SOURCE: Franklin Street Properties Corp.

February 21, 2006 16:15 ET

Franklin Street Properties Corp. Announces 2005 Year End Results

WAKEFIELD, MA -- (MARKET WIRE) -- February 21, 2006 -- Franklin Street Properties Corp. ("Franklin Street Properties", the "Company" or "FSP") (AMEX: FSP) announced today net income and Earnings Per Share (EPS) for the year ended December 31, 2005, which were the highest in FSP history. The Company also announced Adjusted Funds From Operations (AFFO) for 2005, and an update to its share repurchase program.

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.

--  EPS for the three months ended December 31, 2005 increased $0.19 per
    share to $0.47 per share compared to the three months ended December 31,
    2004.  Net income was $28.4 million or $0.47 per share (based on 60.3
    million shares), compared to $13.9 million or $0.28 per share (based on
    49.6 million shares) in 2004.
--  AFFO for the three months ended December 31, 2005 decreased $0.07 per
    share to $0.28 per share compared to the three months ended December 31,
    2004.  AFFO was $16.9 million or $0.28 per share (based on 60.3 million
    shares), compared to $17.2 million or $0.35 per share (based on 49.6
    million shares) in 2004.
--  EPS for the year ended December 31, 2005 increased $0.36 per share to
    $1.32 per share compared to the year ended December 31, 2004.  Net income
    was $75.1 million or $1.32 per share (based on 56.8 million shares),
    compared to $47.8 million or $0.96 per share (based on 49.6 million shares)
    in 2004.
--  AFFO for the year ended December 31, 2005 increased $4.8 million to
    $65.0 million or $1.14 per share (based on 56.8 million shares), compared
    to $60.2 million or $1.21 per share (based on 49.6 million shares) for the
    same period in 2004.
The following factors affected net income, EPS and AFFO for the three months and year ended December 31, 2005:
--  Increased net operating income from four properties acquired by merger
    effective April 30, 2005, and acquisitions of two properties in Colorado
    and Indiana.  The purchase price of the properties acquired was financed
    with proceeds from asset sales of properties in our portfolio.
--  Gains on sales of assets for the quarter and year ended December 31,
    2005 of $17.2 million and $30.5 million, respectively.  During the fourth
    quarter, we realized gains on the sale of two residential properties in
    Texas and a commercial property located in California.  During the first
    three quarters of 2005, we sold by transfer of our interest in our wholly
    owned subsidiary that held the property, an office property in Maryland and
    we sold a residential property in Louisiana, which were sold at an
    aggregate gain of approximately $14.0 million; a gain on contribution of
    land of $339,000; and a loss on the sale of a property in California of
    $1.1 million.  Net gains on sale of assets were $0.28 and $0.54 per share
    for the fourth quarter and full year, respectively.
--  These increases were partially offset by lower investment banking
    results for the fourth quarter and the year compared to 2004.  Gross
    proceeds on the sale of securities, which our investment banking revenues
    are based upon, for the fourth quarter of 2005 were $33.5 million compared
    to $73.3 million during the same period in 2004; and for the year were
    $138.8 million in 2005 compared to $208.2 million in 2004.
A reconciliation of net income to AFFO is shown below and a definition of AFFO is on Supplemental Schedule F. AFFO was previously labeled Cash Available for Distribution (CAD), but the calculation has not changed. In our opinion, the term AFFO better describes this measure. In addition, we believe that AFFO is used more broadly throughout the REIT industry and is generally calculated in a similar manner to our calculation.

                                   Three Months Ended     Year Ended
                                      December 31,        December 31,
                                   ------------------  ------------------
(In thousands except per             2005      2004      2005      2004
 share amounts)                    --------  --------  --------  --------

Net income                         $ 28,424  $ 13,924  $ 75,116  $ 47,763
  Gain on sales of assets, net      (17,232)        –   (30,493)        –
  GAAP income from non-consolidated
   REITs                               (121)     (586)   (1,418)   (1,472)
  Distributions from non-
   consolidated REITs                   130       731     1,217     1,582
  Depreciation of real estate &
   intangible amortization            6,258     3,083    22,240    13,242
  Straight-line rent                   (525)       33    (1,692)     (860)
  Capital expenditures                 (472)     (649)   (2,760)   (1,641)
  Payments of deferred leasing
   costs                             (1,050)      (34)   (1,560)     (582)
  Proceeds from funded reserves       1,522       682     4,320     2,123
                                   --------  --------  --------  --------
Adjusted Funds From Operations
 (AFFO)                            $ 16,934  $ 17,184  $ 64,970  $ 60,155
                                   ========  ========  ========  ========

