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Franklin Street Properties Corp. Announces Third Quarter 2020 Results

·18 min read

Franklin Street Properties Corp. (the "Company", "FSP", "we" or "our") (NYSE American: FSP), a real estate investment trust (REIT), announced its results for the third quarter ended September 30, 2020.

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

"After slower-second quarter 2020 leasing results primarily due to the emergence of the COVID-19 pandemic and its negative effects on economic activity, the pace of third quarter leasing in FSP’s property portfolio improved with approximately 282,000 square feet in total leasing, of which approximately 181,000 square feet was with new tenants. Prior to the emergence of the COVID-19 pandemic, we were confident that the company was well positioned for new tenant absorption, increasing occupancy levels and higher rental rates during 2020, allowing us the potential to start realizing the longer-term value-add property proposition that was such an integral part of the strategy of recasting our portfolio.

We currently have approximately 240,000 square feet of potential net absorption over the next three to six months, consisting of new prospects for approximately 180,000 square feet and tenant expansions for approximately 60,000 square feet.

For the full third quarter of 2020, we collected approximately 98% of contracted rent and as of October 31, 2020 we have collected approximately 98% of October rents. However, at this time, we are not able to predict whether and to what extent our level of rental receipts may change in future months. Consequently, we are continuing suspension of Net Income and Funds From Operations ("FFO") guidance and will not be providing additional guidance until such time as we have a better understanding of the duration of the COVID-19 pandemic and its impact on our business and the businesses of our tenants.

At this time, we believe the bulk of our tenants will be financially able to weather the COVID-19 pandemic and the inherent value of our property portfolio and our own financial resources and balance sheet flexibility will continue to see us through this difficult time. We believe that we will then be well positioned to resume the strong leasing activity that occurred in 2018, 2019 and the first quarter of 2020."

Financial Highlights

  • Net loss was $1.7 million, or $0.02 per basic and diluted share, for the third quarter ended September 30, 2020.

  • FFO was $20.4 million, or $0.19 per basic and diluted share, for the third quarter ended September 30, 2020.

  • Adjusted Funds From Operations (AFFO) was $3.5 million or $0.03 per basic and diluted share, for the third quarter ended September 30, 2020.

  • As of September 30, 2020, we had $570 million available on our revolving line of credit.

  • Our debt is entirely unsecured and we have no debt maturities until November 30, 2021.

COVID-19 Pandemic Update

FSP remains committed to the health and safety of its employees, tenants, vendors and visitors and will continue to implement recommended guidelines for social distancing and other safety protocols at our properties and corporate headquarters.

  • We have implemented working from home policies for FSP employees.

  • All of our properties remain open for business.

  • As of October 31, 2020, we had collected approximately 98% of rental receipts due in October 2020. Due to the high level of uncertainty related to the COVID-19 pandemic, we are unable to predict the level of rental receipts in future months.

  • During the past approximately 7 months, we have received rent relief requests from some of our tenants. The majority of these requests for relief have been in the form of potential rent deferrals for varying lengths of time. To date, we have been in discussions with tenants regarding potential rent deferrals representing approximately 1% to 2% of annualized rents. We will continue to review each request for rent relief on a case by case basis. Where prudent, we may grant deferrals and, in some instances, seek extended lease terms. We are unable to predict the outcomes of these ongoing negotiations, the amount of the rent relief packages, if any, and ultimate recovery of any deferred amounts.

Leasing Update

  • During the quarter ended September 30, 2020, we leased approximately 282,000 square feet, of which approximately 181,000 square feet was with new tenants. During the nine months ended September 30, 2020, we leased approximately 606,000 square feet, of which approximately 347,000 square feet was with new tenants. During the year ended December 31, 2019, we leased approximately 1,417,000 square feet, of which approximately 534,000 square feet was with new tenants.

