months ended June 30, 2018 compared to $25.2 million in the corresponding period in 2017.
$2.3 million of this increase was attributed to the acquisition of Mission City in September 2017, $2.3 million from the acquisition of Sorrento Mesa in September 2017, $1.0 million from the acquisition of Papago Tech in October 2017
and $1.8 million from the acquisition of Pima Center in April 2018. Offsetting these increases AmberGlen decreased by $0.1 million primarily due to the sale of two of the five buildings in the complex in May 2017 and Washington Group Plaza
decreased by $2.3 million due to the sale of the property in March 2018. The remaining properties revenues were relatively unchanged in comparison to three months ended June 30, 2017.
Rental Income.
Rental income includes net rental income and income from a ground lease. Total rental income increased
$4.3 million, or 20%, to $25.9 million for the three months ended June 30, 2018 compared to $21.6 million for the three months ended June 30, 2017. The increase in rental
income was
primarily due to the
acquisitions described above. The acquisitions of Mission City, Sorrento Mesa, Papago Tech and Pima Center contributed an additional $2.0 million, $1.9 million, $0.9 million, and $1.7 million in rental income, respectively,
to the 2018 period rental income. AmberGlen decreased by $0.1 million primarily due to the sale of two of the five buildings in the complex in May 2017 and Washington Group Plaza decreased by $2.1 million due to the sale of that
property in March 2018.
Expense Reimbursement.
Total expense reimbursement increased $0.7 million, or 25%, to
$3.5 million for the three month period ended June 30, 2018 compared to $2.8 million for the same period in 2017, primarily due to the acquisition of the Mission City, Sorrento Mesa, Papago Tech and Pima Center properties described
above.
Other.
Other revenue includes parking, signage and other miscellaneous income. Total other revenues increased
$0.1 million, or 20%, to $0.8 million for the three month period ended June 30, 2018 compared to $0.7 million for the same period in 2017. Nominal other income was generated by City Center, Central Fairwinds, Logan Tower, DTC
Crossroads, 5090 N 40th St, SanTan, 2525 McKinnon, Park Tower, Mission City and Sorrento Mesa with the largest contribution from City Center and Park Tower parking income.
Operating Expenses
Total Operating
Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $4.1 million, or 19%, to $25.5 million for the
three months ended June 30, 2018, from $21.4 million for the same period in 2017, primarily due to acquisitions described above. Total operating expenses increased by $2.1 million, $1.8 million, $0.7 million, and
$1.7 million, respectively, from the acquisitions of Mission City, Sorrento Mesa, Papago Tech and Pima Center properties. Washington Group Plaza operating expenses decreased by $1.2 million due to its sale in
18
March 2018. AmberGlen decreased by $0.1 million primarily due to the sale of two of the five buildings in the complex in May 2017. The remaining operating expenses aggregated to an overall
$0.9 million decrease in comparison to the prior year primarily related to a decrease in depreciation at 190 Center and FRP Collection.
Property Operating Expenses.
Property operating expenses are comprised mainly of building common area and maintenance expenses,
insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal
course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and
re-leasing
costs. Property
operating expenses increased $1.0 million, or 10%, to $11.7 million for the three months ended June 30, 2018 from $10.7 million for the same period in 2017. The increase in property operating expenses was primarily due to the
acquisitions described above. The acquisition of the Mission City, Sorrento Mesa, Papago Tech and Pima Center contributed an additional $1.0 million, $0.6 million, $0.3 million, and $0.6 million in additional property operating
expenses, respectively. AmberGlen decreased by $0.1 million primarily due to the sale of two of the five buildings in the complex in May 2017, and Washington Group Plaza decreased by $1.2 million due to the sale of that property in March
2018. The remaining property operating expenses aggregate to an overall $0.2 million decrease in comparison to the prior year.
General and Administrative.
General and administrative expenses comprise of public company reporting costs and the compensation
of our management team and board of directors as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $0.4 million, or 23%, to $2.0 million for the three
month period ended June 30, 2018 compared to $1.6 million for the same period in 2017. The increase was primarily attributable to higher payroll costs.
