Exhibit 99.1
PRESS RELEASE Franklin Street Properties Corp.
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401 Edgewater Place o Suite 200 o Wakefield, Massachusetts 01880-6210
o (781)557-1300 o www.franklinstreetproperties.com
Contact: Donna Brownell 877-686-9496 FOR IMMEDIATE RELEASE
FRANKLIN STREET PROPERTIES CORP. ANNOUNCES
THIRD QUARTER AND NINE MONTH 2006 RESULTS
Wakefield, MA--October 31, 2006--Franklin Street Properties Corp. (the "Company"
or "FSP") (AMEX: FSP) announced today net income and Earnings Per Share (EPS)
for the three and nine months ended September 30, 2006. The Company also
announced Adjusted Funds From Operations (AFFO) and provided an update on other
activities.
The Company evaluates its performance based on net income, EPS and AFFO, and
believes each is an important measure. The Company considers these measurements
in determining distributions paid to equity holders. A reconciliation of net
income to AFFO, a non-GAAP financial measure, is provided on page 2 of this
press release.
o EPS for the three months ended September 30, 2006 decreased $0.19 per
share to $0.25 per share compared to the three months ended September 30,
2005. Net income was $17.8 million or $0.25 per share (based on 70.8
million shares), compared to $26.8 million or $0.44 per share (based on
60.5 million shares) in 2005.
o AFFO for the three months ended September 30, 2006 decreased $0.04 per
share to $0.27 per share compared to the three months ended September 30,
2005. AFFO was $19.3 million or $0.27 per share (based on 70.8 million
shares), compared to $18.7 million or $0.31 per share (based on 60.5
million shares) in 2005.
o EPS for the nine months ended September 30, 2006 increased $0.24 per share
to $1.08 per share compared to the nine months ended September 30, 2005.
Net income was $71.4 million or $1.08 per share (based on 65.9 million
shares), compared to $46.7 million or $0.84 per share (based on 55.7
million shares) in 2005.
o AFFO for the nine months ended September 30, 2006 increased $0.04 per
share to $0.90 per share compared to the nine months ended September 30,
2005. AFFO was $59.7 million or $0.90 per share (based on 65.9 million
shares), compared to $48.0 million or $0.86 per share (based on 55.7
million shares) in 2005.
The following significant factors affected net income, EPS and AFFO for the
three and nine months ended September 30, 2006 compared to results for the same
periods in 2005:
o Gain on sale of properties during the three and nine months ended
September 30, 2006 was $6.4 million and $34.5 million, respectively. Gain
on the sale of properties during the three months ended September 30, 2005
was $14.3 million, and for the nine months ended September 30, 2005 was
$13.3 million net of a loss on the sale of a property.
o Increased net operating income from the real estate portfolio included:
o The benefits of four properties acquired by merger in April 2005 and
five properties acquired by merger in April 2006, which were
accretive to our per share calculations.
o The benefits of two suburban office properties acquired in 2005 and
two suburban office properties acquired in 2006.
o Lease termination payments received of $1.7 million and $6.6 million
in the three and nine month periods of 2006, respectively compared
to $0.7 million for the three and nine month periods of 2005. A
substantial amount of the space at the related properties has
subsequently been re-leased.
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o Interest income increased $0.3 million and $1.0 million in the three and
nine months ended September 30, 2006, respectively, compared to the same
periods in 2005 as a result of higher bank balances during the periods and
rising interest rates.
o These benefits were partially offset by lower investment banking results
compared to the same periods in 2005. Gross proceeds on the sale of
securities, which our revenue and expenses in investment banking are
directly related to, decreased $28.1 million and $5.1 million for the
three and nine months ended September 30, 2006, compared to the same
periods in 2005; and
o General and administrative costs were essentially flat comparing the three
month periods ended September 30, 2006, but for the nine month period
increased approximately $0.2 million compared to the nine months ended
September 30, 2005. The year-to-date increase was primarily from costs of
monitoring and managing a larger portfolio of properties.
o Net increase of 10.2 million weighted average shares for the three and
nine months ended September 30, 2006 compared to 2005 due to the merger
completed on April 30, 2006.
