Franklin Street Properties Corp. Announces Second Quarter 2023 Results

WAKEFIELD, Mass., August 01, 2023--(BUSINESS WIRE)--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, 2023.

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

"As the third quarter of 2023 begins, we continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets. We will seek to increase shareholder value by (1) pursuing the sale of select properties where we believe that short to intermediate term valuation potential has been reached and (2) striving to lease vacant space. We intend to use proceeds from property dispositions primarily for debt reduction.

We look forward to the remainder of 2023 and beyond with anticipation and optimism."

Financial Highlights

• GAAP net loss was $8.4 million and $6.0 million, or $0.08 and $0.06 per basic and diluted share for the three and six months ended June 30, 2023, respectively.

• Funds From Operations (FFO) was $7.1 million and $15.5 million, or $0.07 and $0.15 per basic and diluted share, for the three and six months ended June 30, 2023, respectively.

Leasing Highlights

• During the six months ended June 30, 2023, we leased approximately 445,000 square feet, including 176,000 square feet of new leases.

• Our directly owned real estate portfolio of 20 owned properties, totaling approximately 6.1 million square feet, was approximately 75.7% leased as of June 30, 2023, compared to approximately 75.6% leased as of December 31, 2022. The increase in the leased percentage is primarily a result of leasing completed during the six months ended June 30, 2023, which was partially offset by lease expirations and a property disposition.

• The weighted average GAAP base rent per square foot achieved on leasing activity during the six months ended June 30, 2023, was $29.14, or 7.2% higher than average rents in the respective properties for the year ended December 31, 2022. The average lease term on leases signed during the six months ended June 30, 2023, was 6.6 years compared to 6.4 years during the year ended December 31, 2022. Overall, the portfolio weighted average rent per occupied square foot was $31.21 as of June 30, 2023, compared to $30.48 as of December 31, 2022.

• During the second quarter, we entered into a lease amendment with an existing tenant, Kaiser Foundation Health Plan, Inc., at our Greenwood Plaza property in Englewood, Colorado. The lease amendment extends the term applicable to all of Kaiser’s approximately 121,000 square foot premises by 5 years, from May 31, 2024, to May 31, 2029.

• During the second quarter, we entered into a new lease with the Commonwealth of Virginia, Department of General Services, at our Innsbrook property in Glen Allen, Virginia. The lease is for approximately 100,000 square feet, has a term of 10.5 years and is anticipated to commence during December 2023.

• We are currently tracking approximately 500,000 square feet of new prospective tenants, including approximately 300,000 square feet of prospective tenants that have identified our properties on their respective short lists of potential locations.

• We believe that our continuing portfolio of real estate is well located, primarily in the Sunbelt and Mountain West geographic regions, and consists of high-quality assets with upside leasing potential.

Investment Highlights

• We remain committed to seeking to sell select properties during 2023 and using proceeds primarily for debt reduction.

• Since December 2020, we have completed the sale of properties resulting in gross proceeds of approximately $852 million and reflecting an average price per square foot of approximately $220.

• During the third quarter of 2023, we expect to close on the sale of Forest Park in Charlotte, North Carolina for approximately $9.2 million in gross proceeds. We recorded an impairment of $0.8 million on this property for the expected loss on sale and classified the property as an asset held-for-sale during the three months ended June 30, 2023. Proceeds will be used primarily for debt reduction.

• We have entered into purchase and sale agreements with three different (and unrelated) purchasers for the potential sale of three properties that would result in aggregate gross proceeds of approximately $156 million. These transactions remain subject to customary closing conditions, including without limitation, successful completion by the purchasers of due diligence inspection periods. If successful, these transactions are expected to close during the fourth quarter of 2023 and the proceeds are intended to be used primarily for the repayment of debt.

• Assuming that the three properties currently under purchase and sale agreement, together with our Forest Park property, close at their currently negotiated purchase prices, those four dispositions would reflect an average price per square foot of approximately $250.

Dividends

• On July 7, 2023, we announced that our Board of Directors declared a quarterly cash dividend for the three months ended June 30, 2023 of $0.01 per share of common stock that will be paid on August 10, 2023 to stockholders of record on July 21, 2023.

