Franklin Street Properties (FSP) 8-K Results of Operations and Financial Condition

Exhibit 99.1

PRESS RELEASE Franklin Street Properties Corp.

401 Edgewater Place  Suite 200  Wakefield, Massachusetts  01880  (781) 557-1300 www.fspreit.com

Contact: Georgia Touma   (877) 686-9496 For Immediate Release

Franklin Street Properties Corp. Announces

First Quarter 2018 Results

Wakefield, MA—May 1, 2018—Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE American:  FSP), a real estate investment trust (REIT), announced its results for the first quarter ended March 31, 2018.         

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

“For the first quarter of 2018, FSP’s Funds from Operations or FFO totaled approximately $26.4 million or $0.25 per share.  Adjusted Funds From Operations or AFFO for the same period totaled approximately $16.9 million or $0.16 per share.  Dividends declared for the first quarter of 2018 were $9.7 million or $0.09 per share.  Potential leasing activity is strong within our property portfolio, continuing the trends we saw in the third and fourth quarters of 2017.  We anticipate higher leased percentages in the portfolio as 2018 continues.  The energy influenced markets of Houston and Denver continue to improve with the upward trend of oil prices and are showing more potential leasing activity than the last several years.  A number of our larger tenants are approaching us with early lease renewal requests and we would expect to see many of these transactions completed this year and next.” 

Highlights

· FFO was $26.4 million or $0.25 per basic and diluted share for the first quarter ended March 31, 2018.  We had Net Income of $1.4 million or $0.01 per basic and diluted share for the first quarter ended March 31, 2018.        

· Adjusted Funds From Operations (AFFO) was $0.16 per basic and diluted share for the first quarter ended March 31, 2018.        

Leasing Update

· Our directly owned real estate portfolio of 34 properties totaling approximately 9.8 million square feet was approximately 88.5% leased as of March 31, 2018, which was a 1.2% decrease compared to December 31, 2017.            

· During the quarter ended March 31, 2018, we leased approximately 109,000 square feet, of which approximately 25,000 square feet was with new tenants.  

· Second quarter 2018 leasing activity to date includes approximately 500,000 square feet of potential leases out for execution, more than 100,000 square feet of which would be new leases and expansions.            

· Weighted average annualized GAAP rent per square foot was approximately $29.05 as of March 31, 2018, compared to $28.87 as of December 31, 2017, $27.92 as of December 31, 2016, $26.93 as of December 31, 2015, and $26.04 as of December 31, 2014.  We believe that the increase is attributable to the enhanced quality of our real estate portfolio and value creation derived from our recent acquisitions, dispositions and leasing.

· Our project at 801 Marquette Avenue provides a contemporary, forward-looking experience in a vintage warehouse style office with modern systems and market leading amenities in the heart of the Minneapolis CBD. The redevelopment of 801 Marquette, which is approximately 127,268 square feet, was completed in 2017.  Subsequent to quarter end, we signed a lease with a tenant for approximately 18,000 square feet on the first floor with anticipated occupancy in December 2018 and we also signed a lease with an operator for a full service café located in our Atrium with anticipated operations commencing this summer.  Our project continues to see great activity and our team has led approximately 50 prospect tours representing in excess of 1.7 million square feet across

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all industries.  We expect 801 Marquette to be substantially leased by year end and stabilized in the third quarter of 2019. 

Acquisition and Disposition Update

· We do not anticipate making new acquisitions at this time but continue to monitor all prospective investment opportunities in our core markets.    

· We do not expect any significant disposition activity within our directly-owned portfolio as we begin the second quarter of 2018.

· We anticipate some potential disposition activity within our managed portfolio during 2018.      

Dividend Update

On April 6, 2018, the Company announced that its Board of Directors declared a regular quarterly cash dividend for the three months ended March 31, 2018 of $0.09 per share of common stock that will be paid on May 10, 2018 to stockholders of record on April 20, 2018.      

Non-GAAP Financial Information

A reconciliation of Net income (loss) to FFO, AFFO and Sequential Same Store NOI and our definitions of FFO, AFFO and Sequential Same Store NOI can be found on Supplementary Schedules H and I.    

