Franklin Street Properties Corp 10-Q for FY2020 Q3

Franklin Street Properties Corp (FSP)

10-Q 2020-11-03 For: 2020-09-30

Added on April 07, 2026

About this 10-Q

Franklin Street Properties Corp filed this 10-Q on November 3, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $62.25M; down 9.2% from $68.54M a year earlier

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Maryland		04-3578653
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $.0001 par value per share	FSP	NYSE American


Large Accelerated Filer ☒		Accelerated Filer ☐

Non-accelerated Filer ☐		Smaller Reporting Company ☐

		Emerging Growth Company ☐


			Page
Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3

		Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	4

		Consolidated Statements of Comprehensive Income (loss) for the three and nine months ended September 30, 2020 and 2019	5

		Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	6

		Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	7

		Notes to Consolidated Financial Statements	8-18

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

	Item 4.	Controls and Procedures	38

Part II.	Other Information

	Item 1.	Legal Proceedings	39

	Item 1A.	Risk Factors	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 3.	Defaults Upon Senior Securities	40

	Item 4.	Mine Safety Disclosures	40

	Item 5.	Other Information	41

	Item 6.	Exhibits	42

Signatures			43


	September 30,		December 31,
(in thousands, except share and par value amounts)	2020		2019
Assets:
Real estate assets:
Land	$	191,578	$	191,578
Buildings and improvements		1,983,979		1,924,664
Fixtures and equipment		12,714		11,665
		2,188,271		2,127,907
Less accumulated depreciation		538,622		490,697
Real estate assets, net		1,649,649		1,637,210
Acquired real estate leases, less accumulated amortization of $60,561 and $60,749, respectively		31,011		40,704
Cash, cash equivalents and restricted cash		4,840		9,790
Tenant rent receivables		4,007		3,851
Straight-line rent receivable		71,033		66,881
Prepaid expenses and other assets		6,538		7,246
Related party mortgage loan receivables		21,000		21,000
Other assets: derivative asset		—		3,022
Office computers and furniture, net of accumulated depreciation of $1,426 and $1,362, respectively		178		183
Deferred leasing commissions, net of accumulated amortization of $32,547 and $28,114, respectively		51,765		52,767
Total assets	$	1,840,021	$	1,842,654

Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	30,000	$	—
Term loans payable, less unamortized financing costs of $3,137 and $4,267, respectively		766,863		765,733
Series A & Series B Senior Notes, less unamortized financing costs of $863 and $985, respectively		199,137		199,015
Accounts payable and accrued expenses		69,905		66,658
Accrued compensation		3,634		3,400
Tenant security deposits		9,435		9,346
Lease liability		1,627		1,890
Other liabilities: derivative liabilities		20,157		7,704
Acquired unfavorable real estate leases, less accumulated amortization of $4,911 and $4,676, respectively		1,798		2,512
Total liabilities		1,102,556		1,056,258

Commitments and contingencies

Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $.0001 par value, 180,000,000 shares authorized, 107,328,199 and 107,269,201 shares issued and outstanding, respectively		11		11
Additional paid-in capital		1,357,131		1,356,794
Accumulated other comprehensive loss		(20,157)		(4,682)
Accumulated distributions in excess of accumulated earnings		(599,520)		(565,727)
Total stockholders’ equity		737,465		786,396
Total liabilities and stockholders’ equity	$	1,840,021	$	1,842,654



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share amounts)	2020		2019		2020		2019

Revenues:
Rental	$	61,834	$	68,108	$	184,799	$	196,952
Related party revenue:
Management fees and interest income from loans		400		426		1,208		3,100
Other		13		5		31		16
Total revenues		62,247		68,539		186,038		200,068
Expenses:
Real estate operating expenses		16,730		18,041		49,498		52,883
Real estate taxes and insurance		12,279		12,505		36,348		37,408
Depreciation and amortization		22,076		22,559		66,659		67,913
General and administrative		3,817		3,886		11,159		11,097
Interest		8,953		9,036		26,996		27,775
Total expenses		63,855		66,027		190,660		197,076

