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Franklin Street Properties Corp. Announces Second Quarter 2017 Results

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Franklin Street Properties Corp. (the "Company", "FSP", "we" or "our")
(NYSE American: FSP), a real estate investment trust (REIT), announced
its results for the second quarter ended June 30, 2017.

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

"With the third quarter of 2017 underway, we continue to expect growth
to be led by contributions from increased leasing activity at our
properties, full year contribution from our 2016 acquisitions and
anticipated successful results from our redevelopment of 801 Marquette
in downtown Minneapolis. Over the past several years, the portfolio
transition efforts at FSP have resulted in positioning a significant
portion of our office assets into urban and infill locations. Over 75%
of our portfolio is now located within our five core markets of Atlanta,
Dallas, Denver, Houston, and Minneapolis. We are optimistic about our
prospects for long-term sustainable growth and look forward with
anticipation to the remainder of 2017 and beyond."

Highlights

  • FFO was $28.6 million or $0.27 per basic and diluted share for the
    second quarter ended June 30, 2017. We had a Net Loss of $17.4 million
    or $0.16 per basic and diluted share for the second quarter ended June
    30, 2017, primarily as a result of a provision for loss on sale of a
    property in Baltimore, Maryland, which we classified as held for sale
    in the second quarter of 2017.
  • Adjusted Funds From Operations (AFFO) was $0.18 per basic and diluted
    share for the second quarter ended June 30, 2017.
  • On June 7, 2017, we received approximately $9.0 million in cash from
    FSP 1441 Main Street Corp. as repayment in full of a mortgage loan.

Leasing and Development Update

  • Our directly owned real estate portfolio of 35 properties totaling
    approximately 10.1 million square feet was approximately 88.1% leased
    as of June 30, 2017, which was a 1.5% decrease compared to March 31,
    2017. The reduction was primarily attributable to the previously
    anticipated lease expiration on April 30, 2017 of approximately
    145,000 square feet leased by Murphy Exploration & Production Company
    at our Park Ten Phase II property in Houston, Texas.
  • During the six months ended June 30, 2017, we leased approximately
    476,000 square feet, of which approximately 112,000 square feet was
    with new tenants.
  • Third quarter 2017 leasing activity to date includes approximately
    400,000 square feet of potential leases out for execution,
    approximately 120,000 square feet of which would be new leases and
    expansions.
  • Weighted average annualized GAAP rent per square foot was
    approximately $28.68 as of June 30, 2017, compared to $27.92 as of
    December 31, 2016, $26.93 as of December 31, 2015, and $26.04 as of
    December 31, 2014. We believe that the increase is attributable to the
    enhanced quality of our real estate portfolio and value creation
    derived from our recent acquisitions, dispositions and leasing.
  • The 801 Marquette Avenue construction was substantially complete at
    the end of June and furnishing of the atrium and roof deck will occur
    in the third quarter. The project has been well received by the market
    and interest in the building from prospective tenants has been strong.
    801 Marquette Avenue provides a contemporary, forward-looking office
    experience in a vintage warehouse style office with modern systems and
    market leading amenities in the heart of the Minneapolis CBD.

Acquisition and Disposition Update

  • On June 7, 2017, we received approximately $9.0 million in cash from
    FSP 1441 Main Street Corp. as repayment in full of a mortgage loan.
  • On July 21, 2017, we entered into a Purchase and Sale Agreement with a
    third-party buyer for the potential disposition of our non-core asset
    located at 120 East Baltimore Street, Baltimore, Maryland, for a gross
    purchase price of approximately $32.8 million. This potential
    disposition remains subject to a due diligence inspection period in
    favor of the buyer and other customary conditions to closing for
    transactions of this type. Assuming that the buyer satisfactorily
    completes its due diligence inspection period and all other conditions
    to closing are satisfied, the closing should take place in second half
    of 2017.
  • We continue to selectively evaluate potential non-core property
    dispositions when appropriate values/pricing are achieved.
  • We continue to evaluate new potential acquisition opportunities within
    our five core markets.

Dividend Update

On July 7, 2017, the Company announced that its Board of Directors
declared a regular quarterly cash dividend for the three months ended
June 30, 2017 of $0.19 per share of common stock that will be paid on
August 10, 2017 to stockholders of record on July 21, 2017.

Non-GAAP Financial Information

A reconciliation of Net income (loss) to FFO, AFFO and Sequential Same
Store NOI and our definitions of FFO, AFFO and Sequential Same Store NOI
can be found on Supplementary Schedules H and I.