Real Estate Update

Supplementary schedules provide property information for the Company’s owned real estate portfolio and for two non-consolidated REITs in which the Company holds preferred stock interests as of March 31, 2018.  The Company will also be filing an updated supplemental information package that will provide stockholders and the financial community with additional operating and financial data.  The Company will file this supplemental information package with the SEC and make it available on its website at www.fspreit.com.  

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FFO Guidance

We are reaffirming our full year FFO guidance for 2018, which is estimated to be in the range of approximately $0.96 to $1.00 per basic and diluted share, and for the second quarter of 2018, are initiating guidance, which is estimated to be in the range of approximately $0.22 to $0.24 per basic and diluted share.  We are reaffirming full year 2018 net income guidance in the range of $0.02 to $0.06 per basic and diluted share, and for the second quarter of 2018,  are initiating net income (loss) guidance in the range of $(0.02) to $0.00 per basic and diluted share.  This guidance (a) excludes the impact of future acquisitions, developments, dispositions, debt financings or repayments or other capital market transactions; (b) reflects estimates from our ongoing portfolio of properties, other real estate investments and general and administrative expenses; and (c) reflects our current expectations of economic conditions.  We will update guidance quarterly in our earnings releases.  There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above. 

A reconciliation of the guidance for net income (loss) per share to the guidance for FFO per share is provided as follows:  

		Q2 2018 Range				Full Year 2018 Range
	Low		High		Low		High
Net income (loss) per share	$	(0.02)	$	0.00	$	0.02	$	0.06
GAAP loss from non-consolidated REITs		0.00		0.00		0.00		0.00
FFO from non-consolidated REITs		0.01		0.01		0.04		0.04
Depreciation & Amortization		0.23		0.23		0.90		0.90
Funds From Operations per share	$	0.22	$	0.24	$	0.96	$	1.00

Today’s news release, along with other news about Franklin Street Properties Corp., is available on the Internet at www.fspreit.com.  We routinely post information that may be important to investors in the Investor Relations section of our website.  We encourage investors to consult that section of our website regularly for important information about us and, if they are interested in automatically receiving news and information as soon as it is posted, to sign up for E-mail Alerts. 

Earnings Call

A conference call is scheduled for May 2, 2018 at 10:00 a.m. (ET) to discuss the first quarter results. To access the call, please dial 1-800-464-8240. Internationally, the call may be accessed by dialing 1-412-902-6521. To access the call from Canada, please dial 1-866-605-3852. To listen via live audio webcast, please visit the Webcasts & Presentations section in the Investor Relations section of the Company's website (www.fspreit.com) at least ten minutes prior to the start of the call and follow the posted directions. The webcast will also be available via replay from the above location starting one hour after the call is finished.     

About Franklin Street Properties Corp.

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

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Forward-Looking Statements

Statements made in this press release that state FSP’s or management’s intentions, beliefs, expectations, or predictions for the future may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  This press release may also contain forward-looking statements, such as our ability to lease space in the future,  expectations for FFO and net income (loss) in future periods, expectations for growth,  leasing and acquisition and disposition activities in future periods, prospects for long-term sustainable growth and the timing of leasing at our 801 Marquette Avenue property, that are based on current judgments and current knowledge of management and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements.  Accordingly, readers are cautioned not to place undue reliance on forward-looking statements.  Investors are cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, economic conditions in the United States, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks of a lessening of demand for the types of real estate owned by us, changes in government regulations and regulatory uncertainty, uncertainty about governmental fiscal policy, geopolitical events and expenditures that cannot be anticipated such as utility rate and usage increases, delays in construction schedules, unanticipated repairs, additional staffing, insurance increases and real estate tax valuation reassessments.  See the “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017, as the same may be updated from time to time in subsequent filings with the United States Securities and Exchange Commission.  Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, acquisitions, dispositions, performance or achievements.  We will not update any of the forward-looking statements after the date of this press release to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law. 

Franklin Street Properties Corp.

