Franklin Street Properties (NYSE: FSP ) is a REIT focused on office properties in the U.S. that is currently trading much lower than its book value. Since our first article almost two years ago, FSP has strongly underperformed the market, returning -12% while theWe write about all kinds of investments, as long as their price is reasonable.Some of our notable coverings:- ADTH 1. First "Buy" covering in September 2023 at $1.24 2. Second "Buy" covering in November 2023 at $1.2 3. ADTH gets acquired for $3.21 p ...

Franklin Street Properties (FSP) Q1 2025 Earnings Call April 30, 2025 11:00 AM ET Company Participants Scott Carter - Executive VP, General Counsel & SecretaryJohn Demeritt - Executive VP, CFO & TreasurerGeorge Carter - Chairman & CEOJohn Donahue - President, FSP Property Management & Executive Vice PresidentJeffrey Carter - President & CIO Conference Call Participants Steven Dumanski - Equity Analyst Operator Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this ...

Financial Data and Key Metrics Changes - The company reported funds from operations (FFO) of approximately $2.7 million or $0.03 per share for Q1 2025 [5] - A GAAP net loss of about $21.4 million or $0.21 per share was recorded for the same period [6] Business Line Data and Key Metrics Changes - The directly owned portfolio was approximately 69.2% leased at the end of Q1 2025, down from 70.3% at the end of Q4 2024 [9] - Economic occupancy for the directly owned portfolio was approximately 67.7% at the end of Q1 2025, compared to 68.6% at the end of 2024 [9] - Approximately 60,000 square feet of total leasing was finalized during Q1 2025, consisting entirely of renewals and expansions [10] Market Data and Key Metrics Changes - The company has tracked approximately 800,000 square feet of prospective new tenants, with about 300,000 square feet of prospects identifying FSP assets on their shortlist [11] - Scheduled lease expirations for the remainder of 2025 total approximately 246,000 square feet, representing about 5.1% of FSP's directly owned portfolio [12] Company Strategy and Development Direction - The company remains focused on advancing leasing of space in its existing property portfolio and pursuing property dispositions to repay debt [6][7] - The company is actively considering operational adjustments and strategic transactions to unlock the full value of its property portfolio [8] Management's Comments on Operating Environment and Future Outlook - Management noted macroeconomic uncertainties, including tariff headlines, that could impact corporate leasing decisions and investment in office properties [7] - The company remains confident in its direction but is open to various strategies to maximize shareholder value [9] Other Important Information - Since initiating its current disposition strategy in late 2020, the company has completed approximately $1.1 billion in property sales, leading to a nearly 75% reduction in corporate indebtedness [13] - National office transaction volumes rose by 22% in 2024 and accelerated in Q1 2025, finishing 31% higher year over year [15] Q&A Session Summary Question: Insight on why leasing was solely executed for renewals during Q1 - Management indicated that new leases had stalled but they are pursuing renewal transactions and expect positive news in Q2 and Q3 [17][18] Question: Which geographies currently depict greater strength in the portfolio? - Management highlighted strong demand in Texas, particularly in Houston, with Dallas showing some improvement, while Denver and Minneapolis are better than previous years but not as robust as Texas suburbs [19]

All financial information contained in this supplemental information package is unaudited. In addition, certain statements contained in this supplemental information package may be deemed to be forward-looking statements within the meaning of the federal securities laws. Although FSP believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that could cause actual results to diff ...

