8-K: Franklin Street Properties Corp. Announces Fourth Quarter and Full Year 2024 Results

Franklin Street Properties Corp. reports a GAAP net loss of $8.5 million for the fourth quarter of 2024 and leased approximately 252,000 square feet of office space.

Summary

• Franklin Street Properties Corp. (FSP) announced its financial results for the fourth quarter and full year ended December 31, 2024.
• During Q4 2024, FSP leased approximately 252,000 square feet of office space within its 4.8 million square foot directly-owned property portfolio.
• The company completed the sale of Pershing Park Plaza in Atlanta, Georgia, for a gross selling price of $34 million on October 23, 2024.
• Approximately $27.4 million of the net proceeds from the Pershing Park Plaza disposition were used to repay debt on October 25, 2024.
• As of December 31, 2024, the total indebtedness was approximately $250.3 million, equivalent to approximately $52 per square foot on the remaining 4.8 million square foot directly-owned property portfolio.
• GAAP net loss was $8.5 million and $52.7 million, or $0.08 and $0.51 per basic and diluted share for the three and twelve months ended December 31, 2024, respectively.
• Funds From Operations (FFO) was $2.7 million and $13.3 million, or $0.03 and $0.13 per basic and diluted share, for the three and twelve months ended December 31, 2024, respectively.
• During the twelve months ended December 31, 2024, FSP leased approximately 616,000 square feet, including 171,000 square feet of new leases.
• The directly-owned real estate portfolio of 14 owned properties, totaling approximately 4.8 million square feet, was approximately 70.3% leased as of December 31, 2024, compared to approximately 74.0% leased as of December 31, 2023.
• The weighted average GAAP base rent per square foot achieved on leasing activity during the year ended December 31, 2024, was $30.06, or 8.2% higher than average rents in the respective properties for the year ended December 31, 2023.
• The average lease term on leases signed during the year ended December 31, 2024, was 6.3 years compared to 6.8 years during the year ended December 31, 2023.
• Overall, the portfolio weighted average rent per occupied square foot was $31.77 as of December 31, 2024, compared to $30.72 as of December 31, 2023.
• Since December of 2020, property dispositions have resulted in aggregate gross proceeds of approximately $1.1 billion and reflect an average sales price per square foot of approximately $211.
• Since December of 2020, FSP has used net proceeds from property dispositions to reduce total indebtedness by approximately 75%, from approximately $1.0 billion to approximately $250 million.
• On January 10, 2025, the Board of Directors declared a quarterly cash dividend of $0.01 per share of common stock, payable on February 13, 2025, to stockholders of record on January 24, 2025.
• As of January 1, 2023, FSP consolidated the operations of its Monument Circle sponsored REIT into its financial statements.
• FSP is continuing suspension of Net Income (Loss), FFO and property disposition guidance due primarily to economic conditions and uncertainty surrounding the timing and amount of proceeds received from property dispositions.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported net losses and decreased leased percentage, although debt reduction and increased rental rates provide some positive aspects.

Positives

• Weighted average GAAP base rent per square foot increased by 8.2% compared to the previous year.
• Property dispositions have generated significant gross proceeds since December 2020.
• Total indebtedness has been significantly reduced since December 2020.
• The company's real estate is primarily located in the Sunbelt and Mountain West geographic regions.
• The portfolio weighted average rent per occupied square foot was $31.77 as of December 31, 2024, compared to $30.72 as of December 31, 2023.

Negatives

• GAAP net loss was $8.5 million for Q4 2024 and $52.7 million for the full year.
• The portfolio's leased percentage decreased from 74.0% to 70.3% year-over-year.
• The company has suspended Net Income (Loss), FFO and property disposition guidance.

Risks

• Adverse changes in general economic or local market conditions could negatively affect the markets in which FSP and its tenants operate.
• Inflation rates, interest rates, and disruptions in the debt markets could impact financial performance.
• A lessening of demand for the types of real estate owned by FSP poses a risk.
• Adverse changes in energy prices could negatively impact occupancy and rental rates in energy-influenced markets.
• Changes in government regulations and regulatory uncertainty could create challenges.
• Uncertainty about governmental fiscal policy and expenditures that cannot be anticipated could impact financial results.
• Delays in construction schedules and unanticipated increases in construction costs are potential risks.
• Unanticipated repairs, additional staffing, insurance increases, and real estate tax valuation reassessments could increase expenses.

Future Outlook

Due to economic conditions and uncertainty surrounding the timing and amount of proceeds received from property dispositions, the company is continuing suspension of Net Income (Loss), FFO and property disposition guidance.

Management Comments

• George J. Carter, Chairman and Chief Executive Officer, commented as follows: During the fourth quarter of 2024, we leased a total of approximately 252,000 square feet of office space within our approximately 4.8 million square foot directly-owned property portfolio.
• We continue to believe that the current price of our common stock does not accurately reflect the intrinsic value of our underlying real estate assets.
• We will continue to seek to increase shareholder value by pursuing the sale of select properties when we believe that short to intermediate term valuation potential has been reached.

Industry Context

The announcement reflects the challenges and strategies of REITs in the current economic climate, including property dispositions to reduce debt and focus on core assets. The emphasis on Sunbelt and Mountain West properties aligns with broader trends of population and economic growth in those regions.

Comparison to Industry Standards

• Comparing FSP's performance to other office REITs, Boston Properties (BXP) and Kilroy Realty (KRC) have shown varying degrees of success in maintaining occupancy and rental rates.
• BXP, focused on Class A office properties, has generally maintained higher occupancy rates but faces similar challenges in leasing and rent growth.
• KRC, with a West Coast focus, has seen stronger rent growth but also faces market-specific headwinds.
• FSP's strategy of selling properties to reduce debt mirrors actions taken by other REITs like SL Green Realty (SLG), which has been actively divesting assets to strengthen its balance sheet.
• The average sales price per square foot of $211 from FSP's dispositions is comparable to some transactions in secondary markets but lower than prices achieved in prime urban centers by REITs like Vornado Realty Trust (VNO).

Related Party Transactions

• As of January 1, 2023, Franklin Street Properties Corp. consolidated the operations of its Monument Circle sponsored REIT into its financial statements.

Stakeholder Impact

• Shareholders will receive a quarterly cash dividend of $0.01 per share.
• Employees may be affected by the company's ongoing property disposition strategy.
• Tenants may experience changes as the company focuses on infill and central business district office properties in the U.S. Sunbelt and Mountain West.
• Creditors are impacted by the company's debt reduction efforts.

Next Steps

• The company will continue to seek to increase shareholder value by pursuing the sale of select properties.
• The company will file an updated supplemental information package with the SEC and make it available on its website.
• A conference call is scheduled for February 12, 2025, to discuss the fourth quarter and full year 2024 results.

Key Dates