Franklin Street Properties Corp. Announces Fourth Quarter and Full Year 2021 Results

Strong Execution on 2021 Strategy to Reduce Debt and Lease Space 

$0.75 and $0.87 GAAP Net Income Per Share for the three months and year ended December 31, 2021

$0.10 and $0.55 Funds From Operations (FFO) Per Share for the three months and year ended December 31, 2021

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, 2021.

Significant Debt Reduction and New Revolving Line of Credit Improve Balance Sheet Flexibility for Future Growth Opportunities

• Between September 30, 2020 and December 31, 2021, we reduced total indebtedness by approximately 53%, from approximately $1.0 billion to approximately $475 million.

• During 2021, we repaid approximately $508 million of indebtedness.

• During the three months ended December 31, 2021, we repaid approximately $215 million of indebtedness.

• On January 10, 2022, we entered into a new revolving line of credit for borrowings, at our election, of up to $217.5 million, which may be borrowed, repaid and reborrowed until the maturity date on January 12, 2024. On February 10, 2022, the Company increased its new revolving line of credit availability by $20.0 million to $237.5 million as part of an accordion feature that is available to increase borrowing capacity up to an amount not exceeding $750 million in the aggregate. Effective simultaneously with the closing of the new revolving line of credit on January 10, 2022, the Company terminated its former revolving line of credit that would have matured by its own terms on January 12, 2022.

Strong Execution on our 2021 Property Disposition Strategy

• During 2021, we sold ten properties for aggregate gross disposition proceeds of approximately $603 million and an aggregate, weighted-average, in-place, capitalization rate (on both a GAAP and cash basis) of approximately 5.5%.

• On October 22, 2021, we sold 999 Peachtree in Atlanta, Georgia for $223.9 million in gross proceeds and recorded a gain of approximately $86.8 million. On November 16, 2021, we sold two office properties in Chantilly, Virginia for $40 million in gross proceeds and recorded a loss of approximately $2.9 million.

• Aggregate pricing achieved on our dispositions in 2021 exceeded 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.

2022 Property Disposition Strategy

• We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying assets and intend to continue our current strategy of seeking to increase shareholder value through the sale of select properties where we believe that short to intermediate term valuation potential has been reached.

• We are maintaining our previously announced disposition guidance for full-year 2022 to be in the range of approximately $250 million to $350 million in aggregate gross proceeds.

• 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.

Leasing Progress and Continuing Portfolio Upside Leasing Potential

• Leased approximately 143,000 square feet during the three months ended December 31, 2021, including approximately 100,000 square feet with new tenants.

• Subsequent to quarter end, on January 14, 2022, we signed a lease with a new tenant for approximately 53,000 square feet at our Blue Lagoon property in Miami, Florida. With this lease, our Blue Lagoon property is now approximately 98.5% leased.

• The weighted average GAAP base rent per square foot achieved on leasing activity during the year ended December 31, 2021 was $30.86, or 2.5% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2020.

• 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 third and fourth quarter of 2021, we repurchased approximately 3.4 million shares of our common stock for approximately $18.2 million pursuant to our previously announced stock repurchase plan.

• The cost of shares repurchased during the third and fourth quarter of 2021 represents approximately 3.0% of the approximately $603 million in aggregate gross disposition proceeds received in 2021.

• Up to approximately $31.8 million remains for potential future repurchases of our common stock pursuant to our previously announced stock repurchase plan.

Paid 2021 Special Dividend and Potential 2022 Special Dividend

• 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.

• If we are able to dispose of properties in 2022 at anticipated pricing levels, we may be required to declare a special dividend in 2022 in addition to any regular quarterly dividends 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. 2021 highlights include the sale of 999 Peachtree on October 22, 2021 for $223.9 million and a recorded gain of approximately $86.8 million, the lease of approximately 100,000 square feet with a new tenant at Pershing Park, and a lease renewal for approximately 250,000 square feet at Eldridge Green. As of December 31, 2021, we have sold ten properties in 2021 for aggregate gross proceeds of approximately $603 million and an aggregate, weighted-average, in-place capitalization rate (on both a GAAP and cash basis) of approximately 5.5%. Between September 30, 2020 and December 31, 2021, we reduced our total indebtedness by approximately 53%, from approximately $1.0 billion to approximately $475 million.

We remain encouraged by the strong level of demand that our real estate assets have received in the market from a diverse pool of potential buyers. Aggregate pricing on the properties sold 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. Accordingly, we are maintaining our previously announced disposition guidance for full-year 2022 to be in the range of approximately $250 million to $350 million in aggregate gross proceeds.

Importantly, we believe that our continuing portfolio of real estate is well located primarily in the U.S. 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 continue to believe that the pricing achieved on our dispositions in 2021, which 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 current strategy of seeking to increase shareholder value through the sale of select properties where we believe that short to intermediate term valuation potential has been reached. 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 $78.6 million, or $0.75 per share, and $92.7 million, or $0.87 per share for the three months ended and year ended December 31, 2021, respectively.
• Funds From Operations (FFO) was $11.0 million, or $0.10 per basic and diluted share, and $58.5 million or $0.55 per share for the three months ended and year ended December 31, 2021, respectively.
• Adjusted Funds From Operations (AFFO) was $0.03 and $0.16 per basic and diluted share for the three months ended and year ended December 31, 2021.
• During the three months ended December 31, 2021, we repaid approximately $215 million of indebtedness. As of December 31, 2021, our total debt outstanding was approximately $475 million.