Property Leasing and Occupancy - As of March 31, 2025, approximately 69.2% of the company's owned properties were leased, down from 70.3% as of December 31, 2024, with a total of approximately 1,482,000 square feet of vacancy[115] - The leased space in owned and consolidated properties was 66.4% as of March 31, 2025, down from 70.6% as of March 31, 2024[135] - The average GAAP base rents for newly leased office space were $29.64 per square foot, representing a 3.4% increase compared to the previous year[115] - The company expects to renew or sign new leases at current market rates, which may vary from expiring rates due to market conditions[118] Financial Performance - Total revenues decreased by $4.1 million to $27.1 million for the three months ended March 31, 2025, compared to the same period in 2024, primarily due to a decrease in rental revenue from property sales and lease expirations[135] - Total expenses decreased by $4.1 million to $35.5 million for the three months ended March 31, 2025, mainly due to reductions in real estate operating expenses, depreciation, and general administrative expenses[136] - Net loss for the three months ended March 31, 2025, was $21.4 million, compared to a net loss of $7.6 million for the same period in 2024[143] - Funds From Operations (FFO) for the three months ended March 31, 2025, was $2.7 million, down from $4.2 million in the same period in 2024[148] - Property NOI from owned properties decreased by 7.6% to $11.3 million from $12.2 million year-over-year[157] Debt and Financing - Approximately 50.6% of the company's total debt was unhedged variable rate debt as of March 31, 2025, which could be adversely affected by rising interest rates[114] - The company had aggregate outstanding indebtedness of approximately $250.2 million, with loans maturing on April 1, 2026[157] - The company intends to engage in discussions with lenders to extend or refinance existing debt, although there is substantial doubt about its ability to continue as a going concern[158][159] - The company anticipates that proceeds from property dispositions will primarily be used for debt repayment[126] - The company anticipates repaying the Sponsored REIT Loan, which has a principal amount of $24 million, through cash flow from the sale of the underlying property, currently under a purchase agreement for $6.0 million[191] Cash Flow and Liquidity - The total cash and cash equivalents decreased to $31.6 million as of March 31, 2025, down from $42.7 million at the end of 2024, a decrease of $11.1 million[160] - Cash used in operating activities was $5.4 million, primarily due to the net loss and adjustments for non-cash expenses[161] - Cash used in investing activities totaled $4.5 million, primarily for purchases of real estate assets and office equipment[162] Impairment and Asset Sales - An impairment loss of $13.3 million was recorded for a property classified as held for sale, with a gross sales price of $6.0 million expected from a property sale[123] - The company recorded an impairment loss of $13.3 million related to the estimated fair value of a property in Indianapolis, Indiana, which is under a purchase and sale agreement for $6.0 million[139] - The company continues to pursue the sale of select properties to enhance shareholder value and lease vacant spaces[126] Market Conditions and Future Outlook - The company continues to face uncertainties related to the long-term impact of the COVID-19 pandemic on tenant occupancy and rent collection[111] - The company is focusing on infill and central business district office properties in the U.S. sunbelt and mountain west regions, aiming for long-term growth and appreciation[103] Credit Ratings and Covenants - The company's credit rating was downgraded to Caa1 as of March 31, 2025, impacting borrowing costs and financial flexibility[110] - The minimum fixed charge coverage ratio was reduced from 1.50x to 1.25x under the BMO and BofA Credit Agreements[168][177] - The company was in compliance with the financial covenants of the BMO Term Loan as of March 31, 2025[175] - The company was in compliance with all financial covenants under the BofA Credit Agreement and the Note Purchase Agreement[188] Interest Rates and Loan Terms - The interest rate on the BMO Term Loan was 8.00% as of March 31, 2025, and increased to 9.00% on April 1, 2025[173] - The interest rate on the BofA Term Loan was 8.00% as of March 31, 2025, and increased to 9.00% on April 1, 2025[180] - The interest rates on both Series A and Series B Notes increased from 8.00% per annum to 9.00% per annum effective April 1, 2025[187] Stock and Shareholder Value - The company has a stock repurchase program that was authorized for up to $50 million but was discontinued on February 10, 2023[190] - The company reported that rental income exceeded operating expenses for most properties, except for Monument Circle, which had $76,000 in rental income and $293,000 in operating expenses for the three months ended March 31, 2025[196]

