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 first quarter ended March 31, 2017.

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

“With the second quarter of 2017 underway, FSP continues to expect to see Funds From Operations (FFO) growth for the full year, resulting in our expectation that full year FFO will be between approximately $1.04 and $1.08 per diluted share. 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 portfolio 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 $28.5 million or $0.27 per share for the first quarter ended March 31, 2017. Net Income was $4.5 million or $0.04 per share for the first quarter ended March 31, 2017.
• Sequential Same Store results grew by approximately 2.9% from December 31, 2016 to March 31, 2017.
• We are adjusting our full year FFO guidance for 2017 to be in the range of approximately $1.04 to $1.08 per diluted share and, for the second quarter of 2017, we estimate FFO will be in the range of approximately $0.25 to $0.26 per diluted share.
• Adjusted Funds From Operations (AFFO) was $0.17 per diluted share for the first quarter ended March 31, 2017.
• Portfolio properties were approximately 89.6% leased as of March 31, 2017, compared to approximately 89.3% leased as of December 31, 2016.
• 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 35 properties totaling approximately 10.1 million square feet was approximately 89.6% leased as of March 31, 2017, compared to approximately 89.3% as of December 31, 2016.
• During the first quarter of 2017, we leased approximately 206,000 square feet, of which approximately 62,000 square feet was with new tenants.
• Weighted average annualized GAAP rent per square foot was approximately $28.84 as of March 31, 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 is expected to be substantially completed by the end of the second quarter of 2017. The project has received high marks from the market and interest in the building from prospective tenants has been very strong. When completed, 801 Marquette will deliver 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 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.
• We continue to evaluate new potential acquisition opportunities within our five core markets.
• We will continue to selectively evaluate potential non-core property dispositions when appropriate values/pricing are achieved.

Dividend Update

On April 7, 2017, the Company announced that its Board of Directors declared a regular quarterly dividend for the three months ended March 31, 2017 of $0.19 per share of common stock that will be paid on May 11, 2017 to stockholders of record on April 21, 2017.

Non-GAAP Financial Information

A reconciliation of Net Income 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.

FFO Guidance

We are adjusting our full year FFO guidance for 2017 to be in the range of approximately $1.04 to $1.08 per diluted share and, for the second 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 March 31, 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.

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 May 3, 2017 at 10:00 a.m. (ET) to discuss the first 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 expectations for FFO in future periods, prospects for long-term sustainable growth 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

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

I    

Franklin Street Properties Corp. Financial Results

Supplementary Schedule A

Condensed Consolidated Income (Loss) Statements

(Unaudited)

    For the Three Months Ended     March 31, (in thousands, except per share amounts)   2017     2016     Revenue: Rental $ 67,376 $ 58,360 Related party revenue: Management fees and interest income from loans 1,370 1,433 Other     10       20   Total revenue     68,756       59,813     Expenses: Real estate operating expenses 17,308 15,292 Real estate taxes and insurance 12,403 9,150 Depreciation and amortization 25,332 22,445 Selling, general and administrative 3,443 3,530 Interest     7,579       6,433   Total expenses     66,065       56,850    

Income before 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

2,691 2,963 Equity in losses of non-consolidated REITs (397 ) (286 ) Other 22 —

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

    2,289       —     Income before taxes on income 4,605 2,677 Taxes on income     125       98   Net income   $ 4,480     $ 2,579     Weighted average number of shares outstanding, basic and diluted     107,231       100,187     Net income per share, basic and diluted   $ 0.04     $ 0.03      

Franklin Street Properties Corp. Financial Results

Supplementary Schedule B

Condensed Consolidated Balance Sheets

(Unaudited)

