WAKEFIELD, Mass.–(BUSINESS WIRE)–Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE American: FSP), a real estate investment trust (REIT), announced its results for the fourth quarter and the year ended December 31, 2022.
George J. Carter, Chairman and Chief Executive Officer, commented as follows:
“As the first quarter of 2023 begins, we continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets. 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. We intend to use proceeds from property dispositions primarily for debt reduction.
We look forward to 2023 and beyond with anticipation and optimism.”
Financial Highlights
GAAP net loss was $2.9 million or $0.03 per basic and diluted share for the three months ended December 31, 2022 and GAAP net income was $1.1 million or $0.01 per basic and diluted share, for the year ended December 31, 2022.
Funds From Operations (FFO) was $10.5 million and $41.3 million, or $0.10 and $0.40 per basic and diluted share, for the three and twelve months ended December 31, 2022, respectively.
Adjusted Funds From Operations (AFFO) was a loss of $0.08 and $0.21 per basic and diluted share for the three and twelve months ended December 31, 2022, respectively.
During the three and twelve months ended December 31, 2022, we repaid approximately $27 million and $137 million of debt, respectively, including $110 million on September 6, 2022 as repayment in full of a former term loan.
Subsequent to quarter end, on February 10, 2023, we entered into an amendment to the credit agreement evidencing our $165 million term loan. On February 10, 2023, as part of the amendment to credit agreement, we repaid a $40 million portion of this term loan, so that $125 million remains outstanding. In addition, on or before April 1, 2024, we are required to repay an additional $25 million of the term loan. The amendment, among other items, extended the maturity date from January 31, 2024 to October 1, 2024, changed the interest rate from a number of basis points over LIBOR depending on our credit rating to 300 basis points over SOFR, and made certain changes to conditions and covenants.
Subsequent to quarter end, on February 10, 2023, we entered into an amendment to our revolving line of credit agreement. The amendment, among other items, extended the maturity date from January 12, 2024 to October 1, 2024, reduced availability from $237.5 million to $150 million, with further reductions to $125 million effective October 1, 2023 and to $100 million effective April 1, 2024, changed the interest rate from a number of basis points over SOFR depending on our credit rating to 300 basis points over SOFR, and made certain changes to conditions and covenants.
Leasing Highlights
During the year ended December 31, 2022, we leased approximately 435,000 square feet, including 275,000 square feet of new leases.
Our directly owned real estate portfolio of 21 owned properties, totaling approximately 6.2 million square feet, was approximately 75.6% leased as of December 31, 2022, compared to approximately 78.4% leased as of December 31, 2021. The decrease in the leased percentage is primarily a result of lease expirations during the year ended December 31, 2022 and property dispositions.
The weighted average GAAP base rent per square foot achieved on leasing activity during the year ended December 31, 2022 was $33.27, or 10.6% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2021. The average lease term on leases signed during the year ended December 31, 2022 was 6.4 years compared to 7.7 years during the year ended December 31, 2021. Overall the portfolio weighted average rent per occupied square foot was $30.48 as of December 31, 2022 compared to $30.60 as of December 31, 2021.
Subsequent to quarter end, we are currently tracking approximately 500,000 square feet of new prospective tenants, including approximately 300,000 square feet of prospective tenants that have identified FSP assets on their respective short lists of potential locations.
We believe that our continuing portfolio of real estate is well located, primarily in the Sunbelt and Mountain West geographic regions, and consists of high-quality assets with upside leasing potential in a post-COVID-19 environment.
Investment Highlights
On December 28, 2022, FSP completed the sale of 909 Davis in Evanston, Illinois for approximately $27.8 million in gross proceeds and recorded a gain of approximately $3.9 million.
During 2022, we closed on dispositions that resulted in approximately $130.3 million total aggregate gross proceeds and we repaid approximately $137 million in debt.
We remain committed to selling select properties during 2023 and using proceeds primarily for debt reduction.
At this time, due primarily to economic conditions and uncertainty surrounding the timing and amount of proceeds received from property dispositions, we are suspending property disposition guidance.
