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): July 28, 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)
¨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))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 

Item 2.02. Results of Operations and Financial Condition.

 

On July 28, 2015, Franklin Street Properties Corp. (the “Registrant”) announced its financial results for the three and six months ended June 30, 2015. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The press release references certain supplemental operating and financial data that is now available on the Registrant’s website. A copy of the supplemental operating and financial data is attached hereto as Exhibit 99.2 and is incorporated by reference herein.

 

The information in this Form 8-K (including Exhibits 99.1 and 99.2) shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d)Exhibits

 

See Exhibit Index attached hereto.

 

2
 

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:  July 28, 2015 By:    /s/ George J. Carter
 

George J. Carter

President and Chief Executive Officer

 
       

 

3
 

EXHIBIT INDEX

 

 

Exhibit No. Description
99.1 Press Release issued by Franklin Street Properties Corp. on July 28, 2015.     
99.2 Supplemental Operating and Financial Data for the three and six months ended June 30, 2015.

 

4



Exhibit 99.1

 

PRESS RELEASE Franklin Street Properties Corp.
401 Edgewater Place · Suite 200 · Wakefield, Massachusetts  01880 · (781) 557-1300 ·  www.franklinstreetproperties.com
Contact: Georgia Touma   (877) 686-9496 For Immediate Release
     

 

Franklin Street Properties Corp. Announces

Second Quarter 2015 Results

 

Wakefield, MA—July 28, 2015—Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE MKT: FSP), a real estate investment trust (REIT), announced today Funds From Operations (FFO) of $27.2 million or $0.27 per share for the second quarter ended June 30, 2015; and net income of $3.9 million or $0.04 per share for the second quarter ended June 30, 2015.

 

The Company evaluates its performance based on FFO, Net Income and EPS and believes each is an important measure. A reconciliation of Net Income to FFO, which is a non-GAAP financial measure, is provided on page 3 of this press release.

 

   Three Months Ended June 30,  Six Months Ended June 30,
(in 000's except per share data)  2015  2014  Increase
(Decrease)
  2015  2014  Increase
(Decrease)
                   
Net Income  $3,903   $3,713   $190   $16,436   $7,286   $9,150 
                               
FFO  $27,188   $28,254   $(1,066)  $52,860   $57,033   $(4,173)
Per Share Data:                              
EPS  $0.04   $0.04   $0.00   $0.16   $0.07   $0.09 
FFO  $0.27   $0.28   $(0.01)  $0.53   $0.57   $(0.04)
                               
Weighted average                              
   shares (diluted)   100,187    100,187    —      100,187    100,187    —   

 

 

Comparing results for the second quarter of 2015 to the same period in 2014, FFO decreased $1.1 million or $0.01 per share to $27.2 million or $0.27 per share in 2015. The FFO decrease was primarily from lower property income as a result of asset sales, loan repayments achieved in the last twelve months and lower occupancy, which was partially offset by the acquisition of a property on April 8, 2015. We recorded a $0.9 million gain on the sale of a property in the second quarter of 2015. Net Income and EPS was $3.9 million or $0.04 per share for the second quarter of 2015 compared to a net income of $3.7 million or $0.04 per share for the second quarter of 2014.

 

Comparing results for the six months ended June 30, 2015 to the same period in 2014, FFO decreased $4.2 million or $0.04 per share to $52.9 million or $0.53 per share. The FFO decrease was primarily from lower property income as a result of asset sales and loan repayments achieved in the last twelve months and from lower occupancy, which was partially offset by the acquisition of a property on April 8, 2015. We recorded a $11.4 million gain on the sale of three properties during the six months ended June 30, 2015. Net Income and EPS was $16.4 million or $0.16 per share for the six months ended June 30, 2015 compared to net income of $7.3 million or $0.07 per share for the six months ended June 30, 2014.

 

George J. Carter, President and CEO, commented as follows:

 

“For the second quarter of 2015, FSP’s profits as represented by FFO totaled approximately $27.2 million, or $0.27 per share. Our directly owned real estate portfolio of 36 properties totaling approximately 9.6 million square feet was 90.6% leased as of June 30, 2015. We are updating our full-year 2015 FFO guidance to the range of $1.04 to $1.08 per share.

 
-2-

 

During the first half of 2015, we continued to lease vacant space, totaling approximately 547,000 square feet, in our property portfolio. The largest lease completed occurred on June 30, 2015 at our “Timberlake” property in Chesterfield, Missouri for approximately 117,618 square feet to Centene Management Company, LLC. The lease is guaranteed by Centene Corporation. This lease brings the entire three building Timberlake office complex to the 77.2% leased level. However, our overall portfolio leased percentage remained relatively unchanged at approximately 90.6%, primarily because of our $78 million purchase during the quarter of the 442,130 square foot “Two Ravinia” office property in Atlanta, Georgia, which is an approximately 80% leased value-add opportunity. Also, on May 13, 2015, we completed the disposition of a property known as Park Seneca, a 109,699 square foot suburban office property located in Charlotte, North Carolina, for $8.2 million. A total gain of $0.9 million was realized as a result of the sale. Park Seneca had been owned by FSP or an FSP affiliate since 1997.

 

We continue to actively pursue further potential dispositions of other suburban office assets that we believe are no longer core to our long-term strategy of acquiring larger, multi-tenant, urban in-fill, CBD or town-center office properties. We believe selective acquisitions, such as Two Ravinia located in the Central Perimeter submarket of Atlanta, could provide shareholders with better risk/reward adjusted returns over an extended slow growth period in the U.S. business cycle. Potential target acquisition opportunities are primarily being pursued in our five core markets of Atlanta, Dallas, Denver, Houston and Minneapolis. Along with our existing property portfolio’s ongoing leasing activity, we believe the results, size, timing and execution of our current capital recycling efforts could meaningfully affect value creation and results for full year 2015 and beyond.

 

We remain very positive about our prospects and opportunities.

 

Dividend Update

 

On July 10, 2015, the Company announced that its Board of Directors declared a regular quarterly dividend for the three months ended June 30, 2015 of $0.19 per share of common stock that will be paid on August 13, 2015 to stockholders of record on July 24, 2015.

 

FFO Guidance

 

Our full year FFO guidance for 2015 has been updated to be in the range of $1.04 to $1.08 per diluted share. This guidance (a) excludes the impact of future acquisitions, dispositions, debt financings or repayments or other capital market transactions; (b) reflects estimates from our ongoing portfolio of properties, other real estate investments and G&A expenses; and (c) reflects our current expectations of economic conditions. We will update guidance quarterly in our earnings releases. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

 

Real Estate Update

 

Supplementary schedules provide property information for the Company’s owned real estate portfolio and for two non-consolidated REITs in which the Company holds preferred stock interests as of June 30, 2015. 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.franklinstreetproperties.com.

 

 
-3-

 

Funds From Operations (FFO)

 

A reconciliation of Net Income to FFO is shown below and a definition of FFO is provided on Supplementary Schedule H. Management believes FFO is used broadly throughout the real estate investment trust (REIT) industry as a measurement of performance. Management also believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders. The Company has included the NAREIT FFO definition 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 may not be comparable to FFO reported by other REITs or real estate companies that define FFO differently.

 

Reconciliation of Net Income to FFO:  Three Months Ended
June 30,
  Six Months Ended
June 30,
(In thousands, except per share amounts)  2015  2014  2015  2014
             
Net income  $3,903   $3,713   $16,436   $7,286 
     Gain on sale of assets, less applicable income tax   (948)   —      (11,410)   —   
     GAAP loss from non-consolidated REITs   38    552    360    1,036 
     FFO from non-consolidated REITs   885    351    1,486    770 
     Depreciation & amortization   23,168    23,638    45,846    47,927 
NAREIT FFO   27,046    28,254    52,718    57,019 
     Acquisition costs of new properties   142    —      142    14 
Funds From Operations (FFO)  $27,188   $28,254   $52,860   $57,033 
                     
Per Share Data                    
EPS  $0.04   $0.04   $0.16   $0.07 
FFO  $0.27   $0.28   $0.53   $0.57 
                     
Weighted average shares (basic and diluted)   100,187    100,187    100,187    100,187 

 

Today’s news release, along with other news about Franklin Street Properties Corp., is available on the Internet at www.franklinstreetproperties.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 July 29, 2015 at 10:00 a.m. (ET) to discuss the second quarter 2015 results. To access the call, please dial 1-877-507-4376. Internationally, the call may be accessed by dialing 1-412-317-6014. To listen via live audio webcast, please visit the Webcasts & Presentations section in the Investor Relations section of the Company's website (www.franklinstreetproperties.com) at least ten minutes prior to the start of the call and follow the posted directions. The webcast will also be available via replay from the above location starting one hour after the call is finished.

 

About Franklin Street Properties Corp.

 

Franklin Street Properties Corp., based in Wakefield, Massachusetts, is focused on investing in institutional-quality office properties in the U.S. FSP’s strategy is to invest in select urban infill and central business district (CBD) properties, with primary emphasis on our top five markets of Atlanta, Dallas, Denver, Houston, and Minneapolis. FSP seeks value-oriented investments with an eye towards long-term growth and appreciation, as well as current income. FSP is a Maryland corporation that operates in a manner intended to qualify as a real estate investment trust (REIT) for federal income tax purposes. To learn more about FSP please visit our website at www.franklinstreetproperties.com.