Financial Performance - Rental revenue for Q1 2025 was $27.1 million, a decrease of 13.1% from $31.2 million in Q1 2024[12] - The company reported a net loss of $21.4 million for Q1 2025, compared to a net loss of $7.6 million in Q1 2024[12] - Adjusted EBITDA for Q1 2025 was $8.4 million, down from $11.1 million in Q1 2024, reflecting a decline of 24.5%[12] - Funds from Operations (FFO) for Q1 2025 were $2.7 million, slightly up from $2.7 million in Q4 2024[12] - Property Net Operating Income (NOI) from owned properties decreased by 7.6% year-over-year, from $12,247 million in Q1 2024 to $11,319 million in Q1 2025[22] - The company reported a net cash used for operating activities of $5,481 million for Q1 2025, compared to $7,088 million in Q1 2024[20] - Funds From Operations (FFO) for the three months ended March 31, 2025, were $2,727,000, down from $4,193,000 in the same period last year, representing a decrease of approximately 35%[26] - Adjusted Funds From Operations (AFFO) showed a loss of $693,000 for the three months ended March 31, 2025, compared to a loss of $659,000 in the prior year, reflecting a slight worsening in performance[26] - The company incurred a loss on the sale of properties and impairment of assets held for sale, netting $13,284,000 for the three months ended March 31, 2025[32] Property and Market Data - As of March 31, 2025, Franklin Street Properties Corp. owned a portfolio of 15 properties totaling 5.0 million square feet[10] - The occupancy rate for owned properties was 69.2% as of March 31, 2025, down from 73.3% a year earlier[12] - Total assets decreased from $1,038,963 million in March 2024 to $916,366 million in March 2025, a decline of approximately 11.8%[18] - Total liabilities decreased from $335,099 million in March 2024 to $282,980 million in March 2025, a reduction of approximately 15.5%[18] - The company’s total stockholders' equity decreased from $703,864 million in March 2024 to $633,386 million in March 2025, a decline of approximately 9.9%[18] - The total number of owned properties as of March 31, 2025, was 15, with a total square footage of 5,020,216[40] - The total portfolio square footage is 5,020,216, with 1,482,167 square feet classified as owned property vacant[61] Debt and Capitalization - Total market capitalization was approximately $434.5 million, with total debt outstanding at $250.2 million, resulting in a debt to total market capitalization ratio of 57.6%[12] - Total debt as of March 31, 2025, was $250,179,000, with a net debt of $218,620,000 after accounting for cash and cash equivalents[29] - The total debt outstanding, excluding unamortized financing costs, was $250,179 million, down from $303,000 million as of March 31, 2024[38] - The interest coverage ratio for the three months ended March 31, 2025, was 1.48, compared to 1.62 for the same period in 2024, indicating a decline in the ability to cover interest expenses[29] Dividends and Shareholder Returns - The company declared a dividend of $0.01 per share for Q1 2025, consistent with the previous quarters[12] - Total dividends declared for the quarter remained stable at $1,036 million, with a common dividend declared per share of $0.01[38] - The declared dividend as a percentage of net income per share was -5% for the quarter, compared to -14% in the previous year[38] Leasing Activity - New leasing activity for the quarter was zero, while renewals and expansions totaled 60,000 square feet, down from 136,000 square feet in the same quarter last year[53] - The weighted average lease term decreased to 5.2 years from 6.8 years year-over-year[53] - The average GAAP rents on leasing increased by 3.4% compared to the previous year, reaching $29.64 per square foot[53] - The company reported a weighted average lease cost of $6.65 per square foot, down from $9.00 in the previous year[53] Cash Flow and Investments - Cash, cash equivalents, and restricted cash decreased from $37,779 million in March 2024 to $31,559 million in March 2025, representing a decline of 16.4%[20] - Cash flows from investing activities resulted in a net cash outflow of $4,454 million in Q1 2025, compared to a net inflow of $25,570 million in Q1 2024[20] - For the three months ended March 31, 2025, total capital expenditures amounted to $4,177,000, including $2,374,000 for tenant improvements and $1,258,000 for non-investment capex[62] Company Definitions and Metrics - The Company defines Adjusted Funds From Operations (AFFO) as FFO excluding non-cash debt extinguishment losses and including distributions from non-consolidated REITs[84] - AFFO also accounts for straight-line rent adjustments, amortization of deferred financing costs, and recurring capital expenditures for property maintenance[84] - The Company emphasizes that AFFO should not be viewed as an alternative to net income or cash flows from operating activities as defined by GAAP[86] - The Company provides property performance metrics based on Net Operating Income (NOI), which is calculated as net income plus general and administrative expenses, depreciation, and interest expenses[81] - NOI is a non-GAAP measure and may not be comparable to similar measures reported by other REITs due to differing definitions[81] - The Company believes that net income is the most directly comparable GAAP financial measure to EBITDA and Adjusted EBITDA[80] - EBITDA is defined as net income plus interest, taxes, and depreciation, while Adjusted EBITDA excludes certain non-cash items and gains or losses on asset sales[80] - The Company highlights that all companies may not calculate EBITDA or Adjusted EBITDA in the same manner, affecting comparability[80] - The Company aims to provide useful information regarding its ability to service or incur debt through these financial metrics[80]

Group 1 - Franklin Street Properties (NYSE: FSP) is a REIT focused on office properties in the U.S. [1] - The stock is currently trading much lower than its book value [1] - There has been a strong downward trend in the stock price since the beginning of this year [1]

