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 second quarter ended June 30, 2023.
George J. Carter, Chairman and Chief Executive Officer, commented as follows:
“As the third 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 the remainder of 2023 and beyond with anticipation and optimism.”
Financial Highlights
GAAP net loss was $8.4 million and $6.0 million, or $0.08 and $0.06 per basic and diluted share for the three and six months ended June 30, 2023, respectively.
Funds From Operations (FFO) was $7.1 million and $15.5 million, or $0.07 and $0.15 per basic and diluted share, for the three and six months ended June 30, 2023, respectively.
Leasing Highlights
During the six months ended June 30, 2023, we leased approximately 445,000 square feet, including 176,000 square feet of new leases.
Our directly owned real estate portfolio of 20 owned properties, totaling approximately 6.1 million square feet, was approximately 75.7% leased as of June 30, 2023, compared to approximately 75.6% leased as of December 31, 2022. The increase in the leased percentage is primarily a result of leasing completed during the six months ended June 30, 2023, which was partially offset by lease expirations and a property disposition.
The weighted average GAAP base rent per square foot achieved on leasing activity during the six months ended June 30, 2023, was $29.14, or 7.2% higher than average rents in the respective properties for the year ended December 31, 2022. The average lease term on leases signed during the six months ended June 30, 2023, was 6.6 years compared to 6.4 years during the year ended December 31, 2022. Overall, the portfolio weighted average rent per occupied square foot was $31.21 as of June 30, 2023, compared to $30.48 as of December 31, 2022.
During the second quarter, we entered into a lease amendment with an existing tenant, Kaiser Foundation Health Plan, Inc., at our Greenwood Plaza property in Englewood, Colorado. The lease amendment extends the term applicable to all of Kaiser’s approximately 121,000 square foot premises by 5 years, from May 31, 2024, to May 31, 2029.
During the second quarter, we entered into a new lease with the Commonwealth of Virginia, Department of General Services, at our Innsbrook property in Glen Allen, Virginia. The lease is for approximately 100,000 square feet, has a term of 10.5 years and is anticipated to commence during December 2023.
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 our properties 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.
Investment Highlights
We remain committed to seeking to sell select properties during 2023 and using proceeds primarily for debt reduction.
Since December 2020, we have completed the sale of properties resulting in gross proceeds of approximately $852 million and reflecting an average price per square foot of approximately $220.
During the third quarter of 2023, we expect to close on the sale of Forest Park in Charlotte, North Carolina for approximately $9.2 million in gross proceeds. We recorded an impairment of $0.8 million on this property for the expected loss on sale and classified the property as an asset held-for-sale during the three months ended June 30, 2023. Proceeds will be used primarily for debt reduction.
We have entered into purchase and sale agreements with three different (and unrelated) purchasers for the potential sale of three properties that would result in aggregate gross proceeds of approximately $156 million. These transactions remain subject to customary closing conditions, including without limitation, successful completion by the purchasers of due diligence inspection periods. If successful, these transactions are expected to close during the fourth quarter of 2023 and the proceeds are intended to be used primarily for the repayment of debt.
Assuming that the three properties currently under purchase and sale agreement, together with our Forest Park property, close at their currently negotiated purchase prices, those four dispositions would reflect an average price per square foot of approximately $250.
Dividends
On July 7, 2023, we announced that our Board of Directors declared a quarterly cash dividend for the three months ended June 30, 2023 of $0.01 per share of common stock that will be paid on August 10, 2023 to stockholders of record on July 21, 2023.
Consolidation of Sponsored REIT
As of January 1, 2023, we consolidated the operations of our Monument Circle sponsored REIT into our financial statements. On October 29, 2021, we agreed to amend and restate our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan. The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023 (subject to further extension to September 30, 2023), increased the aggregate principal amount of the loan from $21 million to $24 million, and included certain other modifications. On June 26, 2023, the maturity date was extended to September 30, 2023. In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023. As a result of our obtaining this right to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023.