Income (loss) before taxes		(1,608)		2,512		(4,622)		2,992
Tax expense on income		71		113		203		165

Net income (loss)	$	(1,679)	$	2,399	$	(4,825)	$	2,827

Weighted average number of shares outstanding, basic and diluted		107,328		107,231		107,295		107,231

Net income (loss) per share, basic and diluted	$	(0.02)	$	0.02	$	(0.04)	$	0.03


	For the				For the
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019

Net income (loss)	$	(1,679)	$	2,399	$	(4,825)	$	2,827

Other comprehensive income (loss):
Unrealized gain (loss) on derivative financial instruments		2,801		(3,603)		(15,475)		(21,855)

Total other comprehensive income (loss)		2,801		(3,603)		(15,475)		(21,855)

Comprehensive income (loss)	$	1,122	$	(1,204)	$	(20,300)	$	(19,028)


						Accumulated		Distributions
				Additional		other		in excess of		Total
	Common Stock			Paid-In		comprehensive		accumulated		Stockholders’
(in thousands, except per share amounts)	Shares	Amount		Capital		income (loss)		earnings		Equity

Balance, December 31, 2018	107,231	$	11	$	1,356,457	$	14,765	$	(533,599)	$	837,634
Comprehensive loss	—		—		—		(6,791)		(1,205)		(7,996)
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)
Balance, March 31, 2019	107,231	$	11	$	1,356,457	$	7,974	$	(544,455)	$	819,987
Comprehensive income (loss)	—		—		—		(11,461)		1,633		(9,828)
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)
Balance, June 30, 2019	107,231	$	11	$	1,356,457	$	(3,487)	$	(552,473)	$	800,508
Comprehensive income (loss)	—		—		—		(3,603)		2,399		(1,204)
Distributions $0.09 per share of common stock	—		—		—		—		(9,651)		(9,651)
Balance, September 30, 2019	107,231	$	11	$	1,356,457	$	(7,090)	$	(559,725)	$	789,653

Balance, December 31, 2019	107,269	$	11	$	1,356,794	$	(4,682)	$	(565,727)	$	786,396
Comprehensive loss	—		—		—		(18,353)		(1,071)		(19,424)
Distributions $0.09 per share of common stock	—		—		—		—		(9,654)		(9,654)
Balance, March 31, 2020	107,269	$	11	$	1,356,794	$	(23,035)	$	(576,452)	$	757,318
Comprehensive income (loss)	—		—		—		77		(2,075)		(1,998)
Equity-based compensation	59		—		337						337
Distributions $0.09 per share of common stock	—		—		—		—		(9,654)		(9,654)
Balance, June 30, 2020	107,328	$	11	$	1,357,131	$	(22,958)	$	(588,181)	$	746,003
Comprehensive income (loss)	—		—		—		2,801		(1,679)		1,122
Distributions $0.09 per share of common stock	—		—		—		—		(9,660)		(9,660)
Balance, September 30, 2020	107,328	$	11	$	1,357,131	$	(20,157)	$	(599,520)	$	737,465


	As of September 30,
	2020	2019
Operating Properties:
Number of properties	32	32
Rentable square feet	9,526,822	9,503,964


	Notional		Strike		Effective	Expiration	Fair
(in thousands)	Value		Rate		Date	Date	Value

2017 Interest Rate Swap	$	400,000	1.12	%	Sep-17	Sep-21	$	(3,886)
2019 JPM Interest Rate Swap	$	100,000	2.44	%	Mar-19	Nov-21	$	(2,638)
2019 BMO Interest Rate Swap (1)	$	220,000	2.39	%	Aug-20	Jan-24	$	(13,633)

(1) The Notional Value will decrease to $165 million on November 30, 2021.