Real Estate Update

Supplementary schedules provide property information for the Company's
owned real estate portfolio and for two non-consolidated REITs in which
the Company holds preferred stock interests as of June 30, 2017. The
Company will also be filing an updated supplemental information package
that will provide stockholders and the financial community with
additional operating and financial data. The Company will file this
supplemental information package with the SEC and make it available on
its website at www.fspreit.com.

FFO Guidance

We are reaffirming our full year FFO guidance for 2017, which is
estimated to be in the range of approximately $1.04 to $1.08 per basic
and diluted share, and for the third quarter of 2017, which is estimated
to be in the range of approximately $0.25 to $0.26 per basic and diluted
share. We have initiated full year 2017 net income (loss) guidance in
the range of $(0.12) to $(0.08) per basic and diluted share, and for the
third quarter of 2017, we initiated net income guidance in the range of
$0.00 net to $0.01 per basic and diluted share. This guidance (a)
excludes the impact of future acquisitions, developments, dispositions,
debt financings or repayments or other capital market transactions; (b)
reflects estimates from our ongoing portfolio of properties, other real
estate investments and general and administrative expenses; and (c)
reflects our current expectations of economic conditions. We will update
guidance quarterly in our earnings releases. There can be no assurance
that the Company's actual results will not differ materially from the
estimates set forth above.

A reconciliation of the guidance for net income (loss) per share to the
guidance for FFO per share is provided as follows:

               
Q3 2017 Range Full Year 2017 Range
Low High Low High
Net income (loss) per share $ 0.00 $ 0.01 $ (0.12 ) $ (0.08 )

(Gain) loss or provision for loss on sale of properties and
property held for
sale, less applicable income tax

0.00 0.00 0.17 0.17
GAAP loss from non-consolidated REITs 0.00 0.00 0.01 0.01
FFO from non-consolidated REITs 0.01 0.01 0.03 0.03
Depreciation & Amortization   0.24   0.24   0.95     0.95  
Funds From Operations per share $ 0.25 $ 0.26 $ 1.04   $ 1.08  
 

Today's news release, along with other news about Franklin Street
Properties Corp., is available on the Internet at www.fspreit.com.
We routinely post information that may be important to investors in the
Investor Relations section of our website. We encourage investors to
consult that section of our website regularly for important information
about us and, if they are interested in automatically receiving news and
information as soon as it is posted, to sign up for E-mail Alerts.

Earnings Call

A conference call is scheduled for August 2, 2017 at 11:00 a.m. (ET) to
discuss the second quarter 2017 results. To access the call, please dial
1-800-464-8240. Internationally, the call may be accessed by dialing
1-412-902-6521. To access the call from Canada, please dial
1-866-605-3852. To listen via live audio webcast, please visit the
Webcasts & Presentations section in the Investor Relations section of
the Company's website (www.fspreit.com)
at least ten minutes prior to the start of the call and follow the
posted directions. The webcast will also be available via replay from
the above location starting one hour after the call is finished.

About Franklin Street Properties Corp.

Franklin Street Properties Corp., based in Wakefield, Massachusetts, is
focused on investing in institutional-quality office properties in the
U.S. FSP's strategy is to invest in select urban infill and central
business district (CBD) properties, with primary emphasis on our five
core markets of Atlanta, Dallas, Denver, Houston, and Minneapolis. 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.

Forward-Looking Statements

Statements made in this press release that state FSP's or
management's intentions, beliefs, expectations, or predictions for the
future may be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
This press
release may also contain forward-looking statements, such as our ability
to lease space in the future, expectations for FFO and net income (loss)
in future periods, expectations for growth and leasing activities in
future periods, the potential disposition of our 120 East Baltimore
Street property, prospects for long-term sustainable growth and the
timing and impact of the substantially competed 801 Marquette Avenue
property, that are based on current judgments and current knowledge of
management and are subject to certain risks, trends and uncertainties
that could cause actual results to differ materially from those
indicated in such forward-looking statements.
Accordingly,
readers are cautioned not to place undue reliance on forward-looking
statements.
Investors are cautioned that our forward-looking
statements involve risks and uncertainty, including without limitation,
economic conditions in the United States, disruptions in the debt
markets, economic conditions in the markets in which we own properties,
risks of a lessening of demand for the types of real estate owned by us,
changes in government regulations and regulatory uncertainty,
uncertainty about governmental fiscal policy, geopolitical events and
expenditures that cannot be anticipated such as utility rate and usage
increases, delays in construction schedules, unanticipated repairs,
additional staffing, insurance increases and real estate tax valuation
reassessments.
See the "Risk Factors" set forth in Part I, Item
1A of our Annual Report on Form 10-K for the year ended December 31,
2016, as the same may be updated from time to time in subsequent filings
with the United States Securities and Exchange Commission.
Although
we believe the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
acquisitions, dispositions, performance or achievements.
We will
not update any of the forward-looking statements after the date of this
press release to conform them to actual results or to changes in our
expectations that occur after such date, other than as required by law.