Additional information about the consolidation of Monument Circle can be found in Note 1, “Organization, Properties, Basis of Presentation, Financial Instruments, and Recent Accounting Standards – Variable Interest Entities (VIEs)” and Note 2, “Related Party Transactions and Investments in Non-Consolidated Entities – Management fees and interest income from loans”, in the Notes to Consolidated Financial Statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
Non-GAAP Financial Information
A reconciliation of Net income to FFO, Adjusted Funds From Operations (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, FFO and property disposition guidance.
Real Estate Update
Supplementary schedules provide property information for the Company’s owned and consolidated properties as of June 30, 2023. 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 August 2, 2023 at 11:00 a.m. (ET) to discuss the second quarter 2023 results. To access the call, please dial 888-440-4368 and use conference ID 5398803. Internationally, the call may be accessed by dialing 646-960-0856 and using conference ID 5398803. 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 expectations for future potential leasing activity, expectations for future potential property 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 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
Six Months Ended
June 30,
June 30,
(in thousands, except per share amounts)
2023
2022
2023
2022
Revenue:
Rental
$
36,257
$
40,831
$
74,024
$
82,628
Related party revenue:
Management fees and interest income from loans
—
467
—
927
Other
9
6
9
13
Total revenue
36,266
41,304
74,033
83,568
Expenses:
Real estate operating expenses
12,140
12,344
24,830
25,178
Real estate taxes and insurance
7,169
9,043
14,142
17,762
Depreciation and amortization
14,645
18,186
29,372
33,856
General and administrative
3,767
3,981
7,584
7,765
Interest
6,084
5,664
11,890
11,030
Total expenses
43,805
49,218
87,818
95,591
Loss on extinguishment of debt
—
—
(67
)
—
Gain on consolidation of Sponsored REIT
—
—
394
—
Impairment and loan loss reserve
—
(1,140
)
—
(1,140
)
Gain on sale of properties and impairment of asset held for sale, net
(806
)
—
7,586
—
Loss before taxes
(8,345
)
(9,054
)
(5,872
)
(13,163
)
Tax expense
75
56
142
105
Net loss
$
(8,420
)
$
(9,110
)
$
(6,014
)
$
(13,268
)
Weighted average number of shares outstanding, basic and diluted
103,330
103,193
103,283
103,441
Net loss per share, basic and diluted
$
(0.08
)
$
(0.09
)
$
(0.06
)
$
(0.13
)
Franklin Street Properties Corp. Financial Results
Supplementary Schedule B
Condensed Consolidated Balance Sheets
(Unaudited)
June 30,
December 31,
(in thousands, except share and par value amounts)
2023
2022
Assets:
Real estate assets:
Land
$
128,588
$
126,645
Buildings and improvements
1,362,939
1,388,869
Fixtures and equipment
11,612
11,151
1,503,139
1,526,665
Less accumulated depreciation
421,180
423,417
Real estate assets, net
1,081,959
1,103,248
Acquired real estate leases, less accumulated amortization of $20,962 and $20,243, respectively
8,828
10,186
Asset held for sale
8,860
—
Cash, cash equivalents and restricted cash
6,697
6,632
Tenant rent receivables
1,938
2,201
Straight-line rent receivable
50,267
52,739
Prepaid expenses and other assets
5,648
6,676
Related party mortgage loan receivable, less allowance for credit loss of $0 and $4,237, respectively
—
19,763
Other assets: derivative asset
—
4,358
Office computers and furniture, net of accumulated depreciation of $1,149 and $1,115, respectively
127
154
Deferred leasing commissions, net of accumulated amortization of $20,327 and $19,043, respectively
34,985
35,709
Total assets
$
1,199,309
$
1,241,666
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable
$
75,000
$
48,000
Term loans payable, less unamortized financing costs of $529 and $250, respectively