We will continue to provide quarterly updates on any disposition activity.
Stock Repurchases
During the first quarter of 2022, we repurchased approximately 847,000 shares of our common stock for an aggregate purchase price of approximately $4.8 million. We did not repurchase any shares of our common stock during the remainder of 2022.
Subsequent to quarter end, on February 10, 2023, we disclosed in a Current Report on Form 8-K that our Board of Directors discontinued its previous authorization to repurchase up to $50 million of our common stock from time to time in the open market, privately negotiated transactions or other manners as permitted by federal securities laws. We intend to use proceeds from property dispositions primarily for debt reduction.
Dividends
On January 13, 2023, we announced that our Board of Directors declared a quarterly cash dividend for the three months ended December 31, 2022 of $0.01 per share of common stock that will be paid on February 16, 2023 to stockholders of record on January 27, 2023.
Non-GAAP Financial Information
A reconciliation of Net income to FFO, AFFO and Sequential Same Store NOI and our definitions of FFO, AFFO and Sequential Same Store NOI can be found on Supplementary Schedules H and I.
2023 Net Income, FFO and Disposition Guidance
At this time, due primarily to economic conditions and uncertainty surrounding the timing and amount of proceeds received from property dispositions, we are continuing suspension of Net Income and FFO guidance, and we are also suspending property disposition guidance.
Real Estate Update
Supplementary schedules provide property information for the Company’s owned and managed real estate portfolio as of December 31, 2022. The Company will also be filing an updated supplemental information package that will provide stockholders and the financial community with additional operating and financial data. The Company will file this supplemental information package with the SEC and make it available on its website at www.fspreit.com.
Today’s news release, along with other news about Franklin Street Properties Corp., is available on the Internet at www.fspreit.com. We routinely post information that may be important to investors in the Investor Relations section of our website. We encourage investors to consult that section of our website regularly for important information about us and, if they are interested in automatically receiving news and information as soon as it is posted, to sign up for E-mail Alerts.
Earnings Call
A conference call is scheduled for February 15, 2023 at 11:00 a.m. (ET) to discuss the fourth quarter 2022 results. To access the call, please dial 1-844-200-6205 and use access code 758069. Internationally, the call may be accessed by dialing 1-929-526-1599 and using access code 758069. To listen via live audio webcast, please visit the Webcasts & Presentations section in the Investor Relations section of the Company’s website (www.fspreit.com) at least ten minutes prior to the start of the call and follow the posted directions. The webcast will also be available via replay from the above location starting one hour after the call is finished.
About Franklin Street Properties Corp.
Franklin Street Properties Corp., based in Wakefield, Massachusetts, is focused on infill and central business district (CBD) office properties in the U.S. Sunbelt and Mountain West, as well as select opportunistic markets. FSP seeks value-oriented investments with an eye towards long-term growth and appreciation, as well as current income. FSP is a Maryland corporation that operates in a manner intended to qualify as a real estate investment trust (REIT) for federal income tax purposes. To learn more about FSP please visit our website at www.fspreit.com.
Forward-Looking Statements
Statements made in this press release that state FSP’s or management’s intentions, beliefs, expectations, or predictions for the future may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This press release may also contain forward-looking statements, such as those relating to our ability to lease space in the future, expectations for dispositions, the payment of dividends and the repayment of debt in future periods, value creation/enhancement in future periods and expectations for growth and leasing activities in future periods that are based on current judgments and current knowledge of management and 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 COVID-19 pandemic and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, inflation rates, increasing 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, and any delays in the timing of any such anticipated dispositions, 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, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, unanticipated repairs, additional staffing, insurance increases and real estate tax valuation reassessments. See the “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, which may be updated from time to time in subsequent filings with the United States Securities and Exchange Commission. 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 will not update any of the forward-looking statements after the date of this press release to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.
Franklin Street Properties Corp.