A reconciliation of net income to AFFO is shown below and a definition of AFFO
is provided on Supplemental Schedule F. We believe AFFO is used broadly
throughout the REIT industry as a measurement of performance and is generally
calculated in a similar manner to our calculation.
Three Months Ended Nine Months Ended
September 30, September 30,
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(In thousands except per share amounts) 2006 2005 2006 2005
---- ---- ---- ----
Net income $ 17,830 $ 26,815 $ 71,446 $ 46,692
Gain on sale of assets (6,361) (14,316) (34,469) (13,261)
GAAP income from non-consolidated REITs (481) (328) (912) (1,296)
Distributions from non-consolidated REITs 115 107 724 1,087
Depreciation of real estate & intangible amortization 8,760 6,864 23,406 15,981
Straight-line rent (590) (443) (529) (1,167)
Capital expenditures (3,927) (360) (5,711) (2,288)
Payments of deferred leasing costs (1,649) (199) (4,422) (510)
Proceeds from funded reserves 5,576 559 10,133 2,798
-------------------------- --------------------------
Adjusted Funds From Operations (AFFO) $ 19,273 $ 18,699 $ 59,666 $ 48,036
========================== ==========================
Per Share Data
EPS $ 0.25 $ 0.44 $ 1.08 $ 0.84
AFFO $ 0.27 $ 0.31 $ 0.90 $ 0.86
Weighted average shares (basic and diluted) 70,766 60,526 65,944 55,697
========================== ==========================
Dividend announcement
On October 13, 2006, the Board of Directors of the Company declared a cash
distribution of $0.31 per share of common stock payable on November 20, 2006 to
stockholders of record as of October 31, 2006.
Real Estate Update
During April 2006 we acquired five suburban office properties by merger with a
total of approximately 1.1 million square feet of rentable space. Two properties
are located in Texas, and the other three are located in Colorado, Florida and
Virginia. In late June 2006 we acquired a suburban office building in Atlanta,
Georgia with approximately 0.4 million square feet of rentable space. This
purchase was financed by proceeds from property sales. In May 2006 we sold an
apartment property located in Katy, Texas, and office properties located in
Fairfax, Virginia and Santa Clara, California; and in August 2006, we sold an
industrial building located in Peabody, Massachusetts, each at gains. The gain
recognition from the sale of the properties in Texas and Virginia was deferred
for tax purposes through the use of a Section 1031 exchange. Supplementary
Schedule D presents our continuing real estate portfolio of 31 properties as of
September 30, 2006.
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George J. Carter, President and CEO, commented as follows:
"Net Income/EPS and AFFO levels for the third quarter and nine months ended
September 30, 2006 were anticipated and, consequently, planned for within the
FSP business/investment model. Third quarter 2006 earnings of $0.25 per share
and AFFO of $0.27 per share were below the comparable period last year of $0.44
per share earnings and AFFO of $0.31 per share. However, nine month 2006 total
earnings of $1.08 per share and AFFO of $0.90 per share were above the
comparable period last year of $0.84 per share earnings and AFFO of $0.86 per
share. Adding gains from property dispositions during the third quarter of 2006
of $6.4 million or $0.09 per share to our AFFO of $19.3 million or $0.27 per
share produced $25.6 million or $0.36 per share, compared to $0.55 per share for
the third quarter of 2005. For the nine months ended September 30, 2006 adding
gains/losses from property dispositions to AFFO totaled $1.43 per share,
compared to $1.10 per share for the nine month period in 2005. I continue to be
confident about the Company's current competitive position within the broader
capital/real estate markets, and optimistic about its financial performance for
the balance of 2006 and into 2007.
