Franklin Street Properties Corp. Announces Third Quarter 2021 Results

Strong Execution on our 2021 Strategy to Reduce Debt and Lease Space

$0.04 GAAP Net Income Per Share

$0.14 Funds From Operations (FFO) Per Share

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 third quarter ended September 30, 2021.

Significant Debt Reduction Improves Balance Sheet Flexibility for Future Growth Opportunities

Between September 30, 2020 and October 25, 2021, reduced total indebtedness by approximately 53%, from approximately $1.0 billion to approximately $475 million.

Between January 1, 2021 and October 25, 2021, repaid approximately $508 million of indebtedness.

During the three months ended September 30, 2021, repaid approximately $90 million of indebtedness.

On October 25, 2021, repaid approximately $215 million of indebtedness.

Ahead on Property Disposition Strategy

Between January 1, 2021 and October 22, 2021, sold eight properties for aggregate gross disposition proceeds of approximately $563 million and an aggregate, weighted-average, in-place, capitalization rate (on both a GAAP and cash basis) of approximately 5.8%.

On October 22, 2021, sold 999 Peachtree in Atlanta, Georgia for $223.9 million in gross proceeds and recorded a gain of approximately $86.8 million.

Aggregate pricing achieved on our dispositions to date in 2021 has been ahead of our expectations and we believe that such pricing is generally indicative of the level of pricing that could be achieved on our continuing portfolio of real estate assets. We believe that in undertaking these dispositions we have unlocked embedded value for our shareholders that has not been reflected in the current price of our common stock. We believe that the net value of our continuing real estate portfolio assets (net of outstanding liabilities) would exceed $10.00 per share of common stock based on our market valuation estimates using the pricing levels we have achieved to date on our dispositions as a benchmark applied across our continuing real estate portfolio.

Due to strong demand and pricing, increased the top end of our 2021 disposition guidance from a previous range of approximately $350 million to $450 million to a new range of approximately $563 million to $600 million.

Leasing Progress and Continuing Portfolio Upside Leasing Potential

Leased approximately 329,000 square feet during the three months ended September 30, 2021, including approximately 172,000 square feet with new tenants.

Signed a lease for approximately 100,000 square feet with a new tenant at our Pershing Park property in Atlanta, Georgia during the three months ended September 30, 2021.

In-place weighted average GAAP rent increased by approximately 5% during the nine months ended September 30, 2021.

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.

Stock Repurchases

During the three months ended September 30, 2021, we repurchased approximately 1.8 million shares of our common stock for approximately $8.2 million pursuant to our previously announced stock repurchase plan.

Shares repurchased during the three months ended September 30, 2021 represent approximately 1.5% of the approximately $563 million in aggregate gross disposition proceeds received to date in 2021.

Up to approximately $41.8 million remaining for potential future repurchases of our common stock pursuant to our previously announced stock repurchase plan.

Anticipated 2021 Special Dividend

In light of the gains achieved on our dispositions to date in 2021, we anticipate declaring a special dividend in December 2021 to be paid in January 2022 in order to meet REIT requirements.

George J. Carter, Chairman and Chief Executive Officer, commented as follows:

“I am pleased to report strong execution on our 2021 strategies to reduce debt and to lease space. Highlights include the sale of 999 Peachtree on October 22, 2021 for $223.9 million and a recorded gain of approximately $86.8 million, and the lease of approximately 100,000 square feet with a new tenant at Pershing Park. As of October 22, 2021, we have sold eight properties in 2021 for aggregate gross proceeds of approximately $563 million and an aggregate, weighted-average, in-place capitalization rate of approximately 5.8%. Between September 30, 2020 and October 25, 2021, we reduced our total indebtedness by approximately 53%, from approximately $1.0 billion to approximately $475 million.

We are encouraged by the strong level of demand that our real estate assets have received in the market to date from a diverse pool of potential buyers. Aggregate pricing on the properties sold has exceeded our expectations and reinforced our belief that we are unlocking embedded value for our shareholders that is not currently reflected in the price of our common stock. Due to strong demand and pricing, we have increased the top end of our 2021 disposition guidance from a previous range of approximately $350 million to $450 million to a new range of approximately $563 million to $600 million.

