FSP Franklin Street Properties Corp

Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE MKT: FSP), a real estate investment trust (REIT), announced its results for the fourth quarter and year ended December 31, 2016.

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

“As 2017 begins, FSP expects to see Funds From Operations (FFO) growth for the full year, resulting in between $1.04 and $1.09 per fully diluted share. We 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 portfolio into more 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 growth and look forward with anticipation to 2017 and beyond.”

Highlights

• FFO was $26.9 million and $106.3 million or $0.25 and $1.03 per share for the fourth quarter and year ended December 31, 2016, respectively. Net Income was $1.7 million and $8.4 million or $0.02 and $0.08 per share for the fourth quarter and year ended December 31, 2016, respectively.
• We are maintaining our full year FFO guidance for 2017 to be in the range of approximately $1.04 to $1.09 per diluted share and, for the first quarter of 2017, we estimate FFO to be in the range of approximately $0.25 to $0.26 per diluted share.
• Adjusted Funds From Operations (AFFO) was $0.13 and $0.70 per diluted share for the fourth quarter and year ended December 31, 2016.
• Portfolio was approximately 89.3% leased as of December 31, 2016.
• On December 1, 2016, we acquired an approximately 613,527 square foot property known as Dominion Towers located at 600 17th Street in Denver, Colorado for approximately $154 million. We funded the acquisition with the proceeds of a $150 million unsecured, two-year bridge loan that closed on November 30, 2016 and existing cash on hand.
• On December 16, 2016, we sold a property located in Federal Way, Washington and received approximately $7.3 million in net proceeds, and on January 6, 2017, we sold a property located in Milpitas, California and received approximately $6.2 million in net proceeds.

Leasing and Development Update

• Our directly owned real estate portfolio of 36 properties totaling approximately 10.2 million square feet was approximately 89.3% leased as of December 31, 2016.
• During the quarter, we leased approximately 325,000 square feet, of which approximately 88,000 square feet was with new tenants. During 2016, we leased approximately 1,194,000 square feet, which represents nearly 12% of the total portfolio. Renewals accounted for approximately 75%, or approximately 895,000 square feet of the total leasing during 2016.
• Executed an expansion and extension with Alliance Data Systems, the anchor tenant at One Legacy Circle in Plano, Texas, for approximately 107,700 square feet until June 2026.
• The 801 Marquette Avenue demolition is complete and the building is open for tours. Delivery of the completed project is expected by the end of the second quarter of 2017. Leasing activity and market/tenant reception have been positive to date.

Acquisition and Disposition Update

• On December 1, 2016, FSP expanded its presence in downtown Denver, Colorado to nearly two million square feet with the off market acquisition of the approximately 613,527 square foot property known as Dominion Towers located at 600 17th Street, for approximately $154 million.
• On December 16, 2016, FSP sold its approximately 117,000 square foot office property located in Federal Way, Washington, which was our only property remaining in that market for approximately $7.3 million in net proceeds.
• On January 6, 2017, FSP sold its approximately 36,000 square foot office property in Milpitas, California, which was our only property remaining in that market for approximately $6.2 million in net proceeds.
• Although substantially complete, FSP will continue to transition out of remaining non-core assets when appropriate values/pricing are achieved.

Dividend Update

On January 6, 2017, the Company announced that its Board of Directors declared a regular quarterly dividend for the three months ended December 31, 2016 of $0.19 per share of common stock that will be paid on February 9, 2017 to stockholders of record on January 20, 2017.

Non-GAAP Financial Information

A reconciliation of Net Income to FFO and AFFO and our definitions of FFO and AFFO can be found on Supplementary Schedule H.

FFO Guidance

We are maintaining our full year FFO guidance for 2017 to be in the range of approximately $1.04 to $1.09 per diluted share and, for the first quarter of 2017, we estimate FFO to be in the range of approximately $0.25 to $0.26 per 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.

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 December 31, 2016. 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.