 

 

 
-4-

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 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 and expenditures that cannot be anticipated such as utility rate and usage increases, 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, 2014, 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, 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
Definition of Funds From Operations (FFO) H
   
 
-5-

Franklin Street Properties Corp. Financial Results

Supplementary Schedule A

Condensed Consolidated Income (Loss) Statements

(Unaudited)

 

 

  

For the

Three Months Ended

June 30,

 

For the

Six Months Ended

June 30,

(in thousands, except per share amounts)  2015  2014  2015  2014
             
Revenue:                    
Rental  $58,801   $60,994   $117,814   $122,591 
Related party revenue:                    
Management fees and interest income from loans   1,412    1,671    2,885    3,314 
Other   20    76    41    99 
Total revenue   60,233    62,741    120,740    126,004 
                     
Expenses:                    
Real estate operating expenses   14,644    14,995    30,000    30,066 
Real estate taxes and insurance   9,469    9,763    19,517    19,014 
Depreciation and amortization   23,207    23,563    45,879    47,863 
Selling, general and administrative   3,401    3,148    7,092    6,420 
Interest   6,365    6,891    12,552    14,067 
                     
Total expenses   57,086    58,360    115,040    117,430 
                     
Income before interest income, equity in losses of  non-consolidated REITs and taxes   3,147    4,381    5,700    8,574 
Interest income   —      1    1    2 
Equity in losses of non-consolidated REITs   (38)   (552)   (360)   (1,036)
Gain on sale of properties, less applicable income tax   948    —      11,410    —   
                     
Income before taxes on income   4,057    3,830    16,751    7,540 
Taxes on income   154    117    315    254 
                     
Net income  $3,903   $3,713   $16,436   $7,286 
                     
Weighted average number of shares outstanding,                    
basic and diluted   100,187    100,187    100,187    100,187 
                     
Earnings per share, basic and diluted:                    
Net income per share, basic and diluted  $0.04   $0.04   $0.16   $0.07 

 

 

 
-6-

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)  2015  2014
Assets:          
Real estate assets:          
Land  $180,271   $183,930 
Buildings and improvements   1,636,444    1,604,984 
Fixtures and equipment   1,800    1,677 
    1,818,515    1,790,591 
Less accumulated depreciation   279,172    266,284 
Real estate assets, net   1,539,343    1,524,307 
Acquired real estate leases, less accumulated amortization   of $110,884 and $101,838, respectively   126,926    138,714 
Investment in non-consolidated REITs   78,164    78,611 
Cash and cash equivalents   15,841    7,519 
Restricted cash   48    742 
Tenant rent receivables, less allowance for doubtful accounts   of $250 and $325, respectively   2,886    4,733 
Straight-line rent receivable, less allowance for doubtful accounts   of $50 and $162, respectively   46,168    47,021 
Prepaid expenses and other assets   9,096    10,292 
Related party mortgage loan receivables   93,641    93,641 
Other assets: derivative asset   918    3,020 
Office computers and furniture, net of accumulated depreciation   of $1,183 and $1,036, respectively   562    609 
Deferred leasing commissions, net of accumulated amortization   of $18,386 and $16,944, respectively   26,508    27,181 
Total assets  $1,940,101   $1,936,390 
           
Liabilities and Stockholders’ Equity:          
Liabilities:          
Bank note payable  $300,000   $268,000 
Term loans payable   620,000    620,000 
Accounts payable and accrued expenses   39,199    42,561 
Accrued compensation   2,327    3,758 
Tenant security deposits   4,315    4,248 
Other liabilities: derivative liability   7,632    7,268 
Acquired unfavorable real estate leases, less accumulated amortization of $9,779 and $8,687, respectively   11,082    10,908 
Total liabilities   984,555    956,743 
           
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, 100,187,405 and 100,187,405 shares issued and outstanding, respectively   10    10 
Additional paid-in capital   1,273,556    1,273,556 
Accumulated other comprehensive loss   (6,714)   (4,248)
Accumulated distributions in excess of accumulated earnings   (311,306)   (289,671)
    Total stockholders’ equity   955,546    979,647 
    Total liabilities and stockholders’ equity  $1,940,101   $1,936,390 
           

 

 
-7-

 

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)  2015  2014
Cash flows from operating activities:          
Net income  $16,436   $7,286 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization expense   46,913    48,854 
Amortization of above market lease   (32)   63 
Equity in losses of non-consolidated REITs   360    1,036 
Gain on sale of properties, less applicable income tax   (11,410)   —   
Increase (decrease) in allowance for doubtful accounts   (75)   125 
Changes in operating assets and liabilities:          
Restricted cash   694    (85)
Tenant rent receivables   1,922    2,110 
Straight-line rents   (643)   (3,323)
Lease acquisition costs   (231)   (437)
Prepaid expenses and other assets   196    503 
Accounts payable, accrued expenses and other items   (4,306)   (8,405)
Accrued compensation   (1,431)   (933)
Tenant security deposits   66    232 
Payment of deferred leasing commissions   (2,737)   (3,908)
                  Net cash provided by operating activities   45,722    43,118 
Cash flows from investing activities:          
Property acquisitions   (66,104)   —   
Acquired real estate leases   (10,604)   —   
Property improvements, fixtures and equipment   (10,333)   (7,578)
Distributions in excess of earnings from non-consolidated REITs   54    54 
Repayment of related party mortgage loan receivable   —      13,880 
Investment in related party mortgage loan receivable   —      (2,570)
Proceeds received on sales of real estate assets   55,659    —   
                  Net cash provided by (used in) investing activities   (31,328)   3,786 
Cash flows from financing activities:          
Distributions to stockholders   (38,072)   (38,072)
Borrowings under bank note payable   95,000    10,000 
Repayments of bank note payable   (63,000)   (20,000)
                  Net cash used in financing activities   (6,072)   (48,072)
Net increase in cash and cash equivalents   8,322    (1,168)
Cash and cash equivalents, beginning of year   7,519    19,623 
Cash and cash equivalents, end of period  $15,841   $18,455 

 

 
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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
2015           218,762 2.3%
2016        1,084,573 11.3%
2017        1,122,704 11.6%
2018           956,527 9.9%
2019        1,485,457 15.4%
Thereafter (2)        4,771,717 49.5%
         9,639,740 100.0%

 

 

(1)Percentages are determined based upon square footage of expiring commercial leases.
(2)Includes 902,447 square feet of current vacancies.

 

 

(dollars & square feet in 000's)  As of June 30, 2015
   # of     % of  Square  % of
State  Properties Investment  Portfolio  Feet  Portfolio
                
Texas   9   $370,346    24.1%   2,418    25.1%
Colorado   5    433,687    28.2%   2,010    20.8%
Georgia   4    286,384    18.6%   1,838    19.1%
Virginia   4    95,585    6.2%   685    7.1%
Minnesota   1    29,852    1.9%   475    4.9%
Missouri   3    61,107    4.0%   478    4.9%
North Carolina   2    55,953    3.6%   322    3.4%
Illinois   2    45,371    2.9%   372    3.9%
Maryland   1    52,023    3.4%   325    3.4%
Florida   1    42,461    2.8%   213    2.2%
Indiana   1    32,193    2.1%   205    2.1%
California   2    20,671    1.3%   182    1.9%
Washington   1    13,710    0.9%   117    1.2%
    36   $1,539,343    100.0%   9,640    100.0%

 

 

 
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Franklin Street Properties Corp. Earnings Release

Supplementary Schedule E

Portfolio and Other Supplementary Information

(Unaudited & Approximated)

 

 

Recurring Capital Expenditures                
Owned Portfolio                  
                   

(in thousands)  For the Three Months Ended  For the Six
Months Ended
               
   31-Mar-15  30-Jun-15  30-Jun-15                
                          
Tenant improvements  $2,936   $3,420   $6,356                 
Deferred leasing costs   830    1,539    2,369                 
Non-investment capex   643    1,418    2,061                 
   $4,409   $6,377   $10,786                 

 

   For the Three Months Ended:  Year ended
   31-Mar-14  30-Jun-14  30-Sep-14  31-Dec-14  31-Dec-14
                
Tenant improvements  $1,132   $1,837   $2,612   $4,244   $9,825 
Deferred leasing costs   1,080    2,786    577    1,405    5,848 
Non-investment capex   364    1,621    700    851    3,536 
   $2,576   $6,244   $3,889   $6,500   $19,209 

 

 

Square foot & leased percentages June 30,   December 31,
    2015   2014
         
Owned portfolio of commercial real estate      
  Number of properties                     36                          38
  Square feet         9,639,740              9,580,057
  Leased percentage 90.6%   92.8%
         
Investments in non-consolidated REITs      
  Number of properties                       2                            2
  Square feet         1,396,071              1,395,780
  Leased percentage 69.7%   71.3%
         
Single Asset REITs (SARs) managed      
  Number of properties                       7                            8
  Square feet         1,487,026              1,897,801
  Leased percentage 73.5%   84.7%
         
Total owned, investments & managed properties      
  Number of properties                     45                          48
  Square feet       12,522,837            12,873,638
  Leased percentage 86.3%   89.3%

 

 

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

 

      Square % Leased % Interest
Single Asset REIT name City State Feet 30-Jun-15 Held
FSP 303 East Wacker Drive Corp. Chicago IL          861,000 59.0% 43.7%
FSP Grand Boulevard Corp. Kansas City MO          535,071 86.9% 27.0%
            1,396,071 69.7%  

 

 
-10-

 