(in thousands)	Nine Months Ended September 30,
Interest Rate Swaps in Cash Flow Hedging Relationships:	2020		2019

Amounts of loss recognized in OCI	$	(20,400)	$	(17,852)
Amounts of previously recorded gain/(loss) reclassified from OCI into Interest Expense	$	(4,925)	$	4,003

Total amount of Interest Expense presented in the consolidated statements of operations	$	26,996	$	27,775


	Dividends Per		Total
Quarter Paid	Share		Dividends

First quarter of 2020	$	0.09	$	9,654
Second quarter of 2020	$	0.09	$	9,654
Third quarter of 2020	$	0.09	$	9,660


First quarter of 2019	$	0.09	$	9,651
Second quarter of 2019	$	0.09	$	9,651
Third quarter of 2019	$	0.09	$	9,651


	Shares Available		Compensation
(in thousands)	for Grant		Cost

Balance, December 31, 2016, 2017 and 2018		1,944,428
Shares granted 2019		(38,046)	$	337,000
Balance December 31, 2019		1,906,382		337,000
Shares granted 2020		(58,998)		337,000
Balance September 30, 2020		1,847,384	$	674,000


	For the Nine Months Ended September 30,
(Dollars in thousands)	2020		2019

Revised Texas Franchise Tax	$	203	$	277
Other Taxes		—		(112)
Tax expense	$	203	$	165


Income relating to lease payments:
	Nine Months Ended
(in thousands)	September 30, 2020		September 30, 2019
Income from leases (1)	$	181,929	$	189,698
	$	181,929	$	189,698

(1) Amounts recognized from variable lease payments were variable lease payments $45,281 and $48,259 for the nine months ended September 30, 2020 and 2019, respectively.


	For the Nine Months Ended September 30,
(in thousands)	2020		2019
Cash flows from operating activities:
Net income (loss)	$	(4,825)	$	2,827
Adjustments to reconcile net income or loss to net cash provided by operating activities:
Depreciation and amortization expense		68,859		70,072
Amortization of above and below market leases		(234)		(305)
Shares issued as compensation		337		—
Decrease in allowance for doubtful accounts and write-off of accounts receivable		(13)		(69)
Changes in operating assets and liabilities:
Tenant rent receivables		(143)		(403)
Straight-line rents		(2,636)		(6,950)
Lease acquisition costs		(1,516)		(3,155)
Prepaid expenses and other assets		(504)		1,261
Accounts payable and accrued expenses		2,527		2,849
Accrued compensation		234		726
Tenant security deposits		89		2,689
Payment of deferred leasing commissions		(6,168)		(9,485)
Net cash provided by operating activities		56,007		60,057
Cash flows from investing activities:
Property improvements, fixtures and equipment		(61,989)		(47,905)
Investment in related party mortgage loan receivable		—		(2,400)
Repayment of related party mortgage loan receivable		—		51,795
Proceeds received from liquidating trust		—		1,470
Net cash provided by (used in) investing activities		(61,989)		2,960
Cash flows from financing activities:
Distributions to stockholders		(28,968)		(28,953)
Borrowings under bank note payable		85,000		45,000
Repayments of bank note payable		(55,000)		(70,000)
Deferred financing costs		—		(82)
Net cash provided by (used in) financing activities		1,032		(54,035)
Net increase (decrease) in cash, cash equivalents and restricted cash		(4,950)		8,982
Cash, cash equivalents and restricted cash, beginning of year		9,790		11,177
Cash, cash equivalents and restricted cash, end of period	$	4,840	$	20,159

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	22,716	$	23,710
Taxes	$	475	$	377


