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Franklin Street Properties Corp. Announces Fourth Quarter / Annual 2019 Results and 2020 Guidance

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 year ended December 31, 2019.

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

"Leasing activity for full-year 2019 continued its strong pace of the previous year and as we begin 2020, prospective new tenant interest at our 32 operating and 3 redevelopment properties has never been stronger. Our goal is for 2020, the third year of a large lease roll period in our portfolio that began in 2018, to conclude by ushering in a solid long-term change in earnings trajectory that realizes the inherent value-add characteristics of our properties and their locations. Over the past two years, much of our leasing activity has been focused on renewing or backfilling existing tenant lease rollover space. In 2020, we will seek to achieve meaningful net new tenant absorption, with the objective of potentially increasing occupancies and rental rates for many years to come. The longer term value-add proposition that was such an integral part of the strategy of recasting our property portfolio over the last ten years is, we believe, finally at an inflection point. While 2020 will be the final year of our very large three-year leasing effort, it will also have its challenges as well as opportunities. We are well equipped to handle and take advantage of both, with over $600 million of available liquidity as of December 31, 2019, we are confident that we have the financial resources needed for flexibility on our balance sheet and to maximize our leasing and redevelopment value-add opportunities."

Highlights

  • Net Income was $3.6 million and $6.5 million, or $0.03 and $0.06 per basic and diluted share, for the fourth quarter and year ended December 31, 2019, respectively. FFO was $26.8 million and $97.5 million, or $0.25 and $0.91 per basic and diluted share, for the fourth quarter and year ended December 31, 2019, respectively.
  • Adjusted Funds From Operations (AFFO) was $0.01 and $0.19 per basic and diluted share for the fourth quarter and year ended December 31, 2019, respectively.
  • During 2019, we reduced total debt outstanding by $25 million to $970 million and have $600 million available on our line of credit at December 31, 2019.

Leasing Update

  • Our directly owned real estate portfolio of 32 operating properties (excluding 3 redevelopment properties) totaling approximately 9.5 million square feet was approximately 87.6% leased as of December 31, 2019 compared to approximately 89.0% leased as of December 31, 2018.
  • During the quarter ended December 31, 2019, we leased approximately 278,000 square feet, of which approximately 90,000 square feet was with new tenants. During the year ended December 31, 2019, we leased approximately 1,417,000 square feet, of which approximately 534,000 square feet was with new tenants.
  • There are currently approximately 400,000 square feet of new prospective tenants that have toured and short-listed FSP assets in multiple markets.
  • Jones Day (approximately 140,000 square feet at Pershing Park Plaza in Atlanta) exercised an option to extend for six months. The Jones Day lease is now scheduled to expire on May 31, 2021.
  • Somerset CPAs (approximately 70,000 square feet at River Crossing in Indianapolis) expanded and renewed for ten years. The Somerset lease is now scheduled to expire on October 31, 2032.
  • The weighted average GAAP base rent per square foot achieved on leasing activity during the year ended December 31, 2019 was $31.78 compared to $31.02 in 2018 and the average lease term on leases in 2019 lengthened to 8.3 years compared to 7.2 years in 2018. Overall the portfolio weighted average rent per occupied square foot increased from $29.01 as of December 31, 2018 to $29.88 as of December 31, 2019.

Dividend Update

On January 10, 2020, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended December 31, 2019 of $0.09 per share of common stock that will be paid on February 13, 2020 to stockholders of record on January 24, 2020.

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.

Real Estate Update

Supplementary schedules provide property information for the Company’s owned and managed real estate portfolio as of December 31, 2019. 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.

Net Income and FFO Guidance

We are introducing our full year net income (loss) guidance for 2020 which is estimated to be in the range of approximately $(0.03) to $0.03 per basic and diluted share, and are introducing net loss guidance for the first quarter of 2020, which is estimated to be in the range of approximately $(0.03) to $(0.01) per basic and diluted share. We are introducing our full year FFO guidance for 2020, which is estimated to be in the range of approximately $0.81 to $0.87 per basic and diluted share, and are introducing FFO guidance for the first quarter of 2020 which is estimated to be in the range of approximately $0.18 to $0.20 per basic and diluted share. This guidance (a) excludes the impact of future acquisitions, developments, dispositions, debt financings or repayments or other capital market transactions; (b) reflects estimates from our ongoing portfolio of properties, other real estate investments and general and administrative expenses; and (c) reflects our current expectations of economic conditions. We will update 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.