Per Share Data
EPS                                $   0.47  $   0.28  $   1.32  $   0.96
AFFO                               $   0.28  $   0.35  $   1.14  $   1.21

Weighted average shares (basic
 and diluted)                        60,259    49,630    56,847    49,628
                                   ========  ========  ========  ========
Stock Repurchase update:

On October 28, 2005, the Board of Directors of the Company authorized the repurchase of up to $35 million of the Company's common stock from time to time on the open market or in privately negotiated transactions. During November and December 2005, we repurchased 731,000 shares of common stock at an aggregate price of $13,992,000, or for an average price of $19.14 per share.

Dividend announcement:

On January 18, 2006 the Board of Directors of the Company declared a cash distribution of $0.31 per share of common stock payable on February 21, 2006 to stockholders of record on January 31, 2006.

Real Estate and Investment Banking Update

During 2005 we acquired four properties by merger and two by acquisition. We have sold, or are under agreement to sell, a total of seven properties. As of December 31, 2005, six of the seven property sales were completed, and the remaining sale was classified in our balance sheet as an asset held-for-sale. Supplemental schedule D presents our continuing real estate portfolio of 27 properties as of December 31, 2005.

During the quarter ended December 31, 2005, we completed an investment banking transaction, which was for an office property in Houston, Texas. Another investment banking transaction is planned for the first quarter of 2006.

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

"Net Income/EPS and AFFO levels for the fourth quarter and full year 2005 were expected and, consequently, planned for within the FSP business/investment model. Earnings of $1.32 per share were the highest in FSP history. However, AFFO per share was lower than last year primarily due to a decrease in the Company's Investment Banking business. Cash flow for the year was good, and the balance sheet reflects an increase in shareholder equity while remaining free of any permanent debt. Unrestricted cash increased to over $69 million, and FSP ended 2005 with its full $150 million line of credit available. Annual dividends paid to shareholders remained unchanged for the year at $1.24 per share. A significant event for FSP during the fourth quarter was our addition on November 30, 2005 to the MSCI US REIT Index (formerly known as the Morgan Stanley REIT Index). 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 outlook for 2006.

"More specifically, results for the fourth quarter and full year 2005 reflected: (#1) solid performance in rental operations from the Company's portfolio of properties; (#2) significant gains from real estate sales and the reinvestment of those sale proceeds into newly-acquired properties and, through our stock repurchase program, FSP common stock; and (#3) the closing of real estate investment banking business totaling $33.5 million in the fourth quarter and $138.8 million for the full year.

"#1. For the fourth quarter of 2005, the Company's continuing portfolio of 27 properties was 92% leased. Most of FSP's properties are suburban office buildings, and, in most markets, we are finding improving conditions for both occupancy and rental rates. However, there are still many tenant leases which were signed at the height of the most recent office market cycle (approximately 1997-2001). Consequently, FSP and many other office property owners continue to face rent roll downs as old leases expire and new ones are signed. National vacancy levels decreased in 2005 to approximately 15% from 16.5% in 2004. Rent levels in most office markets cannot experience meaningful increases until vacancy falls into the 10%-11% range. Consequently, we believe that significant broad-based occupancy and rental increases are probably two to four years away assuming continued overall U.S. economic growth and traditional cyclical real estate dynamics. FSP is aggressively managing its lease turnover to maximize our 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. Lofty worldwide energy prices, inflation and interest rates are likely to be influencing factors.

"#2. During the fourth quarter of 2005, the Company sold three properties for significant gains. Most of the proceeds from these sales were used to pay down the Company's line of credit, which had been drawn to purchase two new acquisition properties ahead of the contemplated portfolio sales. The two new acquisition properties are now owned without any mortgage debt, as is every other property in FSP's portfolio. 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. However, property sales will be considered only if the potential exists to reinvest the sale proceeds in new assets that we believe have better near-term and long-term return potential than the assets being sold. Without any permanent mortgage debt, and with significant cash already on the balance sheet, property sales generate cash that is not currently needed for reserves or for mortgage debt pay down. 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.