 

Franklin Street Properties Corp.
Earnings Release
Supplementary
Information

Table of Contents

 

   
 
 
Franklin Street Properties Corp. Financial Results A-C
Real Estate Portfolio Summary Information D
Portfolio and Other Supplementary Information E
Percentage of Leased Space F
Largest 20 Tenants – FSP Owned Portfolio G
Reconciliation and Definitions of Funds From Operations (FFO) and
Adjusted
Funds From Operations (AFFO) H
Reconciliation and Definition of Sequential Same Store results to
Property Net
Operating Income (NOI) and Net Income (Loss) I
 

Franklin Street Properties Corp. Financial Results
Supplementary
Schedule A
Condensed Consolidated Income (Loss) Statements
(Unaudited)

                   
For the For the
Three Months Ended Six Months Ended
      June 30,       June 30,
(in thousands, except per share amounts)     2017       2016       2017     2016
 
Revenue:
Rental $ 66,995 $ 59,453 $ 134,371 $ 117,813
Related party revenue:
Management fees and interest income from loans 1,366 1,337 2,736 2,770
Other       10           17           20           37  
Total revenue       68,371           60,807           137,127           120,620  
 
Expenses:
Real estate operating expenses 17,286 14,929 34,594 30,221
Real estate taxes and insurance 11,595 10,154 23,998 19,304
Depreciation and amortization 25,279 22,352 50,611 44,797
Selling, general and administrative 3,077 3,494 6,520 7,024
Interest       7,893           6,417           15,472           12,850  
Total expenses       65,130           57,346           131,195           114,196  
 

Income before equity in losses of non-consolidated REITs,
other,
gain (loss) on sale of properties and properties held for sale,
less
applicable income tax and taxes

3,241 3,461 5,932 6,424
Equity in losses of non-consolidated REITs (201 ) (86 ) (598 ) (372 )
Other 129 (1,009 ) 151 (1,009 )

Gain (loss) on sale of properties and properties held for sale,
less
applicable income tax

      (20,492 )         (643 )         (18,203 )         (643 )
 
Income (loss) before taxes on income (17,323 ) 1,723 (12,718 ) 4,400
Taxes on income       72           111           197           209  
Net income (loss)     $ (17,395 )       $ 1,612         $ (12,915 )       $ 4,191  
 
Weighted average number of shares outstanding, basic and diluted       107,231           100,187           107,231           100,187  
 
Net income (loss) per share, basic and diluted     $ (0.16 )       $ 0.02         $ (0.12 )       $ 0.04  
 

Franklin Street Properties Corp. Financial Results
Supplementary
Schedule B
Condensed Consolidated Balance Sheets
(Unaudited)

       
June 30, December 31,
(in thousands, except share and par value amounts)     2017     2016
Assets:
Real estate assets:
Land $ 191,578 $ 196,178
Buildings and improvements 1,792,784 1,822,183
Fixtures and equipment       4,841         4,136  
1,989,203 2,022,497
Less accumulated depreciation       348,652         337,228  
Real estate assets, net 1,640,551 1,685,269

Acquired real estate leases, less accumulated amortization of
$110,348 and $112,441,
respectively

105,811 125,491
Investment in non-consolidated REITs 73,876 75,165
Asset held for sale 31,868 3,871
Cash and cash equivalents 11,537 9,335
Restricted cash 86 31
Tenant rent receivables, less allowance for doubtful accounts of
$125 and $100, respectively
4,706 3,113
Straight-line rent receivable, less allowance for doubtful accounts
of $50 and $50, respectively
51,590 50,930
Prepaid expenses and other assets 5,124 5,231
Related party mortgage loan receivables 72,250 81,780
Other assets: derivative asset 11,333 12,907

Office computers and furniture, net of accumulated depreciation of
$1,352 and $1,277,
respectively