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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 February 15, 2017 at 10:00 a.m. (ET) to discuss the fourth quarter and year-end 2016 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 top five 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 expectations for FFO in future periods and the timing and impact of the ongoing redevelopment of the 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   Franklin Street Properties Corp. Financial Results Supplementary Schedule A Condensed Consolidated Income (Loss) Statements

(Unaudited)

        For the       For the Three Months Ended Year Ended         December 31,       December 31, (in thousands, except per share amounts)       2016       2015       2016       2015             Revenue: Rental $ 64,611 $ 59,656 $ 244,349 $ 237,856 Related party revenue: Management fees and interest income from loans 1,357 1,575 5,465 5,930 Other         20         19         74         81 Total revenue         65,988         61,250         249,888         243,867   Expenses: Real estate operating expenses 18,209 15,939 65,335 61,890 Real estate taxes and insurance 10,618 9,202 40,140 38,660 Depreciation and amortization 24,957 22,569 93,052 91,359 Selling, general and administrative 3,683 3,128 14,126 13,291 Interest         6,931         6,455         26,548         25,432 Total expenses         64,398         57,293         239,201         230,632   Income before interest income, equity in losses of non-consolidated REITs, other, gain (loss) on sale of properties and property held for sale, less applicable income tax and taxes 1,590 3,957 10,687 13,235 Interest income — — — 1 Equity in losses of non-consolidated REITs (263) (807) (831) (1,451) Other 2,266 — 1,878 — Gain (loss) on sale of properties and property held for sale, less applicable income tax         (1,772)         12,251         (2,938)         23,662   Income before taxes on income 1,821 15,401 8,796 35,447 Taxes on income         92         (11)         418         433 Net income       $ 1,729       $ 15,412       $ 8,378       $ 35,014   Weighted average number of shares outstanding, basic and diluted         107,231         100,187         102,843         100,187   Net income per share, basic and diluted       $ 0.02       $ 0.15       $ 0.08       $ 0.35   Franklin Street Properties Corp. Financial Results Supplementary Schedule B Condensed Consolidated Balance Sheets (Unaudited)         December 31,       December 31, (in thousands, except share and par value amounts)       2016       2015 Assets: Real estate assets: Land $ 196,178 $ 170,021 Buildings and improvements 1,822,183 1,637,066 Fixtures and equipment         4,136         2,528 2,022,497 1,809,615 Less accumulated depreciation         337,228         299,991 Real estate assets, net 1,685,269 1,509,624 Acquired real estate leases, less accumulated amortization of $112,441 and $112,844, respectively 125,491 108,046 Investment in non-consolidated REITs 75,165 77,019 Asset held for sale 3,871 — Cash and cash equivalents 9,335 18,163 Restricted cash 31 23 Tenant rent receivables, less allowance for doubtful accounts of $100 and $130, respectively 3,113 2,898 Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively 50,930 48,502 Prepaid expenses and other assets 5,231 5,484 Related party mortgage loan receivables 81,780 118,641 Other assets: derivative asset 12,907 1,132 Office computers and furniture, net of accumulated depreciation of $1,277 and $1,333, respectively 313 484 Deferred leasing commissions, net of accumulated amortization of $18,301 and $20,002, respectively         34,697         28,999 Total assets       $ 2,088,133       $ 1,919,015   Liabilities and Stockholders’ Equity: Liabilities: Bank note payable $ 280,000 $ 290,000 Term loans payable, less unamortized financing costs of $4,783 and $2,353, respectively 765,217 617,647 Accounts payable and accrued expenses 57,259 49,489 Accrued compensation 3,784 3,726 Tenant security deposits 5,355 4,829 Other liabilities: derivative liabilities 5,551 8,243 Acquired unfavorable real estate leases, less accumulated amortization of $8,422 and $9,368, respectively         8,923         9,425 Total liabilities         1,126,089         983,359   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 100,187,405 shares issued and outstanding, respectively 11 10 Additional paid-in capital 1,356,457 1,273,556 Accumulated other comprehensive loss 5,478 (7,111) Accumulated distributions in excess of accumulated earnings         (399,902)         (330,799) Total stockholders’ equity         962,044         935,656 Total liabilities and stockholders’ equity       $ 2,088,133       $ 1,919,015   Franklin Street Properties Corp. Financial Results Supplementary Schedule C Condensed Consolidated Statements of Cash Flows (Unaudited)         For the Year Ended December 31, (in thousands)       2016       2015 Cash flows from operating activities:       Net income $ 8,378 $ 35,014 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 95,243 93,426 Amortization of above market lease (496) (158) Equity in losses of non-consolidated REITs 831 1,451 Hedge ineffectiveness (1,878) — Gain (loss) on sale of properties, less applicable income tax 2,938 (23,662) Increase (decrease) in allowance for doubtful accounts (30) (195) Changes in operating assets and liabilities: Restricted cash (8) 719 Tenant rent receivables (185) 2,030 Straight-line rents (1,977) (2,448) Lease acquisition costs (1,095) (1,487) Prepaid expenses and other assets (721) 422 Accounts payable, accrued expenses and other items 5,751 5,505 Accrued compensation 58 (32) Tenant security deposits 526 581 Payment of deferred leasing commissions         (12,965)         (8,276) Net cash provided by operating activities         94,370         102,890 Cash flows from investing activities: Property acquisitions (221,119) (66,104) Acquired real estate leases (51,509) (10,604) Property improvements, fixtures and equipment (37,490) (21,929) Distributions in excess of earnings from non-consolidated REITs 1,023 107 Repayment of related party mortgage loan receivable 39,861 — Investment in related party mortgage loan receivable (3,000) (25,000) Proceeds received on sales of real estate assets         27,262         85,426 Net cash used in investing activities         (244,972)         (38,104) Cash flows from financing activities: Distributions to stockholders (77,481) (76,142) Proceeds from equity offering 83,511 — Offering costs (609) — Borrowings under bank note payable 175,000 110,000 Repayments of bank note payable (185,000) (88,000) Borrowing of term loan payable 150,000 — Deferred financing costs         (3,647)         — Net cash provided by (used in) financing activities         141,774         (54,142) Net increase (decrease) in cash and cash equivalents (8,828) 10,644 Cash and cash equivalents, beginning of year         18,163         7,519 Cash and cash equivalents, end of period       $ 9,335       $ 18,163   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 704,297 6.9% 2018 1,219,193 12.0% 2019 1,359,362 13.4% 2020 1,017,262 10.0% 2021 856,990 8.4% Thereafter (2) 5,006,511       49.3% 10,163,615       100.0%   (1) Percentages are determined based upon total square footage. (2) Includes 1,086,285 square feet of current vacancies.                               (dollars & square feet in 000's) As of December 31, 2016 # of % of Square % of State Properties Investment Portfolio Feet Portfolio   Texas 9 $ 357,151 21.3% 2,417 23.8% Colorado 6 545,708 32.5% 2,607 25.7% Georgia 5 324,796 19.4% 1,998 19.7% Virginia 4 90,478 5.4% 685 6.7% Minnesota (a) 2 91,645 5.5% 632 6.2% North Carolina 2 53,656 3.2% 322 3.2% Missouri 2 49,137 2.9% 352 3.4% Illinois 2 44,450 2.7% 372 3.6% Maryland 1 49,394 2.9% 325 3.2% Florida 1 40,507 2.4% 213 2.1% Indiana 1 30,084 1.8% 205 2.0% California (b) 1     —   — 36   0.4% Total 36   $ 1,677,006   100.0% 10,164   100.0%   (a) Excludes approximately $8,263, which is our investment in a property being redeveloped. (b) Excludes asset held for sale of $3,871, which was sold on January 6, 2017.  