Financial Data and Key Metrics Changes - The company reported funds from operations (FFO) of $0.03 per share for Q4 2024 and $0.13 per share for the full year 2024, with a GAAP net loss of approximately $8.5 million or $0.08 per share for Q4 2024 and a net loss of $52.7 million or $0.51 per share for the full year 2024 [7][12][21]. Business Line Data and Key Metrics Changes - The directly owned portfolio was approximately 70.3% leased at the end of Q4 2024, a slight decrease from 70.4% at the end of Q3 2024 and down from 74.0% at the end of 2023 [14][15]. - FSP finalized approximately 616,000 square feet of total leasing during 2024, including 252,000 square feet in Q4 2024, with a strong performance in renewals and expansions [16][18]. Market Data and Key Metrics Changes - The company completed the sale of three properties in 2024 for total gross proceeds of approximately $100 million, with the sale of Pershing Park Plaza in Q4 2024 contributing $34 million [20][21]. - The office sales environment remains challenged, primarily dominated by buyers seeking distressed pricing, with liquidity in the marketplace constricted [22][23]. Company Strategy and Development Direction - The company aims to strengthen its balance sheet and increase financial flexibility through property sales, having achieved a 75% reduction in corporate indebtedness since the inception of its disposition program [21][24]. - The management believes the current share price does not reflect the intrinsic value of its underlying real estate assets and will continue to pursue selective property sales to enhance shareholder value [22][24]. Management's Comments on Operating Environment and Future Outlook - Management noted a general increase in office property activity as more employees return to the office, with clearer long-term leasing requirements from larger tenants [12][22]. - There are emerging signs that 2024 may have represented a bottoming in the market, with potential improvements anticipated in 2025 due to factors like interest rate stabilization and improving leasing conditions [23][24]. Other Important Information - The company has a pipeline of leasing prospects that includes nearly 350,000 square feet of prospects and approximately 500,000 square feet of potential renewals and expansions [17][18]. Q&A Session Summary Question: Can you expand on the robust leasing velocity for the quarter? - Management highlighted steady new tenant activity in Houston and Minneapolis, with government, healthcare, and business services being key contributors to leasing growth [29][30]. Question: Will there be any impact from government tenants on your properties? - Management does not expect any impact from existing government tenants, with ongoing engagement for potential lease renewals [34][35].

Property Sales - The company sold an office property in Richardson, Texas for a gross sales price of $35.0 million, incurring a loss of approximately $2.1 million[24]. - An office property in Glen Allen, Virginia was sold for a gross sales price of $31.0 million, resulting in a loss of $13.2 million[24]. - The company sold an office property in Atlanta, Georgia for a gross sales price of $34.0 million, with a loss of $27.2 million[24]. - The company sold an office property in Elk Grove, Illinois for a gross sales price of $29.1 million, achieving a gain of approximately $8.4 million[24]. - The company sold a property in Charlotte, North Carolina for a gross sales price of $9.2 million, incurring a loss of $0.8 million[25]. - An office property in Plano, Texas was sold for a gross sales price of $48 million, resulting in a gain of $10.6 million[25]. - The company sold an office property in Miami, Florida for a gross sales price of $68.0 million, incurring a loss of approximately $18.9 million[25]. - In 2022, the company sold two office properties in Broomfield, Colorado for aggregate gross sales proceeds of $102.5 million, achieving a gain of $24.1 million[25]. Financial Strategy - The company aims to increase shareholder value by pursuing the sale of select properties and leasing vacant spaces[22]. - The company continues to derive real estate revenue from owned properties and Sponsored REIT fees from asset management and property management services[23]. Debt and Interest Rates - As of December 31, 2024, the outstanding balance on the BofA Term Loan was $55.6 million, with an interest rate of 8.00% per annum[243]. - The outstanding balance on the BofA Revolver as of December 31, 2023, was $90 million, with an interest rate of 8.47% per annum[243]. - If market rates on the BofA Term Loan increased by 10%, future earnings and cash flows would decrease by approximately $0.4 million[243]. - If market rates on the BMO Term Loan increased by 10%, future earnings and cash flows would decrease by approximately $0.6 million[245]. - The total contractual variable rate borrowings as of December 31, 2024, amounted to $126.7 million, with $71.1 million due in 2026[247]. - The Company received approximately $4.3 million from terminating interest rate swaps related to the BMO Term Loan on February 10, 2023[244]. - The interest rate on the BMO Term Loan as of December 31, 2024, was 8.00% per annum[245]. - The Company does not believe that the interest rate risk on the BofA Term Loan is material as of December 31, 2024[243]. - The Company does not believe that the interest rate risk on the BMO Term Loan is material as of December 31, 2024[245]. - The BofA Term Loan matures on April 1, 2026, and the BMO Term Loan Tranche B also matures on April 1, 2026[246].