124,471
164,750
Series A & Series B Senior Notes, less unamortized financing costs of $412 and $494, respectively
199,588
199,506
Accounts payable and accrued expenses
32,501
50,366
Accrued compensation
2,286
3,644
Tenant security deposits
5,666
5,710
Lease liability
550
759
Acquired unfavorable real estate leases, less accumulated amortization of $537 and $574, respectively
153
195
Total liabilities
440,215
472,930
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, 103,430,353 and 103,235,914 shares issued and outstanding, respectively
10
10
Additional paid-in capital
1,335,091
1,334,776
Accumulated other comprehensive income
2,480
4,358
Accumulated distributions in excess of accumulated earnings
(578,487
)
(570,408
)
Total stockholders’ equity
759,094
768,736
Total liabilities and stockholders’ equity
$
1,199,309
$
1,241,666
Franklin Street Properties Corp. Financial Results
Supplementary Schedule C
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
June 30,
(in thousands)
2023
2022
Cash flows from operating activities:
Net loss
$
(6,014
)
$
(13,268
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense
30,634
34,863
Amortization of above and below market leases
(30
)
(54
)
Amortization of other comprehensive income into interest expense
(1,726
)
—
Shares issued as compensation
315
394
Loss on extinguishment of debt
67
—
Gain on consolidation of Sponsored REIT
(394
)
—
Impairment and loan loss reserve
—
1,140
Gain on sale of properties and impairment of asset held for sale, net
(7,586
)
—
Changes in operating assets and liabilities:
Tenant rent receivables
263
(673
)
Straight-line rents
322
(2,904
)
Lease acquisition costs
(824
)
(2,426
)
Prepaid expenses and other assets
(267
)
(1,153
)
Accounts payable and accrued expenses
(8,747
)
(18,268
)
Accrued compensation
(1,358
)
(2,452
)
Tenant security deposits
(44
)
(400
)
Payment of deferred leasing commissions
(4,137
)
(5,033
)
Net cash provided by (used in) operating activities
474
(10,234
)
Cash flows from investing activities:
Property improvements, fixtures and equipment
(18,369
)
(21,496
)
Consolidation of Sponsored REIT
3,048
—
Proceeds received from sales of properties
28,098
—
Net cash provided by (used in) investing activities
12,777
(21,496
)
Cash flows from financing activities:
Distributions to stockholders
(2,065
)
(51,924
)
Proceeds received from termination of interest rate swap
4,206
—
Stock repurchases
—
(4,843
)
Borrowings under bank note payable
62,000
60,000
Repayments of bank note payable
(35,000
)
(5,000
)
Repayments of term loans payable
(40,000
)
—
Deferred financing costs
(2,327
)
(2,561
)
Net cash used in financing activities
(13,186
)
(4,328
)
Net increase (decrease) in cash, cash equivalents and restricted cash
65
(36,058
)
Cash, cash equivalents and restricted cash, beginning of year
6,632
40,751
Cash, cash equivalents and restricted cash, end of period
$
6,697
$
4,693
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
177,038
2.8
%
2024
622,040
9.9
%
2025
438,551
7.0
%
2026
617,649
9.9
%
2027
334,289
5.3
%
Thereafter (2)
4,081,091
65.1
%
6,270,658
100.0
%
(1)
Percentages are determined based upon total square footage.
(2)
Includes 1,674,276 square feet of vacancies at our owned and consolidated properties as of June 30, 2023.
(dollars & square feet in 000’s)
As of June 30, 2023
% of
Square
% of
State
Properties
Investment
Portfolio
Feet
Portfolio
Colorado
4
$
457,647
42.3
%
2,140
34.1
%
Texas
9
330,946
30.6
%
2,424
38.6
%
Georgia
1
52,444
4.9
%
160
2.6
%
Minnesota
3
119,425
11.0
%
758
12.1
%
Virginia
1
31,821
2.9
%
298
4.8
%
Florida
1
70,152
6.5
%
213
3.4
%
Indiana
1
19,524
1.8
%
214
3.4
%
North Carolina (a)
1
–
0.0
%
64
1.0
%
Total
21
$
1,081,959
100.0
%
6,271
100.0
%
(a)
Property was classified as an asset held for sale as of June 30, 2023.