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule E

Portfolio and Other Supplementary Information

(Unaudited & Approximated)

  Recurring Capital Expenditures Owned Portfolio (in thousands)       For the Three Months Ended       Year ended 31-Mar-16       30-Jun-16       30-Sep-16       31-Dec-16 31-Dec-16 Tenant improvements $ 1,929 $ 1,329 $ 3,325 $ 7,885 $ 14,468 Deferred leasing costs 1,613 4,966 2,247 3,783 12,609 Non-investment capex   438   1,052   2,211   1,842   5,543 $ 3,980 $ 7,347 $ 7,783 $ 13,510 $ 32,620                               For the Three Months Ended: Year ended 31-Mar-15 30-Jun-15 30-Sep-15 31-Dec-15 31-Dec-15 Tenant improvements $ 2,936 $ 3,420 $ 1,794 $ 3,788 $ 11,938 Deferred leasing costs 830 1,539 1,490 3,952 7,811 Non-investment capex   643   1,411   1,090   1,162   4,306 $ 4,409 $ 6,370 $ 4,374 $ 8,902 $ 24,055             Square foot & leased percentages December 31, December 31, 2016 2015 Owned portfolio of commercial real estate Number of properties (a) 36 36 Square feet 10,163,615 9,494,953 Leased percentage 89.3% 91.6%   Investments in non-consolidated REITs Number of properties 2 2 Square feet 1,396,071 1,396,071 Leased percentage 78.1% 73.5%   Single Asset REITs (SARs) managed Number of properties 5 7 Square feet 1,075,135 1,487,026 Leased percentage 89.6% 77.0%   Total owned, investments & managed properties Number of properties 43 45 Square feet 12,634,821 12,378,050 Leased percentage 88.1% 87.8%

(a) Excludes property in redevelopment in 2016.

