Part I. Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company reported a net loss of $1.2 million for the first quarter of 2019, a significant downturn from a net income of $1.4 million in the same period of 2018, with total assets slightly decreasing to $1.891 billion and cash flows from operations at $9.5 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,891,245** | **$1,898,102** | | Real estate assets, net | $1,624,833 | $1,625,773 | | Cash, cash equivalents and restricted cash | $8,832 | $11,177 | | **Total Liabilities** | **$1,071,258** | **$1,060,468** | | Term loans payable, net | $764,642 | $764,278 | | Bank note payable | $40,000 | $25,000 | | **Total Stockholders' Equity** | **$819,987** | **$837,634** | Consolidated Statement of Income Highlights (in thousands, except per share amounts) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total Revenues | $64,716 | $66,893 | | Rental Revenue | $63,359 | $65,628 | | Total Expenses | $65,950 | $65,281 | | **Net Income (Loss)** | **$(1,205)** | **$1,425** | | **Net Income (Loss) Per Share** | **$(0.01)** | **$0.01** | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive loss for Q1 2019 was **$(8.0) million**, a stark contrast to the comprehensive income of **$8.0 million** in Q1 2018. This change was driven by an unrealized loss on derivative financial instruments of **$(6.8) million** in 2019 versus a gain of **$6.6 million** in 2018[14](index=14&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) - Total stockholders' equity decreased from **$837.6 million** at the end of 2018 to **$820.0 million** as of March 31, 2019. The decrease was primarily due to a comprehensive loss of **$(8.0) million** and common stock distributions of **$9.7 million**[16](index=16&type=chunk) - The company paid a dividend of **$0.09 per share** of common stock in Q1 2019, totaling **$9.7 million**. This is a reduction from the **$0.19 per share** dividend paid in Q1 2018, which totaled **$20.4 million**[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,482 | $15,078 | | Net cash used in investing activities | $(17,095) | $(10,154) | | Net cash provided by (used in) financing activities | $5,268 | $(388) | | **Net (decrease) increase in cash** | **$(2,345)** | **$4,536** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - As of March 31, 2019, the company's portfolio consisted of **32 operating properties** and **three redevelopment properties**. This is a decrease from **34 operating properties** as of March 31, 2018[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - The company adopted new lease accounting standards (ASU 2016-02) on January 1, 2019, resulting in the recognition of a right-to-use asset of **$2.1 million** and a lease liability of **$2.2 million**[33](index=33&type=chunk) - The company has **four outstanding Sponsored REIT Loans** totaling **$72.8 million** as of March 31, 2019, which generated approximately **$1.3 million** in interest income and fees for the quarter[47](index=47&type=chunk)[49](index=49&type=chunk) - The company utilizes several interest rate swaps to hedge its variable-rate debt, qualifying them as cash flow hedges. As of March 31, 2019, the net fair value of these derivatives resulted in a derivative asset of **$10.5 million** and derivative liabilities of **$2.5 million**[77](index=77&type=chunk)[80](index=80&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the decline in revenues and FFO due to lease expirations and increased costs, alongside the company's strategic focus on U.S. sunbelt and mountain west properties with an 88.5% leased portfolio [Overview](index=30&type=section&id=Overview) - The company's current strategy is to invest in infill and central business district properties in the U.S. sunbelt and mountain west regions, seeking value-oriented investments with long-term growth potential[109](index=109&type=chunk) - As of March 31, 2019, approximately **78%** of the company's owned portfolio (**7.7 million square feet**) is concentrated in Atlanta, Dallas, Denver, Houston, and Minneapolis[110](index=110&type=chunk) [Trends and Uncertainties](index=34&type=section&id=Trends%20and%20Uncertainties) - The **32 operating properties** were **88.5% leased** as of March 31, 2019, a slight decrease from **89.0%** at year-end 2018[121](index=121&type=chunk) - During Q1 2019, the company leased approximately **460,000 square feet** of office space with a weighted average term of **9.0 years**. Average GAAP base rents for these new leases were **$32.32 per square foot**, **9.9% higher** than average rents in the respective properties compared to the prior year[121](index=121&type=chunk) - The company is actively redeveloping three properties: 801 Marquette in Minneapolis, Blue Lagoon in Miami, and Forest Park in Charlotte, with expected total costs of **$28.4 