Consolidation of Sponsored REIT

As of January 1, 2023, we consolidated the operations of our Monument Circle sponsored REIT into our financial statements. On October 29, 2021, we agreed to amend and restate our existing loan to Monument Circle that is secured by a mortgage on real estate owned by Monument Circle, which we refer to as the Sponsored REIT Loan. The amended and restated Sponsored REIT Loan extended the maturity date from December 6, 2022 to June 30, 2023 (subject to further extension to September 30, 2023), increased the aggregate principal amount of the loan from $21 million to $24 million, and included certain other modifications. On June 26, 2023, the maturity date was extended to September 30, 2023. In consideration of our agreement to amend and restate the Sponsored REIT Loan, we obtained from the stockholders of Monument Circle the right to vote their shares in favor of any sale of the property owned by Monument Circle any time on or after January 1, 2023. As a result of our obtaining this right to vote shares, GAAP variable interest entity (VIE) rules required us to consolidate Monument Circle as of January 1, 2023. A gain on consolidation of approximately $0.4 million was recognized in the three months ended March 31, 2023.

Additional information about the consolidation of Monument Circle can be found in Note 1, "Organization, Properties, Basis of Presentation, Financial Instruments, and Recent Accounting Standards – Variable Interest Entities (VIEs)" and Note 2, "Related Party Transactions and Investments in Non-Consolidated Entities - Management fees and interest income from loans", in the Notes to Consolidated Financial Statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

Non-GAAP Financial Information

A reconciliation of Net income to FFO, Adjusted Funds From Operations (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.

2023 Net Income, FFO and Disposition Guidance

At this time, due primarily to economic conditions and uncertainty surrounding the timing and amount of proceeds received from property dispositions, we are continuing suspension of Net Income, FFO and property disposition guidance.

Real Estate Update

Supplementary schedules provide property information for the Company’s owned and consolidated properties as of June 30, 2023. 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.

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 2, 2023 at 11:00 a.m. (ET) to discuss the second quarter 2023 results. To access the call, please dial 888-440-4368 and use conference ID 5398803. Internationally, the call may be accessed by dialing 646-960-0856 and using conference ID 5398803. 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 infill and central business district (CBD) office properties in the U.S. Sunbelt and Mountain West, as well as select opportunistic markets. 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 those relating to expectations for future potential leasing activity, expectations for future potential property dispositions, the payment of dividends and the repayment of debt in future periods, value creation/enhancement in future periods and expectations for growth and leasing activities in future periods 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, adverse changes in general economic or local market conditions, including as a result of the COVID-19 pandemic and other potential infectious disease outbreaks and terrorist attacks or other acts of violence, which may negatively affect the markets in which we and our tenants operate, inflation rates, increasing 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, adverse changes in energy prices, which if sustained, could negatively impact occupancy and rental rates in the markets in which we own properties, including energy-influenced markets such as Dallas, Denver and Houston, and any delays in the timing of anticipated dispositions, 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 increases in construction costs, increases in the level of general and administrative costs as a percentage of revenues as revenues decrease as a result of property dispositions, 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, 2022, which 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 Loss	I

Franklin Street Properties Corp. Financial Results
Supplementary Schedule A
Condensed Consolidated Statements of Operations
(Unaudited)

		For the								For the
		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands, except per share amounts)			2023				2022				2023				2022
Revenue:
Rental		$	36,257			$	40,831			$	74,024			$	82,628
Related party revenue:
Management fees and interest income from loans			—				467				—				927
Other			9				6				9				13
Total revenue			36,266				41,304				74,033				83,568
Expenses:
Real estate operating expenses			12,140				12,344				24,830				25,178
Real estate taxes and insurance			7,169				9,043				14,142				17,762
Depreciation and amortization			14,645				18,186				29,372				33,856
General and administrative			3,767				3,981				7,584				7,765
Interest			6,084				5,664				11,890				11,030
Total expenses			43,805				49,218				87,818				95,591
Loss on extinguishment of debt			—				—				(67	)			—
Gain on consolidation of Sponsored REIT			—				—				394				—
Impairment and loan loss reserve			—				(1,140	)			—				(1,140	)
Gain on sale of properties and impairment of asset held for sale, net			(806	)			—				7,586				—
Loss before taxes			(8,345	)			(9,054	)			(5,872	)			(13,163	)
Tax expense			75				56				142				105
Net loss		$	(8,420	)		$	(9,110	)		$	(6,014	)		$	(13,268	)
Weighted average number of shares outstanding, basic and diluted			103,330				103,193				103,283				103,441
Net loss per share, basic and diluted		$	(0.08	)		$	(0.09	)		$	(0.06	)		$	(0.13	)