"Also during the fourth quarter, the Company took advantage of its recently announced stock repurchase plan to invest a portion of the proceeds from fourth quarter property sales in the purchase of its own shares. The adoption of the stock repurchase program gives the Company the option to either invest cash in its stock or in new acquisition properties, when the relative financial opportunity is favorable.

"#3. Fourth quarter investment banking business totaled $33.5 million of "closed-in" investor capital in one transaction. For the full year 2005, FSP's investment banking business totaled $138.8 million, approximately 33% lower than 2004's total of $208.2 million. FSP's Investment Banking group has had a difficult time during the last two 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. As 2006 begins, nothing in the broad-based acquisition pricing parameters of quality investment properties has changed significantly from the last two years. Consequently, FSP's investment banking business is likely to remain challenged."

Today's news release, along with other news about Franklin Street Properties Corp., is available on the Internet at

A conference call is scheduled for February 22, 2006 at 10:00 a.m. (EST) to discuss the fourth quarter results. The toll free number is 1-800-798-2884, passcode 92525224. Internationally, the call may be accessed by dialing 1-617-614-6207, passcode 92525224. 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 A replay of the conference call will be available on the Company's website one hour after the call.

About Franklin Street Properties

Franklin Street Properties is a self-administered equity real estate investment trust focused on achieving current income and long-term growth through investments in commercial properties. FSP owns an unleveraged portfolio of real estate. The majority of FSP's property portfolio is suburban office buildings. Our real estate operations include leasing, interim acquisition financing and asset/property management, which generate rental income, loan origination fees, development fees and management fees, respectively. Our subsidiary, FSP Investments LLC (member, NASD and SIPC), is a real estate investment banking firm and a registered broker/dealer. The primary activity of the investment bank is the organization of single purpose entities that acquire, own and operate specific real estate properties. FSP Investments LLC raises all of the capital required to fully equitize those entities through private placement offerings.

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 or Quarterly Report of Form 10-Q for the three months ended September 30, 2005), 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 factors set forth in our Quarterly Report on Form 10-Q for the three months ended September 30, 2005 under the caption, "Certain Factors That May Affect Future Results". 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
                            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

               Franklin Street Properties Financial Results
                       Supplementary Schedule A
                           Income Statement

                                             For the           For the
                                       Three Months Ended    Year Ended
                                           December 31,      December 31,
                                        ----------------  ----------------
(in thousands, except per share amounts)  2005     2004     2005     2004
                                        -------  -------  -------  -------
   Rental                               $21,946  $15,770  $75,896  $59,180
Related party revenue:
   Syndication fees                       2,291    4,976    9,268   13,579
   Transaction fees                       2,524    4,884    9,412   14,093
   Management fees and interest income
    from loans                              204      141    1,807      581
Other                                         -        -       10        3
                                        -------  -------  -------  -------
      Total revenue                      26,965   25,771   96,393   87,436
                                        -------  -------  -------  -------

   Real estate operating expenses         5,532    3,654   17,350   12,094
   Real estate taxes and insurance        2,888    2,134   10,105    7,626
   Depreciation and amortization          4,877    2,797   15,927   10,967
   Selling, general and administrative    1,851      767    7,452    5,687
   Commissions                            1,357    2,574    5,005    6,959
   Interest                                 173    1,010    2,997    1,527
                                        -------  -------  -------  -------

      Total expenses                     16,678   12,936   58,836   44,860
                                        -------  -------  -------  -------

Income before interest income, equity
 in earnings of non-consolidated REITs
 and taxes on income                     10,287   12,835   37,557   42,576
Interest income                             541      365    1,588      863
Equity in earnings of non-consolidated
 REITs                                      102      156    1,397      620
                                        -------  -------  -------  -------

Income before taxes on income            10,930   13,356   40,542   44,059
Income tax expense                          125      965      422    1,725
                                        -------  -------  -------  -------