Our criteria for selecting potential properties for disposition is asset-specific. We consider a variety of factors, including short to intermediate term value objectives and upside potential. At the same time, we remain fully committed to our historic Sunbelt and Mountain West geographic focus. Accordingly, our 2021 dispositions in the Sunbelt region should not be viewed as a statement about our commitment to such regions.

Importantly, 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 significant upside leasing potential in a post-COVID-19 environment. We also believe that the pricing achieved on our dispositions to date in 2021, which has exceeded our expectations, is generally indicative of the pricing that could be achieved on our continuing portfolio of real estate assets.

We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets and intend to continue our strategy of seeking to increase shareholder value through the sale of select properties where we believe that our short to intermediate term valuation objectives have been met. We believe that the net value of our continuing real estate portfolio assets (net of outstanding liabilities) would exceed $10.00 per share of common stock based on our market valuation estimates using the pricing levels we have achieved to date on our dispositions as a benchmark applied across our continuing real estate portfolio. We intend to use the proceeds from any future dispositions for debt reduction, repurchases of our common stock, any special dividends required to meet REIT requirements, and other general corporate purposes.”

Financial Highlights

GAAP net income was $4.5 million, or $0.04 per share, for the three months ended September 30, 2021.

Funds From Operations (FFO) was $14.8 million, or $0.14 per basic and diluted share, for the three months ended September 30, 2021.

Adjusted Funds From Operations (AFFO) was $0.04 per basic and diluted share for the three months ended September 30, 2021.

During the three months ended September 30, 2021, we repaid approximately $90 million of indebtedness. As of September 30, 2021, our total debt outstanding was approximately $675 million.

On October 25, 2021, we repaid approximately $215 million of indebtedness and our total debt outstanding decreased to approximately $475 million.

Leasing Highlights

During the three months ended September 30, 2021, we leased approximately 329,000 square feet, including 172,000 square feet of new leases.

On September 28, 2021, we signed a lease with a new tenant at our Pershing Park property for approximately 100,000 square feet that will substantially backfill the recent vacancy from the departure of Jones Day.

During the nine months ended September 30, 2021, we leased approximately 892,000 square feet, of which approximately 622,000 square feet was with existing tenants. During the year ended December 31, 2020, we leased approximately 1,130,000 square feet, of which approximately 762,000 square feet was with existing tenants.

Our directly owned real estate portfolio of 27 owned properties (including one redevelopment property) totaling approximately 7.8 million square feet, was approximately 78.8% leased as of September 30, 2021, compared to approximately 78.5% leased as of June 30, 2021. The increase in the leased percentage is primarily a result of 172,000 square feet of new leases executed during the three months ended September 30, 2021.

Lease expirations for the remainder of 2021 are approximately 72,000 square feet, representing approximately 0.9% of our owned portfolio.

The weighted average GAAP base rent per square foot achieved on leasing activity during the nine months ended September 30, 2021 was $30.10, or 2.0% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2020. The average lease term on leases in the nine months ended September 30, 2021, was 7.8 years compared to 8.3 years for the full year of 2020. Overall the portfolio weighted average rent per occupied square foot was $30.97 as of September 30, 2021 compared to $29.60 as of December 31, 2020, representing an increase of approximately 5%.

Investment Highlights

Completed dispositions for aggregate gross proceeds of approximately $563 million to date in 2021, which translates into an aggregate, weighted-average, in-place, capitalization rate (on both a GAAP and cash basis) of approximately 5.8%.

Due to strong demand/pricing, we increased the top end of our 2021 disposition guidance from a previous range of approximately $350 million to $450 million to a new range of approximately $563 million to $600 million.

Disposition proceeds intended to be used for debt reduction, any special dividends required to meet REIT requirements, repurchases of our common stock, and other general corporate purposes.

Demand and pricing on assets sold to date in 2021 has exceeded our expectations.