  • Our directly owned real estate portfolio of 35 owned properties (including our 3 redevelopment properties) totaling approximately 9.9 million square feet was approximately 84.3% leased as of September 30, 2020, compared to approximately 83.3% leased as of June 30, 2020.

  • On September 14, 2020, we announced that we entered into a lease agreement with a new tenant with an initial term of 16 years for approximately 94,000 square feet, approximately 23,000 square feet of which is at our property known as 121 South Eighth Street in Minneapolis, Minnesota and approximately 71,000 square feet of which is at our property known as 801 Marquette in Minneapolis, Minnesota. Together with leases signed previously, 801 Marquette was approximately 91.8% leased as of September 30, 2020.

  • On September 24, 2020, we announced that we entered into a lease agreement with a new tenant with an initial term of 7 years for approximately 28,000 square feet, or 43.9% of the rentable square feet at our property known as Forest Park, in Charlotte, North Carolina. Together with leases signed previously, Forest Park was approximately 78.4% leased as of September 30, 2020.

  • Despite delays caused by COVID-19, we currently have approximately 240,000 square feet of potential net absorption over the next three to six months, consisting of new prospects for 180,000 square feet and tenant expansions for 60,000 square feet.

  • Lease expirations for the remainder of 2020 are approximately 78,000 square feet, or approximately 0.8% of our owned portfolio.

  • The weighted average GAAP base rent per square foot achieved on leasing activity during the nine months ended September 30, 2020 was $29.61, or 11.8% higher than average rents in the respective properties as applicable compared to the year ended December 31, 2019. The average lease term on leases in the nine months ended September 30, 2020, shortened to 7.8 years compared to 8.3 years for the full year of 2019. Overall the portfolio weighted average rent per occupied square foot increased to $29.92 as of September 30, 2020 from $29.88 as of December 31, 2019.

Dividend Update

On October 9, 2020, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended September 30, 2020 of $0.09 per share of common stock that will be paid on November 12, 2020 to stockholders of record on October 23, 2020.

Non-GAAP Financial Information

A reconciliation of Net income 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 September 30, 2020. 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 November 4, 2020 at 11:00 a.m. (ET) to discuss the third quarter 2020 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 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 our ability to lease space in the future, 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, 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, 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, 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, 2019, as the same may be updated from time to time in subsequent filings with the United States Securities and Exchange Commission, including without limitation, the "Risk Factors" set forth in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. 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

Nine Months Ended

September 30,

September 30,

(in thousands, except per share amounts)

2020

2019

2020

2019

Revenue:

Rental

$

61,834

$

68,108

$

184,799

$

196,952

Related party revenue:

Management fees and interest income from loans

400

426

1,208

3,100

Other

13

5

31

16

Total revenue

62,247

68,539

186,038

200,068

Expenses:

Real estate operating expenses

16,730

18,041

49,498

52,883

Real estate taxes and insurance

12,279

12,505

36,348

37,408

Depreciation and amortization

22,076

22,559

66,659

67,913

General and administrative

3,817

3,886

11,159

11,097

Interest

8,953

9,036

26,996

27,775

Total expenses

63,855

66,027

190,660

197,076

Income (loss) before taxes on income

(1,608

)

2,512

(4,622

)

2,992

Tax expense on income

71

113

203

165

Net income (loss)

$

(1,679

)

$

2,399

$

(4,825

)

$

2,827

Weighted average number of shares outstanding, basic and diluted

107,328

107,231

107,295

107,231

Net income (loss) per share, basic and diluted

$

(0.02

)

$

0.02

$

(0.04

)

$

0.03

Franklin Street Properties Corp. Financial Results

Supplementary Schedule B

Condensed Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,

(in thousands, except share and par value amounts)

2020

2019

Assets:

Real estate assets:

Land

$

191,578

$

191,578

Buildings and improvements

1,983,979

1,924,664

Fixtures and equipment

12,714

11,665

2,188,271

2,127,907

Less accumulated depreciation

538,622

490,697

Real estate assets, net

1,649,649

1,637,210

Acquired real estate leases, less accumulated amortization of $60,561 and $60,749, respectively