Depreciation and Amortization.
Depreciation and amortization increased $2.7 million, or 29%, to $11.8 million for the
three month period ended June 30, 2018 compared to $9.1 million for the same period in 2017, primarily due to the addition of the Mission City, Sorrento Mesa, Papago Tech and Pima Center properties offset by a decrease at Washington Group
Plaza and AmberGlen due to the sale of those properties.
Other Expense (Income)
Interest Expense, Net.
Interest expense increased $0.7 million, or 16%, to $5.4 million for the three month period
ended June 30, 2018, compared to $4.7 million for the corresponding period in 2017. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Mission City property level debt increased by
$0.4 million, and the interest on the line of credit increased by $0.6 million as a result of acquisitions funded by that facility. These increases were offset by a $0.3 million decrease in the Washington Group Plaza debt as a result
of the sale of that building and the extinguishment of its property level debt.
Net Gain on the Sale of Real Estate
Property.
In the prior year, net gain on the sale of real estate property relates to the sale of 2 buildings in our AmberGlen complex in May 2017.
Comparison of Six Months Ended June 30, 2018 to Six Months Ended June 30, 2017
Total Revenue.
Revenue includes net rental income, including parking, signage and other income, as well as the recovery of
operating costs and property taxes from tenants. Total revenues increased $11.2 million, or 22%, to $61.8 million for the six months ended June 30, 2018 compared to $50.6 million in the corresponding period in 2017.
$0.2 million of this increase was attributed to the acquisition of 2525 McKinnon in January 2017, $4.7 million from the acquisition of Mission City in September 2017, $5.8 million from the acquisition of Sorrento Mesa in September
2017, $1.9 million from the acquisition of Papago Tech in October 2017 and $1.9 million from the acquisition of Pima Center in April 2018. Offsetting these increases AmberGlen decreased by $0.7 million primarily due to the sale of two
of the five buildings in the complex in May 2017 and Washington Group Plaza decreased by $2.6 million due to the sale of the property in March 2018. The remaining properties revenues were relatively unchanged in comparison to six months
ended June 30, 2017.
Rental Income.
Rental income includes net rental income and income from a ground lease. Total
rental income increased $9.0 million, or 20%, to $52.9 million for the six months ended June 30, 2018 compared to $43.9 million for the six months ended June 30, 2017. The increase in rental
income was
primarily due to the
19
acquisitions described above. The acquisitions of Mission City, Sorrento Mesa, Papago Tech and Pima Center contributed an additional $4.0 million, $5.0 million, $1.7 million and
$1.6 million in rental income, respectively,
to the 2018 period rental income. AmberGlen decreased by $0.6 million primarily due to the sale of two of the five buildings in the complex in May 2017 and Washington Group Plaza
decreased by $2.7 million due to the sale of that property in March 2018.
Expense Reimbursement.
Total expense
reimbursement increased $2.0 million, or 38%, to $7.1 million for the six month period ended June 30, 2018 compared to $5.1 million for the same period in 2017, primarily due to the acquisition of the 2525 McKinnon, Mission City,
Sorrento Mesa, Papago Tech and Pima Center properties described above.
Other.
Other revenue includes parking, signage and
other miscellaneous income. Total other revenues increased $0.3 million, or 22%, to $1.8 million for the six month period ended June 30, 2018 compared to $1.5 million for the same period in 2017. The increase can be attributed to
the net proceeds of an auction of a former tenants equipment at FRP Collection which vacated unexpectedly late in 2017. Nominal other income was also generated by City Center, Central Fairwinds, Logan Tower, DTC Crossroads, 5090 N 40th St,
SanTan, 2525 McKinnon, Park Tower, Mission City and Sorrento Mesa with the largest contribution from City Center and Park Tower parking income.