287 313

Deferred leasing commissions, net of accumulated amortization of
$19,465 and $18,301,
respectively

      33,548         34,697  
Total assets     $ 2,042,567       $ 2,088,133  
 
Liabilities and Stockholders' Equity:
Liabilities:
Bank note payable $ 295,000 $ 280,000
Term loans payable, less unamortized financing costs of $4,139 and
$4,783, respectively
765,861 765,217
Accounts payable and accrued expenses 55,241 57,259
Accrued compensation 1,929 3,784
Tenant security deposits 5,367 5,355
Other liabilities: derivative liabilities 4,364 5,551

Acquired unfavorable real estate leases, less accumulated
amortization of $7,308 and $8,422,
respectively

      6,961         8,923  
Total liabilities       1,134,723         1,126,089  
 
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,
107,231,155 and 107,231,155
shares issued and outstanding,
respectively

11 11
Additional paid-in capital 1,356,457 1,356,457
Accumulated other comprehensive loss 4,940 5,478
Accumulated distributions in excess of accumulated earnings       (453,564 )       (399,902 )
Total stockholders' equity       907,844         962,044  
Total liabilities and stockholders' equity     $ 2,042,567       $ 2,088,133  
 

Franklin Street Properties Corp. Financial Results
Supplementary
Schedule C
Condensed Consolidated Statements of Cash Flows
(Unaudited)

       
For the
Six Months Ended
June 30,
(in thousands)     2017     2016
Cash flows from operating activities:
Net income (loss) $ (12,915 ) $ 4,191
Adjustments to reconcile net income or loss to net cash provided by
operating activities:
Depreciation and amortization expense 51,823 45,830
Amortization of above and below market leases (855 ) 82
Equity in losses of non-consolidated REITs 598 372
Hedge ineffectiveness (151 ) 1,009

(Gain) loss on sale of properties and properties held for sale,
less applicable income
tax

18,203 643
Increase (decrease) in allowance for doubtful accounts 25 70
Changes in operating assets and liabilities:
Restricted cash (55 ) 20
Tenant rent receivables (1,618 ) (440 )
Straight-line rents (1,897 ) (1,975 )
Lease acquisition costs (318 ) (252 )
Prepaid expenses and other assets (503 ) (958 )
Accounts payable, accrued expenses and other items (6,829 ) (7,776 )
Accrued compensation (1,855 ) (1,398 )
Tenant security deposits 12 (136 )
Payment of deferred leasing commissions       (3,632 )       (6,898 )
Net cash provided by operating activities       40,033         32,384  
Cash flows from investing activities:
Property acquisitions (60,844 )
Acquired real estate leases (12,951 )
Property improvements, fixtures and equipment (28,415 ) (10,870 )
Office computers and furniture (49 ) (34 )
Distributions in excess of earnings from non-consolidated REITs 691 359
Repayment of related party mortgage loan receivable 9,530 39,331
Proceeds received on sales of real estate assets       6,160         20,058  
Net cash used in investing activities       (12,083 )       (24,951 )
Cash flows from financing activities:
Distributions to stockholders (40,748 ) (38,072 )
Borrowings under bank note payable 40,000 95,000
Repayments of bank note payable       (25,000 )       (75,000 )
Net cash used in financing activities       (25,748 )       (18,072 )
Net increase (decrease) in cash and cash equivalents 2,202 (10,639 )
Cash and cash equivalents, beginning of year       9,335         18,163  
Cash and cash equivalents, end of period     $ 11,537       $ 7,524  
 

Franklin Street Properties Corp. Earnings Release
Supplementary
Schedule D
Real Estate Portfolio Summary Information
(Unaudited
& Approximated)

       
 
 
Commercial portfolio lease expirations (1)
Total % of

Year

Square Feet

Portfolio

2017 176,955 1.7%
2018 1,298,799 12.9%
2019 1,380,110 13.7%
2020 1,046,581 10.4%
2021 771,693 7.7%
Thereafter (2) 5,410,572     53.6%
10,084,710     100.0%
 

(1) Percentages are determined based upon total square footage.
(2)
Includes 1,201,380 square feet of current vacancies.