Earnings Release
Supplementary Information
Table of Contents
Franklin Street Properties Corp. Financial Results
A-C
Real Estate Portfolio Summary Information
D
Portfolio and Other Supplementary Information
E
Percentage of Leased Space
F
Largest 20 Tenants – FSP Owned Portfolio
G
Reconciliation and Definitions of Funds From Operations (FFO) and Adjusted
Funds From Operations (AFFO)
H
Reconciliation and Definition of Sequential Same Store results to Property Net
Operating Income (NOI) and Net Loss
I
Franklin Street Properties Corp. Financial Results
Supplementary Schedule A
Condensed Consolidated Statements of Operations
(Unaudited)
For the
For the
Three Months Ended
Year Ended
December 31,
December 31,
(in thousands, except per share amounts)
2022
2021
2022
2021
Revenue:
Rental
$
40,745
$
42,910
$
163,739
$
207,581
Related party revenue:
Management fees and interest income from loans
462
454
1,855
1,700
Other
4
8
21
77
Total revenue
41,211
43,372
165,615
209,358
Expenses:
Real estate operating expenses
14,273
15,217
52,820
60,881
Real estate taxes and insurance
7,907
6,600
34,620
41,061
Depreciation and amortization
14,804
16,165
63,808
78,544
General and administrative
2,888
4,041
13,885
15,898
Interest
5,668
5,691
22,808
32,273
Total expenses
45,540
47,714
187,941
228,657
Loss on extinguishment of debt
—
(498)
(78)
(901)
Impairment and loan loss reserve
(2,380)
—
(4,237)
—
Gain on sale of properties, net
3,862
83,876
27,939
113,134
Income (loss) before taxes and equity in income of non-consolidated REITs
(2,847)
79,036
1,298
92,934
Tax expense
37
464
204
638
Equity in income of non-consolidated REITs
—
—
—
421
Net income (loss)
$
(2,884)
$
78,572
$
1,094
$
92,717
Weighted average number of shares outstanding, basic and diluted
103,236
105,098
103,338
106,667
Net income (loss) per share, basic and diluted
$
(0.03)
$
0.75
$
0.01
$
0.87
Franklin Street Properties Corp. Financial Results
Supplementary Schedule B
Condensed Consolidated Balance Sheets
(Unaudited)
December 31,
December 31,
(in thousands, except share and par value amounts)
2022
2021
Assets:
Real estate assets:
Land
$
126,645
$
146,844
Buildings and improvements
1,388,869
1,457,209
Fixtures and equipment
11,151
11,404
1,526,665
1,615,457
Less accumulated depreciation
423,417
424,487
Real estate assets, net
1,103,248
1,190,970
Acquired real estate leases, less accumulated amortization of $20,243 and $40,423, respectively
10,186
14,934
Cash, cash equivalents and restricted cash
6,632
40,751
Tenant rent receivables
2,201
1,954
Straight-line rent receivable
52,739
49,024
Prepaid expenses and other assets
6,676
4,031
Related party mortgage loan receivable, less allowance for credit loss of $4,237 and $0, respectively
19,763
24,000
Other assets: derivative asset
4,358
—
Office computers and furniture, net of accumulated depreciation of $1,115 and $1,198, respectively
154
198
Deferred leasing commissions, net of accumulated amortization of $19,043 and $21,099, respectively
35,709
38,311
Total assets
$
1,241,666
$
1,364,173
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable
$
48,000
$
—
Term loans payable, less unamortized financing costs of $250 and $714, respectively
164,750
274,286
Series A & Series B Senior Notes, less unamortized financing costs of $494 and $658, respectively
199,506
199,342
