Franklin Street Properties Corp. Announces Fourth Quarter and Full Year 2023 Results

Franklin Street Properties Corp. (the "Company", "FSP", "we" or "our") (NYSE:FSP), a real estate investment trust (REIT), announced its results for the fourth quarter and year ended December 31, 2023.

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

"As the first quarter of 2024 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. We will seek to increase shareholder value by continuing to (1) pursue the sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) strive to increase occupancy through the leasing of vacant space. We intend to use proceeds from property dispositions primarily for debt reduction.

During the fourth quarter of 2023, we sold two office properties for aggregate gross proceeds of approximately $116 million. On October 26, 2023, we sold an office property located in Plano, Texas, known as One Legacy Circle, for gross proceeds of approximately $48 million. On December 6, 2023, we sold an office property located in Miami, Florida, known as Blue Lagoon, for gross proceeds of approximately $68 million. Subsequent to December 31, 2023, on January 26, 2024, we sold an office property located in Richardson, Texas, known as Collins Crossing, for gross proceeds of approximately $35 million. Collectively, these three dispositions resulted in aggregate gross proceeds of approximately $151 million. Since December 2020, our dispositions have resulted in aggregate gross proceeds of approximately $1 billion and reflect an average sales price per square foot of approximately $217.

As a result of our recent property dispositions and our ongoing operations, as of December 31, 2023, we had cash, or cash equivalents on our balance sheet of approximately $127.9 million. On February 21, 2024, we repaid approximately $102 million of our debt and entered into amendments of our outstanding debt facilities pursuant to which all of our debt now matures on April 1, 2026.

We look forward to the remainder of 2024 and beyond with anticipation and optimism."

Financial Highlights

• GAAP net income was $3.6 million and net loss of $48.1 million, or $0.03 and $(0.47) per basic and diluted share for the three and twelve months ended December 31, 2023, respectively.
• Funds From Operations (FFO) was $6.9 million and $30.0 million, or $0.07 and $0.29 per basic and diluted share, for the three and twelve months ended December 31, 2023, respectively.
• Subsequent to December 31, 2023, on February 21, 2024, we repaid approximately $102 million of debt. Immediately following the debt repayment and related transaction closing costs, including accrued interest, we had approximately $39.2 million in cash and cash equivalents on hand.
• Subsequent to December 31, 2023, on February 21, 2024, we entered into amendments to each our bank term loan, revolving line of credit agreement and Series A and Series B notes. As a result of these amendments, we changed the maturity date and repaid the principal amounts of each as set forth in the table below. In addition, the amendment to the revolving line of credit converted the revolving loan to a term loan. Additional information on the amendments is available in our Annual Report on Form 10-K for the year ended December 31, 2023.

*Revolving line of credit converted to a term loan

Leasing Highlights

• During the year ended December 31, 2023, we leased approximately 706,000 square feet, including 228,000 square feet of new leases.
• Our directly owned real estate portfolio of 17 owned properties, totaling approximately 5.6 million square feet, was approximately 74.0% leased as of December 31, 2023, compared to approximately 75.6% leased as of December 31, 2022. The decrease in the leased percentage is primarily a result of lease expirations and property dispositions, which was partially offset by leasing completed during the year ended December 31, 2023.
• The weighted average GAAP base rent per square foot achieved on leasing activity during the year ended December 31, 2023, was $29.71, or 7.4% higher than average rents in the respective properties for the year ended December 31, 2022. The average lease term on leases signed during the year ended December 31, 2023, was 6.8 years compared to 6.4 years during the year ended December 31, 2022. Overall, the portfolio weighted average rent per occupied square foot was $30.72 as of December 31, 2023, compared to $30.48 as of December 31, 2022.
• We are currently tracking more than 600,000 square feet of new prospective tenants, including approximately 300,000 square feet of prospective tenants that have identified our properties 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.

Investment Highlights

• We have primarily used asset sale disposition proceeds for debt reduction and remain committed to seeking to sell select properties during 2024 and continue using proceeds primarily for debt reduction.
• Since December 2020, our dispositions have resulted in aggregate gross proceeds of approximately $1 billion and reflect an average sales price per square foot of approximately $217.
• On October 26, 2023, we completed the sale of One Legacy in Plano, Texas for approximately $48 million in gross proceeds.
• On December 6, 2023, we completed the sale of Blue Lagoon in Miami, Florida for approximately $68 million in gross proceeds.
• Subsequent to December 31, 2023, on January 26, 2024, we completed the sale of Collins Crossing in Richardson, Texas for approximately $35 million in gross proceeds.

Dividends

• On January 12, 2024, we announced that our Board of Directors declared a quarterly cash dividend for the three months ended December 31, 2023, of $0.01 per share of common stock that was paid on February 15, 2024, to stockholders of record on January 26, 2024.

Consolidation of Sponsored REIT

As of January 1, 2023, we consolidated the operations of our Monument Circle sponsored REIT into our financial statements. On October 29, 2021, we agreed to amend and restate our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan. The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023 (and was further extended to September 30, 2023 on June 26, 2023), increased the aggregate principal amount of the loan from $21 million to $24 million, and included certain other modifications. On September 26, 2023, the maturity date was further extended to September 30, 2024. In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023. As a result of our obtaining this right to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023.

Additional information about the consolidation of Monument Circle can be found in Note 1, "Organization, Properties, Basis of Presentation, Financial Instruments, and Recent Accounting Standards – Variable Interest Entities (VIEs)" and Note 3, "Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans", in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Non-GAAP Financial Information

A reconciliation of Net income to FFO, Adjusted Funds From Operations (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.

2024 Net Income, FFO and Disposition Guidance

At this time, due primarily to economic conditions and uncertainty surrounding the timing and amount of proceeds received from property dispositions, we are continuing suspension of Net Income, FFO and property disposition guidance.

Real Estate Update

Supplementary schedules provide property information for the Company's owned and consolidated properties as of December 31, 2023. 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 27, 2024, at 11:00 a.m. (ET) to discuss the fourth quarter and full year 2023 results. To access the call, please dial 888-440-4368 and use conference ID 5398803. Internationally, the call may be accessed by dialing 646-960-0856 and using conference ID 5398803. 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 expectations for future potential leasing activity, expectations for future potential property dispositions, the payment of 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 long-term effects of the COVID-19 pandemic, wars, terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, inflation rates, 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, 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, 2023, which 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 Schedule H

Reconciliation and Definitions of Funds From Operations ("FFO") and

Adjusted Funds From Operations ("AFFO")

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.

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule I

Reconciliation and Definition of Sequential Same Store results to property Net Operating Income (NOI) and Net Income

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 all periods presented. We 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:

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