Earnings Release

Supplementary Information

Table of Contents

Franklin Street Properties Corp. Financial Results	A-C
Real Estate Portfolio Summary Information	D
Portfolio and Other Supplementary Information	E
Percentage of Leased Space	F
Largest 20 Tenants – FSP Owned Portfolio	G
Reconciliation and Definitions of Funds From Operations (FFO) and Adjusted
Funds From Operations (AFFO)	H
Reconciliation and Definition of Sequential Same Store results to Property Net
Operating Income (NOI) and Net Income (Loss)	I

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Franklin Street Properties Corp. Financial Results

Supplementary Schedule A

Condensed Consolidated Income (Loss) Statements

(Unaudited)

	For the
	Three Months Ended
	March 31,
(in thousands, except per share amounts)	2018		2017
Revenue:
Rental	$	65,628	$	67,376
Related party revenue:
Management fees and interest income from loans		1,256		1,370
Other		9		10
Total revenue		66,893		68,756
Expenses:
Real estate operating expenses		17,151		17,308
Real estate taxes and insurance		11,177		12,403
Depreciation and amortization		24,035		25,332
General and administrative		3,432		3,443
Interest		9,486		7,579
Total expenses		65,281		66,065
Income before equity in losses of non-consolidated REITs, other, gain on sale of properties and properties held for sale, less applicable income tax and taxes		1,612		2,691
Equity in losses of non-consolidated REITs		(105)		(397)
Other		—		22
Gain on sale of properties and properties held for sale, less applicable income tax		—		2,289
Income before taxes on income		1,507		4,605
Taxes on income		82		125
Net income	$	1,425	$	4,480
Weighted average number of shares outstanding,  basic and diluted		107,231		107,231
Net income per share, basic and diluted	$	0.01	$	0.04

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Franklin Street Properties Corp. Financial Results

Supplementary Schedule B

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,		December 31,
(in thousands, except share and par value amounts)	2018		2017
Assets:
Real estate assets:
Land	$	191,578	$	191,578
Buildings and improvements		1,821,035		1,811,631
Fixtures and equipment		5,909		5,614
		2,018,522		2,008,823
Less accumulated depreciation		390,581		376,131
Real estate assets, net		1,627,941		1,632,692
Acquired real estate leases, less accumulated amortization of $114,044 and $109,771, respectively		78,729		86,520
Investment in non-consolidated REITs		69,703		70,164
Cash, cash equivalents and restricted cash		14,355		9,819
Tenant rent receivables, less allowance for doubtful accounts of $325 and $250, respectively		3,411		3,123
Straight-line rent receivable, less allowance for doubtful accounts of $50 and $50, respectively		53,430		53,194
Prepaid expenses and other assets		8,355		8,387
Related party mortgage loan receivables		71,455		71,720
Other assets: derivative asset		18,740		13,925
Office computers and furniture, net of accumulated depreciation of $1,448 and $1,420, respectively		261		289
Deferred leasing commissions, net of accumulated amortization of $23,255 and $22,276, respectively		39,815		40,679
Total assets	$	1,986,195	$	1,990,512
Liabilities and Stockholders’ Equity:
Liabilities:
Bank note payable	$	98,000	$	78,000
Term loans payable, less unamortized financing costs of $4,741 and $5,099, respectively		765,259		764,901
Series A&B Senior Notes, less unamortized financing costs of $1,273 and $1,308, respectively		198,727		198,692
Accounts payable and accrued expenses		53,327		61,039
Accrued compensation		1,112		3,641
Tenant security deposits		5,588		5,383
Other liabilities: derivative liabilities		—		1,759
Acquired unfavorable real estate leases, less accumulated amortization of $8,063 and $7,638, respectively		5,264		5,805
Total liabilities		1,127,277		1,119,220
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued or outstanding		-		-
Common stock, $.0001 par value, 180,000,000 shares authorized, 107,231,155 and 107,231,155 shares issued and outstanding, respectively		11		11
Additional paid-in capital		1,356,457		1,356,457
Accumulated other comprehensive loss		18,740		12,166
Accumulated distributions in excess of accumulated earnings		(516,290)		(497,342)
Total stockholders’ equity		858,918		871,292
Total liabilities and stockholders’ equity	$	1,986,195	$	1,990,512

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Franklin Street Properties Corp. Financial Results