Income from continuing operations        10,805   12,391   40,120   42,334
Income from discontinued operations         387    1,533    4,503    5,429
Gain on sale of assets, net              17,233        -   30,493        -
                                        -------  -------  -------  -------

Net income                              $28,425  $13,924  $75,116  $47,763
                                        =======  =======  =======  =======

Weighted average number of shares
 outstanding, basic and diluted          60,259   49,630   56,847   49,628
                                        =======  =======  =======  =======

Net income from continuing operations   $  0.18  $  0.25  $  0.70  $  0.85
Income from discontinued operations        0.01     0.03     0.08     0.11
Gain on sale of assets, net                0.28        -     0.54        -
                                        -------  -------  -------  -------
Net income per share, basic and diluted $  0.47  $  0.28  $  1.32  $  0.96
                                        =======  =======  =======  =======

                      Franklin Street Properties Financial Results
                              Supplementary Schedule B
                              Condensed Balance Sheet

(in thousands, except shares
  and par value amounts)                        December 31, December 31,
                                                    2005        2004
                                                 ----------  ----------

Real estate investments, net                     $  552,597  $  351,173

Acquired real estate leases, net                     30,952       6,464
Investment in non-consolidated REITs                  5,006       4,270
Assets held for syndication                               -      59,246
Assets held for sale                                  6,631      89,783
Cash and cash equivalents                            69,715      52,752
Restricted cash                                         461       1,033
Straight-line rent receivable                         5,765       4,122
Deferred leasing commissions, net                     2,284       1,127
Current and other assets                              3,762       3,141
                                                 ----------  ----------
     Total assets                                $  677,173  $  573,111
                                                 ==========  ==========
Liabilities and Stockholders’ Equity:
Bank note payable                                $        -  $   59,439
Accounts payable, accrued expenses,
 tenant deposits & other liabilities                 15,590      10,584
                                                 ----------  ----------
     Total liabilities                               15,590      70,023
                                                 ----------  ----------
Stockholders’ Equity:
  Common Stock, $.0001 par value,
   180,000,000 shares authorized,
   60,525,608 and 49,630,338 issued
   and outstanding                                        6           5
  Additional paid-in capital                        677,397     512,813
  Treasury stock, 731,898 and
   575 shares, respectively                         (14,008)        (10)
  Distributions in excess of earnings                (1,812)     (9,720)
                                                 ----------  ----------
  Total Stockholders’ Equity                        661,583     503,088
                                                 ----------  ----------
Total Liabilities and Stockholders' Equity       $  677,173  $  573,111
                                                 ==========  ==========

               Franklin Street Properties Financial Results
                         Supplementary Schedule C
                    Condensed Statement of Cash Flows

                                                       For the year ended
                                                           December 31,
                                                       2005         2004
                                                       ----         ----
Cash flows from operating activities:
Net income                                           $ 75,116     $ 47,763
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization expense               17,937       13,006
   Amortization of above market lease                   4,310          235
   Gain on sale of real estate assets                 (30,493)           –
   Equity in earnings of non-consolidated REITs        (1,418)      (1,472)
   Distributions from non-consolidated REITs            1,217        1,582
   Increase to bad debt reserve                             –          195
   Shares issued as compensation                           31          161
Changes in operating assets and liabilities:
   Restricted cash                                        572          (51)
   Tenant rent receivables, net                          (678)         (83)
   Straight-line rents, net                            (1,692)        (860)
   Prepaid expenses and other assets, net                 586       (1,192)
   Accounts payable, accrued expenses & other items      (200)       3,816
   Accrued compensation                                 1,186         (840)
   Tenant security deposits                               260           51
Payment of deferred leasing commissions                (1,560)        (582)
                                                     --------     --------
Net cash provided by operating activities              65,174       61,729
                                                     --------     --------

Cash flows from investing activities:
   Cash from issuance of common stock in the merger
    transaction                                        10,621            –
   Purchase of real estate assets                     (75,988)      (1,641)
   Acquired real estate leases                        (12,513)           –
   Investment in non-consolidated REITs                   (18)      (4,270)
   Merger costs paid                                     (402)           –
   Changes in deposits on real estate assets             (710)           –
   Investment in assets held for syndication           59,532      (55,490)
   Proceeds received on sales of real estate assets   112,030            –
                                                     --------     --------
Net cash provided by (used for) investing activities   92,552      (61,401)
                                                     --------     --------