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-15 Leased (2) 30-Jun-15 Leased (2)
               
1 PARK SENECA Charlotte, NC       -    91.9% 90.4% Sold May 13, 2015
2 HILLVIEW CENTER Milpitas, CA 36,288 100.0% 100.0% 100.0% 100.0%
3 FOREST PARK Charlotte, NC 62,212 100.0% 100.0% 100.0% 100.0%
4 MEADOW POINT Chantilly, VA 138,537 92.6% 92.6% 100.0% 100.0%
5 TIMBERLAKE Chesterfield, MO 234,023 43.8% 43.8% 93.8% 60.4%
6 FEDERAL WAY Federal Way, WA 117,010 57.1% 57.1% 58.9% 58.9%
7 NORTHWEST POINT Elk Grove Village, IL 176,848 100.0% 100.0% 100.0% 100.0%
8 TIMBERLAKE EAST Chesterfield, MO 116,197 43.1% 35.8% 43.7% 43.5%
9 PARK TEN Houston, TX 157,460 63.1% 63.1% 63.1% 63.1%
10 MONTAGUE San Jose, CA 145,951 81.1% 81.1% 81.1% 81.1%
11 ADDISON Addison, TX 289,974 86.2% 88.5% 91.6% 88.6%
12 COLLINS CROSSING Richardson, TX 300,472 99.5% 99.5% 100.0% 99.7%
13 GREENWOOD PLAZA Englewood, CO 196,236 100.0% 100.0% 100.0% 100.0%
14 RIVER CROSSING Indianapolis, IN 205,059 100.0% 100.0% 90.6% 93.7%
15 LIBERTY PLAZA Addison, TX 218,934 90.7% 90.5% 84.2% 86.3%
16 INNSBROOK Glen Allen, VA 298,456 99.9% 99.9% 99.9% 99.9%
17 380 INTERLOCKEN Broomfield, CO 240,185 95.8% 95.8% 97.1% 96.7%
18 BLUE LAGOON Miami, FLA 212,619 100.0% 100.0% 100.0% 100.0%
19 ELDRIDGE GREEN Houston, TX 248,399 100.0% 100.0% 100.0% 100.0%
20 ONE OVERTON PARK Atlanta, GA 387,267 84.4% 84.4% 84.5% 83.8%
21 390 INTERLOCKEN Broomfield, CO 241,516 72.3% 72.3% 72.3% 72.3%
22 EAST BALTIMORE Baltimore, MD 325,445 81.3% 81.3% 81.3% 81.3%
23 PARK TEN PHASE II Houston, TX 156,746 100.0% 100.0% 100.0% 100.0%
24 LAKESIDE CROSSING I Maryland Heights, MO 127,778 100.0% 100.0% 100.0% 100.0%
25 LOUDOUN TECH Dulles, VA 136,658 92.0% 92.0% 92.0% 92.0%
26 4807 STONECROFT Chantilly, VA 111,469 100.0% 100.0% 100.0% 100.0%
27 121 SOUTH EIGHTH ST Minneapolis, MN 475,012 90.2% 90.6% 90.2% 90.2%
28 EMPEROR BOULEVARD Durham, NC 259,531 100.0% 100.0% 100.0% 100.0%
29 LEGACY TENNYSON CTR Plano, TX 202,600 100.0% 100.0% 100.0% 100.0%
30 ONE LEGACY Plano, TX 214,110 100.0% 100.0% 100.0% 100.0%
31 909 DAVIS Evanston, IL 195,245 97.9% 97.9% 100.0% 99.7%
32 ONE RAVINIA DRIVE Atlanta, GA 386,603 95.2% 95.2% 95.2% 95.2%
33 TWO RAVINIA Atlanta, GA 442,130 Purchased April 8, 2015 77.5% 77.5%
34 WESTCHASE I & II Houston, TX 629,025 97.1% 97.1% 95.9% 95.9%
35 1999 BROADWAY Denver, CO 676,379 87.7% 88.0% 86.2% 86.7%
36 999 PEACHTREE Atlanta, GA 621,946 98.2% 97.8% 95.1% 96.0%
37 1001 17th STREET Denver, CO 655,420 86.1% 85.7% 86.3% 86.5%
  TOTAL WEIGHTED AVERAGE  (3)   9,639,740 90.4% 90.4% 90.6% 89.9%

 

 

(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) Average lease totals include assets sold during the year.    

 

 
-11-

 

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 leased square feet:

 

 As of June 30, 2015       
         % of
   Tenant  Sq Ft Portfolio
 1  TCF National Bank   263,111    3.0%
 2  Quintiles Transnational Corp   259,531    3.0%
 3  CITGO Petroleum Corporation   248,399    2.8%
 4  Newfield Exploration Company   234,495    2.7%
 5  US Government (a)   223,433    2.6%
 6  Sutherland Asbill Brennan LLP   222,422    2.5%
 7  Burger King Corporation   212,619    2.4%
 8  Denbury Onshore, LLC (b)   202,600    2.3%
 9  SunTrust Bank (c)   182,888    2.1%
 10  Citicorp Credit Services, Inc   176,848    2.0%
 11  T-Mobile South, LLC dba T-Mobile   151,792    1.7%
 12  Houghton Mifflin Harcourt Publishing Company   150,050    1.7%
 13  Petrobras America, Inc.   144,813    1.7%
 14  Murphy Exploration & Production Company   144,677    1.7%
 15  Argo Data Resource Corporation   140,246    1.6%
 16  Monsanto Company   127,778    1.5%
 17  Federal National Mortgage Association   123,144    1.4%
 18  Vail Corp d/b/a Vail Resorts (d)   122,232    1.4%
 19  Kaiser Foundation Health Plan   120,979    1.4%
 20  Centene Management Company, LLC (e)   117,618    1.3%
    Total   3,569,675    40.9%

 

  (a) Includes 180,444 and 27,398 square feet which expire in 2018 & 2017, respectively. The remaining 15,591 square feet expire between 2016 - 2020.
  (b) Includes 102,600 square feet which expire 7/31/16 and 100,000 square feet that expires 7/31/19.
  (c) Includes 55,388 square feet which expires October 31, 2016.  The remaining 127,500 square feet  expires September 30, 2021.
  (d) Includes 38,293 square feet which expires March 31, 2019.  The remaining 83,939 square feet expires March 31, 2023.
  (e) The lease was executed June 30, 2015 and rent has not commenced.

 

 

 
-12-

Franklin Street Properties Corp. Earnings Release

Supplementary Schedule H

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 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.

 

 



Exhibit 99.2

 

 

 

   

Supplemental Operating
and Financial Data

Second Quarter 2015

 

 

 

Franklin Street Properties Corp. ● 401 Edgewater Place ● Wakefield, MA 01880 ● (781) 557-1300

 

www.franklinstreetproperties.com

 

 
 
 
 
     Table of Contents

 

  Page     Page
         
Company Overview 3   Tenant Analysis and Leasing Activity  
      Tenants by Industry 18
Key Financial Data     20 Largest Tenants with Annualized Rent and Remaining Term 19
Financial Highlights 4   Leasing Activity 20
Income Statements 5   Lease Expirations by Square Feet 21
Balance Sheets 6   Lease Expirations with Annualized Rent per Square Foot 22
Cash Flow Statements 7   Capital Expenditures 23
Property Net Operating Income (NOI) 8      
      Transaction Activity 24
Reconciliation        
FFO & AFFO 9   Loan Portfolio of Secured Real Estate 25
EBITDA 10      
Property NOI 11   Net Asset Value Components 26
         
Debt Summary 12   Appendix: Definitions of Non-GAAP Measures  
      FFO 27
Capital Analysis 13   EBITDA and NOI 28
      AFFO   29
Owned and Managed Portfolio Overview 14-17      

 

All financial information contained in this supplemental information package is unaudited. In addition, certain statements contained in this supplemental information package may be deemed to be forward-looking statements within the meaning of the federal securities laws. Although FSP believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that could cause actual results to differ materially from FSP’s current expectations include general economic conditions, uncertainties relating to fiscal policy, changes in government regulations, regulatory uncertainty, geopolitical events, local real estate conditions, the performance of properties that FSP has acquired or may acquire, the timely lease-up of properties and other risks, detailed from time to time in FSP’s SEC reports. FSP assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

 
   

 

June 30, 2015
 2
 
 
 
     Company Overview

 

Overview

Franklin Street Properties Corp. (“FSP”, “we”, “our” or the “Company”) (NYSE MKT: FSP) is investing in institutional-quality office properties in the U.S. FSP’s strategy is to invest in select urban infill and central business district (CBD) properties, with primary emphasis on our top five markets of Atlanta, Dallas, Denver, Houston, and Minneapolis. FSP seeks value-oriented investments with an eye towards long-term growth and appreciation, as well as current income. FSP is a Maryland corporation that operates in a manner intended to qualify as a real estate investment trust (REIT) for federal income tax purposes. FSP’s real estate operations include property acquisitions and dispositions, short-term financing, leasing, development and asset management.

 

Our Business

As of June 30, 2015, the Company owned and operated a portfolio of real estate consisting of 36 properties, managed 9 Sponsored REITs and held five promissory notes secured by mortgages on real estate owned by Sponsored REITs. From time-to-time, the Company may acquire real estate, make additional secured loans or acquire one of its Sponsored REITs. The Company may also pursue, on a selective basis, the sale of its properties in order to take advantage of the value creation and demand for its properties, or for geographic or property specific reasons.

