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Franklin Street Properties Corp. Announces Fourth Quarter / Annual 2018 Results and 2019 Guidance

February 12, 2019

WAKEFIELD, Mass.--(BUSINESS WIRE)--Feb 12, 2019--Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE American: FSP), a real estate investment trust (REIT), announced its results for the fourth quarter and year ended December 31, 2018.

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

“Leasing activity within our property portfolio of 32 operating and 3 redevelopment properties continued to be solid during the fourth quarter of 2018, with approximately 398,000 square feet leased during the quarter. This leasing activity contributed to making 2018 a record year of leasing at FSP, with approximately 1,681,000 square feet leased during the year. We also continued to see increased leasing activity in our energy-influenced markets of Houston and Denver. The price of oil was particularly volatile over the past quarter and we believe that longer-term supply/demand pricing characteristics of that commodity will be an important factor affecting future levels of office space absorption in those markets during 2019 and 2020.

As anticipated, we did experience known and planned for tenant move outs during the fourth quarter of 2018, including Burger King at Blue Lagoon in Miami, Florida, SunTrust at Innsbrook in Glen Allen, Virginia, and Red Cross at Forest Park in Charlotte, North Carolina, which reduced overall leased occupancy in our property portfolio.

As 2019 begins, we are continuing our lease-up efforts at our approximately 130,000 square foot redevelopment property known as 801 Marquette in Minneapolis, Minnesota, which was approximately 37% leased as of December 31, 2018. In addition, we are now redeveloping an approximately 213,000 square foot property known as Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property known as Forest Park in Charlotte, North Carolina, for a total of approximately 400,000 square feet of redevelopment space in the aggregate. Similar to 801 Marquette, prior to beginning our redevelopment efforts, both Blue Lagoon and Forest Park had been long-term leased to single-tenants. In addition, both assets have been owned by us (or our affiliates) for in excess of 15 years, are anchored in excellent locations within their respective markets, and have generated consistently strong cash flows. We believe that current market rents for these assets are meaningfully higher than the expiring single-tenant rents. We also believe that our redevelopment efforts will provide us the opportunity to capture significant increased value for our shareholders through higher ongoing rental cash flows, as we seek to achieve a strong, long-term rate of return on our costs of redevelopment. Currently, these 3 redevelopment properties contribute no material rental income to the Company.

As 2019 begins, we are optimistic about our ability to lease significant portions of our vacancy in our 32 operating properties and in our 3 redevelopment properties, and believe that successful results will mark the beginning of a longer-term, more sustainable, rise in operating performance and value creation within our property portfolio in 2020. The reduction to our dividend in 2018 allows the Company to retain more operating cash flow to fund anticipated increased leasing costs and capital expenditures during 2019 and 2020.”

Highlights

Net Income was $1.4 million and $13.1 million or $0.01 and $0.12 per basic and diluted share for the fourth quarter and year ended December 31, 2018, respectively. FFO was $24.5 million and $102.5 million or $0.23 and $0.96 per basic and diluted share for the fourth quarter and year ended December 31, 2018, respectively. Adjusted Funds From Operations (AFFO) was $0.10 and $0.47 per basic and diluted share for the fourth quarter and year ended December 31, 2018, respectively.

Leasing Update

Our directly owned real estate portfolio of 32 operating properties (excluding 3 redevelopment properties) totaling approximately 9.5 million square feet was approximately 89.0% leased as of December 31, 2018. During the year ended December 31, 2018, we leased approximately 1,681,000 square feet, of which approximately 397,000 was with new tenants, representing a 14% increase in leasing accomplished compared to 2017, and a new high for the company. During the three months ended December 31, 2018, we leased approximately 398,000 square feet, of which approximately 54,000 square feet was with new tenants. The portfolio assets in our core markets of Houston and Denver improved in 2018: Our core market of Houston’s leased percentage increased to 86.0% as of December 31, 2018, up from 76.4% leased as of December 31, 2017.Our core market of Denver’s leased percentage increased to 90.7% as of December 31, 2018, up from 89.7% leased as of December 31, 2017.

Dividend Update

On January 11, 2019, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended December 31, 2018 of $0.09 per share of common stock that will be paid on February 14, 2019 to stockholders of record on January 25, 2019.

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 and managed real estate portfolio as of December 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 initiating our full year net income guidance for 2019, which is estimated to be in the range of a net loss of approximately $0.03 to net income of $0.03 per basic and diluted share, and are for the first quarter of 2019, which is estimated to be in the range of a net loss of approximately $0.02 to $0.00 per basic and diluted share. We are initiating our full year FFO guidance for 2019, which is estimated to be in the range of approximately $0.81 to $0.87 per basic and diluted share, and for the first quarter of 2019, which is estimated to be in the range of approximately $0.19 to $0.21 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:

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 13, 2019 at 10:00 a.m. (ET) to discuss the fourth quarter and year end 2018 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 operating performance, rates of return and value creation/enhancement in future periods, expectations for operating cash flow in future periods, expectations for growth, leasing and acquisition and disposition activities in future periods, including in the Denver and Houston markets, expectations regarding the timing, leasing and economic results of our redevelopment properties, and prospects for long-term sustainable growth, 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, including the level of interest rates, 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, 2018, 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.

(1) Percentages are determined based upon total square footage. (2) Includes 1,046,853 square feet of current vacancies at our operating properties and 294,421 square feet of current vacancies at our redevelopment properties. We define redevelopment properties as properties being developed, redeveloped or where development/redevelopment is complete but that are not yet stabilized.

(a) Includes investment in our redevelopment properties. We define redevelopment properties as properties being developed, redeveloped or where complete, but that are not yet stabilized.

(a) Excludes investment in our redevelopment properties. We define redevelopment properties as properties being developed, redeveloped or where development/redevelopment is complete but that are not yet stabilized.

(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. (3) Classified as a redevelopment property.

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.

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, acquisition costs of newly acquired properties that are not capitalized and lease acquisition costs 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 redevelopment properties, which include properties being developed, redeveloped or where redevelopment is complete but are in lease-up and are not stabilized, 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:

(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.

View source version on businesswire.com:https://www.businesswire.com/news/home/20190212005864/en/

CONTACT: For Franklin Street Properties Corp.

Georgia Touma, 877-686-9496

KEYWORD: UNITED STATES NORTH AMERICA MASSACHUSETTS

INDUSTRY KEYWORD: REIT CONSTRUCTION & PROPERTY COMMERCIAL BUILDING & REAL ESTATE OTHER CONSTRUCTION & PROPERTY

SOURCE: Franklin Street Properties Corp.

Copyright Business Wire 2019.

PUB: 02/12/2019 04:30 PM/DISC: 02/12/2019 04:30 PM

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