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Franklin Street Properties (FSP) - 2023 Q4 - Annual Report
FSPFranklin Street Properties (FSP)2024-02-25 16:00
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Property Sales and Gains - The company sold an office property in Elk Grove, Illinois for a gross sales price of 29.1million,resultinginagainofapproximately29.1 million, resulting in a gain of approximately 8.4 million[19]. - On October 26, 2023, the company sold an office property in Plano, Texas for a gross sales price of 48million,achievingagainof48 million, achieving a gain of 10.6 million[19]. - The company reported a loss of approximately 18.9millionfromthesaleofanofficepropertyinMiami,Florida,whichsoldfor18.9 million from the sale of an office property in Miami, Florida, which sold for 68.0 million[19]. - The company sold two office properties in Broomfield, Colorado in 2022 for aggregate gross sales proceeds of 102.5million,achievingagainof102.5 million, achieving a gain of 24.1 million[19]. Financial Condition and Debt - As of December 31, 2023, the company had 90millionoutstandingundertheBofATermLoan,withavariableinterestratebasedonSOFRanda5.0090 million outstanding under the BofA Term Loan, with a variable interest rate based on SOFR and a 5.00% floor on SOFR[64]. - As of December 31, 2023, the company had 115 million outstanding under the BMO Term Loan, also with a variable interest rate based on SOFR and a 5.00% floor on SOFR[65]. - The company has one remaining secured loan to a Sponsored REIT, which is anticipated to be repaid through cash flow from property operations or sale of the underlying property[58]. - The company may face reduced cash available for distribution to stockholders if it is required to keep balances outstanding on existing debt or seek new debt[58]. - The company’s financial condition could be adversely affected if it is unable to refinance the BofA Term Loan, the BMO Term Loan, the Series A Notes, or the Series B Notes upon their respective maturities[59]. - Failure to comply with covenants in the documents evidencing the BofA Term Loan, the BMO Term Loan, the Series A Notes, or the Series B Notes could adversely affect the company’s financial condition[60]. - A default under the loan documents could result in difficulty financing growth and a reduction in cash available for distribution to stockholders[63]. - An increase in interest rates would raise interest costs on variable rate debt, impacting the company’s ability to refinance existing debt[64]. - The company currently holds a corporate credit rating below investment grade from Moody's, which could limit access to funding sources and increase costs of obtaining funding[67]. Impact of COVID-19 and Economic Risks - The long-term impact of the COVID-19 pandemic continues to present material uncertainty regarding the performance of the company's properties[15]. - The long-term impact of the COVID-19 pandemic continues to create uncertainty, potentially affecting tenant rent payments and demand for commercial real estate[70]. - As of December 31, 2023, approximately 19% of tenants operate in the energy services industry, and 13% in information technology, indicating a concentration risk that could impact rental payments during economic downturns[82]. - The geographic distribution of properties shows 41% in the South and 37% in the West, with significant concentrations in Denver (37%), Houston (20.6%), and Dallas (17.6%), exposing the company to regional economic risks[83]. - The company may face significant delays in reletting vacant space, which could result in reduced distributions to stockholders, as up to 20% of rental revenue could expire each year[81]. - The company has experienced tenant defaults, including a write-off charge of 3.1millionduetoatenant′sbankruptcy,whichcouldnegativelyimpactcashavailablefordistribution[77].−Risinginterestratescoulddecreasetheamountthirdpartiesarewillingtopayforthecompany′sassets,limitingportfolioadjustmentsinresponsetoeconomicchanges[66].−Thecompanyfacesrisksfromclimatechange,whichcouldincreaseoperationalcostsandimpactdemandforofficespace[86].LegalandComplianceRisks−Securitybreachescouldcompromisesensitivedata,leadingtosignificantfinancialexposureandpotentialregulatorypenalties[87].