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

                              Square % Leased % Interest Single Asset REIT name City State Feet 31-Dec-16 Held FSP 303 East Wacker Drive Corp. Chicago IL 861,000 73.5% 43.7% FSP Grand Boulevard Corp. Kansas City MO 535,071       85.4% 27.0% 1,396,071       78.1%   Franklin Street Properties Corp. Earnings Release Supplementary Schedule F Percentage of Leased Space (Unaudited & Estimated)                                 Third             Fourth % Leased (1) Quarter % Leased (1) Quarter as of Average % as of Average % Property Name Location Square Feet 30-Sep-16 Leased (2) 31-Dec-16 Leased (2)   1 HILLVIEW CENTER Milpitas, CA 36,288 100.0% 100.0% 100.0% 100.0% 2 FOREST PARK Charlotte, NC 62,212 100.0% 100.0% 100.0% 100.0% 3 MEADOW POINT Chantilly, VA 138,537 100.0% 100.0% 100.0% 100.0% 4 TIMBERLAKE Chesterfield, MO 234,496 100.0% 98.8% 100.0% 100.0% FEDERAL WAY (3) Federal Way, WA — 61.6% 61.6% (3) (3) 5 NORTHWEST POINT Elk Grove Village, IL 176,848 100.0% 100.0% 100.0% 100.0% 6 TIMBERLAKE EAST Chesterfield, MO 117,036 100.0% 98.7% 100.0% 100.0% 7 PARK TEN Houston, TX 157,460 65.4% 65.4% 65.4% 65.4% 8 ADDISON Addison, TX 288,667 94.0% 97.2% 97.0% 95.0% 9 COLLINS CROSSING Richardson, TX 300,887 100.0% 100.0% 100.0% 100.0% 10 GREENWOOD PLAZA Englewood, CO 196,236 100.0% 100.0% 100.0% 100.0% 11 RIVER CROSSING Indianapolis, IN 205,059 96.6% 93.4% 96.6% 96.6% 12 LIBERTY PLAZA Addison, TX 218,934 81.5% 81.8% 81.3% 80.9% 13 INNSBROOK Glen Allen, VA 298,456 100.0% 100.0% 100.0% 100.0% 14 380 INTERLOCKEN Broomfield, CO 240,185 93.2% 93.2% 82.7% 85.3% 15 BLUE LAGOON Miami, FL 212,619 100.0% 100.0% 100.0% 100.0% 16 ELDRIDGE GREEN Houston, TX 248,399 100.0% 100.0% 100.0% 100.0% 17 ONE OVERTON PARK Atlanta, GA 387,267 94.0% 92.6% 80.7% 87.2% 18 390 INTERLOCKEN Broomfield, CO 241,751 95.2% 95.2% 96.1% 95.8% 19 EAST BALTIMORE Baltimore, MD 325,445 76.5% 81.3% 76.5% 76.5% 20 PARK TEN PHASE II Houston, TX 156,746 100.0% 100.0% 100.0% 100.0% 21 LOUDOUN TECH Dulles, VA 136,658 92.0% 92.0% 92.0% 92.0% 22 4807 STONECROFT Chantilly, VA 111,469 100.0% 100.0% 100.0% 100.0% 23 121 SOUTH EIGHTH ST Minneapolis, MN 305,990 56.0% 56.4% 61.1% 57.7% 24 EMPEROR BOULEVARD Durham, NC 259,531 100.0% 100.0% 100.0% 100.0% 25 LEGACY TENNYSON CTR Plano, TX 202,600 65.6% 77.1% 65.6% 65.6% 26 ONE LEGACY Plano, TX 214,110 100.0% 100.0% 100.0% 100.0% 27 909 DAVIS Evanston, IL 195,080 80.5% 80.5% 86.1% 86.1% 28 ONE RAVINIA DRIVE Atlanta, GA 386,603 91.8% 92.6% 90.9% 91.2% 29 TWO RAVINIA Atlanta, GA 442,130 78.1% 78.1% 79.0% 78.7% 30 WESTCHASE I & II Houston, TX 629,025 84.0% 84.1% 83.4% 83.4% 31 1999 BROADWAY Denver, CO 676,379 81.5% 81.3% 74.8% 74.3% 32 999 PEACHTREE Atlanta, GA 621,946 95.7% 95.7% 97.5% 97.5% 33 1001 17th STREET Denver, CO 655,413 89.0% 88.1% 89.9% 89.3% 34 PLAZA SEVEN Minneapolis, MN 326,413 95.6% 95.6% 95.6% 95.6% 35 PERSHING PLAZA Atlanta, GA 160,145 97.4% 97.4% 97.4% 97.4% 36 600 17th STREET (4) Denver, CO 596,595       (4)       (4)       92.7%       92.7% TOTAL WEIGHTED AVERAGE 10,163,615       89.5%       89.8%       89.3%       89.0%   (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. (3) Property was sold on December 16, 2016. (4) Property was acquired December 1, 2016. Averages are for the period held in the fourth 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 December 31, 2016                     % 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 Sutherland Asbill & Brennan LLP 222,422 2.5% 6 Burger King Corporation 