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule E
Portfolio and Other Supplementary Information
(Unaudited & Approximated)
Recurring Capital Expenditures
(in thousands)
For the Three Months Ended
Year to
Date
31-Mar-23
30-Jun-23
30-Jun-23
Tenant improvements
$
3,047
$
4,381
$
7,428
Deferred leasing costs
908
3,230
4,138
Non-investment capex
2,967
2,042
5,009
$
6,922
$
9,653
$
16,575
(in thousands)
For the Three Months Ended
Year 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
Square foot & leased percentages
June 30,
December 31,
2023
2022
Owned Properties:
Number of properties (a)
20
21
Square feet
6,056,898
6,239,530
Leased percentage
75.7
%
75.6
%
Consolidated Property – Single Asset REIT (SAR):
Number of properties
1
—
Square feet
213,760
—
Leased percentage
4.1
%
Total Owned and Consolidated Properties:
Number of properties
21
21
Square feet
6,270,658
6,239,530
Leased percentage
73.3
%
75.6
%
(a)
Includes property that was classified as an asset held for sale as of June 30, 2023.
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule F
Percentage of Leased Space
(Unaudited & Estimated)
First
Second
% Leased (1)
Quarter
% Leased (1)
Quarter
as of
Average %
as of
Average %
Property Name
Location
Square Feet
31-Mar-23
Leased (2)
30-Jun-23
Leased (2)
1
FOREST PARK (3)
Charlotte, NC
64,198
78.4
%
78.4
%
78.4
%
78.4
%
2
PARK TEN
Houston, TX
157,609
90.8
%
86.6
%
90.8
%
90.8
%
3
PARK TEN PHASE II
Houston, TX
156,746
95.0
%
95.0
%
95.0
%
95.0
%
4
GREENWOOD PLAZA
Englewood, CO
196,236
66.3
%
66.3
%
66.3
%
66.3
%
5
ADDISON
Addison, TX
289,333
83.0
%
83.0
%
83.0
%
83.0
%
6
COLLINS CROSSING
Richardson, TX
300,887
97.1
%
96.8
%
97.1
%
97.1
%
7
INNSBROOK
Glen Allen, VA
298,183
47.8
%
47.8
%
81.3
%
81.3
%
8
LIBERTY PLAZA
Addison, TX
217,841
72.9
%
72.9
%
71.6
%
71.8
%
9
BLUE LAGOON
Miami, FL
213,182
98.5
%
98.5
%
98.5
%
98.5
%
10
ELDRIDGE GREEN
Houston, TX
248,399
100.0
%
100.0
%
100.0
%
100.0
%
11
121 SOUTH EIGHTH ST
Minneapolis, MN
298,121
84.5
%
84.5
%
79.6
%
82.2
%
12
801 MARQUETTE AVE
Minneapolis, MN
129,691
91.8
%
91.8
%
91.8
%
91.8
%
13
LEGACY TENNYSON CTR
Plano, TX
209,461
49.0
%
49.0
%
62.5
%
53.5
%
14
ONE LEGACY
Plano, TX
214,110
69.3
%
69.3
%
73.8
%
73.8
%
15
WESTCHASE I & II
Houston, TX
629,025
59.0
%
60.3
%
58.7
%
58.7
%
16
1999 BROADWAY
Denver, CO
682,639
61.9
%
65.2
%
61.0
%
61.6
%
17
1001 17TH STREET
Denver, CO
648,861
70.8
%
70.3
%
71.0
%
71.0
%
18
PLAZA SEVEN
Minneapolis, MN
330,096
65.0
%
71.6
%
64.4
%
64.3
%
19
PERSHING PLAZA
Atlanta, GA
160,145
79.8
%
79.8
%
79.8
%
79.8
%
20
600 17TH STREET
Denver, CO
612,135
80.5
%
79.3
%
80.8
%
80.6
%
OWNED PORTFOLIO
6,056,898
73.9
%
74.9
%
75.7
%
75.6
%
21
MONUMENT CIRCLE (4)
Charlotte, NC
213,760
4.1
%
4.1
%
4.1
%
4.1
%
OWNED & CONSOLIDATED PORTFOLIO
6,270,658
71.5
%
72.5
%
73.3
%
73.2
%
Contacts
Georgia Touma (877) 686-9496