million**, **$23.6 million**, and **$3.7 million**, respectively[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Comparison of Results of Operations (in thousands) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $64,716 | $66,893 | $(2,177) | | Total Expenses | $65,950 | $65,281 | $669 | | **Net Income (Loss)** | **$(1,205)** | **$1,425** | **$(2,630)** | - The **$2.2 million** decrease in rental revenue was primarily due to the loss of income from leases that expired in 2018 and 2019[132](index=132&type=chunk) - The **$0.7 million** increase in total expenses was driven by a **$1.5 million** rise in real estate operating expenses, taxes, and insurance, partially offset by a **$0.8 million** decrease in depreciation and amortization[133](index=133&type=chunk) [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) Funds From Operations (FFO) Reconciliation (in thousands) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net income (loss) | $(1,205) | $1,425 | | Depreciation and amortization | $23,133 | $23,950 | | Other adjustments | $182 | $989 | | **Funds From Operations** | **$22,110** | **$26,364** | - Property Net Operating Income (NOI) from operating properties decreased by **6.4%** to **$33.2 million** in Q1 2019 from **$35.5 million** in Q1 2018. On a comparative same-store basis, NOI decreased by **4.5%**[146](index=146&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents decreased by **$2.3 million** during the quarter to **$8.8 million** as of March 31, 2019. The decrease resulted from **$17.0 million** used in investing activities, which was not fully offset by **$9.4 million** provided by operations and **$5.3 million** from financing activities[155](index=155&type=chunk) - As of March 31, 2019, the company had **$40 million** outstanding under its **$600 million** BAML Revolver[173](index=173&type=chunk) Major Debt Facilities Outstanding (as of March 31, 2019) | Facility | Principal Amount | Maturity Date | | :--- | :--- | :--- | | JPM Term Loan | $150 million | Nov 30, 2021 | | BMO Term Loan | $220 million | Nov 30, 2021 / Jan 31, 2024 | | BAML Term Loan | $400 million | Jan 12, 2023 | | Senior Notes | $200 million | Dec 20, 2024 / Dec 20, 2027 | [Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk on its floating-rate debt through swaps, with a hypothetical 10% market rate increase on unhedged debt estimated to decrease annual earnings by $0.3 million - The company uses interest rate swaps to mitigate risk on its variable-rate term loans. As of March 31, 2019, swaps were in place for the **$400 million** BAML Term Loan, the **$220 million** BMO Term Loan, and **$100 million** of the **$150 million** JPM Term Loan[195](index=195&type=chunk) - The unhedged floating rate exposure is on the BAML Revolver (**$40 million** outstanding) and a **$50 million** portion of the JPM Term Loan. A **10%** increase in market rates would result in an estimated **$0.3 million** annual increase in interest expense[193](index=193&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[201](index=201&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2019, that materially affected, or are reasonably likely to materially affect, internal controls[202](index=202&type=chunk) Part II. Other Information [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company does not anticipate any material adverse effects on its financial position or operations from current legal proceedings - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or operations[205](index=205&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K have occurred - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018, have occurred as of March 31, 2019[206](index=206&type=chunk) [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL financial statements - Exhibits filed with this report include CEO and CFO certifications (**31.1, 31.2, 32.1, 32.2**) and XBRL data files (**101**)[211](index=211&type=chunk)

Financial Performance - Total revenue for FSP Corp. in 2018 was $268.87 million, a decrease of 1.6% from $272.59 million in 2017[135] - Net income for 2018 was $13.07 million, compared to a net loss of $15.94 million in 2017[135] - Total revenues decreased by approximately $3.7 million to $268.9 million for the year ended December 31, 2018, compared to $272.6 million in 2017[178] - Total expenses decreased by $1.9 million to $262.2 million for the year ended December 31, 2018, compared to $264.2 million in 2017[179] - Net income for the year ended December 31, 2018, was $13.1 million, a significant increase of $29.0 million compared to a net loss of $15.9 million in 2017[178] - Rental revenues decreased by $3.5 million to $263.8 million for the year ended December 31, 2018, compared to $267.3 million in 2017[178] - Net Operating Income (NOI) for the year ended December 31, 2018, was $144.3 