Franklin Street Properties Corp. Announces Fourth Quarter and Annual 2016 Results

Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE MKT: FSP), a real estate investment trust (REIT), announced its results for the fourth quarter and year ended December 31, 2016.

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

“As 2017 begins, FSP expects to see Funds From Operations (FFO) growth for the full year, resulting in between $1.04 and $1.09 per fully diluted share. We expect growth to be led by contributions from increased leasing activity at our properties, full year contribution from our 2016 acquisitions and anticipated successful results from our redevelopment of 801 Marquette in downtown Minneapolis. Over the past several years, the portfolio transition efforts at FSP have resulted in positioning a significant portion of our portfolio into more 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 growth and look forward with anticipation to 2017 and beyond.”

Highlights

• FFO was $26.9 million and $106.3 million or $0.25 and $1.03 per share for the fourth quarter and year ended December 31, 2016, respectively. Net Income was $1.7 million and $8.4 million or $0.02 and $0.08 per share for the fourth quarter and year ended December 31, 2016, respectively.
• We are maintaining our full year FFO guidance for 2017 to be in the range of approximately $1.04 to $1.09 per diluted share and, for the first quarter of 2017, we estimate FFO to be in the range of approximately $0.25 to $0.26 per diluted share.
• Adjusted Funds From Operations (AFFO) was $0.13 and $0.70 per diluted share for the fourth quarter and year ended December 31, 2016.
• Portfolio was approximately 89.3% leased as of December 31, 2016.
• On December 1, 2016, we acquired an approximately 613,527 square foot property known as Dominion Towers located at 600 17th Street in Denver, Colorado for approximately $154 million. We funded the acquisition with the proceeds of a $150 million unsecured, two-year bridge loan that closed on November 30, 2016 and existing cash on hand.
• On December 16, 2016, we sold a property located in Federal Way, Washington and received approximately $7.3 million in net proceeds, and on January 6, 2017, we sold a property located in Milpitas, California and received approximately $6.2 million in net proceeds.

Leasing and Development Update

• Our directly owned real estate portfolio of 36 properties totaling approximately 10.2 million square feet was approximately 89.3% leased as of December 31, 2016.
• During the quarter, we leased approximately 325,000 square feet, of which approximately 88,000 square feet was with new tenants. During 2016, we leased approximately 1,194,000 square feet, which represents nearly 12% of the total portfolio. Renewals accounted for approximately 75%, or approximately 895,000 square feet of the total leasing during 2016.
• Executed an expansion and extension with Alliance Data Systems, the anchor tenant at One Legacy Circle in Plano, Texas, for approximately 107,700 square feet until June 2026.
• The 801 Marquette Avenue demolition is complete and the building is open for tours. Delivery of the completed project is expected by the end of the second quarter of 2017. Leasing activity and market/tenant reception have been positive to date.

Acquisition and Disposition Update

• On December 1, 2016, FSP expanded its presence in downtown Denver, Colorado to nearly two million square feet with the off market acquisition of the approximately 613,527 square foot property known as Dominion Towers located at 600 17th Street, for approximately $154 million.
• On December 16, 2016, FSP sold its approximately 117,000 square foot office property located in Federal Way, Washington, which was our only property remaining in that market for approximately $7.3 million in net proceeds.
• On January 6, 2017, FSP sold its approximately 36,000 square foot office property in Milpitas, California, which was our only property remaining in that market for approximately $6.2 million in net proceeds.
• Although substantially complete, FSP will continue to transition out of remaining non-core assets when appropriate values/pricing are achieved.

Dividend Update

On January 6, 2017, the Company announced that its Board of Directors declared a regular quarterly dividend for the three months ended December 31, 2016 of $0.19 per share of common stock that will be paid on February 9, 2017 to stockholders of record on January 20, 2017.

Non-GAAP Financial Information

A reconciliation of Net Income to FFO and AFFO and our definitions of FFO and AFFO can be found on Supplementary Schedule H.

FFO Guidance

We are maintaining our full year FFO guidance for 2017 to be in the range of approximately $1.04 to $1.09 per diluted share and, for the first quarter of 2017, we estimate FFO to be in the range of approximately $0.25 to $0.26 per diluted share. This guidance (a) excludes the impact of future acquisitions, developments, dispositions, debt financings or repayments or other capital market transactions; (b) reflects estimates from our ongoing portfolio of properties, other real estate investments and general and administrative expenses; and (c) reflects our current expectations of economic conditions. We will update guidance quarterly in our earnings releases. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

Real Estate Update

Supplementary schedules provide property information for the Company’s owned real estate portfolio and for two non-consolidated REITs in which the Company holds preferred stock interests as of December 31, 2016. 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.

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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 February 15, 2017 at 10:00 a.m. (ET) to discuss the fourth quarter and year-end 2016 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 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.fspreit.com.

Forward-Looking Statements

Statements made in this press release that state FSP’s or management’s intentions, beliefs, expectations, or predictions for the future may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This press release may also contain forward-looking statements, such as expectations for FFO in future periods and the timing and impact of the ongoing redevelopment of the 801 Marquette Avenue property, that are based on current judgments and current knowledge of management and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, economic conditions in the United States, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, changes in government regulations and regulatory uncertainty, uncertainty about governmental fiscal policy, geopolitical events and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated repairs, additional staffing, insurance increases and real estate tax valuation reassessments. See the “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as the same may be updated from time to time in subsequent filings with the United States Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, acquisitions, dispositions, performance or achievements. We will not update any of the forward-looking statements after the date of this press release to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.

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

During the three months ended June 30, 2016 we changed the definition of FFO to exclude hedge ineffectiveness, which does not affect any prior period. Our interest rate swaps effectively fix interest rates on our term loans; however, there is no floor on the variable interest rate of the swaps whereas the current term loans are subject to a zero percent floor. As a result there is a mismatch and the ineffective portion of the derivatives’ changes in fair value are recognized directly into earnings each quarter as hedge ineffectiveness. We believe that FFO excluding hedge ineffectiveness is useful supplemental information regarding our operating performance as it provides a more meaningful and consistent comparison of our operating performance and allows investors to more easily compare our operating results.

Funds From Operations (“FFO”)

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

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

Other real estate companies and NAREIT, may define this term in a different manner. We have included the NAREIT FFO as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do.

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

Adjusted Funds From Operations (“AFFO”)

The Company also evaluates performance based on Adjusted Funds From Operations, which we refer to as AFFO. The Company defines AFFO as (1) FFO, (2) excluding our proportionate share of FFO and including distributions received, from non-consolidated REITs, (3) excluding the effect of straight-line rent, (4) plus deferred financing costs and (5) less recurring capital expenditures that are generally for maintenance of properties, which we call non-investment capex or are second generation capital expenditures. Second generation costs include re-tenanting space after a tenant vacates, which include tenant improvements and leasing commissions.

We exclude development/redevelopment activities, capital expenditures planned at acquisition and costs to reposition a property. We also exclude first generation leasing costs, which are generally to fill vacant space in properties we acquire or were planned for at acquisition.

AFFO should not be considered as an alternative to net income (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs. Other real estate companies may define this term in a different manner. We believe that in order to facilitate a clear understanding of the results of the Company, AFFO should be examined in connection with net income and cash flows from operating, investing and financing activities in the consolidated financial statements.

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