More specifically, results for the third quarter of 2006 reflected the slowest
quarter, year-to-date, from our Investment Banking group and a relatively small
property disposition from our portfolio. These two important areas of our
business, Investment Banking and Property Dispositions, can be, by their nature,
quite uneven quarter-to-quarter, versus their relatively steadier counterpart,
Rental Operations, the largest part of FSP's business mix. Internally, we have
always viewed the Company's "annual" financial results to be a more meaningful
barometer of long-term performance and trends than any one quarter's results
because of these transactional structural components of our business/investment
model.
Rental Operations: As of September 30, 2006, the Company's continuing portfolio
of 31 properties was 89% leased. Most of FSP's properties are suburban office
buildings, and, in most markets, we are continuing to find improving conditions
for both occupancy and rental rates. However, there are still tenant leases,
originally 5-10 years in length, which were signed at what we believe to be the
height of the most recent office market cycle (approximately 1997-2001), and we
continue to face some rent roll downs in various markets as these older leases
expire and new ones are signed. National occupancy levels continue to improve,
but rent levels in many office markets are still only modestly increased from
lower levels. We continue to believe that significant broad-based rental
increases, above the 1997-2001 peak, are one to three years away, assuming
continued overall U.S. economic growth and traditional cyclical real estate
dynamics. FSP is aggressively managing its lease turnover to maximize rental
operations' contribution as the office markets continue to climb back up their
cyclical curve. Concern always remains about the possibility of a new,
significant downturn in the broader economy that would reverse the positive
trends our markets are starting to see. Inflation and interest rates, as well as
geopolitical events, are likely to be influencing factors.
Property Dispositions: During the first nine months of 2006, the Company
disposed of four properties. Proceeds from the property sales totaled
approximately $104 million, all of which have been reinvested in other
properties. All properties in the FSP portfolio (i.e., not held for investment
banking syndication) continue to be owned without any mortgage debt. There
continue to be existing real estate assets in our portfolio which we believe are
potential sale candidates, either because of property specific or market driven
reasons. In general, property sales will be considered only if we believe the
potential exists to reinvest the sale proceeds in new assets that have better
near-term and/or long-term return potential than the assets we sold. Because we
do not have any permanent mortgage debt, cash from property sales can be used to
acquire new real estate assets, purchase stock under our stock repurchase plan
and/or add to property reserves if needed. Current high market pricing and
competition for potentially acceptable property acquisitions continue to present
challenges, but new opportunities are always being reviewed. Upgrading FSP's
portfolio is an ongoing objective.
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Investment Banking: During the first nine months of 2006, our investment banking
business closed on $100.2 million of investor capital consisting of the complete
syndication of one office property. However, capital raising efforts in the
third quarter of 2006 totaled only $15.85 million as the aforementioned offering
was fully subscribed early in the quarter, and a new private placement banking
transaction was not begun until October. FSP's Investment Banking group has had
a difficult time during the last few years finding properties that meet its
investment criteria. Higher pricing and greater competition for quality
commercial real estate have reduced the number of attractive potential
acquisitions we would consider. The prospects for property acquisitions for
FSP's Investment Banking group remain uncertain."
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Today's news release, along with other news about Franklin Street Properties
Corp., is available on the Internet at www.franklinstreetproperties.com.
A conference call is scheduled for November 1, 2006 at 10:00 a.m. (ET) to
discuss the third quarter 2006 results. The toll free number is 1-866-314-4483,
passcode 73960914. Internationally, the call may be accessed by dialing
1-617-213-8049, passcode 73960914. The call will also be available via a live
webcast, which can be accessed at least 10 minutes before the start time through
the Webcasts & Presentations section of our Investor Relations section at
www.franklinstreetproperties.com. A replay of the conference call will be
available on the Company's website one hour after the call.
About Franklin Street Properties Corp.