31,011

40,704

Cash, cash equivalents and restricted cash

4,840

9,790

Tenant rent receivables

4,007

3,851

Straight-line rent receivable

71,033

66,881

Prepaid expenses and other assets

6,538

7,246

Related party mortgage loan receivables

21,000

21,000

Other assets: derivative asset

3,022

Office computers and furniture, net of accumulated depreciation of $1,426 and $1,362, respectively

178

183

Deferred leasing commissions, net of accumulated amortization of $32,547 and $28,114, respectively

51,765

52,767

Total assets

$

1,840,021

$

1,842,654

Liabilities and Stockholders’ Equity:

Liabilities:

Bank note payable

$

30,000

$

Term loans payable, less unamortized financing costs of $3,137 and $4,267, respectively

766,863

765,733

Series A & Series B Senior Notes, less unamortized financing costs of $863 and $985, respectively

199,137

199,015

Accounts payable and accrued expenses

69,905

66,658

Accrued compensation

3,634

3,400

Tenant security deposits

9,435

9,346

Lease liability

1,627

1,890

Other liabilities: derivative liabilities

20,157

7,704

Acquired unfavorable real estate leases, less accumulated amortization of $4,911 and $4,676, respectively

1,798

2,512

Total liabilities

1,102,556

1,056,258

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, 107,328,199 and 107,269,201 shares issued and outstanding, respectively

11

11

Additional paid-in capital

1,357,131

1,356,794

Accumulated other comprehensive loss

(20,157

)

(4,682

)

Accumulated distributions in excess of accumulated earnings

(599,520

)

(565,727

)

Total stockholders’ equity

737,465

786,396

Total liabilities and stockholders’ equity

$

1,840,021

$

1,842,654

Franklin Street Properties Corp. Financial Results

Supplementary Schedule C

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the

Nine Months Ended

September 30,

(in thousands)

2020

2019

Cash flows from operating activities:

Net income (loss)

$

(4,825

)

$

2,827

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense

68,859

70,072

Amortization of above and below market leases

(234

)

(305

)

Shares issued as compensation

337

Decrease in allowance for doubtful accounts
and write-off of accounts receivable

(13

)

(69

)

Changes in operating assets and liabilities:

Tenant rent receivables

(143

)

(403

)

Straight-line rents

(2,636

)

(6,950

)

Lease acquisition costs

(1,516

)

(3,155

)

Prepaid expenses and other assets

(504

)

1,261

Accounts payable and accrued expenses

2,527

2,849

Accrued compensation

234

726

Tenant security deposits

89

2,689

Payment of deferred leasing commissions

(6,168

)

(9,485

)

Net cash provided by operating activities

56,007

60,057

Cash flows from investing activities:

Property improvements, fixtures and equipment

(61,989

)

(47,905

)

Repayment of related party mortgage loan receivable

(2,400

)

Investment in related party mortgage loan receivable

51,795

Proceeds received from liquidating trust

1,470

Net cash provided by (used in) investing activities

(61,989

)

2,960

Cash flows from financing activities:

Distributions to stockholders

(28,968

)

(28,953

)

Borrowings under bank note payable

85,000

45,000

Repayments of bank note payable

(55,000

)

(70,000

)

Deferred financing costs

(82

)

Net cash provided by (used in) financing activities

1,032

(54,035

)

Net increase (decrease) in cash, cash equivalents and restricted cash

(4,950

)

8,982

Cash, cash equivalents and restricted cash, beginning of year

9,790

11,177

Cash, cash equivalents and restricted cash, end of period

$

4,840

$

20,159

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

2020

78,358

0.8

%

2021

808,890

8.2

%

2022

1,179,221

11.9

%

2023

661,959

6.7

%

2024

874,968

8.8

%

Thereafter (2)

6,312,275

63.6

%

9,915,671

100.0

%

____________

(1)

Percentages are determined based upon total square footage.

