Franklin Street Properties Corp. Announces Second Quarter 2015 Results

WAKEFIELD, Mass.--(BUSINESS WIRE)--Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE MKT: FSP), a real estate investment trust (REIT), announced today Funds From Operations (FFO) of $27.2 million or $0.27 per share for the second quarter ended June 30, 2015; and net income of $3.9 million or $0.04 per share for the second quarter ended June 30, 2015.

The Company evaluates its performance based on FFO, Net Income and EPS and believes each is an important measure. A reconciliation of Net Income to FFO, which is a non-GAAP financial measure, is provided on page 3 of this press release.

Comparing results for the second quarter of 2015 to the same period in 2014, FFO decreased $1.1 million or $0.01 per share to $27.2 million or $0.27 per share in 2015. The FFO decrease was primarily from lower property income as a result of asset sales, loan repayments achieved in the last twelve months and lower occupancy, which was partially offset by the acquisition of a property on April 8, 2015. We recorded a $0.9 million gain on the sale of a property in the second quarter of 2015. Net Income and EPS was $3.9 million or $0.04 per share for the second quarter of 2015 compared to a net income of $3.7 million or $0.04 per share for the second quarter of 2014.

Comparing results for the six months ended June 30, 2015 to the same period in 2014, FFO decreased $4.2 million or $0.04 per share to $52.9 million or $0.53 per share. The FFO decrease was primarily from lower property income as a result of asset sales and loan repayments achieved in the last twelve months and from lower occupancy, which was partially offset by the acquisition of a property on April 8, 2015. We recorded a $11.4 million gain on the sale of three properties during the six months ended June 30, 2015. Net Income and EPS was $16.4 million or $0.16 per share for the six months ended June 30, 2015 compared to net income of $7.3 million or $0.07 per share for the six months ended June 30, 2014.

George J. Carter, President and CEO, commented as follows:

“For the second quarter of 2015, FSP’s profits as represented by FFO totaled approximately $27.2 million, or $0.27 per share. Our directly owned real estate portfolio of 36 properties totaling approximately 9.6 million square feet was 90.6% leased as of June 30, 2015. We are updating our full-year 2015 FFO guidance to the range of $1.04 to $1.08 per share.

During the first half of 2015, we continued to lease vacant space, totaling approximately 547,000 square feet, in our property portfolio. The largest lease completed occurred on June 30, 2015 at our “Timberlake” property in Chesterfield, Missouri for approximately 117,618 square feet to Centene Management Company, LLC. The lease is guaranteed by Centene Corporation. This lease brings the entire three building Timberlake office complex to the 77.2% leased level. However, our overall portfolio leased percentage remained relatively unchanged at approximately 90.6%, primarily because of our $78 million purchase during the quarter of the 442,130 square foot “Two Ravinia” office property in Atlanta, Georgia, which is an approximately 80% leased value-add opportunity. Also, on May 13, 2015, we completed the disposition of a property known as Park Seneca, a 109,699 square foot suburban office property located in Charlotte, North Carolina, for $8.2 million. A total gain of $0.9 million was realized as a result of the sale. Park Seneca had been owned by FSP or an FSP affiliate since 1997.

We continue to actively pursue further potential dispositions of other suburban office assets that we believe are no longer core to our long-term strategy of acquiring larger, multi-tenant, urban in-fill, CBD or town-center office properties. We believe selective acquisitions, such as Two Ravinia located in the Central Perimeter submarket of Atlanta, could provide shareholders with better risk/reward adjusted returns over an extended slow growth period in the U.S. business cycle. Potential target acquisition opportunities are primarily being pursued in our five core markets of Atlanta, Dallas, Denver, Houston and Minneapolis. Along with our existing property portfolio’s ongoing leasing activity, we believe the results, size, timing and execution of our current capital recycling efforts could meaningfully affect value creation and results for full year 2015 and beyond.

We remain very positive about our prospects and opportunities.”

Dividend Update

On July 10, 2015, the Company announced that its Board of Directors declared a regular quarterly dividend for the three months ended June 30, 2015 of $0.19 per share of common stock that will be paid on August 13, 2015 to stockholders of record on July 24, 2015.

FFO Guidance

Our full year FFO guidance for 2015 has been updated to be in the range of $1.04 to $1.08 per diluted share. This guidance (a) excludes the impact of future acquisitions, dispositions, debt financings or repayments or other capital market transactions; (b) reflects estimates from our ongoing portfolio of properties, other real estate investments and G&A expenses; and (c) reflects our current expectations of economic conditions. We will update guidance quarterly in our earnings releases. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

Real Estate Update

Supplementary schedules provide property information for the Company’s owned real estate portfolio and for two non-consolidated REITs in which the Company holds preferred stock interests as of June 30, 2015. 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.franklinstreetproperties.com.

Funds From Operations (FFO)

A reconciliation of Net Income to FFO is shown below and a definition of FFO is provided on Supplementary Schedule H. Management believes FFO is used broadly throughout the real estate investment trust (REIT) industry as a measurement of performance. Management also believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company has included the NAREIT FFO definition 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 may not be comparable to FFO reported by other REITs or real estate companies that define FFO differently.

Today’s news release, along with other news about Franklin Street Properties Corp., is available on the Internet at www.franklinstreetproperties.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 July 29, 2015 at 10:00 a.m. (ET) to discuss the second quarter 2015 results. To access the call, please dial 1-877-507-4376. Internationally, the call may be accessed by dialing 1-412-317-6014. To listen via live audio webcast, please visit the Webcasts & Presentations section in the Investor Relations section of the Company's website (www.franklinstreetproperties.com) at least ten minutes prior to the start of the call and follow the posted directions. The webcast will also be available via replay from the above location starting one hour after the call is finished.

About Franklin Street Properties Corp.

Franklin Street Properties Corp., based in Wakefield, Massachusetts, is focused on investing in institutional-quality office properties in the U.S. FSP’s strategy is to invest in select urban infill and central business district (CBD) properties, with primary emphasis on our top five markets of Atlanta, Dallas, Denver, Houston, and Minneapolis. FSP seeks value-oriented investments with an eye towards long-term growth and appreciation, as well as current income. FSP is a Maryland corporation that operates in a manner intended to qualify as a real estate investment trust (REIT) for federal income tax purposes. To learn more about FSP please visit our website at www.franklinstreetproperties.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 based on current judgments and current knowledge of management, which 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, 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, 2014, 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, 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.

(1) Percentages are determined based upon square footage of expiring commercial leases.

(2) Includes 902,447 square feet of current vacancies.

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

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 leased square feet:

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule H
Definition of Funds From Operations (“FFO”)

The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and acquisition costs of newly acquired properties that are not capitalized, plus depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges on properties or investments in non-consolidated REITs, and after adjustments to exclude equity in income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs.

FFO should not be considered as an alternative to net income (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs.

Other real estate companies and NAREIT, may define this term in a different manner. We have included the NAREIT FFO definition in our table and note that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do.

We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be examined in connection with net income and cash flows from operating, investing and financing activities in the consolidated financial statements.