                   
 
(dollars & square feet in 000's) As of June 30, 2017
# of % of Square % of
State Properties Investment Portfolio Feet Portfolio
 
Colorado 6 $ 541,850 33.4% 2,607 25.8%
Texas 9 353,683 21.8% 2,417 24.0%
Georgia 5 325,241 20.1% 1,967 19.5%
Minnesota (a) 2 92,342 5.7% 620 6.2%
Virginia 4 88,651 5.5% 685 6.8%
North Carolina 2 52,890 3.3% 322 3.2%
Missouri 2 50,108 3.1% 351 3.5%
Maryland (b) 1 0.0% 325 3.2%
Illinois 2 45,170 2.8% 373 3.7%
Florida 1 39,735 2.4% 213 2.1%
Indiana 1       31,009     1.9% 205     2.0%
Total 35     $ 1,620,679     100.0% 10,085    

100.0%

 

(a) Excludes approximately $19,872, which is our investment in a
property that was redeveloped and is classified as non-operating.
(b)
Excludes the asset held for sale of $31,868.

 

Franklin Street Properties Corp. Earnings Release
Supplementary
Schedule E
Portfolio and Other Supplementary Information
(Unaudited
& Approximated)

           

Recurring Capital Expenditures
Owned Portfolio

 
For the For the Six
(in thousands) Three Months Ended Months Ended
31-Mar-17 30-Jun-17 30-Jun-17
Tenant improvements $ 6,474 $ 5,363 $ 11,837
Deferred leasing costs 1,579 1,963 3,542
Non-investment capex   1,670   1,685   3,355
$ 9,723 $ 9,011 $ 18,734
                               
For the For the Six
Three Months Ended Months Ended
31-Mar-16 30-Jun-16 30-Jun-16
Tenant improvements $ 1,929 $ 1,329 $ 3,258
Deferred leasing costs 1,613 4,966 6,579
Non-investment capex   438   1,052   1,490
$ 3,980 $ 7,347 $ 11,327
       
Square foot & leased percentages June 30, December 31,
2017 2016
Owned portfolio of commercial real estate
Number of properties (a) 35 36
Square feet 10,084,710 10,163,615
Leased percentage 88.1% 89.3%
 
Investments in non-consolidated REITs
Number of properties 2 2
Square feet 1,396,071 1,396,071
Leased percentage 78.9% 78.1%
 
Single Asset REITs (SARs) managed
Number of properties 4 5
Square feet 810,278 1,075,135
Leased percentage 90.1% 89.6%
 
Total owned, investments & managed properties
Number of properties 41 43
Square feet 12,291,059 12,634,821
Leased percentage 87.2% 88.1%

(a) Excludes one property that was redeveloped and is classified as
non-operating.

The following table shows property information for our investments in
non-consolidated REITs:

                   
Square % Leased % Interest
Single Asset REIT name City State Feet 30-Jun-17 Held
FSP 303 East Wacker Drive Corp. Chicago IL 861,000 77.7% 43.7%
FSP Grand Boulevard Corp. Kansas City MO 535,071 80.7% 27.0%
1,396,071 78.9%
 

Franklin Street Properties Corp. Earnings Release
Supplementary
Schedule F
Percentage of Leased Space
(Unaudited &
Estimated)

                           
First Second
% Leased (1) Quarter % Leased (1) Quarter
as of Average % as of Average %
Property Name Location Square Feet 31-Mar-17 Leased (2) 30-Jun-17 Leased (2)
 
