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, 2018.

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

“For the second quarter of 2018, FSP’s Funds from Operations or FFO totaled approximately $25.4 million or $0.24 per share. Leasing activity picked up significantly within our property portfolio during the quarter and we are currently seeing that momentum continuing in the third quarter of 2018. We are seeing increased potential leasing activity in the energy influenced markets of Houston and Denver, compared to the last several years. We also continue to see more of our existing tenants approaching us with early lease renewal requests and believe that, among other factors, this is a direct result of our re-cast office property portfolio that is more concentrated in targeted urban locations within our five core markets of Atlanta, Dallas, Denver, Houston and Minneapolis. We are optimistic about achieving meaningful organic growth in the value of our property portfolio during 2018/2019, while maintaining our strong financial capabilities to help achieve those results.”

Highlights

• FFO was $25.4 million or $0.24 per basic and diluted share for the second quarter ended June 30, 2018. We had Net Income of $0.7 million or $0.01 per basic and diluted share for the second quarter ended June 30, 2018.
• Adjusted Funds From Operations (AFFO) was $0.09 per basic and diluted share for the second quarter of 2018. AFFO was $0.16 per basic and diluted share for the first quarter of 2018. We anticipate AFFO to be volatile quarter-to-quarter during 2018 and 2019 as additional leasing activity within the property portfolio occurs.

Leasing Update

• Our directly owned real estate portfolio of 34 properties totaling approximately 9.8 million square feet was approximately 89.0% leased as of June 30, 2018, which was a 0.5% increase compared to March 31, 2018.
• During the three months ended June 30, 2018, we leased approximately 659,000 square feet, of which approximately 141,000 square feet was with new tenants. During the six months ended June 30, 2018, we leased approximately 768,000 square feet, of which approximately 166,000 square feet was with new tenants.
• Weighted average annualized GAAP rent per square foot was approximately $28.91 as of June 30, 2018, compared to $28.87 as of December 31, 2017, $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.
• Subsequent to quarter end, on July 30, 2018, we finalized a lease renewal with T-Mobile South LLC, d/b/a T-Mobile at our One Ravinia Drive property in Atlanta, Georgia, that extended the approximately 151,792 square foot tenancy through August 2025.

Acquisition and Disposition Update

• We anticipate potential additional disposition activity within our managed portfolio during 2018 and will update the market as appropriate.

Dividend Update

On July 6, 2018, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended June 30, 2018 of $0.09 per share of common stock that will be paid on August 9, 2018 to stockholders of record on July 20, 2018.

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, 2018. 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 updating our full year FFO guidance for 2018, which is estimated to be in the range of approximately $0.96 to $0.99 per basic and diluted share, and are initiating guidance for the third quarter of 2018, which is estimated to be in the range of approximately $0.22 to $0.24 per basic and diluted share. We are updating full year 2018 net income guidance, which is estimated to be in the range of approximately $0.02 to $0.05 per basic and diluted share, and are initiating net income (loss) guidance for the third quarter of 2018, which is estimated to be in the range of approximately $(0.02) to $0.00 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 2018 Range Full Year 2018 Range Low High Low High Net income (loss) per share $ (0.02 ) $ 0.00 $ 0.02 $ 0.05 GAAP loss from non-consolidated REITs 0.00 0.00 0.00 0.00 FFO from non-consolidated REITs 0.01 0.01 0.04 0.04 Depreciation & Amortization   0.23     0.23   0.90   0.90 Funds From Operations per share $ 0.22   $ 0.24 $ 0.96 $ 0.99  

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 1, 2018 at 10:00 a.m. (ET) to discuss the second quarter 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, leasing and acquisition and disposition activities in future periods, prospects for long-term sustainable growth and the timing of leasing at our 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, 2017, 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)     2018     2017     2018     2017   Revenue: Rental $ 65,409 $ 66,995 $ 131,037 $ 134,371 Related party revenue: Management fees and interest income from loans 1,276 1,366 2,532 2,736 Other       9         10         18         20   Total revenue       66,694         68,371         133,587         137,127     Expenses: Real estate operating expenses 16,954 17,286 34,105 34,594 Real estate taxes and insurance 12,292 11,595 23,469 23,998 Depreciation and amortization 23,591 25,279 47,626 50,611 General and administrative 3,082 3,077 6,514 6,520 Interest       9,753         7,893         19,239         15,472   Total expenses       65,672         65,130         130,953         131,195     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