Financial Performance - Rental revenue for Q4 2024 was $28.375 million, a decrease of 4.3% from $29.662 million in Q3 2024[11] - The net loss for Q4 2024 was $8.526 million, compared to a net loss of $15.622 million in Q3 2024[11] - Adjusted EBITDA for Q4 2024 was $8.989 million, down from $9.657 million in Q3 2024, reflecting a decline of 6.9%[11] - Funds from Operations (FFO) for Q4 2024 was $2.707 million, slightly up from $2.665 million in Q3 2024[11] - Net income for the year ended December 31, 2024, was a loss of $52,723 thousand, compared to a loss of $48,110 thousand in 2023[20] - Net income for the quarter ended March 31, 2024, was $(7,552) thousand, compared to $(8,526) thousand for the same period last year, indicating a decrease of 11.4% year-over-year[32] - Property NOI for the quarter ended March 31, 2024, was $13,908 thousand, down from $17,740 thousand in the same quarter last year, representing a decline of 21.5%[32] - Same Store NOI for the year ended December 31, 2024, was reported at $11,389,000, indicating stable performance[71] Assets and Liabilities - Total assets, net, were $946.931 million, down from $981.513 million in Q3 2024[11] - Total assets decreased to $1,038,963 thousand as of September 30, 2024, down from $1,169,330 thousand at the end of 2023, representing a decline of approximately 11.1%[18] - Total liabilities increased to $335,099 thousand as of September 30, 2024, compared to $291,074 thousand at the end of 2023, reflecting an increase of approximately 15.1%[18] - Cash, cash equivalents, and restricted cash at the end of the period were $42,683 thousand, down from $127,880 thousand at the beginning of the period[20] - Cash, cash equivalents, and restricted cash totaled $37,779 thousand as of March 31, 2024, compared to $42,683 thousand a year earlier, reflecting a decrease of 11.5%[38] Market Capitalization and Share Price - The total market capitalization as of December 31, 2024, was approximately $0.4 billion[10] - The closing share price on December 31, 2024, was $1.83, compared to $1.77 on September 30, 2024[11] - The market capitalization as of March 31, 2024, was $234,787 thousand, a decrease from $264,782 thousand a year prior[38] - The total market capitalization as of December 31, 2024, was $439,859,000, with a closing share price of $1.83[71] - The company has 103,566,700 shares outstanding, contributing to a market capitalization of $189,527,000[71] Property and Leasing - As of December 31, 2024, Franklin Street Properties Corp. owned a portfolio of 15 properties totaling 5.0 million square feet[9] - The percentage of owned properties leased was 70.3% as of December 31, 2024, a slight decrease from 70.4% in Q3 2024[11] - The leased percentage of total owned properties decreased to 70.3% as of December 31, 2024, down from 74.0% a year earlier[40] - New leasing activity for the year ended December 31, 2024, was 171,000 square feet, while renewals and expansions totaled 445,000 square feet, resulting in a total of 616,000 square feet leased[52] - The average GAAP rent per occupied square foot increased by 8.2% to $30.06 compared to the previous year[52] - The average lease term for new leases is 6.3 years, down from 6.8 years in the previous year[52] - The total square footage of lease expirations in 2025 is 321,725 square feet, with an annualized rent of $10,682,388[58] Debt and Financing - The debt to total market capitalization ratio was 56.9% as of December 31, 2024, down from 60.2% in Q3 2024[11] - Total debt outstanding as of December 31, 2024, was $303,000 thousand, with an average interest rate of 8.00%[35] - The company reported a net cash used in financing activities of $164,468 thousand for the year ended December 31, 2024, compared to $10,254 thousand in 2023[20] - The company amended its credit agreements, extending the maturity dates of several loans to April 1, 2026, and repaid portions of the outstanding debt[36] Capital Expenditures - The company reported property improvements, fixtures, and equipment expenditures of $25,213 thousand for the year ended December 31, 2024[20] - Total Capital Expenditures for the year ended December 31, 2024, amounted to $26,662,000, a decrease of 24% compared to $35,291,000 for the year ended December 31, 2023[60] - Deferred leasing costs for the year ended December 31, 2024, totaled $6,143,000, showing a strategic approach to managing leasing expenses[60] Strategic Focus - The company plans to focus on market expansion and new technology development to improve future performance[22] - The company plans to expand its portfolio with a focus on acquisitions and market growth, although no specific acquisitions were reported for the year ended December 31, 2024[71]