FSP Franklin Street Properties Corp

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported): June 5, 2015

 

 

Franklin Street Properties Corp.

(Exact name of registrant as specified in its charter)

 

 

Maryland	001-32470	04-3578653
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

 

 

401 Edgewater Place, Suite 200, Wakefield, Massachusetts	01880
(Address of principal executive offices)	(Zip Code)

 

 

Registrant’s telephone number, including area code: (781) 557-1300

 

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 7.01.    Regulation FD Disclosure.

At REITWeek 2015: NAREIT’s Investor Forum to be held between June 9, 2015 and June 11, 2015 in New York City, officers of Franklin Street Properties Corp., a Maryland corporation, will participate in one-on-one and small group sessions with analysts and investors and will refer to a slide presentation. A copy of this presentation is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information contained in this Item 7.01, including the related information set forth in the presentation attached hereto and incorporated by reference herein, is being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of Section 18 of the Exchange Act. The information in this Item 7.01 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such filing.

 

Item 9.01.   Financial Statements and Exhibits.

 

(d)   Exhibits

 

See Exhibit Index attached hereto.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	FRANKLIN STREET PROPERTIES CORP.
Date:  June 5, 2015	By:  /s/ George J. Carter
		George J. Carter President and Chief Executive Officer

 

EXHIBIT INDEX

 

 

Exhibit No.	Description
99.1	Presentation prepared by Franklin Street Properties Corp. entitled, Investor Presentation, June 2015

 

 

 

 

 

This presentation may contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, economic conditions in the United States, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, changes in government regulations and regulatory uncertainty, uncertainty about governmental fiscal policy, geopolitical events, expenditures that cannot be anticipated such as utility rate and usage increases, unanticipated repairs, additional staffing, insurance increases, real estate tax valuation reassessments and our failure to maintain our status as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. Readers are advised to refer to the “Risk Factors” section of our quarterly reports on Form 10-Q and our Annual Report on Form 10-K for additional information concerning these risks and uncertainties. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not undertake a duty to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise.

 

Unless otherwise indicated, all information contained in this presentation is as of March 31, 2015. This presentation contains references to Funds from Operations (“FFO”), Adjusted FFO (“AFFO”) and Adjusted EBITDA. Such measurements are non-GAAP (Generally Accepted Accounting Principles) financial measures. Please refer to pages 16 through 20 for definitions and reconciliations of GAAP net income to FFO and Adjusted EBITDA. Past financial performance is not a guarantee of future financial performance. Franklin Street Properties Corp. (“FSP”) assumes no obligation to update or revise the financial information contained in this presentation.

 

 

 

 

 

____________________

Source: Public Company Filings and Disclosures.

 

 

 

____________________

Source: Public Company Filings and Disclosures.

Note: Includes FSP owned portfolio only.

 

 

 

 

 

 

____________________

Source: Public Company Filings and Disclosures.

 

 

____________________

Source: Public Company Filings and Disclosures.

 

 

____________________

(1)

Source: CoStar

 

 

 

 

 

 

____________________

Source: SNL Financial as of May 18, 2015.

(1)

Peers include BDN, CLI, CXP, CUZ, EQC, HIW, OFC, PDM, PKY.

 

 

____________________

Source: SNL Financial as of March 31, 2015.

(1)

Different REITs may calculate Adjusted EBITDA in different ways. Please refer to pages 19 & 20 for FSP’s definition of Adjusted EBITDA and a reconciliation of GAAP net income to Adjusted EDITDA. Adjusted EBITDA is a non-GAAP financial measure on which undue reliance should not be placed.

(2)

The metric of Net Debt is defined as total debt less cash and cash equivalents, which is divided by annualized Q1 2015 Adjusted EBITDA.

(3)

Metric calculated using most recent quarterly data.

(4)

HIW does not include principal amortization.

(5)

Peers include BDN, CLI, CXP, CUZ, EQC, HIW, OFC, PDM, PKY.

 

 

____________________

Source: SNL Financial as of May 18, 2015.

(1)

Peers include BDN, CLI, CXP, CUZ, EQC, HIW, OFC, PDM, PKY.

 

 

Definition of Funds From Operations (FFO)

 

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

 

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

 

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

 

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

 

 

 

Definition of Adjusted Funds From Operations (AFFO)

 

The Company defines AFFO as the sum of (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, (5) less recurring capital expenditures that are generally for (a) maintenance of properties, which we call non-investment capex or are second generation capital expenditures. Second generation costs include re-tenanting space after a tenant vacates, which include tenant improvements and leasing commissions.