(2)

Includes 1,375,970 square feet of vacancies at our operating properties and 182,710 square feet of vacancies at our redevelopment properties as of September 30, 2020. We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized.

(dollars & square feet in 000's)

As of September 30, 2020 (a)

# of

% of

Square

% of

State

Properties

Investment

Portfolio

Feet

Portfolio

Colorado

6

$

557,824

33.8

%

2,620

26.4

%

Texas

9

342,752

20.8

%

2,420

24.4

%

Georgia

5

322,465

19.6

%

1,967

19.8

%

Minnesota

3

121,048

7.3

%

757

7.6

%

Virginia

4

84,538

5.1

%

685

6.9

%

North Carolina

2

49,763

3.0

%

324

3.3

%

Missouri

2

43,316

2.6

%

352

3.5

%

Illinois

2

46,949

2.9

%

372

3.8

%

Florida

1

51,598

3.1

%

213

2.2

%

Indiana

1

29,396

1.8

%

206

2.1

%

Total

35

$

1,649,649

100.0

%

9,916

100.0

%

(a)

Includes investment in our redevelopment properties. We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized.

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

Recurring Capital Expenditures

Nine Months

(in thousands)

For the Three Months Ended

Ended

31-Mar-20

30-Jun-20

30-Sep-20

30-Sep-20

Tenant improvements

$

10,716

$

13,531

$

8,022

$

32,269

Deferred leasing costs

2,730

603

2,033

5,366

Non-investment capex

4,527

6,581

6,373

17,481

$

17,973

$

20,715

$

16,428

$

55,116

For the Three Months Ended

Year Ended

31-Mar-19

30-Jun-19

30-Sep-19

31-Dec-19

31-Dec-19

Tenant improvements

$

8,318

$

10,169

$

7,890

$

15,874

$

42,251

Deferred leasing costs

4,239

3,666

1,286

3,164

12,355

Non-investment capex

2,413

4,049

3,968

6,304

16,734

$

14,970

$

17,884

$

13,144

$

25,342

$

71,340

Square foot & leased percentages

September 30,

December 31,

2020

2019

Operating Properties:

Number of properties

32

32

Square feet

9,526,822

9,504,634

Leased percentage

85.6%

87.6%

Redevelopment Properties (a):

Number of properties

3

3

Square feet

388,849

405,215

Leased percentage

53.0%

50.3%

Total Owned Properties:

Number of properties

35

35

Square feet

9,915,671

9,909,849

Leased percentage

84.3%

86.1%

Managed Properties - Single Asset REITs (SARs):

Number of properties

2

2

Square feet

348,545

348,545

Total Operating, Redevelopment and Managed Properties:

Number of properties

37

37

Square feet

10,264,216

10,258,394

(a)

We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease up and that are not stabilized

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule F

Percentage of Leased Space

(Unaudited & Estimated)

Second

Third

% Leased (1)

Quarter

% Leased (1)

Quarter

as of

Average %

as of

Average %

Property Name

Location

Square Feet

30-Jun-20

Leased (2)

30-Sep-20

Leased (2)

1

FOREST PARK (3)