Franklin Street Properties Corp. Financial Results
Supplementary Schedule B
Condensed Consolidated Balance Sheets
(Unaudited)

		June 30,				December 31,
(in thousands, except share and par value amounts)			2023				2022
Assets:
Real estate assets:
Land		$	128,588			$	126,645
Buildings and improvements			1,362,939				1,388,869
Fixtures and equipment			11,612				11,151
			1,503,139				1,526,665
Less accumulated depreciation			421,180				423,417
Real estate assets, net			1,081,959				1,103,248
Acquired real estate leases, less accumulated amortization of $20,962 and $20,243, respectively			8,828				10,186
Asset held for sale			8,860				—
Cash, cash equivalents and restricted cash			6,697				6,632
Tenant rent receivables			1,938				2,201
Straight-line rent receivable			50,267				52,739
Prepaid expenses and other assets			5,648				6,676
Related party mortgage loan receivable, less allowance for credit loss of $0 and $4,237, respectively			—				19,763
Other assets: derivative asset			—				4,358
Office computers and furniture, net of accumulated depreciation of $1,149 and $1,115, respectively			127				154
Deferred leasing commissions, net of accumulated amortization of $20,327 and $19,043, respectively			34,985				35,709
Total assets		$	1,199,309			$	1,241,666
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable		$	75,000			$	48,000
Term loans payable, less unamortized financing costs of $529 and $250, respectively			124,471				164,750
Series A & Series B Senior Notes, less unamortized financing costs of $412 and $494, respectively			199,588				199,506
Accounts payable and accrued expenses			32,501				50,366
Accrued compensation			2,286				3,644
Tenant security deposits			5,666				5,710
Lease liability			550				759
Acquired unfavorable real estate leases, less accumulated amortization of $537 and $574, respectively			153				195
Total liabilities			440,215				472,930
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, 103,430,353 and 103,235,914 shares issued and outstanding, respectively			10				10
Additional paid-in capital			1,335,091				1,334,776
Accumulated other comprehensive income			2,480				4,358
Accumulated distributions in excess of accumulated earnings			(578,487	)			(570,408	)
Total stockholders’ equity			759,094				768,736
Total liabilities and stockholders’ equity		$	1,199,309			$	1,241,666

Franklin Street Properties Corp. Financial Results
Supplementary Schedule C
Condensed Consolidated Statements of Cash Flows
(Unaudited)

		For the
		Six Months Ended
		June 30,
(in thousands)			2023				2022
Cash flows from operating activities:
Net loss		$	(6,014	)		$	(13,268	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization expense			30,634				34,863
Amortization of above and below market leases			(30	)			(54	)
Amortization of other comprehensive income into interest expense			(1,726	)			—
Shares issued as compensation			315				394
Loss on extinguishment of debt			67				—
Gain on consolidation of Sponsored REIT			(394	)			—
Impairment and loan loss reserve			—				1,140
Gain on sale of properties and impairment of asset held for sale, net			(7,586	)			—
Changes in operating assets and liabilities:
Tenant rent receivables			263				(673	)
Straight-line rents			322				(2,904	)
Lease acquisition costs			(824	)			(2,426	)
Prepaid expenses and other assets			(267	)			(1,153	)
Accounts payable and accrued expenses			(8,747	)			(18,268	)
Accrued compensation			(1,358	)			(2,452	)
Tenant security deposits			(44	)			(400	)
Payment of deferred leasing commissions			(4,137	)			(5,033	)
Net cash provided by (used in) operating activities			474				(10,234	)
Cash flows from investing activities:
Property improvements, fixtures and equipment			(18,369	)			(21,496	)
Consolidation of Sponsored REIT			3,048				—
Proceeds received from sales of properties			28,098				—
Net cash provided by (used in) investing activities			12,777				(21,496	)
Cash flows from financing activities:
Distributions to stockholders			(2,065	)			(51,924	)
Proceeds received from termination of interest rate swap			4,206				—
Stock repurchases			—				(4,843	)
Borrowings under bank note payable			62,000				60,000
Repayments of bank note payable			(35,000	)			(5,000	)
Repayments of term loans payable			(40,000	)			—
Deferred financing costs			(2,327	)			(2,561	)
Net cash used in financing activities			(13,186	)			(4,328	)
Net increase (decrease) in cash, cash equivalents and restricted cash			65				(36,058	)
Cash, cash equivalents and restricted cash, beginning of year			6,632				40,751
Cash, cash equivalents and restricted cash, end of period		$	6,697			$	4,693