 

Management Team      
       
George J. Carter     Scott H. Carter
President, Chief Executive Officer     Executive Vice President, General
Chairman of the Board     Counsel and Secretary
       
John G. Demeritt     Jeffrey B. Carter
Executive Vice President, Chief     Executive Vice President and
Financial Officer  & Treasurer     Chief Investment Officer
       
Janet Notopoulos     Eriel Anchando
Executive Vice President and Director     Senior Vice President of
      Operations

 

Inquiries

Inquires should be directed to: Georgia Touma

877-686-9496 or InvestorRelations@franklinstreetproperties.com

 

Snapshot (as of June 30, 2015)  
Corporate Headquarters Wakefield, MA
Fiscal Year-End 31-Dec
Total Properties 36
Total Square Feet 9.6 Million
Trading Symbol FSP
Exchange NYSE MKT
Common Shares Outstanding 100,187,405
Quarterly Dividend $0.19
Dividend Yield 6.7%
Total Market Capitalization $2.1 Billion
Insider Holdings 5.1%

  

June 30, 2015
3
 
 
 
     Summary of Financial Highlights 

 

(in thousands except per share amounts, SF & number of properties)   
   30-Jun-15  31-Mar-15  31-Dec-14  30-Sep-14  30-Jun-14
Income Items:                         
Rental revenue  $58,801   $59,013   $61,022   $59,728   $60,994 
Total revenue   60,233    60,507    62,489    61,190    62,741 
Adjusted EBITDA*   32,642    31,097    33,182    33,973    34,359 
Equity in losses of non-consolidated REITs   (38)   (322)   (269)   (455)   (552)
Net income   3,903    12,533    4,295    1,567    3,713 
FFO*   27,188    25,672    27,525    27,904    28,254 
                          
Per Share Data:                         
EPS  $0.04   $0.13   $0.04   $0.02   $0.04 
FFO*  $0.27   $0.26   $0.27   $0.28   $0.28 
Weighted Average Shares (diluted)   100,187    100,187    100,187    100,187    100,187 
Closing share price  $11.31   $12.82   $12.27   $11.22   $12.58 
Dividend  $0.19   $0.19   $0.19   $0.19   $0.19 
Payout Ratio:   70%   74%   69%   68%   67%
                          
Balance Sheet Items:                         
Real estate, net  $1,539,343   $1,486,897   $1,524,307   $1,542,012   $1,549,963 
Other assets, net   400,758    402,515    412,083    425,305    438,634 
Total assets, net   1,940,101    1,889,412    1,936,390    1,967,317    1,988,597 
Total liabilities, net   984,555    921,082    956,743    968,948    975,853 
Shareholders' equity   955,546    968,330    979,647    998,369    1,012,744 
                          
Market Capitalization and Debt:                         
Total Market Capitalization (a)  $2,053,120   $2,144,403   $2,117,299   $2,029,103   $2,176,858 
Total debt outstanding   920,000    860,000    888,000    905,000    916,500 
Debt to Total Market Capitalization   44.8%   40.1%   41.9%   44.6%   42.1%
Debt to Adjusted EBITDA   7.0    6.9    6.7    6.7    6.7 
                          
Owned Portfolio Leasing Statistics:                         
Owned portfolio assets   36    36    38    39    39 
Portfolio total SF   9,639,740    9,310,131    9,580,057    9,690,361    9,686,215 
Portfolio % leased   90.6%   90.4%   92.8%   93.3%   94.1%

(a)Total Market Capitalization is the closing share price multiplied by the number of shares outstanding plus total debt outstanding on that date.
*See pages 9 & 10 for reconciliations of Net Income to FFO and Adjusted EBITDA, respectively, and the Appendix for Definitions of these Non-GAAP Measures beginning on page 27.

 

June 30, 2015
4
 
 
 
     Condensed Consolidated Income Statements
($ in thousands, except per share amounts)

 

         For the Six              For the
   For the Three Months Ended  Months
Ended
  For the Three Months Ended  Year
Ended
   31-Mar-15  30-Jun-15  30-Jun-15  31-Mar-14  30-Jun-14  30-Sep-14  31-Dec-14  31-Dec-14
                         
Revenue:                                        
Rental  $59,013   $58,801   $117,814   $61,597   $60,994   $59,728   $61,022   $243,341 
Related party revenue:                                        
Management fees and interest income from loans   1,473    1,412    2,885    1,643    1,671    1,462    1,465    6,241 
Other   21    20    41    23    76    —      2    101 
Total revenue   60,507    60,233    120,740    63,263    62,741    61,190    62,489    249,683 
                                         
Expenses:                                        
Real estate operating expenses   15,356    14,644    30,000    15,071    14,995    15,632    16,334    62,032 
Real estate taxes and insurance   10,048    9,469    19,517    9,251    9,763    8,555    9,288    36,857 
Depreciation and amortization   22,672    23,207    45,879    24,300    23,563    24,878    23,174    95,915 
Selling, general and administrative   3,691    3,401    7,092    3,272    3,148    3,071    3,492    12,983 
Interest   6,187    6,365    12,552    7,176    6,891    6,883    6,483    27,433 
Total expenses   57,954    57,086    115,040    59,070    58,360    59,019    58,771    235,220 
                                         
Income before interest income, equity in losses of non-consolidated REITs and taxes   2,553    3,147    5,700    4,193    4,381    2,171    3,718    14,463 
Interest income   1    —      1    1    1    —      1    3 
Equity in losses of non-consolidated REITs   (322)   (38)   (360)   (484)   (552)   (455)   (269)   (1,760)
Gain on sale of properties, less applicable income tax   10,462    948    11,410    —      —      —      940    940 
                                         
Income before taxes on income   12,694    4,057    16,751    3,710    3,830    1,716    4,390    13,646 
Income tax expense   161    154    315    137    117    149    95    498 
                                         
Net income  $12,533   $3,903   $16,436   $3,573   $3,713   $1,567   $4,295   $13,148 
                                         
Weighted average number of shares outstanding,                                        
basic and diluted   100,187    100,187    100,187    100,187    100,187    100,187    100,187    100,187 
                                         
Net income per share, basic and diluted  $0.13   $0.04   $0.16   $0.04   $0.04   $0.02   $0.04   $0.13 

 

June 30, 2015
 5
 
 
 
     Condensed Consolidated Balance Sheets
(in thousands)

 

   March 31,   June 30,   March 31,   June 30,   September 30,   December 31, 
   2015   2015   2014   2014   2014   2014 
Assets:                              
Real estate assets:                              
Land  $174,707   $180,271   $185,479   $185,479   $185,479   $183,930 
Buildings and improvements   1,581,524    1,636,444    1,605,808    1,609,747    1,613,699    1,604,984 
Fixtures and equipment   1,724    1,800    1,296    1,395    1,633    1,677 
    1,757,955    1,818,515    1,792,583    1,796,621    1,800,811    1,790,591 
Less accumulated depreciation   271,058    279,172    234,447    246,658    258,799    266,284 
Real estate assets, net   1,486,897    1,539,343    1,558,136    1,549,963    1,542,012    1,524,307 
                               
Acquired real estate leases, net   124,337    126,926    172,262    161,519    149,019    138,714 
Investment in non-consolidated REITs   78,228    78,164    79,983    79,405    78,907    78,611 
Cash and cash equivalents   14,945    15,841    20,031    18,455    15,930    7,519 
Restricted cash   56    48    688    728    707    742 
Tenant rent receivables, net   4,587    2,886    6,035    2,867    2,865    4,733 
Straight-line rent receivable, net   45,498    46,168    44,392    46,021    46,737    47,021 
Prepaid expenses and other assets   14,114    9,658    9,954    9,716    9,768    10,901 
Related party mortgage loan receivable   93,641    93,641    101,916    88,436    88,436    93,641 
Other assets: derivative asset   774    918    4,801    2,626    4,582    3,020 
Deferred leasing commissions, net   26,335    26,508    27,477    28,861    28,354    27,181 
Total assets   $1,889,412   $1,940,101   $2,025,675   $1,988,597   $1,967,317   $1,936,390 
                               
Liabilities and Stockholders’ Equity:                              
Liabilities:                              
Bank note payable  $240,000   $300,000   $316,500   $296,500   $285,000   $268,000 
Term loan payable   620,000    620,000    620,000    620,000    620,000    620,000 
Accounts payable and accrued expenses   36,065    39,199    34,390    34,590    40,228    42,561 
Accrued compensation   1,241    2,327    1,027    2,052    2,863    3,758 
Tenant security deposits   4,019    4,315    4,258    4,259    4,331    4,248 
Other liabilities: derivative termination value   9,836    7,632    3,825    5,985    4,847    7,268 
Acquired unfavorable real estate leases, net   9,921    11,082    13,273    12,467    11,679    10,908 
Total liabilities    921,082    984,555    993,273    975,853    968,948    956,743 
                               
Commitments and contingencies                              
                               
Stockholders’ Equity:                              
Preferred stock                        
Common stock   10    10    10    10    10    10 
Additional paid-in capital   1,273,556    1,273,556    1,273,556    1,273,556    1,273,556    1,273,556 
Accumulated other comprehensive income (loss)   (9,062)   (6,714)   976    (3,359)   (265)   (4,248)
Accumulated distributions in excess of accumulated earnings   (296,174)   (311,306)   (242,140)   (257,463)   (274,932)   (289,671)
Total stockholders’ equity     968,330    955,546    1,032,402    1,012,744    998,369    979,647 
Total liabilities and stockholders’ equity   $1,889,412   $1,940,101   $2,025,675   $1,988,597   $1,967,317   $1,936,390 