    March 31, December 31, (in thousands, except share and par value amounts)   2017     2016   Assets: Real estate assets: Land $ 196,178 $ 196,178 Buildings and improvements 1,836,073 1,822,183 Fixtures and equipment     4,600       4,136   2,036,851 2,022,497 Less accumulated depreciation     350,697       337,228   Real estate assets, net 1,686,154 1,685,269 Acquired real estate leases, less accumulated amortization of $108,771 and $112,441, respectively 115,471 125,491 Investment in non-consolidated REITs 74,423 75,165 Asset held for sale — 3,871 Cash and cash equivalents 11,143 9,335 Restricted cash 31 31 Tenant rent receivables, less allowance for doubtful accounts of $100 and $100, respectively 3,785 3,113 Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively 52,304 50,930 Prepaid expenses and other assets 4,946 5,231 Related party mortgage loan receivables 81,515 81,780 Other assets: derivative asset 13,603 12,907 Office computers and furniture, net of accumulated depreciation of $1,315 and $1,277, respectively 275 313 Deferred leasing commissions, net of accumulated amortization of $19,561 and $18,301, respectively     34,636       34,697   Total assets   $ 2,078,286     $ 2,088,133     Liabilities and Stockholders’ Equity: Liabilities: Bank note payable $ 295,000 $ 280,000 Term loans payable, less unamortized financing costs of $4,461 and $4,783, respectively 765,539 765,217 Accounts payable and accrued expenses 50,529 57,259 Accrued compensation 1,259 3,784 Tenant security deposits 5,441 5,355 Other liabilities: derivative liabilities 4,351 5,551 Acquired unfavorable real estate leases, less accumulated amortization of $8,584 and $8,422, respectively     8,144       8,923   Total liabilities     1,130,263       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 7,351 5,478 Accumulated distributions in excess of accumulated earnings     (415,796 )     (399,902 ) Total stockholders’ equity     948,023       962,044   Total liabilities and stockholders’ equity   $ 2,078,286     $ 2,088,133      

Franklin Street Properties Corp. Financial Results

Supplementary Schedule C

Condensed Consolidated Statements of Cash Flows

(Unaudited)

    For the Three Months Ended March 31, (in thousands)   2017     2016   Cash flows from operating activities: Net income $ 4,480 $ 2,579 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 25,937 22,962 Amortization of above and below market leases (168 ) 81 Equity in losses of non-consolidated REITs 397 286 Hedge ineffectiveness (22 ) — Gain (loss) on sale of properties, less applicable income tax (2,289 ) — Changes in operating assets and liabilities: Restricted cash — 13 Tenant rent receivables (672 ) (793 ) Straight-line rents (1,082 ) (1,275 ) Lease acquisition costs (292 ) (199 ) Prepaid expenses and other assets 1 (791 ) Accounts payable, accrued expenses and other items (10,219 ) (10,374 ) Accrued compensation (2,525 ) (2,452 ) Tenant security deposits 86 (396 ) Payment of deferred leasing commissions     (1,606 )     (1,825 ) Net cash provided by operating activities     12,026       7,816   Cash flows from investing activities: Property improvements, fixtures and equipment (11,615 ) (6,720 ) Distributions in excess of earnings from non-consolidated REITs 346 27 Repayment of related party mortgage loan receivable 265 39,066 Proceeds received on sales of real estate assets     6,160       —   Net cash provided by (used in) investing activities     (4,844 )     32,373   Cash flows from financing activities: Distributions to stockholders (20,374 ) (19,036 ) Borrowings under bank note payable 30,000 15,000 Repayments of bank note payable     (15,000 )     (40,000 ) Net cash used in financing activities     (5,374 )     (44,036 ) Net increase (decrease) in cash and cash equivalents 1,808 (3,847 ) Cash and cash equivalents, beginning of year     9,335       18,163   Cash and cash equivalents, end of period   $ 11,143     $ 14,316      

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 519,746 5.1% 2018 1,227,052 12.1% 2019 1,378,864 13.7% 2020 1,099,559 10.9% 2021 853,285 8.4% Thereafter (2) 5,039,606   49.8% 10,118,112   100.0%  

(1) Percentages are determined based upon total square footage.

(2) Includes 1,047,312 square feet of current vacancies.