Supplementary Schedule C

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the
	Three Months Ended
	March 31,
(in thousands)	2018		2017
Cash flows from operating activities:
Net income	$	1,425	$	4,480
Adjustments to reconcile net income or loss to net cash provided by operating activities:
Depreciation and amortization expense		24,748		25,937
Amortization of above and below market leases		(85)		(168)
Equity in losses of non-consolidated REITs		105		397
Hedge ineffectiveness		—		(22)
(Gain) on sale of properties and properties held for sale, less applicable income tax		—		(2,289)
Increase in allowance for doubtful accounts		75		—
Changes in operating assets and liabilities:
Tenant rent receivables		(363)		(672)
Straight-line rents		40		(1,082)
Lease acquisition costs		(276)		(292)
Prepaid expenses and other assets		(274)		1
Accounts payable, accrued expenses and other items		(6,911)		(10,219)
Accrued compensation		(2,529)		(2,525)
Tenant security deposits		205		86
Payment of deferred leasing commissions		(1,082)		(1,606)
Net cash provided by operating activities		15,078		12,026
Cash flows from investing activities:
Property improvements, fixtures and equipment		(10,774)		(11,615)
Distributions in excess of earnings from non-consolidated REITs		355		346
Repayment of related party mortgage loan receivable		265		265
Proceeds received on sales of real estate assets		—		6,160
Net cash used in investing activities		(10,154)		(4,844)
Cash flows from financing activities:
Distributions to stockholders		(20,374)		(20,374)
Borrowings under bank note payable		30,000		30,000
Repayments of bank note payable		(10,000)		(15,000)
Deferred financing costs		(14)		—
Net cash used in financing activities		(388)		(5,374)
Net increase in cash, cash equivalents and restricted cash		4,536		1,808
Cash, cash equivalents and restricted cash, beginning of year		9,819		9,366
Cash, cash equivalents and restricted cash, end of period	$	14,355	$	11,174

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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
2018	984,501	10.1%
2019	1,225,298	12.6%
2020	843,681	8.6%
2021	687,821	7.0%
2022	1,195,787	12.2%
Thereafter (2)	4,823,569	49.5%
	9,760,657	100.0%

(1) Percentages are determined based upon total square footage.   

(2) Includes 1,118,651 square feet of current vacancies.

(dollars & square feet in 000's)	As of March 31 ,2018
	# of			% of	Square	% of
State	Properties	Investment		Portfolio	Feet	Portfolio
Colorado	6	$	537,825	33.5%	2,609	26.7%
Texas	9		349,548	21.8%	2,417	24.8%
Georgia	5		322,499	20.1%	1,967	20.2%
Minnesota (a)	2		94,642	5.9%	620	6.3%
Virginia	4		85,764	5.3%	685	7.0%
North Carolina	2		51,741	3.2%	322	3.3%
Missouri	2		48,712	3.0%	351	3.6%
Illinois	2		46,948	2.9%	372	3.8%
Florida	1		38,577	2.4%	213	2.2%
Indiana	1		30,673	1.9%	205	2.1%
Total	34	$	1,606,929	100.0%	9,761	100.0%

(a) Excludes approximately $21,012, which is our investment in a property that was redeveloped and is classified as non-operating.       

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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
	31-Mar-18
Tenant improvements	$	6,777
Deferred leasing costs		1,021
Non-investment capex		1,858
	$	9,656

	For the Three Months Ended								Year Ended
	31-Mar-17		30-Jun-17		30-Sep-17		31-Dec-17		31-Dec-17
Tenant improvements	$	6,474	$	5,363	$	4,474	$	4,166	$	20,477
Deferred leasing costs		1,579		1,963		4,482		5,869		13,893
Non-investment capex		1,670		1,685		1,860		3,836		9,051
	$	9,723	$	9,011	$	10,816	$	13,871	$	43,421

Square foot & leased percentages	March 31,	December 31,
	2018	2017
Owned portfolio of commercial real estate
Number of properties (a)	34	34
Square feet	9,760,657	9,761,984
Leased percentage	88.5%	89.7%
Investments in non-consolidated REITs
Number of properties	2	2
Square feet	1,396,493	1,396,071
Leased percentage	74.4%	75.3%
Single Asset REITs (SARs) managed
Number of properties	4	4
Square feet	810,278	810,278
Leased percentage	96.1%	93.0%
Total owned, investments & managed properties
Number of properties	40	40
Square feet	11,967,428	11,968,333
Leased percentage	87.4%	88.2%

(a) Excludes one property that was redeveloped and is classified as non-operating. 