1,022 3,241 2,634 5,932 Equity in losses of non-consolidated REITs (282 ) (201 ) (387 ) (598 ) Other — 129 — 151 Gain (loss) on sale of properties and properties held for sale,

less applicable income tax

      —         (20,492 )       —         (18,203 )   Income (loss) before taxes on income 740 (17,323 ) 2,247 (12,718 ) Taxes on income       75         72         157         197   Net income (loss)     $ 665       $ (17,395 )     $ 2,090       $ (12,915 )   Weighted average number of shares outstanding, basic and diluted       107,231         107,231         107,231         107,231     Net income (loss) per share, basic and diluted     $ 0.01       $ (0.16 )     $ 0.02       $ (0.12 )  

Franklin Street Properties Corp. Financial ResultsSupplementary Schedule BCondensed Consolidated Balance Sheets(Unaudited)

        June 30, December 31, (in thousands, except share and par value amounts)     2018     2017 Assets: Real estate assets: Land $ 191,578 $ 191,578 Buildings and improvements 1,833,470 1,811,631 Fixtures and equipment       7,565         5,614   2,032,613 2,008,823 Less accumulated depreciation       405,115         376,131   Real estate assets, net 1,627,498 1,632,692 Acquired real estate leases, less accumulated amortization of $96,899 and $109,771, respectively 71,861 86,520 Investment in non-consolidated REITs 69,067 70,164 Cash, cash equivalents and restricted cash 10,448 9,819 Tenant rent receivables, less allowance for doubtful accounts of $170 and $250, respectively 4,039 3,123 Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively 53,294 53,194 Prepaid expenses and other assets 7,444 8,387 Related party mortgage loan receivables 71,190 71,720 Other assets: derivative asset 21,196 13,925 Office computers and furniture, net of accumulated depreciation of $1,473 and $1,420, respectively 236 289 Deferred leasing commissions, net of accumulated amortization of $23,698 and $22,276, respectively       43,254         40,679   Total assets     $ 1,979,527       $ 1,990,512     Liabilities and Stockholders’ Equity: Liabilities: Bank note payable $ 98,000 $ 78,000 Term loans payable, less unamortized financing costs of $4,382 and $5,099, respectively 765,618 764,901 Series A&B Senior Notes, less unamortized financing costs of $1,232 and $1,308, respectively 198,768 198,692 Accounts payable and accrued expenses 52,651 61,039 Accrued compensation 1,778 3,641 Tenant security deposits 5,576 5,383 Other liabilities: derivative liabilities — 1,759 Acquired unfavorable real estate leases, less accumulated amortization of $8,118 and $7,638, respectively       4,749         5,805   Total liabilities       1,127,140         1,119,220     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 21,196 12,166 Accumulated distributions in excess of accumulated earnings       (525,277 )       (497,342 ) Total stockholders’ equity       852,387         871,292   Total liabilities and stockholders’ equity     $ 1,979,527       $ 1,990,512    

Franklin Street Properties Corp. Financial ResultsSupplementary Schedule CCondensed Consolidated Statements of Cash Flows(Unaudited)