            (dollars & square feet in 000's) As of March 31, 2017 # of % of Square % of State Properties Investment Portfolio Feet Portfolio   Colorado 6 $ 543,816 32.5% 2,607 25.8% Texas 9 355,504 21.3% 2,417 23.9% Georgia 5 324,004 19.4% 1,998 19.7% Minnesota (a) 2 92,071 5.5% 622 6.2% Virginia 4 89,549 5.4% 685 6.7% North Carolina 2 53,273 3.2% 322 3.2% Missouri 2 50,585 2.9% 351 3.5% Maryland 1 49,873 2.9% 325 3.2% Illinois 2 44,175 2.7% 373 3.7% Florida 1 40,121 2.4% 213 2.1% Indiana 1     30,347   1.8% 205   2.0% Total 35   $ 1,673,318   100.0% 10,118   100.0%  

(a) Excludes approximately $12,836, which is our investment in a property being redeveloped.

   

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule E

Portfolio and Other Supplementary Information

(Unaudited & Approximated)

 

Recurring Capital Expenditures

                                       

Owned Portfolio

For the (in thousands) Three Months Ended 31-Mar-17 Tenant improvements $ 6,474 Deferred leasing costs 1,579 Non-investment capex   1,670 $ 9,723   For the Three Months Ended: 31-Mar-16 Tenant improvements $ 1,929 Deferred leasing costs 1,613 Non-investment capex   438 $ 3,980     Square foot & leased percentages March 31, December 31, 2017 2016 Owned portfolio of commercial real estate Number of properties (a) 35 36 Square feet 10,118,112 10,163,615 Leased percentage 89.6% 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 5 5 Square feet 1,075,135 1,075,135 Leased percentage 89.6% 89.6%   Total owned, investments & managed properties Number of properties 42 43 Square feet 12,589,318 12,634,821 Leased percentage 88.5% 88.1%

(a) Excludes one property being redeveloped.

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

          Square % Leased % Interest Single Asset REIT name City State Feet 31-Mar-17 Held FSP 303 East Wacker Drive Corp. Chicago IL 861,000 77.0% 43.7% FSP Grand Boulevard Corp. Kansas City MO 535,071 82.0% 27.0% 1,396,071 78.9%    

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule F

Percentage of Leased Space

(Unaudited & Estimated)

              Fourth First % Leased (1) Quarter % Leased (1) Quarter as of Average % as of Average % Property Name Location Square Feet 31-Dec-16 Leased (2) 31-Mar-17 Leased (2)   HILLVIEW CENTER Milpitas, CA — 100.0% 100.0% (3) (3) 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% 65.4% 65.4% 7 PARK TEN PHASE II Houston, TX 156,746 100.0% 100.0% 100.0% 100.0% 8 GREENWOOD PLAZA Englewood, CO 196,236 100.0% 100.0% 100.0% 100.0% 9 ADDISON Addison, TX 288,794 97.0% 95.0% 86.6% 90.1% 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 96.6% 96.6% 98.6% 98.0% 13 LIBERTY PLAZA Addison, TX 218,934 81.3% 80.9% 88.0% 84.4% 14 380 INTERLOCKEN Broomfield, CO 240,185 82.7% 85.3% 86.2% 83.9% 15 390 INTERLOCKEN Broomfield, CO 241,751 96.1% 95.8% 98.9% 97.1% 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 80.7% 87.2% 79.0% 79.3% 19 EAST BALTIMORE Baltimore, MD 325,445 76.5% 76.5% 75.9% 76.1% 20 LOUDOUN TECH Dulles, VA 136,658 92.0% 92.0% 92.0% 92.0% 21 4807 STONECROFT Chantilly, VA 111,469 100.0% 100.0% 100.0% 100.0% 22 121 SOUTH EIGHTH ST Minneapolis, MN 296,051 61.1% 57.7% 74.3% 69.3% 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 195,430 86.1% 86.1% 85.9% 86.0% 27 ONE RAVINIA DRIVE Atlanta, GA 386,603 90.9% 91.2% 90.9% 90.9% 28 TWO RAVINIA Atlanta, GA 442,130 79.0% 78.7% 77.4% 77.2% 29 WESTCHASE I & II Houston, TX 629,025 83.4% 83.4% 84.4% 84.6% 30 1999 BROADWAY Denver, CO 676,379 74.8% 74.3% 75.7% 75.1% 31 999 PEACHTREE Atlanta, GA 621,946 97.5% 97.5% 97.8% 98.1% 32 1001 17th STREET Denver, CO 655,413 89.9% 89.3% 90.7% 90.7% 33 PLAZA SEVEN Minneapolis, MN 326,413 95.6% 95.6% 95.7% 95.4% 34 PERSHING PLAZA Atlanta, GA 160,145 97.4% 97.4% 97.4% 97.4% 35 600 17th STREET (4) Denver, CO 596,595   92.7% 92.7%   90.9%   91.0% TOTAL WEIGHTED AVERAGE 10,118,112   89.3%   89.0%   89.6%   89.4%  