212,619 2.3% 7 Centene Management Company, LLC 206,262 2.3% 8 Citicorp Credit Services, Inc. 176,848 1.9% 9 EOG Resources, Inc. 174,215 1.9% 10 SunTrust Bank 159,671 1.8% 11 T-Mobile South, LLC dba T-Mobile 151,792 1.7% 12 Petrobras America, Inc. 144,813 1.6% 13 Murphy Exploration & Production Company 144,677 1.6% 14 Jones Day 140,342 1.5% 15 Argo Data Resource Corporation 140,246 1.5% 16 Vail Corp d/b/a Vail Resorts 125,588 1.4% 17 Federal National Mortgage Association 123,144 1.4% 18 Kaiser Foundation Health Plan 120,979 1.3% 19 Giesecke & Devrient America 112,110 1.2% 20 Houghton Mifflin Harcourt Publishing Company 111,550       1.2% Total 3,465,313       38.2%   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 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 to FFO and AFFO:       Three Months Ended       Year Ended December 31, December 31, (In thousands, except per share amounts) 2016       2015 2016       2015   Net income $ 1,729 $ 15,412 $ 8,378 $ 35,014 Gain (loss) on sale of properties and property held for sale, less applicable income tax 1,772 (12,251) 2,938 (23,662) GAAP loss from non-consolidated REITs 263 807 831 1,451 FFO from non-consolidated REITs 714 601 3,041 2,732 Depreciation & amortization   24,565   22,507   92,556   91,201 NAREIT FFO 29,043 27,076 107,744 106,736 Hedge ineffectiveness (2,266) — (1,878) — Acquisition costs of new properties   130   —   479   154 Funds From Operations (FFO) $ 26,907 $ 27,076 $ 106,345 $ 106,890   Funds From Operations (FFO) $ 26,907 $ 27,076 $ 106,345 $ 106,890 Reverse FFO from non-consolidated REITs (714) (601) (3,041) (2,732) Distributions from non-consolidated REITs 332 26 1,023 107 Amortization of deferred financing costs 535 518 2,191 2,068 Straight-line rent 117 (875) (1,977) (2,448) Tenant improvements (7,885) (3,788) (14,468) (11,938) Leasing commissions (3,783) (3,952) (12,609) (7,811) Non-investment capex   (1,842)   (1,162)   (5,543)   (4,306) Adjusted Funds From Operations (AFFO) $ 13,667 $ 17,242 $ 71,921 $ 79,830   Per Share Data EPS $ 0.02 $ 0.15 $ 0.08 $ 0.35 FFO $ 0.25 $ 0.27 $ 1.03 $ 1.07 AFFO $ 0.13 $ 0.17 $ 0.70 $ 0.80   Weighted average shares (basic and diluted) 107,231 100,187 102,843 100,187

During the three months ended June 30, 2016 we changed the definition of FFO to exclude hedge ineffectiveness, which does not affect any prior period. Our interest rate swaps effectively fix interest rates on our term loans; however, there is no floor on the variable interest rate of the swaps whereas the current term loans are subject to a zero percent floor. As a result there is a mismatch and the ineffective portion of the derivatives’ changes in fair value are recognized directly into earnings each quarter as hedge ineffectiveness. We believe that FFO excluding hedge ineffectiveness is useful supplemental information regarding our operating performance as it provides a more meaningful and consistent comparison of our operating performance and allows investors to more easily compare our operating results.

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 (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 (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 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 (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 and cash flows from operating, investing and financing activities in the consolidated financial statements.

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For Franklin Street Properties Corp.Georgia Touma, 877-686-9496