FSP Franklin Street Properties Corp

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 forsale, 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 ReleaseSupplementary InformationTable 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 ResultsSupplementary Schedule ACondensed 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 ResultsSupplementary Schedule BCondensed 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 107,231,155shares 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 ResultsSupplementary Schedule CCondensed 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 incometax

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 ReleaseSupplementary Schedule DReal 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 ReleaseSupplementary Schedule EPortfolio and Other Supplementary Information(Unaudited & Approximated)

           

Recurring Capital ExpendituresOwned 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 ReleaseSupplementary Schedule FPercentage 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 ReleaseSupplementary Schedule GLargest 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 andAFFO:

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 heldfor 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) andNet 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 continuingportfolio

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

Dispositions, Non-Operating,Development orRedevelopment

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 ofproperties and property heldfor sale, less applicableincome taxes

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

Amortization of above/belowmarket leases

(687 ) (168 )

Selling, general andadministrative

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