 

June 30, 2015
 6
 
 
 
     Condensed Consolidated Statements of Cash Flows
(in thousands)

 

   Six Months ended June 30,   Twelve Months ended December 31 
   2015  2014  2014  2013
             
Cash flows from operating activities:                    
Net income  $16,436   $7,286   $13,148   $19,827 
Adjustments to reconcile net income to net cash
provided by  operating activities:
                    
Depreciation and amortization expense   46,913    48,854    97,916    81,267 
Amortization of above market lease   (32)   63    635    (365)
Gain on sale of properties, less applicable income tax   (11,410)   —      (940)   (2,158)
Equity in earnings (losses) from non-consolidated REITs   360    1,036    1,760    1,358 
Increase in allowance for doubtful accounts   (75)   125    275    (1,250)
Changes in operating assets and liabilities:                    
Restricted cash   694    (85)   (99)   (68)
Tenant rent receivables   1,922    2,110    94    (2,103)
Straight-line rents   (643)   (3,323)   (4,737)   (5,782)
Lease acquisition costs   (231)   (437)   (440)   (1,146)
Prepaid expenses and other assets   196    503    700    (1,547)
Accounts payable and accrued expenses   (4,306)   (8,405)   206    11,137 
Accrued compensation   (1,431)   (933)   773    445 
Tenant security deposits   66    232    222    1,538 
Payment of deferred leasing commissions   (2,737)   (3,908)   (6,347)   (9,125)
                     
Net cash provided by operating activities   45,722    43,118    103,166    92,028 
                     
Cash flows from investing activities:                    
Property acquisitions   (66,104)        —      (454,447)
Acquired real estate leases   (10,604)        —      (100,143)
Property improvements, fixtures and equipment   (10,333)   (7,578)   (18,370)   (19,120)
Office computers and furniture             (191)   (355)
Investment in non-consolidated REITs   —      —      —      4,858 
Distributions in excess of earnings from non-consolidated REITs   54    54    107    108 
Investment in related party mortgage loan receivable   —      (2,570)   (11,170)   (8,200)
Repayment of related party mortgage loan receivable   —      13,880    17,275    2,350 
Changes in deposits on real estate assets   —      —      —      —   
Proceeds received on sales of real estate assets   55,659    —      14,192    12,301 
                     
Net cash provided by (used in) investing activities   (31,328)   3,786    1,843    (562,648)
                     
Cash flows from financing activities:                    
Distributions to stockholders   (38,072)   (38,072)   (76,142)   (69,588)
Proceeds (costs) from equity offering, net   —      —      —      230,682 
Borrowings under bank note payable   95,000    10,000    15,000    160,000 
Repayments of bank note payable   (63,000)   (20,000)   (53,500)   (70,250)
Borrowing (repayment) of term loan payable, net   —      —      —      220,000 
Deferred Financing Costs   —      —      (2,471)   (1,868)
                     
Net cash provided by (used in) financing activities   (6,072)   (48,072)   (117,113)   468,976 
                     
Net decreases in cash and cash equivalents   8,322    (1,168)   (12,104)   (1,644)
                     
Cash and cash equivalents, beginning of period   7,519    19,623    19,623    21,267 
                     
Cash and cash equivalents, end of period  $15,841   $18,455   $7,519   $19,623 

 

June 30, 2015
 7
 
 
 
     Property Net Operating Income (NOI)*
with Same Store Comparison
(in thousands)

 

   Rentable        Six Months        Six Months      
   Square Feet  Three Months Ended  Ended  Three Months Ended  Ended  Inc  %
Region  or RSF  31-Mar-15  30-Jun-15  30-Jun-15  31-Mar-14  30-Jun-14  30-Jun-14  (Dec)  Change
East   1,333   $4,736   $4,648   $9,384   $4,577   $4,655   $9,232   $152    1.6%
MidWest   1,530    3,469    3,563    7,032    4,586    4,541    9,127    (2,095)   -23.0%
South   4,026    15,781    15,995    31,776    16,796    16,183    32,979    (1,203)   -3.6%
West   2,309    8,216    8,571    16,787    9,388    9,290    18,678    (1,891)   -10.1%
Same Store   9,198    32,202    32,777    64,979    35,347    34,669    70,016    (5,037)   -7.2%
                                              
Acquisitions   442    —      1,057    1,057    —      —      —      1,057    1.5%
Property NOI from                                             
   the continuing portfolio   9,640    32,202    33,834    66,036    35,347    34,669    70,016    (3,980)   -5.7%
Dispositions        822    61    883    1,226    1,257    2,483    (1,600)   -2.1%
Property NOI       $33,024   $33,895   $66,919   $36,573   $35,926   $72,499   $(5,580)   -7.7%
                                              
Same Store       $32,202   $32,777   $64,979   $35,347   $34,669   $70,016   $(5,037)   -7.2%
                                              
Less Nonrecurring                                             
Items in NOI (a)        75    81    156    707    287    994    (838)   1.1%
                                              
Comparative                                             
Same Store       $32,127   $32,696   $64,823   $34,640   $34,382   $69,022   $(4,199)   -6.1%

 

(a)Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.
*See page 11 for a reconciliation of Net Income to Property NOI and the Appendix for Definitions of Non-GAAP Measures beginning on page 27. Property NOI Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.

 

June 30, 2015
 8
 
 
 
     FFO & AFFO Reconciliation
(in thousands, except per share amounts)

 

           For the                   For the 
           Six Months                   Year 
   For the Three Months Ended   Ended   For the Three Months Ended   Ended 
   31-Mar-15   30-Jun-15   30-Jun-15   31-Mar-14   30-Jun-14   30-Sep-14   31-Dec-14   31-Dec-14 
                                 
Net income  $12,533   $3,903   $16,436   $3,573   $3,713   $1,567   $4,295   $13,148 
                                         
Gain (loss) on sale, less applicable income tax   (10,462)   (948)   (11,410)               (940)   (940)
GAAP income from non-consolidated REITs   322    38    360    484    552    455    269    1,760 
FFO from non-consolidated REITs   601    885    1,486    419    351    508    652    1,930 
Depreciation & amortization   22,678    23,168    45,846    24,289    23,638    25,374    23,249    96,550 
NAREIT FFO*   25,672    27,046    52,718    28,765    28,254    27,904    27,525    112,448 
Acquisition costs       142    142    14                14 
Funds From Operations (FFO)*  $25,672   $27,188   $52,860   $28,779   $28,254   $27,904   $27,525   $112,462 
                                         
                                         
Adjusted Funds From Operations (AFFO)*                                        
Funds From Operations (FFO)*  $25,672   $27,188   $52,860   $28,779   $28,254   $27,904   $27,525   $112,462 
Reverse FFO from non-consolidated REITs   (601)   (885)   (1,486)   (419)   (351)   (508)   (652)   (1,930)
Distributions from non-consolidated REITs   27    27    54    27    27    27    26    107 
Amortization of deferred financing costs   517    517    1,034    499    499    498    506    2,002 
Straight-line rent   (69)   (574)   (643)   (1,783)   (1,541)   (714)   (698)   (4,736)
Tenant improvements   (2,936)   (3,420)   (6,356)   (1,132)   (1,837)   (2,612)   (4,244)   (9,825)
Leasing commissions   (830)   (1,539)   (2,369)   (1,080)   (2,786)   (577)   (1,405)   (5,848)
Non-investment capex   (643)   (1,418)   (2,061)   (364)   (1,621)   (700)   (851)   (3,536)
Adjusted Funds From Operations (AFFO)*  $21,137   $19,896   $41,033   $24,527   $20,644   $23,318   $20,207   $88,696 
                                         
Per Share Data:                                        
EPS  $0.13   $0.04   $0.16   $0.04   $0.04   $0.02   $0.04   $0.13 
FFO*   0.26    0.27    0.53    0.29    0.28    0.28    0.27    1.12 
AFFO*   0.21    0.20    0.41    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    100,187    100,187 

 

 

* See the Appendix for Definitions of these Non-GAAP Measures beginning on page 27.

 

June 30, 2015
 9
 
 
 
     EBITDA Reconciliation
(in thousands, except ratio amounts)

 

           Six Months                     
   For the Three Months Ended   Ended   For the Three Months Ended   Year Ended 
   31-Mar-15   30-Jun-15   30-Jun-15   31-Mar-14   30-Jun-14   30-Sep-14   31-Dec-14   31-Dec-14 
                                 
Net income  $12,533   $3,903   $16,436   $3,573   $3,713   $1,567   $4,295   $13,148 
Interest expense   6,187    6,365    12,552    7,176    6,891    6,883    6,483    27,433 
Depreciation and amortization   22,678    23,168    45,846    24,289    23,638    25,374    23,249    96,550 
Income taxes   161    154    315    137    117    149    95    498 
EBITDA   41,559    33,590    75,149    35,175    34,359    33,973    34,122    137,629 
Excluding (gain) loss on sale, less applicable income tax   (10,462)   (948)   (11,410)               (940)   (940)
Adjusted EBITDA  $31,097   $32,642   $63,739   $35,175   $34,359   $33,973   $33,182   $136,689 
                                         
Interest expense  $6,187   $6,365   $12,552   $7,176   $6,891   $6,883   $6,483   $27,433 
Scheduled principal payments                                
Interest and scheduled principal payments  $6,187   $6,365   $12,552   $7,176   $6,891   $6,883   $6,483   $27,433 
                                         
Interest coverage ratio   5.03    5.13    5.08    4.90    4.99    4.94    5.12    4.98 
                                         
Debt service coverage ratio   5.03    5.13    5.08    4.90    4.99    4.94    5.12    4.98 
                                         
                                         
Debt  $860,000   $920,000   $920,000   $936,500   $916,500   $905,000   $888,000      
                                         
Adjusted EBITDA   31,097    32,642    63,739    35,175    34,359    33,973    33,182      
Annualized   124,388    130,568    127,478    140,700    137,436    135,892    132,728      
                                         
Debt-to-EBITDA   6.9    7.0    7.2    6.7    6.7    6.7    6.7      

 

* See the Appendix for Definitions of these Non-GAAP Measures beginning on page 27. Amounts in the EBITDA reconciliation do not reflect our proportionate share of interest expense, depreciation, amortization , income taxes, gains or losses on sales and debt from our investments in non-consolidated REITs , which are accounted for under the equity method.