	Three months ended September 30,
(in thousands)	2020		2019		Change
Revenues:
Rental	$	61,834	$	68,108	$	(6,274)
Related party revenue:
Management fees and interest income from loans		400		426		(26)
Other		13		5		8
Total revenues		62,247		68,539		(6,292)
Expenses:
Real estate operating expenses		16,730		18,041		(1,311)
Real estate taxes and insurance		12,279		12,505		(226)
Depreciation and amortization		22,076		22,559		(483)
General and administrative		3,817		3,886		(69)
Interest		8,953		9,036		(83)
Total expenses		63,855		66,027		(2,172)

Income (loss) before taxes		(1,608)		2,512		(4,120)
Tax expense on income		71		113		(42)

Net income (loss)	$	(1,679)	$	2,399	$	(4,078)


	Rentable
	Square							Nine Months								Nine Months
	Feet	Three Months Ended						Ended		Three Months Ended						Ended		Inc		%
(in thousands)	or RSF	31-Mar-20		30-Jun-20		30-Sep-20		30-Sep-20		31-Mar-19		30-Jun-19		30-Sep-19		30-Sep-19		(Dec)		Change
Region
East	833	$	2,836	$	3,019	$	2,425	$	8,280	$	2,659	$	2,792	$	2,684	$	8,135	$	145	1.8	%
MidWest	1,557		5,485		5,089		5,068		15,642		5,163		5,174		5,297		15,634		8	0.1	%
South	4,387		13,290		13,025		13,619		39,934		14,272		15,196		17,456		46,924		(6,990)	(14.9)	%
West	2,620		11,463		11,211		10,976		33,650		10,558		11,240		11,134		32,932		718	2.2	%
Property NOI* from Operating Properties	9,397		33,074		32,344		32,088		97,506		32,652		34,402		36,571		103,625		(6,119)	(5.9)	%
Dispositions and Redevelopment Properties (a)	519		(200)		(148)		109		(239)		322		294		296		912		(1,151)	(1.1)	%
Property NOI*	9,916	$	32,874	$	32,196	$	32,197	$	97,267	$	32,974	$	34,696	$	36,867	$	104,537	$	(7,270)	(7.0)	%

Same Store		$	33,074	$	32,344	$	32,088	$	97,506	$	32,652	$	34,402	$	36,571	$	103,625	$	(6,119)	(5.9)	%

Less Nonrecurring
Items in NOI* (b)			26		810		351		1,187		35		706		3,434		4,175		(2,988)	2.8	%

Comparative
Same Store		$	33,048	$	31,534	$	31,737	$	96,319	$	32,617	$	33,696	$	33,137	$	99,450	$	(3,131)	(3.1)	%


									Nine Months								Nine Months
		Three Months Ended							Ended	Three Months Ended							Ended
Reconciliation to Net Income (Loss)		31-Mar-20			30-Jun-20		30-Sep-20		30-Sep-20	31-Mar-19			30-Jun-19		30-Sep-19		30-Sep-19
Net loss		$	(1,071)	$	(2,075)	$	(1,679)	$	(4,825)	$	(1,205)	$	1,633	$	2,399	$	2,827
Add (deduct):
Management fee income			(478)		(446)		(484)		(1,408)		(677)		(645)		(634)		(1,956)
Depreciation and amortization			22,338		22,245		22,076		66,659		23,245		22,109		22,559		67,913
Amortization of above/below market leases			(73)		(75)		(86)		(234)		(112)		(81)		(112)		(305)
General and administrative			3,525		3,817		3,817		11,159		3,509		3,703		3,886		11,098
Interest expense			9,063		8,980		8,953		26,996		9,368		9,371		9,036		27,775
Interest income			(382)		(381)		(386)		(1,149)		(1,294)		(1,259)		(395)		(2,948)
Non-property specific items, net			(48)		131		(14)		69		140		(135)		128		133


Property NOI*		$	32,874	$	32,196	$	32,197	$	97,267	$	32,974	$	34,696	$	36,867	$	104,537