A reconciliation of the guidance for net income per share to the guidance for FFO per share is provided as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1 2020 Range

 

Full Year 2020 Range

 

 

Low

 

High

 

Low

 

High

Net income (loss) per share

 

$

 

(0.03

)

 

$

 

(0.01

)

 

$

(0.03

)

 

$

0.03

Depreciation & Amortization

 

 

0.21

 

 

 

0.21

 

 

 

0.84

 

 

 

0.84

Funds From Operations per share

 

$

 

0.18

 

 

$

 

0.20

 

 

$

0.81

 

 

$

0.87

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 12, 2020 at 10:00 a.m. (ET) to discuss the fourth quarter 2019 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 our ability to lease space in the future, expectations for earnings, FFO and net income in future periods, expectations for operating performance, value creation/enhancement in future periods, expectations for growth and leasing activities in future periods, expectations regarding the timing, leasing and economic results of our redevelopment properties 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, economic conditions in the United States, including the level of 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, 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 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, 2019, 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 Income (Loss)

I

 

 

Franklin Street Properties Corp. Financial Results
Supplementary Schedule A
Condensed Consolidated Income Statements
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the
Three Months Ended
December 31,

 

For the
Year Ended
December 31,

(in thousands, except per share amounts)

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Rental

 

$

68,575

 

$

65,304

 

$

265,527

 

$

263,777

Related party revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Management fees and interest income from loans

 

 

417

 

 

1,268

 

 

3,517

 

 

5,061

Other

 

 

5

 

 

6

 

 

21

 

 

32

Total revenue

 

 

68,997

 

 

66,578

 

 

269,065

 

 

268,870

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating expenses

 

 

19,428

 

 

18,652

 

 

72,311

 

 

70,703

Real estate taxes and insurance

 

 

10,463

 

 

10,737

 

 

47,871

 

 

45,857

Depreciation and amortization

 

 

22,996

 

 

23,327

 

 

90,909

 

 

94,230

General and administrative

 

 

3,376

 

 

3,162

 

 

14,473

 

 

13,070

Interest

 

 

8,982

 

 

9,200

 

 

36,757

 

 

38,374

Total expenses

 

 

65,245

 

 

65,078

 

 

262,321

 

 

262,234

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes on income and equity in income of non-consolidated REITs

 

 

3,752

 

 

1,500

 

 

6,744

 

 

6,636

Tax expense on income

 

 

104

 

 

129

 

 

269

 

 

360

Equity in income of non-consolidated REITs

 

 

 

 

 

 

 

 

6,793

Net income

 

$

3,648

 

$

1,371

 

$

6,475

 

$

13,069

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, basic and diluted

 

 

107,240

 

 

107,231

 

 

107,233

 

 

107,231

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share, basic and diluted

 

$

0.03

 

$

0.01

 

$

0.06

 

$

0.12

 

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)

    

2019

    

2018

 

Assets:

 

 

 

 

 

 

 

Real estate assets:

 

 

 

 

 

 

 

Land

 

$

 191,578

 

$

 191,578

 

Buildings and improvements

 

 

 1,924,664

 

 

 1,857,935

 

Fixtures and equipment

 

 

 11,665

 

 

 8,839

 

 

 

 

 2,127,907

 

 

 2,058,352

 

Less accumulated depreciation

 

 

 490,697

 

 

 432,579

 

Real estate assets, net

 

 

 1,637,210

 

 

 1,625,773

 

Acquired real estate leases, less accumulated amortization of $60,749 and $101,897, respectively

 

 

 40,704

 

 

 59,595

 

Cash, cash equivalents and restricted cash

 

 

 9,790

 

 

 11,177

 

Tenant rent receivables

 

 

 3,851

 

 

 3,938

 

Straight-line rent receivable

 

 

 66,881

 

 

 54,006

 

Prepaid expenses and other assets

 

 

 7,246

 

 

 10,400

 

Related party mortgage loan receivables

 

 

 21,000

 

 

 70,660

 

Other assets: derivative asset

 

 

 3,022

 

 

 14,765

 

Office computers and furniture, net of accumulated depreciation of $1,362 and $1,512, respectively

 

 

 183

 

 

 197

 

Deferred leasing commissions, net of accumulated amortization of $28,114 and $24,318, respectively

 

 

 52,767

 

 

 47,591

 

Total assets

 

$

 1,842,654

 

$

 1,898,102

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Bank note payable

 

$

 —

 

$

 25,000

 

Term loans payable, less unamortized financing costs of $4,267 and $5,722, respectively

 

 

 765,733

 

 

 764,278

 

Series A & Series B Senior Notes, less unamortized financing costs of $985 and $1,150, respectively

 

 

 199,015

 

 

 198,850

 

Accounts payable and accrued expenses

 

 

 66,658

 

 