Charlotte, NC

64,198

35.6%

35.6%

78.4%

49.9%

2

MEADOW POINT

Chantilly, VA

138,537

70.3%

70.3%

70.3%

70.3%

3

TIMBERLAKE

Chesterfield, MO

234,496

95.7%

95.7%

95.7%

95.7%

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

71.7%

71.7%

71.7%

71.7%

7

PARK TEN PHASE II

Houston, TX

156,746

95.0%

95.0%

95.0%

95.0%

8

GREENWOOD PLAZA

Englewood, CO

196,236

100.0%

100.0%

100.0%

100.0%

9

ADDISON

Addison, TX

289,325

79.4%

79.4%

83.7%

84.6%

10

COLLINS CROSSING

Richardson, TX

300,887

79.7%

79.7%

83.5%

83.5%

11

INNSBROOK

Glen Allen, VA

298,183

57.2%

57.2%

57.2%

57.2%

12

RIVER CROSSING

Indianapolis, IN

205,729

98.5%

98.5%

100.0%

99.0%

13

LIBERTY PLAZA

Addison, TX

216,906

73.7%

73.6%

75.1%

74.2%

14

380 INTERLOCKEN

Broomfield, CO

240,359

73.1%

73.1%

73.1%

73.1%

15

390 INTERLOCKEN

Broomfield, CO

241,512

98.2%

99.0%

99.4%

99.0%

16

BLUE LAGOON (3)

Miami, FL

213,182

73.1%

73.1%

73.1%

73.1%

17

ELDRIDGE GREEN

Houston, TX

248,399

100.0%

100.0%

100.0%

100.0%

18

ONE OVERTON PARK

Atlanta, GA

387,267

93.3%

93.3%

93.3%

93.3%

19

LOUDOUN TECH

Dulles, VA

136,658

98.9%

98.9%

98.9%

98.9%

20

4807 STONECROFT (3)

Chantilly, VA

111,469

0.0%

0.0%

0.0%

0.0%

21

121 SOUTH EIGHTH ST

Minneapolis, MN

297,209

86.4%

91.2%

92.7%

87.4%

22

801 MARQUETTE AVE

Minneapolis, MN

129,821

37.0%

37.0%

91.8%

55.2%

23

EMPEROR BOULEVARD

Durham, NC

259,531

100.0%

100.0%

100.0%

100.0%

24

LEGACY TENNYSON CTR

Plano, TX

207,049

100.0%

100.0%

100.0%

100.0%

25

ONE LEGACY

Plano, TX

214,110

52.9%

52.9%

56.4%

55.2%

26

909 DAVIS

Evanston, IL

195,098

93.3%

93.3%

93.3%

93.3%

27

ONE RAVINIA DRIVE

Atlanta, GA

386,602

87.9%

87.9%

88.5%

87.7%

28

TWO RAVINIA

Atlanta, GA

411,047

69.5%

69.4%

69.2%

69.3%

29

WESTCHASE I & II

Houston, TX

629,025

55.6%

55.5%

56.3%

55.6%

30

1999 BROADWAY

Denver, CO

677,539

85.6%

85.6%

84.8%

85.3%

31

999 PEACHTREE

Atlanta, GA

621,946

90.9%

90.9%

86.5%

86.7%

32

1001 17TH STREET

Denver, CO

655,420

97.7%

98.0%

96.8%

97.0%

33

PLAZA SEVEN

Minneapolis, MN

330,096

88.8%

89.0%

91.9%

91.3%

34

PERSHING PLAZA

Atlanta, GA

160,145

98.9%

98.9%

98.9%

98.9%

35

600 17TH STREET

Denver, CO

609,353

92.9%

91.6%

87.1%

87.6%

OWNED PORTFOLIO

9,915,671

83.3%

83.4%

84.3%

83.4%

____________

(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)

We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized.

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 September 30, 2020

% of

Tenant

Sq Ft

Portfolio

1

IQVIA Holdings Inc.

259,531

2.6%

2

CITGO Petroleum Corporation

248,399

2.5%

3

Ovintiv USA Inc.

234,495

2.4%

4

US Government

226,140

2.3%

5

Centene Management Company, LLC

216,879

2.2%

6

Eversheds Sutherland (US) LLP

179,868

1.8%

7

EOG Resources, Inc.

169,167

1.7%

8

The Vail Corporation

164,636

1.7%

9

Lennar Homes, LLC

155,808

1.6%

10

T-Mobile South, LLC dba T-Mobile

151,792

1.5%

11

Citicorp Credit Services, Inc.