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

			Square	% Leased	% Interest
Single Asset REIT name	City	State	Feet	31-Mar-18	Held
FSP 303 East Wacker Drive Corp.	Chicago	IL	861,422	74.7%	43.7%
FSP Grand Boulevard Corp.	Kansas City	MO	535,071	74.1%	27.0%
			1,396,493	74.4%

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Franklin Street Properties Corp. Earnings Release

Supplementary Schedule F

Percentage of Leased Space

(Unaudited & Estimated)

					Fourth		First
				% Leased (1)	Quarter	% Leased (1)	Quarter
				as of	Average %	as of	Average %
	Property Name	Location	Square Feet	31-Dec-17	Leased (2)	31-Mar-18	Leased (2)
1	FOREST PARK	Charlotte, NC	62,212	100.0%	100.0%	100.0%	100.0%
2	MEADOW POINT	Chantilly, VA	138,537	100.0%	100.0%	100.0%	100.0%
3	TIMBERLAKE	Chesterfield, MO	234,496	100.0%	100.0%	100.0%	100.0%
4	TIMBERLAKE EAST	Chesterfield, MO	117,036	100.0%	100.0%	100.0%	100.0%
5	NORTHWEST POINT	Elk Grove Village, IL	177,095	100.0%	100.0%	100.0%	100.0%
6	PARK TEN	Houston, TX	157,460	68.6%	69.8%	75.8%	73.4%
7	PARK TEN PHASE II	Houston, TX	156,746	1.4%	1.4%	1.4%	1.4%
8	GREENWOOD PLAZA	Englewood, CO	196,236	100.0%	100.0%	100.0%	100.0%
9	ADDISON	Addison, TX	288,794	100.0%	100.0%	100.0%	100.0%
10	COLLINS CROSSING	Richardson, TX	300,887	100.0%	100.0%	100.0%	100.0%
11	INNSBROOK	Glen Allen, VA	298,456	100.0%	100.0%	100.0%	100.0%
12	RIVER CROSSING	Indianapolis, IN	205,059	96.2%	97.0%	96.1%	96.1%
13	LIBERTY PLAZA	Addison, TX	218,934	91.2%	91.2%	84.5%	88.6%
14	380 INTERLOCKEN	Broomfield, CO	240,358	86.2%	86.2%	86.2%	86.2%
15	390 INTERLOCKEN	Broomfield, CO	241,512	98.9%	98.9%	97.8%	97.8%
16	BLUE LAGOON	Miami, FL	212,619	100.0%	100.0%	100.0%	100.0%
17	ELDRIDGE GREEN	Houston, TX	248,399	100.0%	100.0%	100.0%	100.0%
18	ONE OVERTON PARK	Atlanta, GA	387,267	61.1%	61.9%	61.1%	61.1%
19	LOUDOUN TECH	Dulles, VA	136,658	95.7%	95.7%	95.7%	95.7%
20	4807 STONECROFT	Chantilly, VA	111,469	100.0%	100.0%	100.0%	100.0%
21	121 SOUTH EIGHTH ST	Minneapolis, MN	293,422	81.8%	81.9%	77.7%	78.9%
22	EMPEROR BOULEVARD	Durham, NC	259,531	100.0%	100.0%	100.0%	100.0%
23	LEGACY TENNYSON CTR	Plano, TX	202,600	86.4%	79.1%	86.4%	86.4%
24	ONE LEGACY	Plano, TX	214,110	100.0%	100.0%	100.0%	100.0%
25	909 DAVIS	Evanston, IL	195,098	91.5%	82.6%	92.3%	92.0%
26	ONE RAVINIA DRIVE	Atlanta, GA	386,602	92.4%	90.8%	92.4%	92.4%
27	TWO RAVINIA	Atlanta, GA	411,047	75.3%	75.9%	76.0%	75.8%
28	WESTCHASE I & II	Houston, TX	629,025	87.7%	87.7%	86.0%	86.5%
29	1999 BROADWAY	Denver, CO	676,379	80.2%	81.5%	80.6%	80.3%
30	999 PEACHTREE	Atlanta, GA	621,946	95.1%	94.5%	88.6%	90.7%
31	1001 17th STREET	Denver, CO	655,413	96.8%	93.1%	96.8%	96.8%
32	PLAZA SEVEN	Minneapolis, MN	326,483	96.8%	96.8%	85.9%	93.2%
33	PERSHING PLAZA	Atlanta, GA	160,145	97.4%	97.4%	97.4%	97.4%
34	600 17th STREET	Denver, CO	598,626	87.1%	88.4%	84.6%	85.3%
	TOTAL WEIGHTED AVERAGE		9,760,657	89.7%	89.3%	88.5%	89.0%