 

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

 

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

 

 

 

FFO & AFFO Reconciliation
(in thousands, except per share amounts)

 

		For the Three																				For the
		Months Ended				For the Three Months Ended																Year Ended
		31-Mar-15				31-Mar-14				30-Jun-14				30-Sep-14				31-Dec-14				31-Dec-14
Net income		$	12,533			$	3,573			$	3,713			$	1,567			$	4,295			$	13,148
(Gain) loss on sale, less applicable income tax			(10,462	)			—												(940	)			(940	)
GAAP income from non-consolidated REITs			322				484				552				455				269				1,760
FFO from non-consolidated REITs			601				419				351				508				652				1,930
Depreciation & amortization			22,678				24,289				23,638				25,374				23,249				96,550
NAREIT FFO*			25,672				28,765				28,254				27,904				27,525				112,448
Acquisition costs			—				14				—				—				—				14
Funds From Operations (FFO)*		$	25,672			$	28,779			$	28,254			$	27,904			$	27,525			$	112,462
Adjusted Funds From Operations (AFFO)*
Funds From Operations (FFO)*			25,672				28,779				28,254				27,904				27,525				112,462
Reverse FFO from non-consolidated REITs			(601	)			(419	)			(351	)			(508	)			(652	)			(1,930	)
Distributions from non-consolidated REITs			27				27				27				27				26				107
Amortization of deferred financing costs			517				499				499				498				506				2,002
Straight-line rent			(69	)			(1,783	)			(1,541	)			(714	)			(698	)			(4,736	)
Tenant improvements			(2,936	)			(1,132	)			(1,837	)			(2,612	)			(4,244	)			(9,825	)
Leasing commissions			(830	)			(1,080	)			(2,786	)			(577	)			(1,405	)			(5,848	)
Non-investment capex			(643	)			(364	)			(1,621	)			(700	)			(851	)			(3,536	)
Adjusted Funds From Operations (AFFO)*		$	21,137			$	24,527			$	20,644			$	23,318			$	20,207			$	88,696
Per Share Data:
EPS		$	0.13			$	0.04			$	0.04			$	0.02			$	0.04			$	0.13
FFO*			0.26				0.29				0.28				0.28				0.27				1.12
AFFO*			0.21				0.24				0.21				0.23				0.20				0.89
Weighted Average Shares (basic and diluted)			100,187				100,187				100,187				100,187				100,187				100,187

 

 

 

Definition of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA

 

EBITDA is defined as net income plus interest expense, income tax expense and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA excluding gains and losses on sales of properties or shares of equity investments or provisions for losses on assets held for sale. EBITDA and Adjusted EBITDA are not intended to represent cash flow for the period, are not presented as an alternative to operating income as an indicator of operating performance, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP and are not indicative of operating income or cash provided by operating activities as determined under GAAP. EBITDA and Adjusted EBITDA are presented solely as a supplemental disclosure with respect to liquidity because the Company believes it provides useful information regarding the Company's ability to service or incur debt. Because all companies do not calculate EBITDA or Adjusted EBITDA the same way, this presentation may not be comparable to similarly titled measures of other companies. The Company believes that net income is the financial measure calculated and presented in accordance with GAAP that is most directly comparable to EBITDA and Adjusted EBITDA.

 

 

 

 

EBITDA Reconciliation
(in thousands, except ratio amounts)

 

		Three Months
		Ended					For the Three Months Ended																Year Ended
		31-Mar-15					31-Mar-14				30-Jun-14				30-Sep-14				31-Dec-14				31-Dec-14
Net income		$	12,533				$	3,573			$	3,713			$	1,567			$	4,295			$	13,148
Interest expense			6,187					7,176				6,891				6,883				6,483				27,433
Depreciation and amortization			22,678					24,289				23,638				25,374				23,249				96,550
Income taxes			161					137				117				149				95				498
EBITDA			41,559					35,175				34,359				33,973				34,122				137,629
Excluding (gain) loss on sale, less applicable income tax			(10,462	)				—				—				—				(940	)			(940	)
Adjusted EBITDA		$	31,097				$	35,175			$	34,359			$	33,973			$	33,182			$	136,689
Interest expense		$	6,187				$	7,176			$	6,891			$	6,883			$	6,483			$	27,433
Scheduled principal payments			—					—				—				—				—				—
Interest and scheduled principal payments		$	6,187				$	7,176			$	6,891			$	6,883			$	6,483			$	27,433
Interest coverage ratio			5.03					4.90				4.99				4.94				5.12				4.98
Debt service coverage ratio			5.03					4.90				4.99				4.94				5.12				4.98
Debt		$	860,000				$	936,500			$	916,500			$	905,000			$	888,000
Less cash and cash equivalents			(14,945	)				(20,031	)			(18,455	)			(15,930	)			(7,519	)
Net Debt		$	845,055				$	916,469			$	898,045			$	889,070			$	880,481
Adjusted EBITDA			31,097					35,175				34,359				33,973				33,182
Annualized			124,388					140,700				137,436				135,892				132,728
Net Debt-to-EBITDA			6.8					6.5				6.5				6.5				6.6