1 FOREST PARK Charlotte, NC 62,212 100.0% 100.0% 100.0% 100.0%
2 MEADOW POINT Chantilly, VA 138,537 100.0% 100.0% 100.0% 100.0%
3 TIMBERLAKE Chesterfield, MO 234,496 100.0% 100.0% 100.0% 100.0%
4 TIMBERLAKE EAST Chesterfield, MO 117,036 100.0% 100.0% 100.0% 100.0%
5 NORTHWEST POINT Elk Grove Village, IL 177,095 100.0% 100.0% 100.0% 100.0%
6 PARK TEN Houston, TX 157,460 65.4% 65.4% 70.5% 67.1%
7 PARK TEN PHASE II Houston, TX 156,746 100.0% 100.0% 1.4% 32.1%
8 GREENWOOD PLAZA Englewood, CO 196,236 100.0% 100.0% 100.0% 100.0%
9 ADDISON Addison, TX 288,794 86.6% 90.1% 86.6% 86.6%
10 COLLINS CROSSING Richardson, TX 300,887 100.0% 100.0% 100.0% 100.0%
11 INNSBROOK Glen Allen, VA 298,456 100.0% 100.0% 100.0% 100.0%
12 RIVER CROSSING Indianapolis, IN 205,059 98.6% 98.0% 98.6% 98.6%
13 LIBERTY PLAZA Addison, TX 218,934 88.0% 84.4% 91.2% 88.2%
14 380 INTERLOCKEN Broomfield, CO 240,185 86.2% 83.9% 86.2% 86.2%
15 390 INTERLOCKEN Broomfield, CO 241,751 98.9% 97.1% 98.9% 98.9%
16 BLUE LAGOON Miami, FL 212,619 100.0% 100.0% 100.0% 100.0%
17 ELDRIDGE GREEN Houston, TX 248,399 100.0% 100.0% 100.0% 100.0%
18 ONE OVERTON PARK Atlanta, GA 387,267 79.0% 79.3% 63.7% 73.7%
19 EAST BALTIMORE Baltimore, MD 325,445 75.9% 76.1% 75.9% 75.9%
20 LOUDOUN TECH Dulles, VA 136,658 92.0% 92.0% 95.7% 94.5%
21 4807 STONECROFT Chantilly, VA 111,469 100.0% 100.0% 100.0% 100.0%
22 121 SOUTH EIGHTH ST Minneapolis, MN 293,422 74.3% 69.3% 77.3% 78.4%
23 EMPEROR BOULEVARD Durham, NC 259,531 100.0% 100.0% 100.0% 100.0%
24 LEGACY TENNYSON CTR Plano, TX 202,600 65.6% 65.6% 65.6% 65.6%
25 ONE LEGACY Plano, TX 214,110 100.0% 100.0% 100.0% 100.0%
26 909 DAVIS Evanston, IL 195,708 85.9% 86.0% 78.5% 78.2%
27 ONE RAVINIA DRIVE Atlanta, GA 386,603 90.9% 90.9% 90.0% 89.3%
28 TWO RAVINIA Atlanta, GA 411,047 77.4% 77.2% 84.0% 79.3%
29 WESTCHASE I & II Houston, TX 629,025 84.4% 84.6% 82.5% 83.8%
30 1999 BROADWAY Denver, CO 676,379 75.7% 75.1% 76.7% 76.4%
31 999 PEACHTREE Atlanta, GA 621,946 97.8% 98.1% 99.5% 98.9%
32 1001 17th STREET Denver, CO 655,413 90.7% 90.7% 91.3% 90.9%
33 PLAZA SEVEN Minneapolis, MN 326,445 95.7% 95.4% 96.5% 96.4%
34 PERSHING PLAZA Atlanta, GA 160,145 97.4% 97.4% 97.4% 97.4%
35 600 17th STREET Denver, CO 596,595     90.9%     91.0%     91.2%     90.4%
TOTAL WEIGHTED AVERAGE 10,084,710     89.6%     89.4%     88.1%     88.5%
       

(1) % Leased as of month's end includes all leases that expire on the
last day of the quarter.
(2) Average quarterly percentage is the
average of the end of the month leased percentage for each of the 3
months during the quarter.

 

Franklin Street Properties Corp. Earnings Release
Supplementary
Schedule G
Largest 20 Tenants – FSP Owned Portfolio
(Unaudited
& Estimated)

 

The following table includes the largest 20 tenants in FSP's owned
portfolio based on total square feet:

 

As of June 30, 2017

       
% of
Tenant Sq Ft Portfolio
1 Quintiles IMS Healthcare Incorporated 259,531 2.9%
2 US Government 255,610 2.8%
3 CITGO Petroleum Corporation 248,399 2.7%
4 Newfield Exploration Company 234,495 2.6%
5 Eversheds Sutherland (US) LLP 222,422 2.5%
6 Centene Management Company, LLC 216,879 2.4%
7 Burger King Corporation 212,619 2.3%
8 EOG Resources, Inc. 174,215 1.9%
9 SunTrust Bank 159,671 1.8%
10 T-Mobile South, LLC dba T-Mobile 151,792 1.7%
11 Citicorp Credit Services, Inc. 146,260 1.6%
12 Petrobras America, Inc. 144,813 1.6%
13 Jones Day 140,342 1.5%
14 Argo Data Resource Corporation 140,246 1.5%
15 Vail Corp d/b/a Vail Resorts 125,588 1.4%
16 Federal National Mortgage Association 123,144 1.4%
17 Kaiser Foundation Health Plan 120,979 1.3%
18 Randstad US 114,235 1.3%
19 Giesecke & Devrient America 112,110 1.2%
20 Northrup Grumman Systems Corp. 111,469     1.2%
Total 3,414,819     37.6%
 