 59,183

 

Accrued compensation

 

 

 3,400

 

 

 3,043

 

Tenant security deposits

 

 

 9,346

 

 

 6,319

 

Lease liability

 

 

 1,890

 

 

 —

 

Other liabilities: derivative liabilities

 

 

 7,704

 

 

 —

 

Acquired unfavorable real estate leases, less accumulated amortization of $4,676 and $6,605, respectively

 

 

 2,512

 

 

 3,795

 

Total liabilities

 

 

 1,056,258

 

 

 1,060,468

 

 

 

 

 

 

 

 

 

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, 107,269,201 and 107,231,155 shares issued and outstanding, respectively

 

 

 11

 

 

 11

 

Additional paid-in capital

 

 

 1,356,794

 

 

 1,356,457

 

Accumulated other comprehensive income (loss)

 

 

 (4,682)

 

 

 14,765

 

Accumulated distributions in excess of accumulated earnings

 

 

 (565,727)

 

 

 (533,599)

 

Total stockholders’ equity

 

 

 786,396

 

 

 837,634

 

Total liabilities and stockholders’ equity

 

$

 1,842,654

 

$

 1,898,102

 

 

 

 

 

 

 

 

 

Franklin Street Properties Corp. Financial Results
Supplementary Schedule C
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 

 

 

 

 

 

 

For the
Year Ended
December 31,

(in thousands)

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

Net income

 

$

6,475

 

 

$

13,069

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization expense

 

 

93,787

 

 

 

97,171

 

Amortization of above and below market leases

 

 

(402

)

 

 

(556

)

Shares issued as compensation

 

 

337

 

 

 

 

Equity in income of non-consolidated REITs

 

 

 

 

 

(6,793

)

Decrease in allowance for doubtful accounts

and write-off of accounts receivable

 

 

(71

)

 

 

(50

)

Changes in operating assets and liabilities:

 

 

 

 

Tenant rent receivables

 

 

158

 

 

 

(765

)

Straight-line rents

 

 

(8,876

)

 

 

381

 

Lease acquisition costs

 

 

(3,999

)

 

 

(1,193

)

Prepaid expenses and other assets

 

 

2,313

 

 

 

(1,940

)

Accounts payable and accrued expenses

 

 

3,910

 

 

 

(4,077

)

Accrued compensation

 

 

357

 

 

 

(598

)

Tenant security deposits

 

 

3,027

 

 

 

936

 

Payment of deferred leasing commissions

 

 

(15,101

)

 

 

(15,383

)

Net cash provided by operating activities

 

 

81,915

 

 

 

80,202

 

Cash flows from investing activities:

 

 

 

 

Property improvements, fixtures and equipment

 

 

(70,746

)

 

 

(51,057

)

Investment in non-consolidated REITs

 

 

 

 

 

74,931

 

Distributions in excess of earnings from non-consolidated REITs

 

 

 

 

 

710

 

Repayment of related party mortgage loan receivable

 

 

(2,400

)

 

 

 

Investment in related party mortgage loan receivable

 

 

52,060

 

 

 

1,060

 

Proceeds received from liquidating trust

 

 

1,470

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(19,616

)

 

 

25,644

 

Cash flows from financing activities:

 

 

 

 

Distributions to stockholders

 

 

(38,603

)

 

 

(49,326

)

Borrowings under bank note payable

 

 

45,000

 

 

 

38,000

 

Repayments of bank note payable

 

 

(70,000

)

 

 

(91,000

)

Deferred financing costs

 

 

(83

)

 

 

(2,162

)

Net cash used in financing activities

 

 

(63,686

)

 

 

(104,488

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(1,387

)

 

 

1,358

 

Cash, cash equivalents and restricted cash, beginning of year

 

 

11,177

 

 

 

9,819

 

Cash, cash equivalents and restricted cash, end of period

 

$

9,790

 

 

$

11,177

 

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule D
Real Estate Portfolio Summary Information
(Unaudited & Approximated)

 

 

 

 

 

Commercial portfolio lease expirations (1)

 

 

 

 

Year

 

Total
Square Feet

 

% of
Portfolio

2020

 

761,756

 

7.7

%

2021

 

799,020

 

8.1

%

2022

 

1,182,547

 

11.9

%

2023

 

650,569

 

6.6

%

2024

 

875,989

 

8.8

%

Thereafter (2)

 

5,639,968

 

56.9

%

 

 

9,909,849

 

100.0

%

 

(1) Percentages are determined based upon total square footage.
(2) Includes 1,174,774 square feet of vacancies at our operating properties and 201,388 square feet of vacancies at our redevelopment properties as of December 31, 2019. We define redevelopment properties as properties being developed, redeveloped or where development/redevelopment is complete but that are not yet stabilized.