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
2023		177,038		2.8	%
2024		622,040		9.9	%
2025		438,551		7.0	%
2026		617,649		9.9	%
2027		334,289		5.3	%
Thereafter (2)		4,081,091		65.1	%
		6,270,658		100.0	%

(1)		Percentages are determined based upon total square footage.
(2)		Includes 1,674,276 square feet of vacancies at our owned and consolidated properties as of June 30, 2023.

(dollars & square feet in 000's)		As of June 30, 2023
							% of			Square		% of
State		Properties		Investment			Portfolio			Feet		Portfolio
Colorado		4		$	457,647		42.3	%		2,140		34.1	%
Texas		9			330,946		30.6	%		2,424		38.6	%
Georgia		1			52,444		4.9	%		160		2.6	%
Minnesota		3			119,425		11.0	%		758		12.1	%
Virginia		1			31,821		2.9	%		298		4.8	%
Florida		1			70,152		6.5	%		213		3.4	%
Indiana		1			19,524		1.8	%		214		3.4	%
North Carolina (a)		1			-		0.0	%		64		1.0	%
Total		21		$	1,081,959		100.0	%		6,271		100.0	%

(a)

Property was classified as an asset held for sale as of June 30, 2023.

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule E
Portfolio and Other Supplementary Information
(Unaudited & Approximated)

Recurring Capital Expenditures
(in thousands)		For the Three Months Ended						Year to Date
		31-Mar-23			30-Jun-23			30-Jun-23
Tenant improvements		$	3,047		$	4,381		$	7,428
Deferred leasing costs			908			3,230			4,138
Non-investment capex			2,967			2,042			5,009
		$	6,922		$	9,653		$	16,575

(in thousands)		For the Three Months Ended												Year Ended
		31-Mar-22			30-Jun-22			30-Sep-22			31-Dec-22			31-Dec-22
Tenant improvements		$	1,877		$	5,453		$	6,813		$	7,508		$	21,651
Deferred leasing costs			3,032			1,327			2,053			1,152			7,564
Non-investment capex			5,065			6,736			9,289			9,074			30,164
		$	9,974		$	13,516		$	18,155		$	17,734		$	59,379

Square foot & leased percentages		June 30,			December 31,
		2023			2022
Owned Properties:
Number of properties (a)		20			21
Square feet		6,056,898			6,239,530
Leased percentage		75.7	%		75.6	%
Consolidated Property - Single Asset REIT (SAR):
Number of properties		1			—
Square feet		213,760			—
Leased percentage		4.1	%
Total Owned and Consolidated Properties:
Number of properties		21			21
Square feet		6,270,658			6,239,530
Leased percentage		73.3	%		75.6	%

(a)

Includes property that was classified as an asset held for sale as of June 30, 2023.