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule H
Reconciliation and Definitions of Funds From Operations ("FFO") and
Adjusted Funds From Operations ("AFFO")
 

A reconciliation of Net income (loss) to FFO and AFFO is shown below and
a definition of FFO and AFFO is provided on Supplementary Schedule I.
Management believes FFO and AFFO are used broadly throughout the real
estate investment trust (REIT) industry as measurements of performance.
The Company has included the National Association of Real Estate
Investment Trusts (NAREIT) FFO definition as of May 17, 2016 in the
table and notes that other REITs may not define FFO in accordance with
the current NAREIT definition or may interpret the current NAREIT
definition differently. The Company's computation of FFO and AFFO may
not be comparable to FFO or AFFO reported by other REITs or real estate
companies that define FFO or AFFO differently.

               

Reconciliation of Net Income (Loss) to FFO and
AFFO:

Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share amounts) 2017 2016 2017 2016
 
Net income (loss) $ (17,395 ) $ 1,612 $ (12,915 ) $ 4,191

(Gain) loss on sale of properties and properties held
for
sale, less applicable income tax

20,492 643 18,203 643
GAAP loss from non-consolidated REITs 201 86 598 372
FFO from non-consolidated REITs 800 895 1,591 1,540
Depreciation & amortization   24,592     22,352     49,755     44,879  
NAREIT FFO 28,690 25,588 57,232 51,625
Hedge ineffectiveness (129 ) 1,009 (151 ) 1,009
Acquisition costs of new properties   10     134     18     134  
Funds From Operations (FFO) $ 28,571   $ 26,731   $ 57,099   $ 52,768  
 
Funds From Operations (FFO) $ 28,571 $ 26,731 $ 57,099 $ 52,768
Reverse FFO from non-consolidated REITs (800 ) (895 ) (1,591 ) (1,540 )
Distributions from non-consolidated REITs 345 332 691 359
Amortization of deferred financing costs 606 517 1,212 1,034
Straight-line rent (792 ) (700 ) (1,874 ) (1,975 )
Tenant improvements (5,363 ) (1,329 ) (11,837 ) (3,258 )
Leasing commissions (1,963 ) (4,966 ) (3,542 ) (6,579 )
Non-investment capex   (1,685 )   (1,052 )   (3,355 )   (1,490 )
Adjusted Funds From Operations (AFFO) $ 18,919   $ 18,638   $ 36,803   $ 39,319  
 
Per Share Data
EPS $ (0.16 ) $ 0.02 $ (0.12 ) $ 0.04
FFO $ 0.27 $ 0.27 $ 0.53 $ 0.53
AFFO $ 0.18 $ 0.19 $ 0.34 $ 0.39
 
Weighted average shares (basic and diluted) 107,231   100,187   107,231   100,187  

Funds From Operations ("FFO")

The Company evaluates performance based on Funds From Operations, which
we refer to as FFO, as management believes that FFO represents the most
accurate measure of activity and is the basis for distributions paid to
equity holders. The Company defines FFO as net income or loss (computed
in accordance with GAAP), excluding gains (or losses) from sales of
property, hedge ineffectiveness and acquisition costs of newly acquired
properties that are not capitalized, plus depreciation and amortization,
including amortization of acquired above and below market lease
intangibles and impairment charges on properties or investments in
non-consolidated REITs, and after adjustments to exclude equity in
income or losses from, and, to include the proportionate share of FFO
from, non-consolidated REITs.

FFO should not be considered as an alternative to net income or loss
(determined in accordance with GAAP), nor as an indicator of the
Company's financial performance, nor as an alternative to cash flows
from operating activities (determined in accordance with GAAP), nor as a
measure of the Company's liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Company's needs.

Other real estate companies and NAREIT, may define this term in a
different manner. We have included the NAREIT FFO as of May 17, 2016 in
the table and note that other REITs may not define FFO in accordance
with the current NAREIT definition or may interpret the current NAREIT
definition differently than we do.

We believe that in order to facilitate a clear understanding of the
results of the Company, FFO should be examined in connection with net
income or loss and cash flows from operating, investing and financing
activities in the consolidated financial statements.