−ThecompanyfacesrisksrelatedtocompliancewiththeAmericansWithDisabilitiesAct,whichmayrequiresignificantcapitalexpenditures[91].−Thecompanyhasbeenmanagingitslegalaffairsandcompliancewithfinancialcovenantstomitigaterisksassociatedwithitsdebtobligations[60].CorporateGovernanceandManagement−Thecompanyaimstoincreaseshareholdervaluebypursuingthesaleofselectpropertiesandleasingvacantspaces[18].−Thecompany’sexecutiveteamhasextensiveexperienceinfinanceandinvestmentmanagement,contributingtoitsstrategicobjectivesandbusinessplanexecution[49].−Thecompanyadoptedavariablequarterlydividendpolicyin2022,allowingtheBoardofDirectorstodeterminedividendsbasedonvariousfactors,includingannualtaxableincomeestimates[95].−Thecompanyhasachangeincontrolplanthatmaydiscourageacquisitionproposals,potentiallyinhibitingchangesincontrol[100].DerivativesandInterestRateManagement−TheinterestrateontheBofARevolverwas8.473.1 million due to a tenant's bankruptcy, which could negatively impact cash available for distribution[77]. - Rising interest rates could decrease the amount third parties are willing to pay for the company's assets, limiting portfolio adjustments in response to economic changes[66]. - The company faces risks from climate change, which could increase operational costs and impact demand for office space[86]. Legal and Compliance Risks - Security breaches could compromise sensitive data, leading to significant financial exposure and potential regulatory penalties[87]. - The company faces risks related to compliance with the Americans With Disabilities Act, which may require significant capital expenditures[91]. - The company has been managing its legal affairs and compliance with financial covenants to mitigate risks associated with its debt obligations[60]. Corporate Governance and Management - The company aims to increase shareholder value by pursuing the sale of select properties and leasing vacant spaces[18]. - The company’s executive team has extensive experience in finance and investment management, contributing to its strategic objectives and business plan execution[49]. - The company adopted a variable quarterly dividend policy in 2022, allowing the Board of Directors to determine dividends based on various factors, including annual taxable income estimates[95]. - The company has a change in control plan that may discourage acquisition proposals, potentially inhibiting changes in control[100]. Derivatives and Interest Rate Management - The interest rate on the BofA Revolver was 8.47% per annum as of December 31, 2023, with 90 million drawn on it[284]. - If market rates on the BMO Term Loan increased by 10%, future earnings and cash flows would decrease by approximately 1.0million[287].−ThecompanyterminatedalloutstandinginterestrateswapsapplicabletotheBMOTermLoaninFebruary2023,receivingapproximately1.0 million[287]. - The company terminated all outstanding interest rate swaps applicable to the BMO Term Loan in February 2023, receiving approximately 4.3 million[287]. - The company requires derivatives contracts to be with counterparties that have investment grade ratings[289]. - The company does not anticipate any counterparty failing to meet its obligations, but there are risks associated with hedging strategies[289]. - The total contractual variable rate borrowings as of December 31, 2023, amount to 405,000[292].−TheBofARevolverhasatotalof405,000[292]. - The BofA Revolver has a total of 90,000 due in 2024[292]. - The BMO Term Loan Tranche B has a total of 115,000duein2024[292].−TheSeriesANoteshaveatotalof115,000 due in 2024[292]. - The Series A Notes have a total of 116,000 due in 2024[292]. - The Series B Notes have a total of 84,000duein2027[292].−Theeffectiveportionofthederivatives′fairvalueisrecordedinothercomprehensiveincome[290].−Thenotionalvalueofthe2019BMOInterestRateSwapis84,000 due in 2027[292]. - The effective portion of the derivatives' fair value is recorded in other comprehensive income[290]. - The notional value of the 2019 BMO Interest Rate Swap is 165,000 with a strike rate of 2.39%[288]. - The fair value of the 2019 BMO Interest Rate Swap as of December 31, 2022, was $4,358[288].