 

June 30, 2015
 10
 
 
 
     Reconciliation of Net Income to Property NOI*
(in thousands)

 

Reconciliation to Net income        Six Months        Six Months
   Three Months Ended  Ended  Three Months Ended  Ended
   31-Mar-15  30-Jun-15  30-Jun-15  31-Mar-14  30-Jun-14  30-Jun-14
Net Income  $12,533   $3,903   $16,436   $3,573   $3,713   $7,286 
Add (deduct):                              
Gain on sale of properties,less applicable income taxes   (10,462)   (948)   (11,410)   —      —      —   
Loss provision or (gain) on sale of assets   —      —      —      —      —      —   
Management fee income   (643)   (559)   (1,202)   (646)   (682)   (1,328)
Depreciation and amortization   22,672    23,207    45,879    24,300    23,563    47,863 
Amortization of above/below market leases   6    (39)   (33)   (11)   74    63 
Selling, general and administrative   3,691    3,401    7,092    3,272    3,148    6,420 
Interest expense   6,187    6,365    12,552    7,176    6,891    14,067 
Interest income   (1,262)   (1,278)   (2,540)   (1,410)   (1,408)   (2,818)
Equity in losses of                               
non-consolidated REITs   322    38    360    484    552    1,036 
Non-property specific items, net   (20)   (195)   (215)   (165)   75    (90)
                               
Property NOI  $33,024   $33,895   $66,919   $36,573   $35,926   $72,499 

 

* See the Appendix for Definition of Non-GAAP Measures beginning on page 27.

 

June 30, 2015
 11
 
 
 
     Debt Summary
(in thousands)

 

      Maximum  Amount  Interest  Interest   
   Maturity  Amount  Drawn at  Rate  Rate at  Facility
   Date  of Loan  30-Jun-15  Components  30-Jun-15  Fee
                   
BAML Revolver   29-Oct-18   $500,000   $300,000    L+1.25%    1.43%   0.25%
BAML Term Loan   27-Sep-17    400,000    400,000    0.75% + 1.45%    2.20%     
BMO Term Loan   26-Aug-20    220,000    220,000    2.32% + 1.65%    3.97%     
                               
        $1,120,000   $920,000         2.37%     

  

(a) Interest rate excludes amortization of deferred financing costs and facility fees, see notes below

 

On October 29, 2014, we amended and restated our bank facility we call the BAML Credit Facility, which has a total of $900 million available and is comprised of a revolver that we can borrow up to $500 million on, which we call the BAML Revolver and a term loan for $400 million that we call the BAML Term Loan. On August 26, 2013, we entered into a term loan we call the BMO Term Loan and borrowed $220 million. Additional information about these loans are in the footnotes to our financial statements. Pricing is based on our credit rating for the BAML Revolver, BAML Term Loan and the BMO Term Loan. Our credit rating as of June 30, 2015 was Baa3 from Moody’s.

The BAML Revolver is priced based on our current credit rating at a spread of 1.25%, which was an interest rate of 1.43% as of June 30, 2015. The BAML Revolver is also subject to a facility fee based on our credit rating, which was 25 bps or approximately $1.25 million per year.
The BAML Term Loan has LIBOR fixed at 0.75% for five years. At our credit rating the spread for the BAML Term Loan is 1.45%, so our interest rate is 2.20%.
The BMO Term Loan has fixed LIBOR at 2.32% for seven years. At our credit rating the spread over LIBOR is 1.65%, so our interest rate is 3.97%.
We incurred financing costs to close the BAML Revolver, BAML Term Loan and the credit facilities that preceded them. We also incurred financing costs to close the BMO Term Loan. These costs are deferred and amortized into interest expense during the terms of the loans. The annual run rate for amortization to interest expense from deferred financing costs is approximately $2.1 million.
The BAML Revolver can be extended for 1 year at the Company’s option upon payment of fees and includes an accordion feature that allows for up to $250 million of additional borrowing capacity. The BMO Term Loan includes an accordion feature that allows for up to $50 million of additional borrowing capacity. The accordion features are subject to receipt of lender commitments and satisfaction of certain customary conditions.

June 30, 2015
 12
 
 
 
     Capital Analysis
(in thousands, except per share amounts)

 

   31-Mar-15  30-Jun-15  31-Mar-14  30-Jun-14  30-Sep-14  31-Dec-14
Market Data:                  
Shares Outstanding   100,187    100,187    100,187    100,187    100,187    100,187 
Closing market price per share  $12.82   $11.31   $12.60   $12.58   $11.22   $12.27 
Market capitalization  $1,284,403   $1,133,120   $1,262,361   $1,260,358   $1,124,103   $1,229,299 
Total Debt   860,000    920,000    936,500    916,500    905,000    888,000 
Total Market Capitalization  $2,144,403   $2,053,120   $2,198,861   $2,176,858   $2,029,103   $2,117,299 
                               
Dividend Data:                              
Total dividends paid  $19,036   $19,036   $19,036   $19,035   $19,036   $19,036 
Common dividend per share  $0.19   $0.19   $0.19   $0.19   $0.19   $0.19 
Quarterly dividend as a % of FFO*   73.1%   70.4%   65.5%   67.9%   67.9%   70.4%
                               
Liquidity:                              
Cash and cash equivalents  $14,946   $15,841   $20,031   $18,455   $15,930   $7,519 
Revolving credit facilities:                              
Gross potential available under the BAML Credit Facility   900,000    900,000    900,000    900,000    900,000    900,000 
Less:                              
Outstanding balance   (640,000)   (700,000)   (716,500)   (696,500)   (685,000)   (668,000)
Total Liquidity  $274,946   $215,841   $203,531   $221,955   $230,930   $239,519 

 

*See page 9 for a reconciliation of Net Income to FFO and the Appendix for Definitions of Non-GAAP Measures beginning on page 27.

 

June 30, 2015
 13
 
 
 
     Portfolio Overview

 

  As of the Quarter Ended
  30-Jun-15 31-Mar-15  31-Dec-14  30-Sep-14  30-Jun-14
Owned portfolio of commercial real estate:             
Number of properties 36   36    38    39    39 
Square feet 9,639,740   9,310,131    9,580,057    9,690,361    9,686,215 
Leased percentage 90.6%  90.4%   92.8%   93.3%   94.1%
                       
Investments in non-consolidated                      
commercial real estate:                      
Number of properties 2   2    2    2    2 
Square feet 1,396,071   1,396,071    1,395,780    1,395,500    1,395,500 
Leased percentage 69.7%  70.1%   71.3%   71.0%   65.5%
                       
Single Asset REITs (SARs) managed:                      
Number of properties 7   7    8    9    11 
Square feet 1,487,026   1,488,003    1,897,801    2,036,572    2,687,775 
Leased percentage 73.5%  73.4%   84.7%   86.6%   89.1%
                       
                       
Total owned (a) , investments and managed properties:                      
Number of properties 45   45    48    50    52 
Square feet 12,522,837   12,194,205    12,873,638    13,122,433    13,769,490 
Leased percentage 86.3%  86.0%   89.3%   89.9%   90.2%

 

 

June 30, 2015
 14
 
 
 
     Owned Portfolio Overview

 

               Percent  Wtd Ave (a)  GAAP (b)
MSA / Property Name    City  State    Square Feet   Leased  Occupied  Rent
                      
East Region                               
                                
Baltimore                               
East Baltimore    Baltimore   MD     325,445    81.3%   81.3%  $23.13 
                                
Washington, D.C.                               
Meadow Point    Chantilly   VA     138,537    100.0%   92.6%  $27.29 
Stonecroft    Chantilly   VA     111,469    100.0%   100.0%  $37.76 
Loudoun Tech Center    Dulles   VA     136,658    92.0%   92.0%  $18.53 
                                
Richmond                               
Innsbrook    Glen Allen   VA     298,456    99.9%   99.9%  $18.74 
                                
Charlotte                               
Forest Park    Charlotte   NC     62,212    100.0%   100.0%  $13.77 
                                
Raleigh-Durham                               
Emperor Boulevard    Durham   NC     259,531    100.0%   100.0%  $36.18 
                                
East Region Total              1,332,308    94.6%   93.8%  $25.59 
                                
Midwest Region                               
                                
Chicago                               
Northwest Point    Elk Grove Village   IL     176,848    100.0%   100.0%  $23.17 
909 Davis Street    Evanston   IL     195,245    100.0%   98.4%  $35.91 
                                
