Franklin Street Properties (FSP) - 2021 Q4 - Annual Report

Property Dispositions and Sales - The company anticipates property dispositions in 2022 will generate estimated gross proceeds between $250 million and$350 million[26]. - In 2021, the company sold 10 office properties for aggregate gross sale proceeds of $602.7 million, resulting in a net gain of$113.1 million[27]. - The company plans to use proceeds from property sales for debt repayment, stock repurchases, and special dividends to meet REIT requirements[28]. - The company anticipates that Sponsored REIT Loans will be repaid at maturity, but defaults could require additional draws or cash usage, reducing cash available for distribution[70]. Financial Performance and Challenges - The COVID-19 pandemic has caused significant disruptions, adversely impacting financial condition and results of operations, with potential tenant rent payment issues[62]. - The company has experienced increased operational costs and reduced rental receipts due to the pandemic, impacting overall profitability[66]. - The company has been unable to predict the full extent of the COVID-19 pandemic's impact on future financial performance, which remains uncertain[68]. - Ongoing economic impacts from the pandemic could lead to increased rent delinquencies and defaults, affecting occupancy and rental rates[67]. - The company may face challenges in refinancing existing debts, including the BofA Revolver and various term loans, which could adversely affect financial condition[71]. Competition and Market Conditions - The company continues to face competition in its real estate markets, impacting rental revenues and occupancy levels[30]. - The company faces competition from national, regional, and local real estate operators, which could adversely affect cash flow and rental revenues[98]. - The company has a significant concentration of properties in energy-influenced markets, which may be adversely affected by reduced demand for oil[65]. - Approximately 18% of the company's tenants operate in the energy services industry, indicating a concentration risk[94]. Debt and Interest Rate Management - As of December 31, 2021, the company had $35 million drawn and outstanding under the BofA Revolver, with a borrowing limit of$237.5 million[76]. - The BofA Term Loan had $110 million drawn and outstanding as of December 31, 2021, with an accordion feature allowing for up to$500 million in additional borrowing capacity[76]. - The BMO Term Loan had $165 million drawn and outstanding as of December 31, 2021, with the potential to increase by an additional$100 million[77]. - The company faces risks from potential increases in interest rates, which could adversely affect cash flow and refinancing capabilities[79]. - The company has fixed the base LIBOR rate on the BMO Term Loan at 2.39% per annum until January 31, 2024, through interest rate swap agreements[78]. Regulatory Compliance and Risks - The company is committed to compliance with various governmental regulations, which may require substantial capital expenditures[31]. - The company must comply with the Americans With Disabilities Act and fire and safety regulations, which may require significant capital expenditures[106]. - The company is subject to risks associated with climate change, which could increase operating costs and impact property demand[99]. - The company’s ability to qualify as a REIT is complex and could be jeopardized by various factors, leading to adverse tax consequences[117]. Operational and Workforce Insights - The company had 32 employees as of February 4, 2022, with women representing 46.9% of the workforce[38]. - The management team is focused on maintaining financial strength and operational efficiency amid ongoing challenges[58]. - The inability to operate effectively in affected areas could lead to delays in construction and increased operational challenges[65]. Stockholder Value and Market Perception - The company believes its common stock price does not reflect the value of its underlying real estate assets[26]. - The company’s common stock price may fluctuate based on market conditions and financial performance, affecting stockholder value[114]. - The company has provisions in its organizational documents that may inhibit changes in control, potentially affecting stockholder interests[119]. - The company may experience fluctuations in dividends due to changes in real estate occupancy levels and rental rates[111]. Risk Management and Financial Instruments - The company carries comprehensive liability and property insurance, but certain losses may be uninsurable, risking capital investment and anticipated profits[104]. - The Company requires derivatives contracts to be with counterparties that have investment grade ratings to mitigate counterparty credit risk[295]. - The effective portion of the derivatives' fair value is recorded in other comprehensive income in the consolidated statements[296]. - The Company has hedged variable cash flows related to interest on its loans using derivative instruments[295].