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule F
Percentage 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-23			Leased (2)			30-Jun-23			Leased (2)
1		FOREST PARK (3)		Charlotte, NC		64,198		78.4	%		78.4	%		78.4	%		78.4	%
2		PARK TEN		Houston, TX		157,609		90.8	%		86.6	%		90.8	%		90.8	%
3		PARK TEN PHASE II		Houston, TX		156,746		95.0	%		95.0	%		95.0	%		95.0	%
4		GREENWOOD PLAZA		Englewood, CO		196,236		66.3	%		66.3	%		66.3	%		66.3	%
5		ADDISON		Addison, TX		289,333		83.0	%		83.0	%		83.0	%		83.0	%
6		COLLINS CROSSING		Richardson, TX		300,887		97.1	%		96.8	%		97.1	%		97.1	%
7		INNSBROOK		Glen Allen, VA		298,183		47.8	%		47.8	%		81.3	%		81.3	%
8		LIBERTY PLAZA		Addison, TX		217,841		72.9	%		72.9	%		71.6	%		71.8	%
9		BLUE LAGOON		Miami, FL		213,182		98.5	%		98.5	%		98.5	%		98.5	%
10		ELDRIDGE GREEN		Houston, TX		248,399		100.0	%		100.0	%		100.0	%		100.0	%
11		121 SOUTH EIGHTH ST		Minneapolis, MN		298,121		84.5	%		84.5	%		79.6	%		82.2	%
12		801 MARQUETTE AVE		Minneapolis, MN		129,691		91.8	%		91.8	%		91.8	%		91.8	%
13		LEGACY TENNYSON CTR		Plano, TX		209,461		49.0	%		49.0	%		62.5	%		53.5	%
14		ONE LEGACY		Plano, TX		214,110		69.3	%		69.3	%		73.8	%		73.8	%
15		WESTCHASE I & II		Houston, TX		629,025		59.0	%		60.3	%		58.7	%		58.7	%
16		1999 BROADWAY		Denver, CO		682,639		61.9	%		65.2	%		61.0	%		61.6	%
17		1001 17TH STREET		Denver, CO		648,861		70.8	%		70.3	%		71.0	%		71.0	%
18		PLAZA SEVEN		Minneapolis, MN		330,096		65.0	%		71.6	%		64.4	%		64.3	%
19		PERSHING PLAZA		Atlanta, GA		160,145		79.8	%		79.8	%		79.8	%		79.8	%
20		600 17TH STREET		Denver, CO		612,135		80.5	%		79.3	%		80.8	%		80.6	%
		OWNED PORTFOLIO				6,056,898		73.9	%		74.9	%		75.7	%		75.6	%
21		MONUMENT CIRCLE (4)		Charlotte, NC		213,760		4.1	%		4.1	%		4.1	%		4.1	%
		OWNED & CONSOLIDATED PORTFOLIO				6,270,658		71.5	%		72.5	%		73.3	%		73.2	%

(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 three months during the quarter.
(3)		Property was classified as an asset held for sale as of June 30, 2023.
(4)		Consolidated property as of January 1, 2023, which was previously was a managed property.

Franklin Street Properties Corp. Earnings Release
Supplementary Schedule G
Largest 20 Tenants – FSP Owned and Consolidated Portfolio
(Unaudited & Estimated)

The following table includes the largest 20 tenants in FSP’s owned and consolidated portfolio based on total square feet:

As of June 30, 2023

						% of
		Tenant		Sq Ft		Portfolio
1		CITGO Petroleum Corporation		248,399		4.0	%
2		EOG Resources, Inc.		169,167		2.7	%
3		US Government		168,573		2.7	%
4		Lennar Homes, LLC		155,808		2.5	%
5		Kaiser Foundation Health Plan, Inc.		120,979		1.9	%
6		Argo Data Resource Corporation		114,200		1.8	%
7		Swift, Currie, McGhee & Hiers, LLP		101,296		1.6	%
8		Commonwealth of Virginia		100,010		1.6	%
9		Deluxe Corporation		98,922		1.6	%
10		Ping Identity Corp.		89,856		1.4	%
11		Permian Resources Operating, LLC		67,856		1.1	%
12		Bread Financial Payments, Inc.		67,274		1.1	%
13		PricewaterhouseCoopers LLP		66,304		1.1	%
14		Hall and Evans LLC		65,878		1.0	%
15		Cyxtera Management, Inc.		61,826		1.0	%
16		Precision Drilling (US) Corporation		59,569		0.9	%
17		EMC Corporation		57,100		0.9	%
18		ID Software, LLC		57,100		0.9	%
19		Olin Corporation		54,080		0.9	%
20		Unique Vacations, Inc.		53,119		0.8	%
		Total		1,977,316		31.5	%