Indianapolis                               
River Crossing    Indianapolis   IN     205,059    90.6%   96.7%  $19.55 
                                
St. Louis                               
Timberlake    Chesterfield   MO     234,023    93.8%   43.7%  $24.03 
Timberlake East    Chesterfield   MO     116,197    43.7%   20.9%  $21.03 
Lakeside Crossing    Maryland Heights   MO     127,778    100.0%   100.0%  $24.47 
                                
Minneapolis                               
121 South 8th Street    Minneapolis   MN     475,012    90.2%   90.2%  $15.34 
                                
Midwest Region Total              1,530,162    90.5%   81.7%  $22.03 

 

June 30, 2015
 15
 
 
 
     Owned Portfolio Overview

 

            Percent  Wtd Ave (a)  GAAP (b)
MSA / Property Name  City  State  Square Feet  Leased  Occupied  Rent
                             
South Region                            
                             
Dallas-Fort Worth                            
Legacy Tennyson Center  Plano   TX    202,600    100.0%   100.0%  $17.60 
One Legacy Circle  Plano   TX    214,110    100.0%   100.0%  $33.33 
Addison Circle  Addison   TX    289,974    91.6%   86.2%  $23.77 
Collins Crossing  Richardson   TX    300,472    100.0%   99.5%  $24.15 
Liberty Plaza  Addison   TX    218,934    84.2%   87.9%  $20.65 
                             
Houston                            
Park Ten  Houston   TX    157,460    63.1%   63.1%  $31.66 
Eldridge Green  Houston   TX    248,399    100.0%   100.0%  $31.37 
Park Ten Phase II  Houston   TX    156,746    100.0%   100.0%  $31.43 
Westchase I & II  Houston   TX    629,025    95.9%   96.2%  $33.83 
                             
Miami-Ft. Lauderdale-West Palm Beach                            
Blue Lagoon Drive  Miami   FL    212,619    100.0%   100.0%  $23.28 
                             
Atlanta                            
One Overton Place  Atlanta   GA    387,267    84.5%   78.1%  $24.82 
One Ravinia  Atlanta   GA    386,603    95.2%   95.2%  $22.82 
Two Ravinia  Atlanta   GA    442,130    77.5%   75.9%  $24.79 
999 Peachtree  Houston   TX    621,946    95.1%   95.7%  $28.90 
South Region Total           4,468,285    84.5%   91.4%  $27.08 
                             
West Region                            
                             
Seattle                            
Federal Way  Federal Way   WA    117,010    58.9%   57.7%  $18.65 
                             
San Francisco-San Jose-Oakland                            
Hillview Center  Milpitas   CA    36,288    100.0%   100.0%  $16.28 
Montague Business Center  San Jose   CA    145,951    81.1%   81.1%  $16.37 
                             
Denver                            
380 Interlocken  Broomfield   CO    240,185    97.1%   95.8%  $29.39 
1999 Broadway  Denver   CO    676,379    86.2%   86.8%  $32.16 
Greenwood Plaza  Englewood   CO    196,236    100.0%   100.0%  $24.48 
390 Interlocken  Broomfield   CO    241,516    72.3%   71.3%  $28.40 
1001 17th Street  Denver   CO    655,420    86.3%   83.1%  $34.65 
                             
West Region Total           2,308,985    85.6%   84.6%  $29.71 
                             
                             
                             
                             
Total Owned           9,639,740    90.6%   88.5%  $26.73 

 

(a) Weighted Occupied Percentage for the six months ended June 30, 2015.
(b) Weighted Average GAAP Rent per Occupied Square Foot.  

 

June 30, 2015
 16
 
 
 
     Managed Portfolio Overview

 

  MSA / Property Name City State Square Feet
         
  Southeast Region      
         
  Columbia      
  1441 Main Street Columbia SC 264,857
         
  Atlanta      
  Satellite Place Duluth GA 134,785
         
  Southeast Region Total     399,642
         
  Southwest Region      
         
  Houston      
  Energy Tower I Houston TX 325,797
         
  Denver      
  385 Interlocken Broomfield CO 295,891
         
  Southwest Region Total     621,688
         
  Midwest Region      
         
  Chicago      
(a) East Wacker Chicago IL 861,000
         
  Indianapolis      
  Monument Circle Indianapolis IN 213,760
         
  St. Louis      
  Lakeside Crossing II Maryland Heights MO 116,000
         
  Kansas City      
(b) Grand Boulevard Kansas City MO 535,071
         
  Cincinnati      
  Centre Pointe V West Chester OH 135,936
         
         
  Midwest Region Total     1,861,767
         
  Total Managed     2,883,097
         
  Total Owned & Managed     12,522,837

 

(a) FSP has a Preferred Share Interest of 43.7% in the entity that owns this property.

(b) FSP has a Preferred Share Interest of 27.0% in the entity that owns this property.

 

June 30, 2015
 17
 
 
 
     Tenants By Industry
(By Square Feet)

 

 

 

June 30, 2015
 18
 
 
 
     20 Largest Tenants with Annualized Rent and
Remaining Term (Owned Portfolio)

 

              % of
          % of   Aggregate
      Remaining Aggregate Aggregate Annualized Leased
  Tenant Number of Lease Term Leased Leased Rent Annualized
  Name Leases in Months Square Feet Square Feet (in 000's) Rent
               
1 TCF National Bank 2 6 263,111 3.0% $             2,997,573 1.3%
2 Quintiles Transnational Corp 1 45 259,531 3.0% 9,067,770 4.0%
3 CITGO Petroleum Corporation 1 80 248,399 2.8% 7,904,056 3.5%
4 Newfield Exploration Company 1 80 234,495 2.7% 8,614,349 3.8%
5 US Government (a) 5 12, 14, 35, 49, 63 223,433 2.6% 7,173,033 3.2%
6 Sutherland Asbill Brennan LLP 1 58 222,422 2.5% 6,823,317 3.0%
7 Burger King Corporation 1 39 212,619 2.4% 5,134,749 2.3%
8 Denbury Onshore, LLC (b) 2 13, 49 202,600 2.3% 3,510,042 1.6%
9 SunTrust Bank (c) 2 16, 75 182,888 2.1% 3,736,826 1.7%
10 Citicorp Credit Services, Inc 1 18 176,848 2.0% 4,612,196 2.1%
11 T-Mobile South, LLC dba T-Mobile 1 44 151,792 1.7% 3,588,363 1.6%
12 Houghton Mifflin Harcourt Publishing Company 1 21 150,050 1.7% 6,243,052 2.8%
13 Petrobras America, Inc. 1 53 144,813 1.7% 5,337,807 2.4%
14 Murphy Exploration & Production Company 1 22 144,677 1.7% 4,718,321 2.1%
15 Argo Data Resource Corporation 1 98 140,246 1.6% 3,718,923 1.7%
16 Monsanto Company 1 55 127,778 1.5% 3,019,394 1.3%
17 Federal National Mortgage Association 1 15 123,144 1.4% 2,695,622 1.2%
18 Vail Corp d/b/a Vail Resorts (d) 2 45, 93 122,232 1.4% 3,471,917 1.5%
19 Kaiser Foundation Health Plan 1 107 120,979 1.4% 3,000,611 1.3%
20 Centene Management Company, LLC (e) 1 96 117,618 1.3% - -
               
      Total    3,569,675 40.9% $        95,367,921 42.4%

 

(a)Includes 180,444 and 27,398 square feet which expire in 2018 & 2017, respectively.

The remaining 15,591 square feet expire between 2016-2020.

(b)Includes 102,600 square feet which expire 7/31/16 and 100,000 square feet that expires 7/31/19.
(c)Includes 55,388 square feet which expires October 31, 2016. The remaining 127,500 square feet expires September 30, 2021.
d)Includes 38,293 square feet which expires March 31, 2019. The remaining 83,939 square feet expires March 31, 2023.
(e)The lease was executed June 30, 2015 and rent has not commenced.