Adjusted Funds From Operations ("AFFO")

The Company also evaluates performance based on Adjusted Funds From
Operations, which we refer to as AFFO. The Company defines AFFO as (1)
FFO, (2) excluding our proportionate share of FFO and including
distributions received, from non-consolidated REITs, (3) excluding the
effect of straight-line rent, (4) plus deferred financing costs and (5)
less recurring capital expenditures that are generally for maintenance
of properties, which we call non-investment capex or are second
generation capital expenditures. Second generation costs include
re-tenanting space after a tenant vacates, which include tenant
improvements and leasing commissions.

We exclude development/redevelopment activities, capital expenditures
planned at acquisition and costs to reposition a property. We also
exclude first generation leasing costs, which are generally to fill
vacant space in properties we acquire or were planned for at acquisition.

AFFO should not be considered as an alternative to net income or loss
(determined in accordance with GAAP), nor as an indicator of the
Company's financial performance, nor as an alternative to cash flows
from operating activities (determined in accordance with GAAP), nor as a
measure of the Company's liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Company's needs. Other real
estate companies may define this term in a different manner. We believe
that in order to facilitate a clear understanding of the results of the
Company, AFFO should be examined in connection with net income or loss
and cash flows from operating, investing and financing activities in the
consolidated financial statements.

 
Franklin Street Properties Corp. Earnings Release
Supplementary Schedule I

Reconciliation and Definition of Sequential Same Store results to
property Net Operating Income (NOI) and
Net Income (Loss)

 

Net Operating Income ("NOI")

The Company provides property performance based on Net Operating Income,
which we refer to as NOI. Management believes that investors are
interested in this information. NOI is a non-GAAP financial measure that
the Company defines as net income or loss (the most directly comparable
GAAP financial measure) plus selling, general and administrative
expenses, depreciation and amortization, including amortization of
acquired above and below market lease intangibles and impairment
charges, interest expense, less equity in earnings of nonconsolidated
REITs, interest income, management fee income, hedge ineffectiveness,
gains or losses on the sale of assets and excludes non-property specific
income and expenses. The information presented includes footnotes and
the data is shown by region with properties owned in the periods
presented, which we call Sequential Same Store. The comparative
Sequential Same Store results include properties held for the periods
presented and exclude properties that are non-operating, being developed
or redeveloped, dispositions and significant nonrecurring income such as
bankruptcy settlements and lease termination fees. NOI, as defined by
the Company, may not be comparable to NOI reported by other REITs that
define NOI differently. NOI should not be considered an alternative to
net income or loss as an indication of our performance or to cash flows
as a measure of the Company's liquidity or its ability to make
distributions. The calculations of NOI and Sequential Same Store are
shown in the following table:

                   
Rentable
Square Feet Three Months Ended Three Months Ended Inc %
(in thousands) or RSF 30-Jun-17 31-Mar-17     (Dec) Change
Region
East 1,007 $ 3,941 $ 3,917 $ 24 0.6 %
MidWest 1,549 3,908 4,364 (456 ) (10.4 ) %
South 4,597 16,463 17,008 (545 ) (3.2 ) %
West 2,607   12,045     10,959         1,086   9.9   %
Same Store 9,760 36,357 36,248 109 0.3 %
 
Acquisitions                   %

NOI* from the continuing
portfolio

9,760 36,357 36,248 109 0.3 %

Dispositions, Non-Operating,
Development or
Redevelopment

325   467     625       (158 ) (0.4 ) %
NOI* 10,085 $ 36,824   $ 36,873       $ (49 ) (0.1 ) %
 
Sequential Same Store $ 36,357 $ 36,248 $ 109 0.3 %
 
Less Nonrecurring
Items in NOI* (a)   1,178     65         1,113   (3.1 ) %
 
Comparative
Sequential Same Store $ 35,179   $ 36,183       $ (1,004 ) (2.8 ) %
 

 

Three Months Ended Three Months Ended
Reconciliation to Net income       30-Jun-17 31-Mar-17
Net income (loss) $ (17,395 ) $ 4,480
Add (deduct):

(Gain) loss on sale of
properties and property held
for
sale, less applicable
income taxes

20,492 (2,289 )
Hedge ineffectiveness (129 ) (22 )
Management fee income (768 ) (794 )
Depreciation and amortization 25,279 25,332

Amortization of above/below
market leases

(687 ) (168 )

Selling, general and
administrative

3,077 3,443
Interest expense 7,893 7,579
Interest income (1,206 ) (1,214 )

Equity in losses of non-
consolidated REITs

201 397

Non-property specific items,
net

  67     129  
 
 
NOI* $ 36,824   $ 36,873  

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