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Franklin Street Properties Corp. Announces Second Quarter 2022 Results

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WAKEFIELD, Mass., August 02, 2022--(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, 2022.

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

"As the third quarter of 2022 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. Our objectives for 2022 are twofold: We will seek to increase shareholder value (1) through the potential sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) by striving to increase occupancy in our continuing portfolio of real estate. We intend to use proceeds from any potential future property dispositions for debt reduction, repurchases of our common stock, dividends under our variable quarterly dividend policy and any dividends required to meet REIT requirements, and other general corporate purposes.

At this time, we are updating our property disposition guidance for full-year 2022 to be in the range of approximately $200 million to $300 million in aggregate gross proceeds compared to our previously estimated range of $250 million to $350 million. However, this disposition guidance is subject to change for a variety of reasons, including economic conditions, office market conditions and geopolitical events. We will update our disposition guidance quarterly in our earnings releases.

We look forward to the balance of 2022 and beyond with anticipation and optimism."

Financial Highlights

  • GAAP net loss was $9.1 million and $13.3 million, or $0.09 and $0.13 per basic and diluted share for the three and six months ended June 30, 2022, respectively.

  • Funds From Operations (FFO) was $10.3 million and $21.8 million, or $0.10 and $0.21 per basic and diluted share for the three and six months ended June 30, 2022, respectively.

  • Adjusted Funds From Operations (AFFO) was a loss of $0.04 and $0.03 per basic and diluted share for the three and six months ended June 30, 2022, respectively.

Leasing Highlights

  • During the six months ended June 30, 2022, we leased approximately 276,000 square feet, including 171,000 square feet of new leases.

  • Our directly owned real estate portfolio of 24 owned properties totaling approximately 6.9 million square feet, was approximately 76.3% leased as of June 30, 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 first half of 2022.

  • Lease expirations for 2022 and 2023 are approximately 127,000 and 383,000 square feet, representing approximately 1.8% and 5.5% of our owned portfolio, respectively.

  • The weighted average GAAP base rent per square foot achieved on leasing activity during the six months ended June 30, 2022 was $33.58, or 4.7% 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 in the six months ended June 30, 2022, was 6.9 years compared to 7.7 years for the year ended December 31, 2021. Overall the portfolio weighted average rent per occupied square foot was $30.48 as of June 30, 2022 compared to $30.60 as of December 31, 2021.

  • Subsequent to quarter end, we are currently tracking approximately 600,000 square feet of new prospective tenants, including approximately 400,000 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

  • Disposition guidance for full-year 2022 was updated to be in the range of approximately $200 million to $300 million in aggregate gross proceeds.

  • Subject to market conditions and satisfactory outcomes on prospective transactions, we anticipate dispositions to occur during the third and/or fourth quarters of 2022 and will provide updates as appropriate.

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

  • Potential disposition candidates include: 380 and 390 Interlocken in Broomfield, Colorado; Eldridge Green and Park Ten in Houston, Texas; 909 Davis in Evanston, Illinois; Pershing Park in Atlanta, Georgia; and Blue Lagoon in Miami, Florida.

Stock Repurchases

  • During the first quarter of 2022, we repurchased approximately 847,000 shares of our common stock for approximately $4.8 million pursuant to our previously announced stock repurchase plan. We did not repurchase any shares of our common stock during the second quarter of 2022.

  • Up to approximately $26.9 million remains authorized for potential future repurchases of our common stock pursuant to our previously announced stock repurchase plan.

Dividends

  • In light of the gains achieved on our dispositions in 2021, on December 3, 2021, we announced that our Board of Directors declared a special dividend of $0.32 per share, which was paid on January 12, 2022 to shareholders of record on December 31, 2021, in order to meet REIT requirements.

  • On July 5, 2022, we adopted a variable quarterly dividend policy, which replaced our previous regular quarterly dividend policy. Under the new variable quarterly dividend policy, the Board of Directors will determine quarterly dividends based upon a variety of factors, including the Company’s estimates of its annual taxable income and the amount that the Company is required to distribute annually in the aggregate to enable the Company to continue to qualify as a real estate investment trust for federal income tax purposes.