Cash flows from financing activities:
   Distributions to stockholders                      (67,208)     (61,536)
   Purchase of treasury shares                        (14,008)        (155)
   Borrowings under bank note payable                       –       59,439
   Repayments of bank note payable                    (59,439)      (4,117)
   Deferred financing costs                              (108)           –
                                                     --------     --------
Net cash used for financing activities               (140,763)      (6,369)
                                                     --------     --------

Net increase (decrease) in cash and cash
 equivalents                                           16,963       (6,041)
Cash and cash equivalents, beginning of year           52,752       58,793
                                                     --------     --------
Cash and cash equivalents, end of year               $ 69,715     $ 52,752
                                                     ========     ========

              Franklin Street Properties Earnings Release
                      Supplementary Schedule D
                   Real Estate Portfolio Summary
                        December 31, 2005

                                           31-Dec-2005     31-Dec-2004
                                           -----------     -----------

Commercial real estate
    Number of properties                            26              24
    Square feet                              3,978,264       3,051,748
    Leased percentage                               92%             89%

Residential real estate
    Number of properties                             1               4
    Number of apartments                           228             837
    Square feet                                231,363         761,311
    Leased percentage                               97%             94%

Combined portfolio
    Number of properties                            27              28
    Square feet                              4,209,627       3,813,059
    Leased percentage                               92%             90%

Property by state:
(In Thousands)
                                   As of December 31, 2005
                    # of        Net      % of       Square      % of
State             Properties Investment Portfolio    Feet     Portfolio
                   --------   --------   --------   --------   --------

Texas                     5   $144,945       26.2%     1,048       24.9%
Virginia                  3     84,553       15.3%       503       12.0%
Missouri                  2     58,279       10.5%       349        8.3%
California                3     41,245        7.5%       324        7.7%
Colorado                  2     45,571        8.2%       310        7.4%
Indiana                   1     39,480        7.1%       205        4.9%
Illinois                  1     27,475        5.0%       177        4.2%
Massachusetts             3     25,928        4.7%       385        9.1%
Georgia                   1     23,740        4.3%       161        3.8%
North Carolina            2     15,392        2.8%       172        4.1%
Michigan                  1     15,104        2.7%       215        5.1%
Washington                1     14,855        2.7%       117        2.8%
South Carolina            1     10,677        1.9%       144        3.4%
Maryland                  1      5,350        1.0%        99        2.3%
                   --------   --------   --------   --------   --------
Total                    27   $552,597      100.0%     4,210      100.0%
                   ========   ========   ========   ========   ========

                 Franklin Street Properties Earnings Release
                          Supplementary Schedule E
                             December 31, 2005

Property by type:
(In Thousands)

             As of December 31, 2005
                # of        Net        % of        Square     % of
Type         Properties  Investment  Portfolio      Feet    Portfolio
             ----------  ----------  ---------     ------   ---------
Office           24         522,159       94.5%     3,692        87.7%
Industrial        2          14,375        2.6%       287         6.8%
Apartments        1          16,063        2.9%       231         5.5%
             ----------  ----------  ---------     ------   ---------
Total            27      $  552,597      100.0%     4,210       100.0%
             ==========  ==========  =========     ======   =========

                 Commercial portfolio lease expirations (1)

                                      Total          % of
                   Year            Square Feet     Portfolio
                   ----           -------------    ---------
                   2006                 687,234         17.3%
                   2007                 472,607         11.9%
                   2008                 151,324          3.8%
                   2009                 854,204         21.5%
                   2010                 757,286         19.0%
                   2011                 138,058          3.5%
               Thereafter (2)           917,551         23.0%
                                  -------------    ---------
                                      3,978,264          100%
                                  =============    =========

          (1) Percentages are determined based upon square footage of
              expiring commercial leases.
              Expirations exclude apartments, which generally are one
              year or less.
          (2) Includes current vacancies

               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 purchases of property and equipment ("Capital Expenditures") and payments for deferred leasing commissions, plus proceeds from (payments to) cash reserves established at the acquisition date of the property. 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 funded reserve represents funds that the Company has set aside 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, 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 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.

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