        For the Six Months Ended June 30, (in thousands)     2018     2017 Cash flows from operating activities: Net income (loss) $ 2,090 $ (12,915 ) Adjustments to reconcile net income or loss to net cash provided by operating activities: Depreciation and amortization expense 49,050 51,823 Amortization of above and below market leases (208 ) (855 ) Equity in losses of non-consolidated REITs 387 598 Hedge ineffectiveness — (151 ) (Gain) loss on sale of properties and properties held for sale, less applicable income tax — 18,203 Increase (decrease) in allowance for doubtful accounts (80 ) 25 Changes in operating assets and liabilities: Tenant rent receivables (836 ) (1,618 ) Straight-line rents 299 (1,897 ) Lease acquisition costs (398 ) (318 ) Prepaid expenses and other assets 325 (503 ) Accounts payable, accrued expenses and other items (8,609 ) (6,829 ) Accrued compensation (1,863 ) (1,855 ) Tenant security deposits 193 12 Payment of deferred leasing commissions       (6,641 )       (3,632 ) Net cash provided by operating activities       33,709         40,088   Cash flows from investing activities: Property improvements, fixtures and equipment (24,281 ) (28,464 ) Distributions in excess of earnings from non-consolidated REITs 710 691 Repayment of related party mortgage loan receivable 530 9,530 Proceeds received on sales of real estate assets       —         6,160   Net cash used in investing activities       (23,041 )      

(12,083

)

Cash flows from financing activities: Distributions to stockholders (30,025 ) (40,748 ) Borrowings under bank note payable 30,000 40,000 Repayments of bank note payable (10,000 ) (25,000 ) Deferred financing costs       (14 )       —   Net cash used in financing activities       (10,039 )       (25,748 ) Net increase in cash, cash equivalents and restricted cash 629 2,257 Cash, cash equivalents and restricted cash, beginning of year       9,819         9,366   Cash, cash equivalents and restricted cash, end of period     $ 10,448       $ 11,623    

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 2018 700,906 7.2% 2019 1,163,210 11.9% 2020 992,620 10.2% 2021 697,517 7.1% 2022 1,208,678 12.4% Thereafter (2) 4,997,768     51.2% 9,760,699     100.0%  

(1) Percentages are determined based upon total square footage.(2) Includes 1,070,768 square feet of current vacancies.

                    (dollars & square feet in 000's) As of June 30, 2018 # of % of Square % of State Properties Investment Portfolio Feet Portfolio   Colorado 6 $ 536,927 33.4% 2,609 26.7% Texas 9 348,982 21.7% 2,417 24.8% Georgia 5 322,252 20.0% 1,967 20.2% Minnesota (a) 2 95,677 6.0% 620 6.3% Virginia 4 84,648 5.3% 685 7.0% North Carolina 2 51,358 3.2% 322 3.3% Missouri 2 48,663 3.0% 351 3.6% Illinois 2 49,148 3.1% 372 3.8% Florida 1 38,191 2.4% 213 2.2% Indiana 1       30,396     1.9% 205     2.1% Total 34     $ 1,606,242     100.0% 9,761     100.0%  

(a) Excludes approximately $21,256, which is our investment in a property that was redeveloped and is classified as non-operating.

 

Franklin Street Properties Corp. Earnings ReleaseSupplementary Schedule EPortfolio and Other Supplementary Information(Unaudited & Approximated)

 

 

 

Recurring Capital ExpendituresOwned Portfolio

 

        (in thousands) For the Three Months Ended Six Months 31-Mar-18     30-Jun-18 30-Jun-18 Tenant improvements $ 6,777 $ 8,212 $ 14,989 Deferred leasing costs 1,021 5,314 6,335 Non-investment capex   1,858   2,558   4,416 $ 9,656 $ 16,084 $ 25,740                       For the Three Months Ended     Year Ended 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Dec-17 Tenant improvements $ 6,474 $ 5,363 $ 4,474 $ 4,166 $ 20,477 Deferred leasing costs 1,579 1,963 4,482 5,869 13,893 Non-investment capex   1,670   1,685   1,860   3,836   9,051 $ 9,723 $ 9,011 $ 10,816 $ 13,871 $ 43,421         Square foot & leased percentages June 30, December 31, 2018 2017 Owned portfolio of commercial real estate Number of properties (a) 34 34 Square feet 9,760,699 9,761,984 Leased percentage 89.0% 89.7%   Investments in non-consolidated REITs Number of properties 2 2 Square feet 1,396,493 1,396,071 Leased percentage 74.0% 75.3%   Single Asset REITs (SARs) managed Number of properties 3 4 Square feet 674,342 810,278 Leased percentage 96.1% 93.0%   Total owned, investments & managed properties Number of properties 39 40 Square feet 11,831,534 11,968,333 Leased percentage 87.7% 88.2%

(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-18 Held FSP 303 East Wacker Drive Corp. Chicago IL 861,422 73.5% 43.7% FSP Grand Boulevard Corp. Kansas City MO 535,071 74.9% 27.0% 1,396,493 74.0%    

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-18 Leased (2) 30-Jun-18 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 75.8% 73.4% 89.5% 84.9% 7 PARK TEN PHASE II Houston, TX 156,746 1.4% 1.4% 1.4% 1.4% 8 GREENWOOD PLAZA Englewood, CO 196,236 100.0% 100.0% 100.0% 100.0% 9 ADDISON Addison, TX 288,794 100.0% 100.0% 100.0% 100.0% 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 96.1% 96.1% 94.9% 95.3% 13 LIBERTY PLAZA Addison, TX 218,934 84.5% 88.6% 85.8% 85.0% 14 380 INTERLOCKEN Broomfield, CO 240,358 86.2% 86.2% 86.2% 86.2% 15 390 INTERLOCKEN Broomfield, CO 241,512 97.8% 97.8% 98.8% 98.5% 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 61.1% 61.1% 79.3% 67.4% 19 LOUDOUN TECH Dulles, VA 136,658 95.7% 95.7% 95.7% 95.7% 20 4807 STONECROFT Chantilly, VA 111,469 100.0% 100.0% 100.0% 100.0% 21 121 SOUTH EIGHTH ST Minneapolis, MN 293,460 77.7% 78.9% 78.9% 78.1% 22 EMPEROR BOULEVARD Durham, NC 259,531 100.0% 100.0% 100.0% 100.0% 23 LEGACY TENNYSON CTR Plano, TX 202,600 86.4% 86.4% 86.4% 86.4% 24 ONE LEGACY Plano, TX 214,110 100.0% 100.0% 100.0% 100.0% 25 909 DAVIS Evanston, IL 195,098 92.3% 92.0% 92.2% 92.2% 26 ONE RAVINIA DRIVE Atlanta, GA 386,602 92.4% 92.4% 91.3% 91.7% 27 TWO RAVINIA Atlanta, GA 411,047 76.0% 75.8% 77.4% 76.7% 28 WESTCHASE I & II Houston, TX 629,025 86.0% 86.5% 88.1% 87.3% 29 1999 BROADWAY Denver, CO 676,379 80.6% 80.3% 76.6% 79.3% 30 999 PEACHTREE Atlanta, GA 621,946 88.6% 90.7% 84.8% 85.4% 31 1001 17th STREET Denver, CO 655,413 96.8% 96.8% 93.2% 93.9% 32 PLAZA SEVEN Minneapolis, MN 326,483 85.9% 93.2% 87.3% 86.4% 33 PERSHING PLAZA Atlanta, GA 160,145 97.4% 97.4% 97.4% 97.4% 34 600 17th STREET Denver, CO 598,630     84.6%     85.3%     85.4%     85.1% TOTAL WEIGHTED AVERAGE 9,760,699     88.5%     89.0%     89.0%     88.6%        

(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, 2018

            % of Tenant Sq Ft Portfolio 1 Quintiles IMS Healthcare Incorporated 259,531 2.7% 2 CITGO Petroleum Corporation 248,399 2.5% 3 Newfield Exploration Company 234,495 2.4% 4 US Government 223,641 2.3% 5 Centene Management Company, LLC 216,879 2.2% 6 Burger King Corporation 212,619 2.2% 7 Eversheds Sutherland (US) LLP 179,868 1.8% 8 The Vail Corporation 164,636 1.7% 9 EOG Resources, Inc. 160,937 1.6% 10 T-Mobile South, LLC dba T-Mobile 151,792 1.6% 11 Citicorp Credit Services, Inc. 146,260 1.5% 12 Petrobras America, Inc. 144,813 1.5% 13 Jones Day 140,342 1.4% 14 Argo Data Resource Corporation 140,246 1.4% 15 SunTrust Bank 127,500 1.3% 16 Federal National Mortgage Association 123,144 1.3% 17 Kaiser Foundation Health Plan 120,979 1.2% 18 Giesecke & Devrient America 112,110 1.1% 19 Northrop Grumman Systems Corp. 111,469 1.1% 20 Randstad General Partner (US) 109,638     1.1% Total 3,329,298     34.1%  

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

                Reconciliation of Net Income (Loss) to FFO and AFFO: Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share amounts) 2018 2017 2018 2017 Net income (loss) $ 665 $ (17,395 ) $ 2,090 $ (12,915 ) (Gain) loss on sale of properties and properties held for sale, less applicable income tax — 20,492 — 18,203 GAAP loss from non-consolidated REITs 282 201 387 598 FFO from non-consolidated REITs 978 800 1,862 1,591 Depreciation & amortization   23,468     24,592     47,418     49,755   NAREIT FFO 25,393 28,690 51,757 57,232 Hedge ineffectiveness — (129 ) — (151 ) Acquisition costs of new properties   —     10     —     18   Funds From Operations (FFO) $ 25,393   $ 28,571   $ 51,757   $ 57,099     Funds From Operations (FFO) $ 25,393 $ 28,571 $ 51,757 $ 57,099 Reverse FFO from non-consolidated REITs (978 ) (800 ) (1,862 ) (1,591 ) Distributions from non-consolidated REITs 355 345 710 691 Amortization of deferred financing costs 713 606 1,424 1,212 Straight-line rent 259 (792 ) 299 (1,874 ) Tenant improvements (8,212 ) (5,363 ) (14,989 ) (11,837 ) Leasing commissions (5,314 ) (1,963 ) (6,335 ) (3,542 ) Non-investment capex   (2,558 )   (1,685 )   (4,416 )   (3,355 ) Adjusted Funds From Operations (AFFO) $ 9,658   $ 18,919   $ 26,588   $ 36,803     Per Share Data EPS $ 0.01 $ (0.16 ) $ 0.02 $ (0.12 ) FFO $ 0.24 $ 0.27 $ 0.48 $ 0.53 AFFO $ 0.09 $ 0.18 $ 0.25 $ 0.34   Weighted average shares (basic and diluted) 107,231   107,231   107,231   107,231    

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

Net Operating Income (“NOI”)

The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus 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-18 31-Mar-18     (Dec) Change Region East 1,007 $ 4,123 $ 3,991 $ 132 3.3 % MidWest 1,549 4,955 6,257 (1,302 ) (20.8 )% South 4,597 15,223 15,431 (208 ) (1.3 )% West 2,608   11,061     10,958         103   0.9 % Same Store 9,761 35,362 36,637 (1,275 ) (3.5 )%   Acquisitions —   —     —         —   — % NOI* from the continuing portfolio 9,761 35,362 36,637 (1,275 ) (3.5 )% Dispositions, Non-Operating, Development or Redevelopment -   (38 )   79         (117 ) (0.3 )% NOI* 9,761 $ 35,324   $ 36,716       $ (1,392 ) (3.8 )%   Sequential Same Store $ 35,362 $ 36,637 $ (1,275 ) (3.5 )%   Less Nonrecurring Items in NOI* (a)   1,141     761         380   (1.1 )%   Comparative Sequential Same Store $ 34,221   $ 35,876       $ (1,655 ) (4.6 ) %  

 

Three Months Ended Three Months Ended Reconciliation to Net income       30-Jun-18 31-Mar-18 Net income $ 665 $ 1,425 Add (deduct): Gain (loss) on sale of properties and property held for sale, less applicable income taxes — — Hedge ineffectiveness — — Management fee income (746 ) (746 ) Depreciation and amortization 23,591 24,035 Amortization of above/below market leases (123 ) (85 ) General and administrative 3,082 3,432 Interest expense 9,753 9,486 Interest income (1,141 ) (1,120 ) Equity in losses of non-consolidated REITs 282 105 Non-property specific items, net   (39 )   184       NOI* $ 35,324   $ 36,716    

(a) Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.

*Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.

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