  • On July 5, 2022, we announced that our Board of Directors declared a quarterly cash dividend for the three months ended June 30, 2022 of $0.01 per share of common stock pursuant to our variable quarterly dividend policy that will be paid on August 11, 2022 to stockholders of record on July 19, 2022.

  • If we are able to dispose of properties in 2022 at anticipated pricing levels, we may be required to again declare a special dividend in 2022 in addition to any regular quarterly dividends in order to meet REIT requirements.

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.

2022 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. We are updating our previously announced disposition guidance for full-year 2022 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 2022 are estimated to result in aggregate gross proceeds in the range of approximately $200 million to $300 million. We intend to use the proceeds of any future dispositions for debt reduction, repurchases of our stock, dividends under our variable quarterly dividend policy and 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. Our disposition guidance is subject to change for a variety of reasons, including economic conditions, office market conditions and geopolitical events. 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 June 30, 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 August 3, 2022 at 11:00 a.m. (ET) to discuss the second quarter 2022 results. To access the call, please dial 1-844-200-6205 and use access code 703841. Internationally, the call may be accessed by dialing 1-929-526-1599 and using access code 703841. 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 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, 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, 2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, 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

Six Months Ended

June 30,

June 30,

(in thousands, except per share amounts)

2022

2021

2022

2021

Revenue:

Rental

$

40,831

$

55,722

$

82,628

$

114,345

Related party revenue:

Management fees and interest income from loans

467

417

927

827

Other

6

6

13

12

Total revenue

41,304

56,145

83,568

115,184

Expenses:

Real estate operating expenses

12,344

15,352

25,178

31,291

Real estate taxes and insurance

9,043

11,895

17,762

24,261

Depreciation and amortization

18,186

19,136

33,856

43,517

General and administrative

3,981

3,962

7,765

8,108

Interest

5,664

10,054

11,030

18,654

Total expenses

49,218

60,399

95,591

125,831

Loss on extinguishment of debt

(167

)

(167

)

Impairment and loan loss reserve

(1,140

)

(1,140

)

Gain on sale of properties, net

20,626

20,626

Income (loss) before taxes

(9,054

)

16,205

(13,163

)

9,812

Tax expense

56

56

105

123

Net income (loss)

$

(9,110

)

$

16,149

$

(13,268

)

$

9,689

Weighted average number of shares outstanding, basic and diluted

103,193

107,359

103,441

107,344

Net income (loss) per share, basic and diluted

$

(0.09

)

$

0.15

$

(0.13

)

$

0.09

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)

2022

2021

Assets:

Real estate assets:

Land

$

146,844

$

146,844

Buildings and improvements

1,477,913

1,457,209

Fixtures and equipment

12,192

11,404

1,636,949

1,615,457

Less accumulated depreciation

450,792

424,487

Real estate assets, net

1,186,157

1,190,970

Acquired real estate leases, less accumulated amortization of $18,956 and $40,423, respectively

12,373

14,934

Cash, cash equivalents and restricted cash

4,693

40,751

Tenant rent receivables

2,627

1,954

Straight-line rent receivable

54,354

49,024

Prepaid expenses and other assets

6,863

4,031

Related party mortgage loan receivable, less allowance for credit loss of $1,140 and $0, respectively

22,860

24,000

Other assets: derivative asset

1,951

Office computers and furniture, net of accumulated depreciation of $1,082 and $1,198, respectively

187

198

Deferred leasing commissions, net of accumulated amortization of $21,840 and $21,099, respectively

39,654

38,311

Total assets

$

1,331,719

$

1,364,173

Liabilities and Stockholders’ Equity:

Liabilities:

Bank note payable

$

55,000

$

Term loans payable, less unamortized financing costs of $482 and $714, respectively

274,518

274,286

Series A & Series B Senior Notes, less unamortized financing costs of $576 and $658, respectively

199,424

199,342

Accounts payable and accrued expenses

39,315

89,493

Accrued compensation

2,252

4,704

Tenant security deposits

5,819

6,219

Lease liability

962

1,159

Other liabilities: derivative liabilities

5,239

Acquired unfavorable real estate leases, less accumulated amortization of $634 and $2,285, respectively

397

528

Total liabilities

577,687

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

...