Accounts payable and accrued expenses
50,366
89,493
Accrued compensation
3,644
4,704
Tenant security deposits
5,710
6,219
Lease liability
759
1,159
Other liabilities: derivative liabilities
—
5,239
Acquired unfavorable real estate leases, less accumulated amortization of $574 and $2,285, respectively
195
528
Total liabilities
472,930
580,970
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding
—
—
Common stock, $.0001 par value, 180,000,000 shares authorized, 103,235,914 and 103,998,520 shares issued and outstanding, respectively
10
10
Additional paid-in capital
1,334,776
1,339,226
Accumulated other comprehensive income (loss)
4,358
(5,239)
Accumulated distributions in excess of accumulated earnings
(570,408)
(550,794)
Total stockholders’ equity
768,736
783,203
Total liabilities and stockholders’ equity
$
1,241,666
$
1,364,173
Franklin Street Properties Corp. Financial Results
Supplementary Schedule C
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the
Year Ended
December 31,
(in thousands)
2022
2021
Cash flows from operating activities:
Net income
$
1,094
$
92,717
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
65,697
81,041
Amortization of above and below market leases
(118)
(34)
Shares issued as compensation
394
338
Equity in income of non-consolidated REITs
—
(421)
Distributions from non-consolidated REITs
—
421
Loss on extinguishment of debt
78
901
Impairment and loan loss reserve
4,237
—
Gain on sale of properties, net
(27,939)
(113,134)
Changes in operating assets and liabilities:
Tenant rent receivables
(247)
5,702
Straight-line rents
(5,895)
(3,930)
Lease acquisition costs
(4,494)
(2,353)
Prepaid expenses and other assets
(1,805)
82
Accounts payable and accrued expenses
(5,983)
(11,096)
Accrued compensation
(1,060)
786
Tenant security deposits
(509)
(2,458)
Payment of deferred leasing commissions
(8,216)
(12,200)
Net cash provided by operating activities
15,234
36,362
Cash flows from investing activities:
Property improvements, fixtures and equipment
(54,910)
(64,833)
Investment in related party mortgage loan receivable
—
(3,000)
Proceeds received from sales of properties
128,949
573,307
Net cash provided by investing activities
74,039
505,474
Cash flows from financing activities:
Distributions to stockholders
(53,988)
(38,491)
Stock repurchases
(4,843)
(18,244)
Borrowings under bank note payable
90,000
91,500
Repayments of bank note payable
(42,000)
(95,000)
Repayments of Term Loans
(110,000)
(445,000)
Deferred financing costs
(2,561)
—
Net cash used in financing activities
(123,392)
(505,235)
Net increase (decrease) in cash, cash equivalents and restricted cash
(34,119)
36,601
Cash, cash equivalents and restricted cash, beginning of year
40,751
4,150
Cash, cash equivalents and restricted cash, end of period
$
6,632
$
40,751
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule D
Real Estate Portfolio Summary Information
(Unaudited & Approximated)
Commercial portfolio lease expirations (1)
Total
% of
Year
Square Feet
Portfolio
2023
398,204
6.4%
2024
862,393
13.8%
2025
429,146
6.9%
2026
612,913
9.8%
2027
307,689
4.9%
Thereafter (2)
3,629,185
58.2%
6,239,530
100.0%
(1) Percentages are determined based upon total square footage.
(2) Includes 1,523,988 square feet of vacancies at our operating properties as of December 31, 2022.