Franklin Street Properties Corp. is a real estate investment trust based in
Wakefield, Massachusetts, focused on achieving current income and long-term
growth through investments in commercial properties. FSP operates in two
business segments: real estate operations and investment banking/investment
services. FSP owns an unleveraged portfolio of real estate. The majority of
FSP's property portfolio is suburban office buildings. FSP's subsidiary, FSP
Investments LLC (member, NASD and SIPC), is a real estate investment banking
firm and a registered broker/dealer. To learn more about FSP please visit our
website at www.franklinstreetproperties.com.
Forward-Looking Statements
Statements made in this press release that state FSP's or management's
intentions, beliefs, expectations, or predictions for the future are
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 changes in economic conditions in the markets in which we own
properties, changes in the demand by investors for investment in Sponsored REITs
(as defined in our Quarterly Report on Form 10-Q for the three months ended June
30, 2006), risks of a lessening of demand for the types of real estate owned by
us, changes in government regulations, 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 Item 1A of our Quarterly
Report on Form 10-Q for the three months ended June 30, 2006 and subsequent
filings with the 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.
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Franklin Street Properties
Earnings Release
Supplementary information
Table of contents
Franklin Street Properties Financial Results A-C
Real estate portfolio summary information D
Other supplementary information E
Definition of Adjusted Funds From Operations F
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Franklin Street Properties Financial Results
Supplementary Schedule A
Consolidated Income Statement
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
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(in thousands, except per share amounts) 2006 2005 2006 2005
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Revenue:
Rental $ 27,703 $ 18,582 $ 72,547 $ 46,373
Related party revenue:
Syndication fees 861 2,856 6,287 6,977
Transaction fees 1,140 2,850 6,548 6,888
Management fees and interest income from loans 210 149 1,079 1,602
Other 4 4 26 --
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Total revenue 29,918 24,441 86,487 61,840
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Expenses:
Real estate operating expenses 6,523 4,335 16,306 9,928
Real estate taxes and insurance 4,030 2,512 9,974 6,386
Depreciation and amortization 6,782 3,711 17,515 9,606
Selling, general and administrative 2,027 2,034 5,785 5,601
Commissions 458 1,457 3,290 3,648
Interest 119 1,082 1,259 2,825
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Total expenses 19,939 15,131 54,129 37,994
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Income before interest income, equity in
earnings of non-consolidated REITs and
taxes on income 9,979 9,310 32,358 23,846
Interest income 735 451 2,080 1,048
Equity in earnings of non-consolidated REITs 481 328 717 1,295
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Income before taxes on income 11,195 10,089 35,155 26,189
Income tax expense (benefit) (131) 184 273 298
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Income from continuing operations 11,326 9,905 34,882 25,891
Income from discontinued operations 143 2,594 2,095 7,541
Gain on sale of assets, net 6,361 14,316 34,469 13,260
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Net income $ 17,830 $ 26,815 $ 71,446 $ 46,692
===================================================================================================================
Weighted average number of shares
outstanding, basic and diluted 70,766 60,526 65,944 55,697
===================================================================================================================
Earnings per share, basic and diluted,
attributable to:
Continuing operations $ 0.16 $ 0.16 $ 0.53 $ 0.46
Discontinued operations 0.00 0.04 0.03 0.14
Gains on sales of assets, net 0.09 0.24 0.52 0.24
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Net income per share, basic and diluted $ 0.25 $ 0.44 $ 1.08 $ 0.84
===================================================================================================================
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Franklin Street Properties Financial Results
Supplementary Schedule B
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands, except share and par value amounts) September 30, December 31,
2006 2005
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Assets:
Real estate investments, net $ 798,354 $ 491,399
Acquired real estate leases, less accumulated
amortization of $19,471 and $10,402, respectively 45,206 30,172
Investment in non-consolidated REITs 5,011 5,006
Assets held for sale -- 69,952
Cash and cash equivalents 60,968 69,715
Restricted cash 471 461
Tenant rent receivables, less allowance for doubtful
accounts of $350 and $350, respectively 833 1,447
Straight-line rent receivable, less allowance for
doubtful accounts of $163 and $163, respectively 5,102 4,569
Prepaid expenses 1,451 805
Other assets 3,001 1,200
Office computers and furniture, net of accumulated
depreciation of $822 and $729, respectively 327 311
Deferred leasing commissions, net of accumulated
amortization of $1,177, and $731, respectively 6,112 2,136
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Total assets $ 926,836 $ 677,173
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Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued expenses $ 16,943 $ 11,583
Accrued compensation 1,525 1,891
Tenant security deposits 1,541 1,293
Acquired unfavorable real estate leases, less
accumulated amortization
of $416, and $134, respectively 2,410 823
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Total liabilities 22,419 15,590
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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, 70,766,305 and 59,794,608 shares
issued and outstanding, respectively 7 6
Additional paid-in capital 907,794 677,397
Treasury stock, 731,898 and 731,898 shares at cost,
respectively (14,008) (14,008)
Earnings (distributions) in excess of accumulated
earnings/distributions 10,624 (1,812)
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Total stockholders' equity 904,417 661,583
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Total liabilities and stockholders' equity $ 926,836 $ 677,173
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Franklin Street Properties Financial Results
Supplementary Schedule C
Consolidated Statement of Cash Flows
(Unaudited)
For the nine months ended
(in thousands) September 30,
-------------------------
2006 2005
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Cash flows from operating activities:
Net income $ 71,446 $ 46,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Gains on assets sold, net (34,469) (13,260)
Depreciation and amortization expense 18,198 13,030
Amortization of above market lease 5,208 2,956
Equity in earnings from non-consolidated REITs (912) (1,295)
Distributions from non-consolidated REITs 724 1,087
Shares issued as compensation -- 31
Changes in operating assets and liabilities:
Restricted cash (10) (305)
Tenant rent receivables, net 614 133
Straight-line rents, net (529) (1,167)
Prepaid expenses and other assets, net 570 56
Accounts payable and accrued expenses 1,358 799
Accrued compensation (366) 896
Tenant security deposits 248 351
Payment of deferred leasing commissions (4,422) (510)
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Net cash provided by operating activities 57,658 49,494
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Cash flows from investing activities:
Cash acquired through issuance of common stock in
merger transaction 13,849 10,621
Purchase of real estate assets, office computers and
furniture, capitalized merger costs (112,253) (75,517)
Merger costs paid (838) (402)
Purchase of acquired favorable and unfavorable leases (5,106) (12,425)
Investment in non-consolidated REITs (4,127) (9)
Investment in assets held for syndication, net -- 59,532
Changes in deposits on real estate assets (2,540) --
Proceeds received on sale of real estate assets 103,739 52,967
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Net cash provided by (used for) investing activities (7,276) 34,767
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Cash flows from financing activities:
Distributions to stockholders (59,010) (48,445)
Purchase of treasury shares (16)
Offering costs (119) --
Deferred financing costs -- (33)
Borrowings (repayments) under bank note payable, net -- (22,304)
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Net cash used for financing activities (59,129) (70,798)
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Net decrease in cash and cash equivalents (8,747) 13,463
Cash and cash equivalents, beginning of period 69,715 52,752
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Cash and cash equivalents, end of period $ 60,968 $ 66,215
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Franklin Street Properties Earnings Release
Supplementary Schedule D
Real Estate Portfolio Summary
(Unaudited)
September 30, 2006
30-Sep-2006 31-Dec-2005