Operating Expenses
Total Operating
Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $7.3 million, or 17%, to $51.0 million for the
six months ended June 30, 2018, from $43.7 million for the same period in 2017, primarily due to acquisitions described above. Total operating expenses increased by $4.3 million, $4.3 million, $1.3 million, and
$1.7 million, respectively, from the acquisitions of Mission City, Sorrento Mesa, Papago Tech and Pima Center properties. AmberGlen decreased by $0.5 million primarily due to the sale of two of the five buildings in the complex in May
2017. Washington Group Plaza operating expenses decreased by $2.5 million due to its sale in March 2018. The remaining operating expenses aggregated to an overall $1.3 million decrease in comparison to the prior year primarily related
to a decrease in depreciation at 190 Center and FRP Collection.
Property Operating Expenses.
Property operating expenses
are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to
maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs,
maintenance and
re-leasing
costs. Property operating expenses increased $3.1 million, or 15%, to $23.4 million for the six months ended June 30, 2018 from $20.3 million for the same period
in 2017. The increase in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Mission City, Sorrento Mesa, Papago Tech and Pima Center contributed an additional $1.9 million,
$1.1 million, $0.5 million, and $0.6 million in additional property operating expenses, respectively. AmberGlen decreased by $0.3 million primarily due to the sale of two of the five buildings in the complex in May 2017, and
Washington Group Plaza decreased by $1.3 million due to the sale of that property in March 2018. The remaining property operating expenses aggregate to an overall $0.6 million increase in comparison to the prior year.
General and Administrative.
General and administrative expenses comprise of public company reporting costs and the compensation
of our management team and board of directors as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $0.1 million, or 4%, to $3.9 million for the six
month period ended June 30, 2018 compared to $3.8 million for the same period in 2017. The increase was primarily attributable to higher payroll costs.
Depreciation and Amortization.
Depreciation and amortization increased $4.1 million, or 20%, to $23.7 million for the
six month period ended June 30, 2018 compared to $19.6 million for the same period in 2017, primarily due to the addition of the 2525 McKinnon, Mission City, Sorrento Mesa, Papago Tech and Pima Center properties offset by a decrease at
Washington Group Plaza and AmberGlen due to the sale of those properties. The remaining decrease primarily relates to a decrease in depreciation at 190 Center and FRP Collection.
20
Other Expense (Income)
Interest Expense, Net.
Interest expense increased $2.2 million, or 24%, to $11.3 million for the six month period ended
June 30, 2018, compared to $9.1 million for the corresponding period in 2017. The increase was primarily due to interest expense related to acquisitions. Interest expense for the 2525 McKinnon and Mission City property level debt increased
by $0.2 million and $0.9 million, respectively, as well as interest on the line of credit which increased by $1.3 million as a result of acquisitions funded by that facility. A new mortgage placed on Central Fairwinds in June 2017
also increased interest expense by a further $0.2 million over the prior year. These increases were offset by a $0.4 million decrease in the Washington Group Plaza debt as a result of the sale of that building and the extinguishment of its
property level debt.
Net Gain on the Sale of Real Estate Property.
Net gain on the sale of real estate
property relates to the sale of our Washington Group Plaza property in March 2018. In the prior year, amounts relate to the sale of 2 buildings in our AmberGlen complex in May 2017.
Cash Flows
Comparison of Six Months Ended
June 30, 2018 to Six Months Ended June 30, 2017
Cash, cash equivalents and restricted cash were $32.6 million and
$92.2 million as of June 30, 2018 and June 30, 2017, respectively.
Cash flow from operating activities.
Net
cash provided by operating activities decreased by $0.5 million to $11.4 million for the six months ended June 30, 2018 compared to $11.9 million for the same period in 2017. The decrease was attributable to changes in working
capital predominantly due to the sale of Washington Group Plaza, offset by the
earn-out
termination payment which occurred in 2017 but not 2018 and increased operating cash flows from acquisitions.
Cash flow from investing activities.
Net cash provided by investing activities increased by $53.1 million to
$18.2 million for the six months ended June 30, 2018 compared to $34.9 million used in investing activities for the same period in 2017. The increase was primarily due to proceeds from the disposition of the Washington Group Plaza
property offset by the acquisition of Pima Center.
Cash flow to financing activities.