June 30, 2015
 19
 
 
 
     Leasing Activity
(Owned Portfolio)

 

   Six Months  Year  Year
   Ended  Ended  Ended
Leasing Activity   30-Jun-15    31-Dec-14    31-Dec-13 
(in Square Feet - SF)               
New leasing   218,000    149,000    267,000 
Renewals   329,000    635,000    645,000 
    547,000    784,000    912,000 
                
Other information per SF               
(Activity on a year-to-date basis)               
GAAP Rents on leasing  $26.38   $26.89   $23.33 
Weighted average lease term    4.8 Years      6.25 Years      7.2 Years  
                
                
Increase over average GAAP rents in prior year   12.9%    11.8%    8.0% 
                
Average free rent   3 Months    3 Months    3 Months 
Tenant Improvements  $15.97   $16.40   $18.25 
Leasing Costs  $5.80   $7.66   $8.48 

 

 

June 30, 2015
 20
 
 
 
     Lease Expirations by Square Feet
(Owned Portfolio)

 

Year   Total
Square Feet
  % of
Square Feet
         
2015         218,762   2.3%
2016       1,084,573   11.3%
2017       1,122,704   11.6%
2018         956,527   9.9%
2019     1,485,457   15.4%
2020        841,461   8.7%
2021       783,618   8.1%
2022     998,198   10.4%
2023     547,766   5.7%
2024     243,343   2.5%
2025    320,666   3.3%
2026     134,218   1.4%
Vacant   902,447   9.4%
         
Total   9,639,740   100.0%

 

 

 

June 30, 2015
 21
 
 
 
     Lease Expirations
with Annualized Rent per Square Foot
(Owned Portfolio)

 

        Rentable       Annualized   Percentage    
    Number of   Square        Rent   of Total    
Year of   Leases   Footage   Annualized   Per Square   Annualized    
Lease   Expiring   Subject to    Rent Under   Foot Under    Rent Under    
Expiration   Within the   Expiring   Expiring   Expiring   Expiring   Cumulative
December 31,   Year   Leases   Leases (a)   Leases   Leases   Total
                         
2015   44 (b) 218,762   $         6,452,857   $            29.50   2.9%   2.9%
2016   74   1,084,573   22,883,620   21.10   10.2%   13.1%
2017   77   1,122,704   32,850,890   29.26   14.6%   27.7%
2018   70   956,527   30,112,401   31.48   13.4%   41.1%
2019   64   1,485,457   41,151,089   27.70   18.3%   59.4%
2020   55   841,461   21,526,151   25.58   9.6%   69.0%
2021   22   783,673   18,588,678   23.72   8.2%   77.2%
2022   25   998,198   28,239,300   28.29   12.5%   89.7%
2023 and thereafter   35   1,245,938 (c) 23,115,313   18.55   10.3%   100.0%
    466   8,737,293   $     224,920,300   $            25.74   100.0%    
Vacancies as of 6/30/15       902,447                
Total Portfolio Square Footage       9,639,740                

 

(a)Annualized rent represents the monthly rent, including tenant reimbursements, for each lease in effect at June 30, 2015 mulitplied by 12. Tenant reimbursements generally include payment of real estate taxes, operating expenses and common area maintenance and utility charges.

 

(b)Includes 17 leases that are month-to-month.

 

(c)Includes 62,170 square feet that are non-revenue producing building amenities.

 

June 30, 2015
 22
 
 
 
     Capital Expenditures

 

(in thousands)          Six Months         
   For the Three Months Ended   Ended         
   31-Mar-15   30-Jun-15   30-Jun-15         
                     
Tenant improvements  $2,936   $3,420   $6,356           
Deferred leasing costs   830    1,539    2,369           
Non-investment capex   643    1,418    2,061           
Recurring Capital Expenditures   4,409    6,377    10,786           
1st generation leasing   1,934    712    2,646           
Investment capex   230    243    473           
Total Capital Expenditures  $6,573   $7,332   $13,905           

 

   For the Three Months Ended   Year ended 
   31-Mar-14   30-Jun-14   30-Sep-14   31-Dec-14   31-Dec-14 
                     
Tenant improvements  $1,132   $1,837   $2,612   $4,244   $9,825 
Deferred leasing costs   1,080    2,786    577    1,405    5,848 
Non-investment capex   364    1,621    700    851    3,536 
Recurring Capital Expenditures   2,576    6,244    3,889    6,500    19,209 
1st generation leasing   33    9    394    580    1,016 
Investment capex   755    580    244    516    2,095 
Total Capital Expenditures  $3,364   $6,833   $4,527   $7,596   $22,320 

 

June 30, 2015
 23
 
 
 
     Transaction Activity

 

Recent Acquisitions:             Purchase Price    
  City State Square Feet   Date Acquired   (in thousands)    
2015                  
Two Ravinia Atlanta GA 442,130   4/8/15   $          78,000    
                   
2013                  
1999 Broadway Denver CO 673,793   5/22/13   $        183,000    
999 Peachtree Atlanta GA 621,946   7/1/13   157,900    
1001 17th Street Denver CO 655,420   8/28/13   217,000    
                   
2012                  
One Ravinia Atlanta GA 386,603   7/31/12   $          52,750    
Westchase Houston TX 629,025   11/1/12   154,750    
                   
                   
Recent Dispositions:                  
               Gross Sales   Gains
  City State Square Feet   Date Sold    Proceeds   on Sales
2015                  
Willow Bend Plano TX 117,050   2/23/15   $          20,750   $          1,462
Eden Bluff Eden Prairie MN 153,028   3/31/15   28,000   9,000
Park Seneca Charlotte NC 109,699   5/13/15   8,150   948
                   
2014                  
Centennial Colorado Springs CO 110,405   12/3/14   $          15,500   $             940
                   
2013                  
East Renner Road Richardson TX 122,300   10/29/13   $          12,475   $          2,169

 

June 30, 2015
 24
 
 
 
     Loan Portfolio of Secured Real Estate

 

(dollars in thousands)     Maximum Amount     Interest
    Maturity Amount Drawn at Interest Draw Rate at
Sponsored REIT Location Date of Loan 30-Jun-15 Rate (1) Fee (2) 30-Jun-15
               
Secured revolving lines of credit              
FSP Satellite Place Corp. Duluth, GA 31-Mar-17 $     5,500 $      5,500 L+4.4% 0.5% 4.58%
FSP 1441 Main Street Corp. Columbia, SC 31-Mar-16 10,800 9,000 L+4.4% 0.5% 4.58%
FSP Energy Tower I Corp. Houston, TX 30-Jun-17 20,000 8,600 L+5.0% 0.5% 5.18%
               
Secured construction loan              
FSP 385 Interlocken              
Development Corp. Broomfield, CO 30-Apr-16 42,000 37,541 L+4.4% n/a 4.58%
               
Mortgage loan secured by property              
FSP Energy Tower I Corp. Houston, TX 30-Jun-17 33,000 33,000 6.41% n/a 6.41%
               
       $ 111,300 $    93,641      

 

(1) The interest rate is 30-day LIBOR rate plus the additional rate indicated, otherwise a fixed rate.

(2) The draw fee is a percentage of each new advance, and is paid at the time of each new draw.

 

June 30, 2015
 25
 
 
 
     Net Asset Value Components

 

 

(in thousands except per share data)  
  As of
  30-Jun-15
Total Market Capitalization Values  
Shares outstanding 100,187.4
Closing price, December 31st $            11.31
Market capitalization $     1,133,120
Debt 920,000
Total Market Capitalization $     2,053,120
   
   
  3 Months
  Ended
NOI Components 30-Jun-15
   
Same Store NOI (1) $          32,696
Acquisitions (1) (2) 767
Property NOI (1) 33,463
Full quarter adjustment (3) 74
Stabilized portfolio $        33,537
   
   
Financial Statement Reconciliation:  
Rental Revenue $          58,802
Rental operating expenses (14,644)
Real estate taxes and insurance (9,469)
NOI on assets sold during the quarter (61)
Taxes (4) (155)
Management fees & other (5) (936)
Property NOI (1) $          33,537
 

 

Assets:  
Loans outstanding on secured RE $          93,641
Investments in SARs (book basis) 78,164
Straight-line rent receivable 46,168
Asset held for sale -
Cash and cash equivalents 15,841
Restricted cash 48
Tenant rent receivables 2,886
Prepaid expenses 279
Office computers and furniture 562
Other assets:  
   Deferred financing costs, net 7,637
   Other assets: Derivative Market Value 918
   Phoenix Tower Liquidating Trust (6) 4
   Other assets 1,176
  $        247,324
  -
Liabilities:  
Debt $        920,000
Accounts payable & accrued expenses 41,526
Tenant security deposits 4,315
Other liabilities: derivative liability 7,632
  $        973,473
 

 

Other information:  
   
Leased SF to be FFO producing  during 2015 (in 000's) 179
   
Straight-line rental revenue current quarter $                   574
   
Management fee income current quarter $                   135
Interest income from secured loans 1,277
Management fees and interest income from loans $                1,412
   
FFO from non-consolidated REITs - Q1 2015 (7):  
East Wacker $                   424
Grand Boulevard 177
Total $                   601

 

 

Footnotes to the components

(1)See pages 11 & 28 for definitions and reconciliations
(2)Includes NOI from 3 acquisitions 2013
(3)Adjustment to reflect property NOI for a full quarter in the quarter acquired, if necessary
(4)HB3 Tax in Texas is classified as an income tax, though we treat it as a real estate tax in Property NOI
(5)Management & other fees are eliminated in consolidation but included on Property NOI
(6)Expected liquidating distribution from sale of equity interest (Collection within 2 years, subject to some expenses)
(7)We report FFO from non-consolidated REITs for the previous quarter as their financial statements are not yet complete for the current quarter.
 
  
June 30, 2015
 26
 
 
 
     Appendix: Non-GAAP Financial Measure Definitions

 

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.

 

June 30, 2015
 27
 
 
 
     Appendix: Non-GAAP Financial Measure Definitions

 

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.

 

 

Definition of Property Net Operating Income (Property 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 (the most directly comparable GAAP financial measure) plus selling, 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, 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 both periods, which we call Same Store. The Comparative Same Store results include properties held for the periods presented and exclude 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 as an indication of our performance or to cash flows as a measure of the Company's liquidity or its ability to make distributions.

 

 

June 30, 2015
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     Appendix: Non-GAAP Financial Measure Definitions

 

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.

 

June 30, 2015
 29
 
 
 

 

 

   

Investor Relations Contact:

Georgia Touma
(877) 686-9496

InvestorRelations@franklinstreetproperties.com

 

 

 

Franklin Street Properties Corp. ● 401 Edgewater Place ● Wakefield, MA 01880 ● (781) 557-1300

 

www.franklinstreetproperties.com

 

 

 

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