million, a decrease of 1.7% from $146.8 million in 2017[210] - Same Store NOI decreased by 2.1% to $137.8 million in 2018 from $140.7 million in 2017[210] - Comparative Same Store NOI decreased by 4.2% to $131.7 million in 2018 from $137.4 million in 2017[210] - Funds From Operations (FFO) for the year ended December 31, 2018 was $102.5 million, compared to $111.4 million in 2017[207] Real Estate Portfolio - As of December 31, 2018, the real estate portfolio was approximately 89.0% leased, down from 89.7% in 2017, with a total vacancy of approximately 1,046,000 square feet[143] - The company leased approximately 1,681,000 square feet of office space in 2018, with average GAAP base rents at $31.02 per square foot, a 7.3% increase compared to the previous year[143] - Approximately 8.6% of the square footage in the owned portfolio is scheduled to expire in 2019, with expectations of positive leasing activity in major markets[148] - The company plans to actively evaluate its portfolio for potential advantageous property dispositions as market conditions improve[160] - As of December 31, 2018, the company had approximately $957.5 million in future minimum rental income commitments from non-cancelable operating leases[257] Redevelopment and Investment - FSP Corp. expects to incur redevelopment costs of $28.4 million for the 801 Marquette property, with $18.4 million already spent as of December 31, 2018[145] - The redevelopment of Blue Lagoon is expected to cost $22.5 million, with $0.9 million incurred as of December 31, 2018, and completion anticipated by the end of 2019[146] - The company continues to explore additional real estate investment opportunities, anticipating further investments in the future[155] Debt and Financing - Total assets as of December 31, 2018, were $1.90 billion, down from $1.99 billion in 2017, while total liabilities decreased to $1.06 billion from $1.12 billion[135] - The Company entered into a JPM Term Loan of $150 million, with an interest rate of 3.63% per annum as of December 31, 2018[221] - The BMO Term Loan amounts to $220 million, with an effective interest rate of 3.57% per annum as of December 31, 2018[226] - The Company has committed to fund up to $79.5 million to three Sponsored REITs, of which $70.7 million has been drawn and is outstanding[247] - The BAML Term Loan is for $400 million and matures on January 12, 2023[237] - The Company was in compliance with the financial covenants of both the BMO Credit Agreement and the BAML Credit Facility as of December 31, 2018[227][240] - The Company intends to use proceeds from the BAML Credit Facility for property acquisitions and general business purposes[241] - The BAML Revolver has a total of $25,000 due in 2023, while the Series A Notes and Series B Notes have maturities of $116,000 and $84,000, respectively, due in 2024 and 2027[277] Cash Flow and Liquidity - Cash and cash equivalents increased to $11.2 million in 2018 from $9.8 million in 2017, attributed to $80.2 million from operating activities[213] - Cash provided by investing activities was $25.7 million, primarily from liquidating distributions of $74.9 million from non-consolidated REITs[215] - Cash used in financing activities totaled $104.5 million, including $49.3 million in distributions to stockholders[216] - The Company anticipates generating sufficient funds from real estate operations to meet working capital and capital expenditure needs for at least the next 12 months[213] Accounting and Valuation - The company’s critical accounting policies involve significant estimates related to the allowance for doubtful accounts, impairment considerations, and the valuation of derivatives[161] - The company recognized an impairment charge of $0.3 million and $2.5 million during the three months ended June 30, 2018, and December 31, 2017, respectively, indicating a decline in fair value below the carrying value of investments in non-consolidated REITs[180] - The company’s derivatives are recorded at fair value in other liabilities, impacting other comprehensive income and earnings based on their effectiveness[273] Interest and Derivatives - Interest expense increased by approximately $6.0 million to $38.4 million for the year ended December 31, 2018, primarily due to interest accruing on Senior Notes issued at a weighted average rate of approximately 4.10%[179] - Interest income from loans to Sponsored REITs decreased by approximately $0.1 million due to repayments, partially offset by higher interest rates in 2018[182] - The interest rate on the BAML Revolver was LIBOR plus 120 basis points, or 3.70% per annum, as of December 31, 2018[270] - The company entered into interest rate swap agreements to mitigate interest rate risk, fixing the BAML Term Loan at 2.47% per annum and the BMO Term Loan at 3.57% per annum as of December 31, 2018[271]