(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.   

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Franklin Street Properties Corp. Earnings Release

Supplementary Schedule G

Largest 20 Tenants – FSP Owned Portfolio

(Unaudited & Estimated)

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

As of March 31, 2018

			% of
	Tenant	Sq Ft	Portfolio
1	Quintiles IMS Healthcare Incorporated	259,531	2.7%
2	US Government	250,520	2.6%
3	CITGO Petroleum Corporation	248,399	2.5%
4	Newfield Exploration Company	234,495	2.4%
5	Centene Management Company, LLC	216,879	2.2%
6	Burger King Corporation	212,619	2.2%
7	Eversheds Sutherland (US) LLP	179,868	1.8%
8	EOG Resources, Inc.	160,937	1.6%
9	T-Mobile South, LLC dba T-Mobile	151,792	1.6%
10	Citicorp Credit Services, Inc.	146,260	1.5%
11	Petrobras America, Inc.	144,813	1.5%
12	Jones Day	140,342	1.4%
13	Argo Data Resource Corporation	140,246	1.4%
14	Vail Corp d/b/a Vail Resorts	132,229	1.4%
15	SunTrust Bank	127,500	1.3%
16	Federal National Mortgage Association	123,144	1.3%
17	Kaiser Foundation Health Plan	120,979	1.2%
18	Giesecke & Devrient America	112,110	1.1%
19	Northrup Grumman Systems Corp.	111,469	1.1%
20	ADS Alliance Data Systems, Inc.	107,698	1.1%
	Total	3,321,830	34.0%

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Franklin Street Properties Corp. Earnings Release

Supplementary Schedule H

Reconciliation and Definitions of Funds From Operations (“FFO”) and

Adjusted Funds From Operations (“AFFO”)

A reconciliation of Net income (loss) to FFO and AFFO is shown below and a definition of FFO and AFFO is provided on Supplementary Schedule I.  Management believes FFO and AFFO are used broadly throughout the real estate investment trust (REIT) industry as measurements of performance.   The Company has included the National Association of Real Estate Investment Trusts (NAREIT) FFO definition as of May 17, 2016 in the table and notes that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently.  The Company’s computation of FFO and AFFO may not be comparable to FFO or AFFO reported by other REITs or real estate companies that define FFO or AFFO differently. 

Reconciliation of Net Income (Loss) to FFO and AFFO:	Three Months Ended
	March 31,
(In thousands, except per share amounts)	2018		2017
Net income	$	1,425	$	4,480
(Gain) on sale of properties and properties held for sale, less applicable income tax		—		(2,289)
GAAP loss from non-consolidated REITs		105		397
FFO from non-consolidated REITs		884		791
Depreciation & amortization		23,950		25,163
NAREIT FFO		26,364		28,542
Hedge ineffectiveness		—		(22)
Acquisition costs of new properties		—		8
Funds From Operations (FFO)	$	26,364	$	28,528
Funds From Operations (FFO)	$	26,364	$	28,528
Reverse FFO from non-consolidated REITs		(884)		(791)
Distributions from non-consolidated REITs		355		346
Amortization of deferred financing costs		711		606
Straight-line rent		40		(1,082)
Tenant improvements		(6,777)		(6,474)
Leasing commissions		(1,021)		(1,579)
Non-investment capex		(1,858)		(1,670)
Adjusted Funds From Operations (AFFO)	$	16,930	$	17,884
Per Share Data
EPS	$	0.01	$	0.04
FFO	$	0.25	$	0.27
AFFO	$	0.16	$	0.17
Weighted average shares (basic and diluted)		107,231		107,231

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Funds From Operations (“FFO”)

The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to equity holders.  The Company defines FFO as net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, hedge ineffectiveness 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 or loss (determined in accordance with GAAP), nor as an indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities (determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company’s needs. 