 

 

 

 

 

 

 

 

 

 

 

(dollars & square feet in 000's)

 

As of December 31, 2019 (a)

State

 

# of
Properties

 

Investment

 

% of
Portfolio

 

Square
Feet

 

% of
Portfolio

 

 

 

 

 

 

 

 

 

 

 

Colorado

 

6

 

$

550,821

 

33.6

%

 

2,620

 

26.4

%

Texas

 

9

 

 

347,170

 

21.2

%

 

2,420

 

24.4

%

Georgia

 

5

 

 

321,099

 

19.6

%

 

1,967

 

19.9

%

Minnesota

 

3

 

 

120,389

 

7.3

%

 

754

 

7.6

%

Virginia

 

4

 

 

81,735

 

5.0

%

 

685

 

6.9

%

North Carolina

 

2

 

 

50,655

 

3.1

%

 

322

 

3.2

%

Missouri

 

2

 

 

45,093

 

2.8

%

 

352

 

3.5

%

Illinois

 

2

 

 

47,728

 

2.9

%

 

372

 

3.8

%

Florida

 

1

 

 

43,806

 

2.7

%

 

213

 

2.2

%

Indiana

 

1

 

 

28,714

 

1.8

%

 

205

 

2.1

%

Total

 

35

 

$

1,637,210

 

100.0

%

 

9,910

 

100.0

%

(a) Includes investment in our redevelopment properties. We define redevelopment properties as properties being developed, redeveloped or where complete, but that are not yet stabilized.

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 Ended

 

 

31-Mar-19

 

30-Jun-19

 

30-Sep-19

 

31-Dec-19

 

31-Dec-19

Tenant improvements

 

$

8,318

 

$

10,169

 

$

7,890

 

$

15,874

 

$

42,251

Deferred leasing costs

 

 

4,239

 

 

3,666

 

 

1,286

 

 

3,164

 

 

12,355

Non-investment capex

 

 

2,413

 

 

4,049

 

 

3,968

 

 

6,304

 

 

16,734

 

 

$

14,970

 

$

17,884

 

$

13,144

 

$

25,342

 

$

71,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

Year Ended

 

 

31-Mar-18

 

30-Jun-18

 

30-Sep-18

 

31-Dec-18

 

31-Dec-18

Tenant improvements

 

$

6,777

 

$

8,212

 

$

7,084

 

$

6,895

 

$

28,968

Deferred leasing costs

 

 

1,021

 

 

5,314

 

 

4,394

 

 

3,746

 

 

14,475

Non-investment capex

 

 

1,858

 

 

2,558

 

 

2,328

 

 

3,342

 

 

10,086

 

 

$

9,656

 

$

16,084

 

$

13,806

 

$

13,983

 

$

53,529

 

 

 

 

 

Square foot & leased percentages

 

December 31,
2019

 

December 31,
2018

Operating Properties (a):

 

 

 

 

Number of properties

 

32

 

 

32

 

Square feet

 

9,504,634

 

 

9,486,650

 

Leased percentage

 

87.6

%

 

89.0

%

 

 

 

 

 

Redevelopment Properties:

 

 

 

 

Number of properties

 

3

 

 

3

 

Square feet

 

405,215

 

 

404,652

 

Leased percentage

 

50.3

%

 

27.2

%

 

 

 

 

 

Managed Properties - Single Asset REITs (SARs):

 

 

 

 

Number of properties

 

2

 

 

3

 

Square feet

 

348,545

 

 

674,342

 

 

 

 

 

 

Total Operating, Redevelopment and Managed Properties:

 

 

 

 

Number of properties

 

37

 

 

38

 

Square feet

 

10,258,394

 

 

10,565,644

 

(a) Excludes investment in our redevelopment properties. We define redevelopment properties as properties being developed, redeveloped or where development/redevelopment is complete but that are not yet stabilized.

...

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule F
Percentage of Leased Space
(Unaudited & Estimated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property Name

 

Location

 

Square Feet

 

% Leased (1)
as of
30-Sep-19

 

Third
Quarter
Average %
Leased (2)

 

% Leased (1)
as of
31-Dec-19

 

Fourth
Quarter
Average %
Leased (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

MEADOW POINT

 

Chantilly, VA

 

138,537

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

2

 

TIMBERLAKE

 

Chesterfield, MO

 

234,496

 

95.7

%

 

95.7

%

 

95.7

%

 

95.7

%

3

 

TIMBERLAKE EAST

 

Chesterfield, MO

 

117,036

 

100.0