Franklin Street Properties Corp. Announces Q2 2020 Results

8/4/20

WAKEFIELD, Mass.--(BUSINESS WIRE)--Franklin Street Properties Corp. (NYSE American: FSP), a real estate investment trust (REIT), announced its results for the second quarter ended June 30, 2020.

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

“After a strong first quarter start to 2020, leasing activity hit the “pause button” in the second quarter at our 32 operating and 3 redevelopment properties. Prior to the emergence of the COVID-19 pandemic, we were confident that the company was well positioned for new tenant absorption, increasing occupancy levels and higher rental rates during 2020, allowing us the potential to start realizing the longer-term value-add property proposition that was such an integral part of the strategy of recasting our portfolio. However, in March 2020 the full weight of the COVID-19 pandemic and the consequent business shutdowns became apparent, negatively affecting both new leasing activity and rent collections for the second quarter.

Most leasing activity that was underway prior to March 2020, while slowed, has continued and we currently have approximately 200,000 square feet of active lease negotiations on-going and another approximately 300,000 square feet of leasing that is in earlier stages of active consideration by potential new tenants. Over the remainder of 2020, we have approximately 176,000 square feet of lease maturities and approximately 324,000 square feet of leases scheduled to commence. We expect continued, anticipated and planned for elevated levels of Capex in the coming quarters as we execute our value-add strategy at both our operating and redevelopment properties. Some of the Capex surrounding tenant space improvements for leasing done in 2019 and the first quarter of 2020 was pulled forward and funded during the second quarter of 2020. As a result of COVID-19 restrictions we had lower physical occupancy of space during the quarter, which enhanced the opportunity for more physical construction and reduced tenant employee disruption.

For the full second quarter of 2020 we collected approximately 98% of contracted rent and as of July 31, 2020 we have collected approximately 97% of July rents. However, at this time, we are not able to predict whether and to what extent our level of rental receipts may change in future months. Consequently, we are continuing suspension of Net Income and Funds From Operations (“FFO”) guidance and will not be providing additional guidance until such time as we have a better understanding of the duration of the COVID-19 pandemic and its impact on our business and the businesses of our tenants.

At this time, we believe the bulk of our tenants will be financially able to weather the COVID-19 pandemic and the inherent value of our property portfolio and our own financial resources and balance sheet flexibility will continue to see us through this difficult time. We believe that we will then be well positioned to resume the strong leasing activity that occurred in 2018, 2019 and the first quarter of 2020.”

Financial Highlights

  • Net loss was $2.1 million, or $0.02 per basic and diluted share, for the second quarter ended June 30, 2020.
  • FFO was $20.2 million, or $0.19 per basic and diluted share, for the second quarter ended June 30, 2020.
  • Adjusted Funds From Operations (AFFO) was $0.2 million or $0.00 per basic and diluted share for the second quarter ended June 30, 2020.
  • As of June 30, 2020, we had $570 million available on our revolving line of credit.
  • Our debt is entirely unsecured and we have no debt maturities until November of 2021.

COVID-19 Pandemic Update

FSP remains committed to the health and safety of its employees, tenants, vendors and visitors and will continue to implement recommended guidelines for social distancing and other safety protocols at our properties and corporate headquarters.

  • We have implemented working from home policies for FSP employees.
  • All of our properties remain open for business.
  • As of July 31, 2020, we had collected approximately 97% of rental receipts due in July 2020. Due to the high level of uncertainty related to the COVID-19 pandemic, we are unable to predict the level of rental receipts in future months.
  • During the past approximately 18 weeks, we have received rent relief requests from some of our tenants. The majority of these requests for relief have been in the form of potential rent deferrals for varying lengths of time. To date, we have been in discussions with tenants regarding potential rent deferrals representing approximately 1% to 2% of annualized rents. We will continue to review each request for rent relief on a case by case basis. Where prudent, we may grant deferrals and, in some instances, seek extended lease terms. We are unable to predict the outcomes of these ongoing negotiations, the amount of the rent relief packages, if any, and ultimate recovery of any deferred amounts.

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 84.5% leased as of June 30, 2020 compared to approximately 87.6% leased as of December 31, 2019.
  • During the quarter ended June 30, 2020, we leased approximately 44,000 square feet, of which approximately 22,000 square feet was with new tenants. During the six months ended June 30, 2020, we leased approximately 324,000 square feet, of which approximately 166,000 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.
  • Despite delays caused by COVID-19, we currently have approximately 500,000 square feet of prospective tenants representing potential net absorption, including approximately 200,000 square feet in active lease negotiations. The approximately 500,000 square feet of potential net absorption also includes more than 110,000 square feet of multiple active prospects at our three redevelopment properties in Miami, Minneapolis and Charlotte.
  • Lease expirations for the remainder of 2020 are approximately 176,000 square feet, or 1.8% of our portfolio. Those lease expirations will be offset by approximately 324,000 square feet of executed leases that are scheduled to commence during the remainder of 2020.
  • The weighted average GAAP base rent per square foot achieved on leasing activity during the six months ended June 30, 2020 was $31.28, or 10.3% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2019. The average lease term on leases in the first half of 2020 shortened to 6.1 years compared to 8.3 years for the full year of 2019. Overall the portfolio weighted average rent per occupied square foot decreased to $29.83 as of June 30, 2020 from $29.88 as of December 31, 2019.

Dividend Update

On July 6, 2020, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended June 30, 2020 of $0.09 per share of common stock that will be paid on August 6, 2020 to stockholders of record on July 17, 2020.

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.