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 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 Loss to FFO and AFFO:		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands, except per share amounts)		2023				2022				2023				2022
Net loss		$	(8,420	)		$	(9,110	)		$	(6,014	)		$	(13,268	)
Gain on consolidation of Sponsored REIT			—				—				(394	)			—
Impairment and loan loss reserve			—				1,140				—				1,140
Gain on sale of properties and impairment of asset held for sale, net			806				—				(7,586	)			—
Depreciation & amortization			14,633				18,141				29,342				33,802
NAREIT FFO			7,019				10,171				15,348				21,674
Lease Acquisition costs			91				86				169				165
Funds From Operations (FFO)		$	7,110			$	10,257			$	15,517			$	21,839
Funds From Operations (FFO)		$	7,110			$	10,257			$	15,517			$	21,839
Loss on extinguishment of debt			—				—				67				—
Amortization of deferred financing costs			672				481				1,261				1,007
Shares issued as compensation			315				394				315				394
Straight-line rent			653				(1,688	)			322				(2,904	)
Tenant improvements			(4,381	)			(5,453	)			(7,428	)			(7,330	)
Leasing commissions			(3,230	)			(1,327	)			(4,138	)			(4,359	)
Non-investment capex			(2,042	)			(6,736	)			(5,009	)			(11,801	)
Adjusted Funds From Operations (AFFO)		$	(903	)		$	(4,072	)		$	907			$	(3,154	)
Per Share Data
EPS		$	(0.08	)		$	(0.09	)		$	(0.06	)		$	(0.13	)
FFO		$	0.07			$	0.10			$	0.15			$	0.21
AFFO		$	(0.01	)		$	(0.04	)		$	0.01			$	(0.03	)
Weighted average shares (basic and diluted)			103,330				103,193				103,283				103,441

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 mortgage loans, 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 the National Association of Real Estate Investment Trusts, or 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 loss on extinguishment of debt that is non-cash, (3) excluding our proportionate share of FFO and including distributions received, from non-consolidated REITs, (4) excluding the effect of straight-line rent, (5) plus the amortization of deferred financing costs, (6) plus the value of shares issued as compensation and (7) 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

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 extinguishment of debt, 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 all periods presented. We exclude properties that have been placed in service, but that do not have operating activity for all periods presented, 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-23				31-Mar-23				(Dec)				Change
Region
East		362		$	553			$	478			$	75			15.7		%
MidWest		758			1,718				2,239				(521	)		(23.3	)	%
South		2,797			8,128				7,933				195			2.5		%
West		2,140			6,412				6,422				(10	)		(0.2	)	%
Property NOI* from Owned Properties		6,057			16,811				17,072				(261	)		(1.5	)	%
Disposition and Acquisition Properties (a)		214			(240	)			668				(908	)		(5.1	)	%
NOI*		6,271		$	16,571			$	17,740			$	(1,169	)		(6.6	)	%
Sequential Same Store				$	16,811			$	17,072			$	(261	)		(1.5	)	%
Less Nonrecurring
Items in NOI* (b)					301				1,292				(991	)		6.1		%
Comparative
Sequential Same Store				$	16,510			$	15,780			$	730			4.6		%
Reconciliation to				Three Months Ended				Three Months Ended
Net income (loss)				30-Jun-23				31-Mar-23
Net income (loss)				$	(8,420	)		$	2,406
Add (deduct):
Loss on extinguishment of debt					—				67
Gain on consolidation of Sponsored REIT					—				(394	)
Impairment and loan loss reserve					—				—
Gain on sale of properties, net					806				(8,392	)
Management fee income					(427	)			(374	)
Depreciation and amortization					14,645				14,727
Amortization of above/below market leases					(12	)			(18	)
General and administrative					3,768				3,817
Interest expense					6,084				5,806
Interest income					—				—
Non-property specific items, net					127				95
NOI*				$	16,571			$	17,740

(a)		We define Disposition and Acquisition Properties as properties that were sold or acquired or consolidated and do not have operating activity for all periods presented.
(b)		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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Contacts

Georgia Touma (877) 686-9496