(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 January 6, 2017.(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 March 31, 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 Burger King Corporation 212,619 2.3% 7 Centene Management Company, LLC 206,262 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 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 132,229 1.5% 17 Federal National Mortgage Association 123,144 1.4% 18 Kaiser Foundation Health Plan 120,979 1.3% 19 Randstad US 114,235 1.3% 20 Giesecke & Devrient America 112,110   1.2% Total 3,444,051   38.0%  

Franklin Street Properties Corp. Earnings ReleaseSupplementary Schedule HReconciliation and Definitions of Funds From Operations (“FFO”) andAdjusted 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 March 31, (In thousands, except per share amounts) 2017   2016     Net income $ 4,480 $ 2,579 Gain (loss) on sale of properties and property held for sale, less applicable income tax (2,289 ) — GAAP loss from non-consolidated REITs 397 286 FFO from non-consolidated REITs 791 645 Depreciation & amortization   25,163     22,527   NAREIT FFO 28,542 26,037 Hedge ineffectiveness (22 ) — Acquisition costs of new properties   8     —   Funds From Operations (FFO) $ 28,528   $ 26,037     Funds From Operations (FFO) $ 28,528 $ 26,037 Reverse FFO from non-consolidated REITs (791 ) (645 ) Distributions from non-consolidated REITs 346 27 Amortization of deferred financing costs 606 517 Straight-line rent (1,082 ) (1,275 ) Tenant improvements (6,474 ) (1,929 ) Leasing commissions (1,579 ) (1,613 ) Non-investment capex   (1,670 )   (438 ) Adjusted Funds From Operations (AFFO) $ 17,884   $ 20,681     Per Share Data EPS $ 0.04 $ 0.03 FFO $ 0.27 $ 0.26 AFFO $ 0.17 $ 0.21   Weighted average shares (basic and diluted) 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 (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.

Franklin Street Properties Corp. Earnings ReleaseSupplementary Schedule IReconciliation and Definition of Sequential Same Store results to property Net Operating Income (NOI) and Net Income

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 (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 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 31-Mar-17 31-Dec-16 (Dec) Change Region East 1,332 $ 4,544 $ 4,527 $ 17 0.4 % MidWest 1,552 4,364 4,074 290 7.1 % South 4,628 17,008 17,280 (272 ) (1.6 ) % West 2,010   8,189     7,688     501   6.5   % Same Store 9,522 34,105 33,569 536 1.6 %   Acquisitions 596   2,770     923     1,847   200.1   % NOI* from the continuing portfolio 10,118 36,875 34,492 2,383 6.9 % Dispositions, Non-Operating, Development or Redevelopment   (2 )   202     (204 ) (101.0 ) % NOI* $ 36,873   $ 34,694   $ 2,179   6.3   %   Sequential Same Store $ 34,105 $ 33,569 $ 536 1.6 %   Less Nonrecurring Items in NOI* (a)   65     503     (438 ) 1.3   %   Comparative Sequential Same Store $ 34,040   $ 33,066   $ 974   2.9   %     Three Months Ended Three Months Ended Reconciliation to Net income     31-Mar-17 31-Dec-16 Net Income $ 4,480 $ 1,729 Add (deduct): (Gain) loss on sale of properties and property held for sale, less applicable income taxes (2,289 ) 1,772 Hedge ineffectiveness (22 ) (2,266 ) Management fee income (794 ) (749 ) Depreciation and amortization 25,332 24,957 Amortization of above/below market leases (168 ) (392 ) Selling, general and administrative 3,443 3,683 Interest expense 7,579 6,931 Interest income (1,214 ) (1,200 ) Equity in losses of non-consolidated REITs 397 263 Non-property specific items, net   129     (34 )     NOI* $ 36,873   $ 34,694  

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