(dollars & square feet in 000’s)
As of December 31, 2022
% of
Square
% of
State
Properties
Investment
Portfolio
Feet
Portfolio
Colorado
4
$
461,804
41.9%
2,146
34.4%
Texas
9
332,441
30.1%
2,423
38.8%
Georgia
1
53,370
4.8%
160
2.6%
Minnesota
3
122,016
11.1%
758
12.2%
Virginia
1
32,318
2.9%
298
4.8%
Florida
1
70,933
6.4%
213
3.4%
Illinois
1
21,707
2.0%
177
2.8%
North Carolina
1
8,659
0.8%
65
1.0%
Total
21
$
1,103,248
100.0%
6,240
100.0%
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule E
Portfolio and Other Supplementary Information
(Unaudited & Approximated)
Recurring Capital Expenditures
Year
(in thousands)
For the Three Months Ended
Ended
31-Mar-22
30-Jun-22
30-Sep-22
31-Dec-22
31-Dec-22
Tenant improvements
$
1,877
$
5,453
$
6,813
$
7,508
$
21,651
Deferred leasing costs
3,032
1,327
2,053
1,152
7,564
Non-investment capex
5,065
6,736
9,289
9,074
30,164
$
9,974
$
13,516
$
18,155
$
17,734
$
59,379
For the Three Months Ended
Year Ended
31-Mar-21
30-Jun-21
30-Sep-21
31-Dec-21
31-Dec-21
Tenant improvements
$
4,491
$
4,277
$
3,952
$
1,881
$
14,601
Deferred leasing costs
2,597
1,922
2,371
1,319
8,209
Non-investment capex
5,336
3,793
4,528
4,672
18,329
$
12,424
$
9,992
$
10,851
$
7,872
$
41,139
Square foot & leased percentages
December 31,
December 31,
2022
2021
Owned or Operating Properties:
Number of properties
21
24
Square feet
6,239,530
6,911,225
Leased percentage
75.6%
78.4%
Managed Properties – Single Asset REITs (SARs):
Number of properties
1
2
Square feet
213,760
348,545
Total Owned or Operating and Managed Properties:
Number of properties
22
26
Square feet
6,453,290
7,259,770
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule F
Percentage of Leased Space
(Unaudited & Estimated)
Third
Fourth
% Leased (1)
Quarter
% Leased (1)
Quarter
as of
Average %
as of
Average %
Property Name
Location
Square Feet
30-Sep-22
Leased (2)
31-Dec-22
Leased (2)
1
FOREST PARK
Charlotte, NC
64,198
78.4%
78.4%
78.4%
78.4%
2
NORTHWEST POINT
Elk Grove Village, IL
177,095
100.0%
100.0%
100.0%
100.0%
3
PARK TEN
Houston, TX
157,609
72.0%
72.0%
78.1%
76.1%
4
PARK TEN PHASE II
Houston, TX
156,746
95.0%
95.0%
95.0%
95.0%
5
GREENWOOD PLAZA
Englewood, CO
196,236
66.3%
66.3%
66.3%
66.3%
6
ADDISON
Addison, TX
289,333
83.0%
83.0%
83.0%
83.0%
7
COLLINS CROSSING
Richardson, TX
300,887
96.1%
96.1%
96.1%
96.1%
8
INNSBROOK
Glen Allen, VA
298,183
47.8%
47.8%
47.8%
47.8%
9
LIBERTY PLAZA
Addison, TX
217,779
75.5%
75.9%
72.9%
74.7%
10
BLUE LAGOON
Miami, FL
213,182
98.5%
98.5%
98.5%
98.5%
11
ELDRIDGE GREEN
Houston, TX
248,399
100.0%
100.0%
100.0%
100.0%
12
121 SOUTH EIGHTH ST
Minneapolis, MN
298,121
88.6%
88.6%
85.2%
86.3%
13
801 MARQUETTE AVE
Minneapolis, MN
129,691
91.8%
77.7%
91.8%
91.8%
14
LEGACY TENNYSON CTR
Plano, TX
209,461
40.7%
40.7%
49.0%
46.2%
15
ONE LEGACY
Plano, TX
214,110
63.7%
63.7%
64.7%
64.7%
909 DAVIS
Evanston, IL
—
93.3%
93.3%
(3)
(3)
16
WESTCHASE I & II
Houston, TX
629,025
64.2%
63.7%
63.5%
63.7%
17
1999 BROADWAY
Denver, CO
680,255
66.9%
66.9%
66.9%
66.9%
18
1001 17TH STREET
Denver, CO
657,816
70.1%
70.7%
70.2%
70.1%
19
PLAZA SEVEN
Minneapolis, MN
330,096
79.3%
79.7%
79.3%
79.3%
20
PERSHING PLAZA
Atlanta, GA
160,145
79.2%
78.5%
79.2%
79.2%
21
600 17TH STREET
Denver, CO
611,163
77.8%
77.8%
78.3%
78.0%
OWNED PORTFOLIO
6,239,530
75.9%
75.8%
75.6%
75.9%
Contacts
Georgia Touma (877) 686-9496