						Weighted
						Occupied		Weighted
			Year Built		Weighted	Percentage as of		Average
			or	Net Rentable	Occupied	September 30,		Rent per Occupied
Property Name	City	State	Renovated	Square Feet	Sq. Ft.	2020 (a)		Square Feet (b)

Forest Park (c)	Charlotte	NC	1999	64,198	7,537	11.7	%	$	20.20
Meadow Point	Chantilly	VA	1999	138,537	108,378	78.2	%		23.89
Innsbrook	Glen Allen	VA	1999	298,183	170,680	57.2	%		18.80
Loudoun Tech Center	Dulles	VA	1999	136,658	135,209	98.9	%		18.30
Stonecroft (c)	Chantilly	VA	2008	111,469	—	—	%		—
Emperor Boulevard	Durham	NC	2009	259,531	259,531	100.0	%		32.26
East total				1,008,576	681,335	67.6	%		24.65
Northwest Point	Elk Grove Village	IL	1999	177,095	177,095	100.0	%		27.35
909 Davis Street	Evanston	IL	2002	195,098	182,105	93.3	%		41.54
River Crossing	Indianapolis	IN	1998	205,729	201,923	98.2	%		24.45
Timberlake	Chesterfield	MO	1999	234,496	224,319	95.7	%		27.47
Timberlake East	Chesterfield	MO	2000	117,036	117,036	100.0	%		26.67
121 South 8th Street	Minneapolis	MN	1974	297,209	257,026	86.5	%		22.35
801 Marquette Ave	Minneapolis	MN	1923/2017	129,821	48,034	37.0	%		29.27
Plaza Seven	Minneapolis	MN	1987	330,096	292,300	88.6	%		32.67
Midwest total				1,686,580	1,499,838	88.9	%		28.89
Blue Lagoon Drive (c)	Miami	FL	2002	213,182	—	—	%		—
One Overton Park	Atlanta	GA	2002	387,267	327,628	84.6	%		24.09
Park Ten	Houston	TX	1999	157,460	112,962	71.7	%		27.13
Addison Circle	Addison	TX	1999	289,325	217,804	75.3	%		33.32


	Payment due by period
	(in thousands)
	Total		2020		2021		2022		2023		2024		Thereafter
BAML Revolver	$	30,000	$	—	$	—	$	30,000	$	—	$	—	$	—
JPM Term Loan		150,000		—		150,000		—		—		—		—
BAML Term Loan		400,000		—		—		—		400,000		—		—
BMO Term Loan Tranche A		55,000		—		55,000		—		—		—		—
BMO Term Loan Tranche B		165,000		—		—		—		—		165,000		—
Series A Notes		116,000		—		—		—		—		116,000		—
Series B Notes		84,000		—		—		—		—		—		84,000
Total	$	1,000,000	$	—	$	205,000	$	30,000	$	400,000	$	281,000	$	84,000


Exhibit No.		Description

3.1 (1)		Articles of Incorporation, as amended

3.2 (2)		Amended and Restated By-laws.

31.1*		Certification of FSP Corp.’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of FSP Corp.’s Chief Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

32.1*		Certification of FSP Corp.’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of FSP Corp.’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following materials from FSP Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Stockholders’ Equity; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Comprehensive Income (Loss); and (vi) the Notes to Consolidated Financial Statements.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


Footnotes		Description

(1)		Incorporated by reference to Exhibit 3.1 to FSP Corp.’s Quarterly Report on Form 10-Q, filed on July 30, 2019 (File No. 001-32470).
(2)		Incorporated by reference to Exhibit 3.2 to FSP Corp.’s Quarterly Report on Form 10-Q, filed August 4, 2020 (File No. 001-32470).

*		Filed herewith.


Date	Signature	Title

Date: November 3, 2020	/s/ George J. Carter	Chief Executive Officer and Director
	George J. Carter	(Principal Executive Officer)


Date: November 3, 2020	/s/ John G. Demeritt	Chief Financial Officer
	John G. Demeritt	(Principal Financial Officer)