146,260

1.5%

12

Jones Day

140,342

1.4%

13

Worldventures Holdings, LLC

129,998

1.3%

14

Kaiser Foundation Health Plan

120,979

1.2%

15

Argo Data Resource Corporation

114,200

1.1%

16

Giesecke & Devrient America

112,110

1.1%

17

Randstad General Partner (US)

109,638

1.1%

18

VMWare, Inc.

100,853

1.0%

19

Deluxe Corporation

94,302

1.0%

20

Ping Identity Corp.

89,856

0.9%

Total

3,165,253

31.9%

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 Income to FFO and AFFO:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, except per share amounts)

2020

2019

2020

2019

Net income (loss)

$

(1,679

)

$

2,399

$

(4,825

)

$

2,827

Depreciation & amortization

21,989

22,448

66,424

67,609

NAREIT FFO

20,310

24,847

61,599

70,436

Lease Acquisition costs

136

61

333

351

Funds From Operations (FFO)

$

20,446

$

24,908

$

61,932

$

70,787

Funds From Operations (FFO)

$

20,446

$

24,908

$

61,932

$

70,787

Amortization of deferred financing costs

727

720

2,201

2,157

Shares issued as compensation

337

Straight-line rent

(1,293

)

(2,120

)

(2,636

)

(6,949

)

Tenant improvements

(8,022

)

(7,890

)

(32,269

)

(26,377

)

Leasing commissions

(2,033

)

(1,286

)

(5,366

)

(9,191

)

Non-investment capex

(6,373

)

(3,968

)

(17,481

)

(10,430

)

Adjusted Funds From Operations (AFFO)

$

3,452

$

10,364

$

6,718

$

19,997

Per Share Data

EPS

$

(0.02

)

$

0.02

$

(0.04

)

$

0.03

FFO

$

0.19

$

0.23

$

0.58

$

0.66

AFFO

$

0.03

$

0.10

$

0.06

$

0.19

Weighted average shares (basic and diluted)

107,328

107,231

107,295

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, 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 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 our proportionate share of FFO and including distributions received, from non-consolidated REITs, (3) excluding the effect of straight-line rent, (4) plus the amortization of deferred financing costs, (5) plus the value of shares issued as compensation and (6) 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 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 our redevelopment properties. We also 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-Sep-20

30-Jun-20

(Dec)

Change

Region

East

833

$

2,425

$

3,019

$

(594

)

(19.7

)%

MidWest

1,557

5,068

5,089

(21

)

(0.4

)%

South

4,387

13,619

13,025

594

4.6

%

West

2,620

10,976

11,211

(235

)

(2.1

)%

Property NOI* from Operating Properties

9,397

32,088

32,344

(256

)

(0.8

)%

Dispositions and Redevelopment Properties (a)

519

109

(148

)

257

0.8

%

NOI*

9,916

$

32,197

$

32,196

$

1

0.0

%

Sequential Same Store

$

32,088

$

32,344

$

(256

)

(0.8

)%

Less Nonrecurring

Items in NOI* (b)

351

810

(459

)

1.4

%

Comparative

Sequential Same Store

$

31,737

$

31,534

$

203

0.6

%

Three Months Ended

Three Months Ended

Reconciliation to Net income

30-Sep-20

30-Jun-20

Net loss

$

(1,679

)

$

(2,075

)

Add (deduct):

Management fee income

(484

)

(446

)

Depreciation and amortization

22,076

22,245

Amortization of above/below market leases

(86

)

(75

)

General and administrative

3,817

3,817

Interest expense

8,953

8,980

Interest income

(386

)

(381

)

Non-property specific items, net

(14

)

131

NOI*

$

32,197

$

32,196

(a)

We define redevelopment properties as properties being developed, redeveloped or where redevelopment is complete, but are in lease-up and that are not stabilized. We also include properties that have been placed in service, but that 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201103005698/en/

Contacts

Georgia Touma (877) 686-9496