Leasing Highlights

• During the three months ended December 31, 2021, we leased approximately 143,000 square feet, including 100,000 square feet of new leases.
• During the year ended December 31, 2021, we leased approximately 1,035,000 square feet, of which approximately 665,000 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 24 owned properties totaling approximately 6.9 million square feet, was approximately 78.4% leased as of December 31, 2021, compared to approximately 85.0% leased as of December 31, 2020. The decrease in the leased percentage is primarily a result of the impact of asset sales.
• Subsequent to quarter end, on January 14, 2022, we signed a lease with a new tenant for approximately 53,000 square feet at our Blue Lagoon property in Miami, Florida. With this lease, our Blue Lagoon property is now approximately 98.5% leased.
• Lease expirations for 2022 are approximately 503,000 square feet, representing approximately 7.3% of our owned portfolio.
• The weighted average GAAP base rent per square foot achieved on leasing activity during the year ended December 31, 2021 was $30.86, or 2.5% 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 year ended December 31, 2021, was 7.7 years compared to 8.3 years for the year ended December 31, 2020. Overall the portfolio weighted average rent per occupied square foot was $30.60 as of December 31, 2021 compared to $29.60 as of December 31, 2020, representing an increase of approximately 3.4%.

Investment Highlights

• Completed dispositions for aggregate gross proceeds of approximately $603 million in 2021, which translates into an aggregate, weighted-average, in-place, capitalization rate (on both a GAAP and cash basis) of approximately 5.5%. Completed dispositions met the high end of the range of our disposition guidance for 2021.
• Disposition guidance for full-year 2022 continues to be in the range of approximately $250 million to $350 million in aggregate gross proceeds.
• 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.
• On October 22, 2021, we sold our 999 Peachtree property in Atlanta, Georgia for gross proceeds of approximately $223.9 million, which represented a gain of approximately $86.8 Million.
• On November 16, 2021, we sold two office properties in Chantilly, Virginia for an aggregate sales price of $40 million and recorded a loss on the sales of approximately $2.9 million.
• Current and potential disposition properties that are in price discovery include: 380 and 390 Interlocken in Broomfield, Colorado; Eldridge Green and Park Ten in Houston, Texas; and 909 Davis in Evanston, Illinois.

Dividend Update

On January 14, 2022, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended December 31, 2021 of $0.09 per share of common stock that will be paid on February 17, 2022 to stockholders of record on January 28, 2022.

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. However, we are maintaining 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 $250 million to $350 million. 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 December 31, 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 February 16, 2022 at 11:00 a.m. (ET) to discuss the fourth quarter 2021 results. To access the call, please dial 1-844-200-6205 and use access code 991098. Internationally, the call may be accessed by dialing 1-929-526-1599 and using access code 991098. 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, 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.

A reconciliation of Net income to FFO and AFFO is shown below and a definition of FFO and AFFO is provided on Supplementary Schedule I. Management believes FFO and AFFO are used broadly throughout the real estate investment trust (REIT) industry as measurements of performance. The Company has included the National Association of Real Estate Investment Trusts (NAREIT) FFO definition as of May 17, 2016 in the table and notes that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently. The Company’s computation of FFO and AFFO may not be comparable to FFO or AFFO reported by other REITs or real estate companies that define FFO or AFFO differently.

Funds From Operations (“FFO”)

The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, hedge ineffectiveness, acquisition costs of newly acquired properties that are not capitalized and lease acquisition costs that are not capitalized plus depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges on mortgage loans, properties or investments in non-consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs.

FFO should not be considered as an alternative to net income or loss (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs.

Other real estate companies and the National Association of Real Estate Investment Trusts, or NAREIT, may define this term in a different manner. We have included the NAREIT FFO as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do.

We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be examined in connection with net income or loss and cash flows from operating, investing and financing activities in the consolidated financial statements.

Adjusted Funds From Operations (“AFFO”)

The Company also evaluates performance based on Adjusted Funds From Operations, which we refer to as AFFO. The Company defines AFFO as (1) FFO, (2) excluding loss on extinguishment of debt that is non-cash, (3) excluding our proportionate share of FFO and including distributions received, from non-consolidated REITs, (4) excluding the effect of straight-line rent, (5) plus the amortization of deferred financing costs, (6) plus the value of shares issued as compensation and (7) less recurring capital expenditures that are generally for maintenance of properties, which we call non-investment capex or are second generation capital expenditures. Second generation costs include re-tenanting space after a tenant vacates, which include tenant improvements and leasing commissions.

We exclude development/redevelopment activities, capital expenditures planned at acquisition and costs to reposition a property. We also exclude first generation leasing costs, which are generally to fill vacant space in properties we acquire or were planned for at acquisition.

AFFO should not be considered as an alternative to net income or loss (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs. Other real estate companies may define this term in a different manner. We believe that in order to facilitate a clear understanding of the results of the Company, AFFO should be examined in connection with net income or loss and cash flows from operating, investing and financing activities in the consolidated financial statements.

Net Operating Income (“NOI”)

The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on extinguishment of debt, gains or losses on the sale of assets and excludes non-property specific income and expenses. The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Sequential Same Store. The comparative Sequential Same Store results include properties held for the periods presented and exclude our redevelopment properties. We also exclude properties that have been placed in service, but that do not have operating activity for all periods presented, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions. The calculations of NOI and Sequential Same Store are shown in the following table: