Franklin Street Properties Corp. Announces First Quarter 2018 Results

WAKEFIELD, Mass.--()--Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE American: FSP), a real estate investment trust (REIT), announced its results for the first quarter ended March 31, 2018.

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

“For the first quarter of 2018, FSP’s Funds from Operations or FFO totaled approximately $26.4 million or $0.25 per share. Adjusted Funds From Operations or AFFO for the same period totaled approximately $16.9 million or $0.16 per share. Dividends declared for the first quarter of 2018 were $9.7 million or $0.09 per share. Potential leasing activity is strong within our property portfolio, continuing the trends we saw in the third and fourth quarters of 2017. We anticipate higher leased percentages in the portfolio as 2018 continues. The energy influenced markets of Houston and Denver continue to improve with the upward trend of oil prices and are showing more potential leasing activity than the last several years. A number of our larger tenants are approaching us with early lease renewal requests and we would expect to see many of these transactions completed this year and next.”

Highlights

  • FFO was $26.4 million or $0.25 per basic and diluted share for the first quarter ended March 31, 2018. We had Net Income of $1.4 million or $0.01 per basic and diluted share for the first quarter ended March 31, 2018.
  • Adjusted Funds From Operations (AFFO) was $0.16 per basic and diluted share for the first quarter ended March 31, 2018.

Leasing Update

  • Our directly owned real estate portfolio of 34 properties totaling approximately 9.8 million square feet was approximately 88.5% leased as of March 31, 2018, which was a 1.2% decrease compared to December 31, 2017.
  • During the quarter ended March 31, 2018, we leased approximately 109,000 square feet, of which approximately 25,000 square feet was with new tenants.
  • Second quarter 2018 leasing activity to date includes approximately 500,000 square feet of potential leases out for execution, more than 100,000 square feet of which would be new leases and expansions.
  • Weighted average annualized GAAP rent per square foot was approximately $29.05 as of March 31, 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.
  • Our project at 801 Marquette Avenue provides a contemporary, forward-looking experience in a vintage warehouse style office with modern systems and market leading amenities in the heart of the Minneapolis CBD. The redevelopment of 801 Marquette, which is approximately 127,268 square feet, was completed in 2017. Subsequent to quarter end, we signed a lease with a tenant for approximately 18,000 square feet on the first floor with anticipated occupancy in December 2018 and we also signed a lease with an operator for a full service café located in our Atrium with anticipated operations commencing this summer. Our project continues to see great activity and our team has led approximately 50 prospect tours representing in excess of 1.7 million square feet across all industries. We expect 801 Marquette to be substantially leased by year end and stabilized in the third quarter of 2019.

Acquisition and Disposition Update

  • We do not anticipate making new acquisitions at this time but continue to monitor all prospective investment opportunities in our core markets.
  • We do not expect any significant disposition activity within our directly-owned portfolio as we begin the second quarter of 2018.
  • We anticipate some potential disposition activity within our managed portfolio during 2018.

Dividend Update

On April 6, 2018, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended March 31, 2018 of $0.09 per share of common stock that will be paid on May 10, 2018 to stockholders of record on April 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 March 31, 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 reaffirming our full year FFO guidance for 2018, which is estimated to be in the range of approximately $0.96 to $1.00 per basic and diluted share, and for the second quarter of 2018, are initiating guidance, which is estimated to be in the range of approximately $0.22 to $0.24 per basic and diluted share. We are reaffirming full year 2018 net income guidance in the range of $0.02 to $0.06 per basic and diluted share, and for the second quarter of 2018, are initiating net income (loss) guidance in the range of $(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:

               
Q2 2018 Range Full Year 2018 Range
Low High Low High
Net income (loss) per share $ (0.02 ) $ 0.00 $ 0.02 $ 0.06
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 $ 1.00

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 2, 2018 at 10:00 a.m. (ET) to discuss the first 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 Release

Supplementary Information

Table of Contents

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

Franklin Street Properties Corp. Financial Results

Supplementary Schedule A

Condensed Consolidated Income (Loss) Statements

(Unaudited)

       
For the
Three Months Ended
      March 31,
(in thousands, except per share amounts)     2018     2017
 
Revenue:
Rental $ 65,628 $ 67,376
Related party revenue:
Management fees and interest income from loans 1,256 1,370
Other       9         10  
Total revenue       66,893         68,756  
 
Expenses:
Real estate operating expenses 17,151 17,308
Real estate taxes and insurance 11,177 12,403
Depreciation and amortization 24,035 25,332
General and administrative 3,432 3,443
Interest       9,486         7,579  
Total expenses       65,281         66,065  
 
Income before equity in losses of non-consolidated REITs,

other, gain on sale of properties and properties held for sale,

less applicable income tax and taxes

1,612 2,691
Equity in losses of non-consolidated REITs (105 ) (397 )
Other 22
Gain on sale of properties and properties held for sale,

less applicable income tax

              2,289  
 
Income before taxes on income 1,507 4,605
Taxes on income       82         125  
Net income     $ 1,425       $ 4,480  
 
Weighted average number of shares outstanding, basic and diluted       107,231         107,231  
 
Net income per share, basic and diluted     $ 0.01       $ 0.04  
 

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)     2018     2017
Assets:
Real estate assets:
Land $ 191,578 $ 191,578
Buildings and improvements 1,821,035 1,811,631
Fixtures and equipment       5,909         5,614  
2,018,522 2,008,823
Less accumulated depreciation       390,581         376,131  
Real estate assets, net 1,627,941 1,632,692
Acquired real estate leases, less accumulated amortization of $114,044 and $109,771, respectively 78,729 86,520
Investment in non-consolidated REITs 69,703 70,164
Cash, cash equivalents and restricted cash 14,355 9,819
Tenant rent receivables, less allowance for doubtful accounts of $325 and $250, respectively 3,411 3,123
Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively 53,430 53,194
Prepaid expenses and other assets 8,355 8,387
Related party mortgage loan receivables 71,455 71,720
Other assets: derivative asset 18,740 13,925
Office computers and furniture, net of accumulated depreciation of $1,448 and $1,420, respectively 261 289
Deferred leasing commissions, net of accumulated amortization of $23,255 and $22,276, respectively       39,815         40,679  
Total assets     $ 1,986,195       $ 1,990,512  
 
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable $ 98,000 $ 78,000
Term loans payable, less unamortized financing costs of $4,741 and $5,099, respectively 765,259 764,901
Series A&B Senior Notes, less unamortized financing costs of $1,273 and $1,308, respectively 198,727 198,692
Accounts payable and accrued expenses 53,327 61,039
Accrued compensation 1,112 3,641
Tenant security deposits 5,588 5,383
Other liabilities: derivative liabilities 1,759
Acquired unfavorable real estate leases, less accumulated amortization of $8,063 and $7,638, respectively       5,264         5,805  
Total liabilities       1,127,277         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 18,740 12,166
Accumulated distributions in excess of accumulated earnings       (516,290 )       (497,342 )
Total stockholders’ equity       858,918         871,292  
Total liabilities and stockholders’ equity     $ 1,986,195       $ 1,990,512  
 

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)     2018     2017
Cash flows from operating activities:
Net income $ 1,425 $ 4,480
Adjustments to reconcile net income or loss to net cash provided by operating activities:
Depreciation and amortization expense 24,748 25,937
Amortization of above and below market leases (85 ) (168 )
Equity in losses of non-consolidated REITs 105 397
Hedge ineffectiveness (22 )
(Gain) on sale of properties and properties held for sale, less applicable income tax (2,289 )
Increase in allowance for doubtful accounts 75
Changes in operating assets and liabilities:
Tenant rent receivables (363 ) (672 )
Straight-line rents 40 (1,082 )
Lease acquisition costs (276 ) (292 )
Prepaid expenses and other assets (274 ) 1
Accounts payable, accrued expenses and other items (6,911 ) (10,219 )
Accrued compensation (2,529 ) (2,525 )
Tenant security deposits 205 86
Payment of deferred leasing commissions       (1,082 )       (1,606 )
Net cash provided by operating activities       15,078         12,026  
Cash flows from investing activities:
Property improvements, fixtures and equipment (10,774 ) (11,615 )
Distributions in excess of earnings from non-consolidated REITs 355 346
Repayment of related party mortgage loan receivable 265 265
Proceeds received on sales of real estate assets               6,160  
Net cash used in investing activities       (10,154 )       (4,844 )
Cash flows from financing activities:
Distributions to stockholders (20,374 ) (20,374 )
Borrowings under bank note payable 30,000 30,000
Repayments of bank note payable (10,000 ) (15,000 )
Deferred financing costs       (14 )        
Net cash used in financing activities       (388 )       (5,374 )
Net increase in cash, cash equivalents and restricted cash 4,536 1,808
Cash, cash equivalents and restricted cash, beginning of year       9,819         9,366  
Cash, cash equivalents and restricted cash, end of period     $ 14,355       $ 11,174  
 

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
2018 984,501 10.1%
2019 1,225,298 12.6%
2020 843,681 8.6%
2021 687,821 7.0%
2022 1,195,787 12.2%
Thereafter (2) 4,823,569     49.5%
9,760,657     100.0%
 

(1) Percentages are determined based upon total square footage.
(2) Includes 1,118,651 square feet of current vacancies.

                   
(dollars & square feet in 000's) As of March 31 ,2018
# of % of Square % of
State Properties Investment Portfolio Feet Portfolio
 
Colorado 6 $ 537,825 33.5% 2,609 26.7%
Texas 9 349,548 21.8% 2,417 24.8%
Georgia 5 322,499 20.1% 1,967 20.2%
Minnesota (a) 2 94,642 5.9% 620 6.3%
Virginia 4 85,764 5.3% 685 7.0%
North Carolina 2 51,741 3.2% 322 3.3%
Missouri 2 48,712 3.0% 351 3.6%
Illinois 2 46,948 2.9% 372 3.8%
Florida 1 38,577 2.4% 213 2.2%
Indiana 1       30,673     1.9% 205     2.1%
Total 34     $ 1,606,929     100.0% 9,761     100.0%

(a) Excludes approximately $21,012, which is our investment in a property that was redeveloped and is classified as non-operating.

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule E

Portfolio and Other Supplementary Information

(Unaudited & Approximated)

 

Recurring Capital Expenditures

Owned Portfolio

   
 
(in thousands) For the Three Months Ended
31-Mar-18
Tenant improvements $ 6,777
Deferred leasing costs 1,021
Non-investment capex   1,858
$ 9,656
                   
 
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 March 31, December 31,
2018 2017
Owned portfolio of commercial real estate
Number of properties (a) 34 34
Square feet 9,760,657 9,761,984
Leased percentage 88.5% 89.7%
 
Investments in non-consolidated REITs
Number of properties 2 2
Square feet 1,396,493 1,396,071
Leased percentage 74.4% 75.3%
 
Single Asset REITs (SARs) managed
Number of properties 4 4
Square feet 810,278 810,278
Leased percentage 96.1% 93.0%
 
Total owned, investments & managed properties
Number of properties 40 40
Square feet 11,967,428 11,968,333
Leased percentage 87.4% 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 31-Mar-18 Held
FSP 303 East Wacker Drive Corp. Chicago IL 861,422 74.7% 43.7%
FSP Grand Boulevard Corp. Kansas City MO 535,071 74.1% 27.0%
1,396,493 74.4%
 

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-17 Leased (2) 31-Mar-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 68.6% 69.8% 75.8% 73.4%
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 96.2% 97.0% 96.1% 96.1%
13 LIBERTY PLAZA Addison, TX 218,934 91.2% 91.2% 84.5% 88.6%
14 380 INTERLOCKEN Broomfield, CO 240,358 86.2% 86.2% 86.2% 86.2%
15 390 INTERLOCKEN Broomfield, CO 241,512 98.9% 98.9% 97.8% 97.8%
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% 61.9% 61.1% 61.1%
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 293,422 81.8% 81.9% 77.7% 78.9%
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% 79.1% 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 91.5% 82.6% 92.3% 92.0%
26 ONE RAVINIA DRIVE Atlanta, GA 386,602 92.4% 90.8% 92.4% 92.4%
27 TWO RAVINIA Atlanta, GA 411,047 75.3% 75.9% 76.0% 75.8%
28 WESTCHASE I & II Houston, TX 629,025 87.7% 87.7% 86.0% 86.5%
29 1999 BROADWAY Denver, CO 676,379 80.2% 81.5% 80.6% 80.3%
30 999 PEACHTREE Atlanta, GA 621,946 95.1% 94.5% 88.6% 90.7%
31 1001 17th STREET Denver, CO 655,413 96.8% 93.1% 96.8% 96.8%
32 PLAZA SEVEN Minneapolis, MN 326,483 96.8% 96.8% 85.9% 93.2%
33 PERSHING PLAZA Atlanta, GA 160,145 97.4% 97.4% 97.4% 97.4%
34 600 17th STREET Denver, CO 598,626     87.1%     88.4%     84.6%     85.3%
TOTAL WEIGHTED AVERAGE 9,760,657     89.7%     89.3%     88.5%     89.0%
 

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

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, 2018

            % of
Tenant Sq Ft Portfolio
1 Quintiles IMS Healthcare Incorporated 259,531 2.7%
2 US Government 250,520 2.6%
3 CITGO Petroleum Corporation 248,399 2.5%
4 Newfield Exploration Company 234,495 2.4%
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 EOG Resources, Inc. 160,937 1.6%
9 T-Mobile South, LLC dba T-Mobile 151,792 1.6%
10 Citicorp Credit Services, Inc. 146,260 1.5%
11 Petrobras America, Inc. 144,813 1.5%
12 Jones Day 140,342 1.4%
13 Argo Data Resource Corporation 140,246 1.4%
14 Vail Corp d/b/a Vail Resorts 132,229 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 Northrup Grumman Systems Corp. 111,469 1.1%
20 ADS Alliance Data Systems, Inc. 107,698     1.1%
Total 3,321,830     34.0%

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule H
Reconciliation and Definitions of Funds From Operations (“FFO”) and
Adjusted Funds From Operations (“AFFO”)

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

       
Reconciliation of Net Income (Loss) to FFO and AFFO: Three Months Ended
March 31,
(In thousands, except per share amounts) 2018 2017
Net income $ 1,425 $ 4,480
(Gain) on sale of properties and properties held for sale, less applicable income tax (2,289 )
GAAP loss from non-consolidated REITs 105 397
FFO from non-consolidated REITs 884 791
Depreciation & amortization   23,950     25,163  
NAREIT FFO 26,364 28,542
Hedge ineffectiveness (22 )
Acquisition costs of new properties       8  
Funds From Operations (FFO) $ 26,364   $ 28,528  
 
Funds From Operations (FFO) $ 26,364 $ 28,528
Reverse FFO from non-consolidated REITs (884 ) (791 )
Distributions from non-consolidated REITs 355 346
Amortization of deferred financing costs 711 606
Straight-line rent 40 (1,082 )
Tenant improvements (6,777 ) (6,474 )
Leasing commissions (1,021 ) (1,579 )
Non-investment capex   (1,858 )   (1,670 )
Adjusted Funds From Operations (AFFO) $ 16,930   $ 17,884  
 
Per Share Data
EPS $ 0.01 $ 0.04
FFO $ 0.25 $ 0.27
AFFO $ 0.16 $ 0.17
 
Weighted average shares (basic and diluted)   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 Release
Supplementary Schedule I
Reconciliation and Definition of Sequential Same Store results to property Net Operating Income (NOI) and Net Income (Loss)

Net Operating Income (“NOI”)

The Company provides property performance based on Net Operating Income, which we refer to as NOI. Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus 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 31-Mar-18 31-Dec-17   (Dec) Change
Region
East 1,007 $ 3,991 $ 3,917 $ 74 1.9 %
MidWest 1,549 6,257 4,940 1,317 26.7 %
South 4,597 15,431 16,168 (737 ) (4.6 ) %
West 2,608   10,958     11,352         (394 ) (3.5 ) %
Same Store 9,761 36,637 36,377 260 0.7 %
 
Acquisitions                   %
NOI* from the continuing portfolio 9,761 36,637 36,377 260 0.7 %
Dispositions, Non-Operating, Development or Redevelopment -   79     (77 )       156   0.4   %
NOI* 9,761 $ 36,716   $ 36,300       $ 416   1.1   %
 
Sequential Same Store $ 36,637 $ 36,377 $ 260 0.7 %
 
Less Nonrecurring
Items in NOI* (a)   761     914         (153 ) 0.5   %
 
Comparative
Sequential Same Store $ 35,876   $ 35,463       $ 413   1.2   %
 

 

Three Months Ended Three Months Ended
Reconciliation to Net income       31-Mar-18 31-Dec-17
Net income (loss) $ 1,425 $ (4,932 )
Add (deduct):
Loss on sale of properties and property held for sale, less applicable income taxes 21
Hedge ineffectiveness 2,096
Management fee income (746 ) (756 )
Depreciation and amortization 24,035 25,659
Amortization of above/below market leases (85 ) (90 )
General and administrative 3,432 3,665
Interest expense 9,486 8,657
Interest income (1,120 ) (1,133 )
Equity in losses of non-consolidated REITs 105 2,885
Non-property specific items, net   184     228  
 
 
NOI* $ 36,716   $ 36,300  

(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.

Contacts

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

Contacts

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