On August 31, 2021, we sold our River Crossing property in Indianapolis, Indiana for gross proceeds of approximately $35 million.

On September 23, 2021, we sold our two Timberlake properties in Chesterfield, Missouri for aggregate gross proceeds of approximately $67 million.

Subsequent to quarter end, on October 22, 2021, we sold our 999 Peachtree property in Atlanta, Georgia for gross proceeds of approximately $224 million, which represented a gain of approximately $86.8 Million.

We remain committed to our Sunbelt and Mountain West geographic focus.

Current and potential disposition properties include Meadow Point and Stonecroft in Chantilly, Virginia, both of which are under Purchase & Sale Agreement with a closing anticipated during the fourth quarter of 2021. In addition, Eldridge Green and Park Ten in Houston, Texas are in price discovery.

Dividend Update

On October 8, 2021, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended September 30, 2021 of $0.09 per share of common stock that will be paid on November 11, 2021 to stockholders of record on October 22, 2021.

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.

2021 Net Income, FFO and Disposition Guidance

At this time, due primarily to uncertainty surrounding the timing and amount of proceeds received from property dispositions, we are continuing suspension of Net Income and FFO guidance. However, we are updating our previously announced disposition guidance for full-year 2021, as we execute on our strategy to dispose of certain properties that we believe have met their short to intermediate term valuation objectives and whose value may not be accurately reflected in our share price. Anticipated dispositions in 2021 are estimated to result in aggregate gross proceeds in the range of approximately $563 million to $600 million, inclusive of the approximately $563 million of gross proceeds in 2021 realized to date. We intend to use the proceeds of any future dispositions for debt reduction, repurchases of our stock, any special distributions required to meet REIT requirements, and other general corporate purposes. This guidance reflects our current expectations of economic and market conditions and is subject to change. We will update our disposition guidance quarterly in our earnings releases. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

Real Estate Update

Supplementary schedules provide property information for the Company’s owned and managed real estate portfolio as of September 30, 2021. 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 November 9, 2021 at 11:00 a.m. (ET) to discuss the third quarter 2021 results. To access the call, please dial 1-800-464-8240. Internationally, the call may be accessed by dialing 1-412-902-6521. To access the call from Canada, please dial 1-866-605-3852. 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, potential stock repurchases, the payment of special dividends and the repayment of debt in future periods, value creation/enhancement in future periods, the net value of our continuing real estate portfolio per share of common stock, 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, 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, uncertainty relating to the completion and timing of the disposition of properties under agreement, any inability to dispose of real estate properties at pricing levels comparable to recent historical portfolio dispositions, 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, 2020, as the same 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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

50,326

 

 

$

61,834

 

 

$

164,671

 

 

$

184,799

 

 

Related party revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees and interest income from loans

 

 

419

 

 

 

400

 

 

 

1,246

 

 

 

1,208

 

 

Other

 

 

57

 

 

 

13

 

 

 

69

 

 

 

31

 

 

Total revenue

 

 

50,802

 

 

 

62,247

 

 

 

165,986

 

 

 

186,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating expenses

 

 

14,373

 

 

 

16,730

 

 

 

45,664

 

 

 

49,498

 

 

Real estate taxes and insurance

 

 

10,200

 

 

 

12,279

 

 

 

34,461

 

 

 

36,348

 

 

Depreciation and amortization

 

 

18,862

 

 

 

22,076

 

 

 

62,379

 

 

 

66,659

 

 

General and administrative

 

 

3,749

 

 

 

3,817

 

 

 

11,857

 

 

 

11,159

 

 

Interest

 

 

7,928

 

 

 

8,953

 

 

 

26,582

 

 

 

26,996

 

 

Total expenses

 

 

55,112

 

 

 

63,855

 

 

 

180,943

 

 

 

190,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

(236

)

 

 

 

 

 

(403

)

 

 

 

 

Gain on sale of properties, net

 

 

8,632

 

 

 

 

 

 

29,258

 

 

 

 

 

Income (loss) before taxes

 

 