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Commercial real estate
Number of properties 31 26
Square feet 5,301,847 3,978,264
Leased percentage 89% 92%
Residential real estate
Number of properties -- 1
Number of apartments -- 228
Square feet -- 231,363
Leased percentage -- 97%
Combined portfolio
Number of properties 31 27
Square feet 5,301,847 4,209,627
Leased percentage 89% 92%
(dollars & square feet in thousands) As of September 30, 2006
--------------------------------------------------------------
# of % of Square % of
State Properties Investment Portfolio Feet Portfolio
- ----- ---------- ---------- --------- ---- ---------
Texas 7 $ 218,872 27.4% 1,401 26.5%
Georgia 2 104,238 13.1% 549 10.3%
Virginia 3 93,349 11.7% 591 11.1%
Colorado 3 87,085 10.9% 550 10.4%
Missouri 2 58,169 7.3% 349 6.6%
Florida 1 51,937 6.5% 213 4.0%
California 3 40,761 5.1% 324 6.1%
Indiana 1 38,838 4.8% 205 3.9%
Illinois 1 28,197 3.5% 177 3.3%
Massachusetts 2 16,577 2.1% 198 3.7%
North Carolina 2 15,116 1.9% 172 3.2%
Michigan 1 14,899 1.9% 215 4.1%
Washington 1 14,601 1.8% 117 2.2%
South Carolina 1 10,449 1.3% 144 2.7%
Maryland 1 5,265 0.7% 99 1.9%
------------------------------------- -----------------------
Total 31 $ 798,354 100.0% 5,302 100.0%
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Franklin Street Properties Earnings Release
Supplementary Schedule E
(Unaudited)
September 30, 2006
Property by type:
(dollars & square feet in thousands) As of September 30, 2006
------------------------------------------------------------
# of % of Square % of
Type Properties Investment Portfolio Feet Portfolio
- ---- ---------- ---------- --------- ---- ---------
Office 30 793,089 99.3% 5,203 98.1%
Industrial 1 5,265 0.7% 99 1.9%
-------------------------------------- --------------------
Total 31 $ 798,354 100.0% 5,302 100.0%
====================================== ====================
Commercial portfolio lease expirations (1)
Total % of
Year Square Feet Portfolio
---- ----------- ---------
2006 252,430 4.8%
2007 632,919 11.9%
2008 500,802 9.4%
2009 648,392 12.2%
2010 711,934 13.4%
2011 221,558 4.3%
Thereafter 2,333,812 44.0%(2)
-------------------------------
5,301,847 100.0%
===============================
(1) Percentages are determined based upon square footage of expiring
commercial leases.
(2) Includes current vacancies.
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Franklin Street Properties Earnings Release
Supplementary Schedule F
Definition of Adjusted Funds From Operations ("AFFO")
The Company evaluates the performance of its reportable segments based on
several measures including Adjusted Funds From Operations ("AFFO") as management
believes that AFFO represents an important measure of the reportable segment's
activity and is an important consideration in determining distributions paid to
equity holders. The Company defines AFFO as: net income as computed in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"); excluding gains or losses on the sale of real estate and
non-cash income from Sponsored REITs; plus certain non-cash items included in
the computation of net income (depreciation and amortization and straight-line
rent adjustments); plus distributions received from Sponsored REITs; plus the
net proceeds from the sale of land; less recurring purchases of property and
equipment incurred to maintain the assets' value or for tenant improvements
("Capital Expenditures") and payments for deferred leasing commissions, plus
proceeds from (payments to) cash reserves. Depreciation and amortization, gain
or loss on the sale of real estate and straight-line rents are an adjustment to
AFFO, as these are non-cash items included in net income. Capital Expenditures,
payments of deferred leasing commissions and the proceeds from (payments to) the
funded reserve are an adjustment to AFFO, as they represent cash items not
reflected in net income.
The cash reserve represents funds that the Company has set aside from time to
time in anticipation of future capital needs. These reserves are typically used
for the payment of Capital Expenditures, deferred leasing commissions and
certain tenant allowances; however, there are no legal restrictions on their use
and they may be used for any Company purpose. 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, as an alternative to cash
flows from operating activities (determined in accordance with GAAP), or as a
measure of the Company's liquidity, or is it necessarily indicative of
sufficient cash flow to fund all of the Company's needs. Other real estate
companies may define AFFO in a different manner. It is at the Company's
discretion to retain a portion of AFFO for operational needs. 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.