Net cash used in financing activities
increased by $117.4 million to $31.9 million for the six months ended June 30, 2018 compared to $85.5 million provided by the same period in 2017. Cash flow used in financing activities increased primarily due to proceeds from a
public offering of our common stock and a new mortgage which both occurred in 2017 but not 2018. Borrowings on the Unsecured Credit Facility were also higher in 2018.
Liquidity and Capital Resources
Analysis of Liquidity
and Capital Resources
We had approximately $14.7 million of cash and cash equivalents and $18.0 million of restricted cash
as of June 30, 2018.
On March 15, 2018 the Company entered into a $250 million Unsecured Credit Facility which includes an
accordion feature that allows the Company to borrow up to $500 million, subject to customary terms and conditions. The Companys previous secured credit facility was replaced and repaid in full. The Unsecured Credit Facility matures in
March 2022, which may be extended to March 2023 at the Companys option upon meeting certain conditions. Borrowings under the Unsecured Credit Facility bear an interest at a rate equal to the LIBOR rate plus a margin of between 140 to 225 basis
points depending upon the Companys consolidated leverage ratio. As of June 30, 2018, we had approximately $58.5 million outstanding under our Unsecured Credit Facility.
The Company and the Operating Partnership previously entered into separate equity distribution agreements (the Sales Agreements)
with each of KeyBanc Capital Markets Inc., Raymond James & Associates, Inc. and BMO Capital Markets Corp. (collectively, the Sales Agents), pursuant to which the Company may issue and sell from time to time up to 6,000,000
shares of its common stock, $0.01 par value per share, and up to 1,000,000 shares of its 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share
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(collectively, the Shares), through the Sales Agents, acting as agents or principals (the ATM Program). Pursuant to the Sales Agreements, the Shares may be offered and
sold through the Sales Agents in transactions that are deemed to be at the market offerings as defined in Rule 415 under the Securities Act including sales made directly on the New York Stock Exchange or sales made to or through a market
maker other than on an exchange or, with the prior consent of the Company, in privately negotiated transactions. The Sales Agents will be entitled to compensation of up to 2.0% of the gross proceeds of shares sold through the Sales Agents from time
to time under the sales agreements. The Company has no obligation to sell any of the Shares under the Sales Agreements and may at any time suspend solicitations and offers under, or terminate, the Sales Agreements. During the six month period ended
June 30, 2018, we did not sell any Shares under the ATM Program.
Our short-term liquidity requirements primarily consist of
operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect
to meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash, proceeds from our public offerings, including under our ATM Program, and borrowings under our mortgage loans and
Unsecured Credit Facility.
Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity,
property acquisitions and
non-recurring
capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness and the issuance
of equity and debt securities. We also may fund property acquisitions and
non-recurring
capital improvements using our Unsecured Credit Facility pending longer term financing.
We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional
debt and the issuance of additional equity securities. However, we cannot assure you that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, the value
of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions
about us.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of June 30, 2018, including any guaranteed or minimum
commitments under contractual obligations. The table does not reflect available debt extension options.
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Payments Due by Period
(in thousands)
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Contractual Obligation
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Total
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2018
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2019-2020
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2021-2022
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More than
5 years
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Principal payments on debt
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$
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485,356
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$
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60,589
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$
|
11,140
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|
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$
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92,882
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|
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$
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320,745
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Interest payments
|
|
|
115,036
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|
|
|
9,137
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|
|
|
35,586
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|
|
|
28,921
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|
|
|
41,392
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|
Tenant-related commitments
(1)
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|
|
10,464
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|
|
|
8,271
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|
|
|
1,582
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|
|
|
611
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Total
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$
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610,856
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$
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77,997
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|
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$
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48,308
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|
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$
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122,414
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|
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$
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362,137
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(1)
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Consists principally of commitments for tenant improvements.
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Off-Balance
Sheet Arrangements
As of June 30, 2018, we did not have any
off-balance
sheet arrangements.
Inflation
Substantially all of our
office leases provide for real estate tax and operating expense escalations. In addition, most of the leases provide for fixed annual rent increases. We believe that inflationary increases may be at least partially offset by these contractual rent
increases and expense escalations.
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