4,086

 

 

 

(1,608

)

 

 

13,898

 

 

 

(4,622

)

 

Tax expense

 

 

51

 

 

 

71

 

 

 

174

 

 

 

203

 

 

Equity in income of non-consolidated REITs

 

 

421

 

 

 

 

 

 

421

 

 

 

 

 

Net income (loss)

 

$

4,456

 

 

$

(1,679

)

 

$

14,145

 

 

$

(4,825

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, basic and diluted

 

 

106,905

 

 

 

107,328

 

 

 

107,196

 

 

 

107,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share, basic and diluted

 

$

0.04

 

 

$

(0.02

)

 

$

0.13

 

 

$

(0.04

)

 

 

Franklin Street Properties Corp. Financial Results

Supplementary Schedule B

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(in thousands, except share and par value amounts)

 

2021

 

2020

 

Assets:

 

 

 

 

 

 

 

Real estate assets:

 

 

 

 

 

 

 

Land

 

$

161,767

 

 

$

189,155

 

 

Buildings and improvements

 

 

1,630,729

 

 

 

1,938,629

 

 

Fixtures and equipment

 

 

11,727

 

 

 

12,949

 

 

 

 

 

1,804,223

 

 

 

2,140,733

 

 

Less accumulated depreciation

 

 

459,531

 

 

 

538,717

 

 

Real estate assets, net

 

 

1,344,692

 

 

 

1,602,016

 

 

Acquired real estate leases, less accumulated amortization of $50,302 and $55,447, respectively

 

 

19,864

 

 

 

28,206

 

 

Cash, cash equivalents and restricted cash

 

 

9,731

 

 

 

4,150

 

 

Tenant rent receivables

 

 

2,681

 

 

 

7,656

 

 

Straight-line rent receivable

 

 

58,132

 

 

 

67,789

 

 

Prepaid expenses and other assets

 

 

5,547

 

 

 

5,752

 

 

Related party mortgage loan receivables

 

 

21,000

 

 

 

21,000

 

 

Office computers and furniture, net of accumulated depreciation of $1,180 and $1,443, respectively

 

 

153

 

 

 

163

 

 

Deferred leasing commissions, net of accumulated amortization of $24,013 and $30,411, respectively

 

 

44,729

 

 

 

56,452

 

 

Total assets

 

$

1,506,529

 

 

$

1,793,184

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Bank note payable

 

$

 

 

$

3,500

 

 

Term loans payable, less unamortized financing costs of $1,352 and $2,677, respectively

 

 

473,648

 

 

 

717,323

 

 

Series A & Series B Senior Notes, less unamortized financing costs of $699 and $822, respectively

 

 

199,301

 

 

 

199,178

 

 

Accounts payable and accrued expenses

 

 

59,309

 

 

 

72,058

 

 

Accrued compensation

 

 

3,482

 

 

 

3,918

 

 

Tenant security deposits

 

 

6,169

 

 

 

8,677

 

 

Lease liability

 

 

1,256

 

 

 

1,536

 

 

Other liabilities: derivative liabilities

 

 

7,583

 

 

 

17,311

 

 

Acquired unfavorable real estate leases, less accumulated amortization of $3,377 and $4,031, respectively

 

 

708

 

 

 

1,592

 

 

Total liabilities

 

 

751,456

 

 

 

1,025,093

 

 

 

 

 

 

 

 

 

 

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, 105,632,725 and 107,328,199 shares issued and outstanding, respectively

 

 

11

 

 

 

11

 

 

Additional paid-in capital

 

 

1,349,225

 

 

 

1,357,131

 

 

Accumulated other comprehensive loss

 

 

(7,583

)

 

 

(17,311

)

 

Accumulated distributions in excess of accumulated earnings

 

 

(586,580

)

 

 

(571,740

)

 

Total stockholders’ equity

 

 

755,073

 

 

 

768,091

 

 

Total liabilities and stockholders’ equity

 

$

1,506,529

 

 

$

1,793,184

 

 

Contacts

Georgia Touma (877) 686-9496

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