Other real estate companies and NAREIT may define this term in a different manner.  We have included the NAREIT FFO as of May 17, 2016 in the table and note that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than we do. 

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

Adjusted Funds From Operations (“AFFO”)

The Company also evaluates performance based on Adjusted Funds From Operations, which we refer to as AFFO.  The Company defines AFFO as (1) FFO, (2) excluding our proportionate share of FFO and including distributions received, from non-consolidated REITs, (3) excluding the effect of straight-line rent, (4) plus deferred financing costs and (5) less recurring capital expenditures that are generally for maintenance of properties, which we call non-investment capex or are second generation capital expenditures.  Second generation costs include re-tenanting space after a tenant vacates, which include tenant improvements and leasing commissions. 

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

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

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Franklin Street Properties Corp. Earnings Release

Supplementary Schedule I

Reconciliation and Definition of Sequential Same Store results to property Net Operating Income (NOI) and Net Income (Loss) 

Net Operating Income (“NOI”)

The Company provides property performance based on Net Operating Income, which we refer to as NOI.  Management believes that investors are interested in this information.  NOI is a non-GAAP financial measure that the Company defines as net income or loss (the most directly comparable GAAP financial measure) plus general and administrative expenses, depreciation and amortization, including amortization of acquired above and below market lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest income, management fee income, hedge ineffectiveness, gains or losses on the sale of assets and excludes non-property specific income and expenses. The information presented includes footnotes and the data is shown by region with properties owned in the periods presented, which we call Sequential Same Store.  The comparative Sequential Same Store results include properties held for the periods presented and exclude properties that are non-operating, being developed or redeveloped, dispositions and significant nonrecurring income such as bankruptcy settlements and lease termination fees.  NOI, as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI should not be considered an alternative to net income or loss as an indication of our performance or to cash flows as a measure of the Company’s liquidity or its ability to make distributions.  The calculations of NOI and Sequential Same Store are shown in the following table:

	Rentable
	Square Feet	Three Months Ended		Three Months Ended		Inc		%
(in thousands)	or RSF	31-Mar-18		31-Dec-17		(Dec)		Change
Region
East	1,007	$	3,991	$	3,917	$	74	1.9	%
MidWest	1,549		6,257		4,940		1,317	26.7	%
South	4,597		15,431		16,168		(737)	(4.6)	%
West	2,608		10,958		11,352		(394)	(3.5)	%
Same Store	9,761		36,637		36,377		260	0.7	%
Acquisitions	—		—		—		—	—	%
NOI* from the continuing portfolio	9,761		36,637		36,377		260	0.7	%
Dispositions, Non-Operating, Development or Redevelopment	-		79		(77)		156	0.4	%
NOI*	9,761	$	36,716	$	36,300	$	416	1.1	%
Sequential Same Store		$	36,637	$	36,377	$	260	0.7	%
Less Nonrecurring
Items in NOI* (a)			761		914		(153)	0.5	%
Comparative
Sequential Same Store		$	35,876	$	35,463	$	413	1.2	%

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	Three Months Ended		Three Months Ended
Reconciliation to Net income	31-Mar-18		31-Dec-17
Net income (loss)	$	1,425	$	(4,932)
Add (deduct):
Loss on sale of properties and property held for sale, less applicable income taxes		—		21
Hedge ineffectiveness		—		2,096
Management fee income		(746)		(756)
Depreciation and amortization		24,035		25,659
Amortization of above/below market leases		(85)		(90)
General and administrative		3,432		3,665
Interest expense		9,486		8,657
Interest income		(1,120)		(1,133)
Equity in losses of non-consolidated REITs		105		2,885
Non-property specific items, net		184		228
NOI*	$	36,716	$	36,300

(a) Nonrecurring Items in NOI include proceeds from bankruptcies, lease termination fees or other significant nonrecurring income or expenses, which may affect comparability.

*Excludes NOI from investments in and interest income from secured loans to non-consolidated REITs.