Franklin Street Properties Corp. 2013 Annual Report
Fellow Stockholders
I am pleased to report that our Company’s operating profit performance rose in 2013. Profits as measured by funds from operations, or FFO1, increased by approximately $20.5 million or 25% from 2012, and on a per share basis, our FFO grew 10.3% from $0.97 per share in 2012 to $1.07 per share in 2013, which includes the effect of our May common stock offering. Our total growth in FFO per fully- diluted share for the three year period of 2011, 2012 and 2013 totaled approximately 27.4% and is one of the highest aggregate three year growth rates in the office REIT sector, reflecting the overall growth of our portfolio, as well as strong operating improvements we have been able to achieve. Coupled with our consistent dividend of $0.76 per share, we continue to believe that this combination of growth and income is meaningful and attractive to investors.
Within the larger economy, 2013 brought a rising stock market as the Dow Jones Industrial Average achieved a new inflation-adjusted 14-year high. Unemployment has trended lower and GDP continued its moderate, but positive pace of growth. Finally, the start of the Fed’s tapering program in December has been seen as a harbinger of real improvement in the economy, which bodes well for businesses that benefit from an improving cycle, such as the office property sector. We expect to continue to benefit from improved fundamentals and employment and believe we are in the early innings of a cyclically-slower but prolonged broad-based upswing in the economy.
To that end, we are pleased with our portfolio’s continued strong performance and the timing, pace and quality of our additional property acquisitions. In 2013, we executed 912,000 square feet of new and renewal leases, and ended the year with a portfolio that was 94.1% leased. In addition, we acquired approximately $558 million of central business district and infill, transit-oriented real estate in Denver, Colorado and Atlanta, Georgia. We further streamlined our portfolio by disposing of a two-story office property in Richardson, Texas. In addition, a single-asset REIT affiliate sold its property in Plymouth, Minnesota to a third party, resulting in the repayment of our $2.35 million loan.
On the capital front, we completed a secondary equity offering in May and raised $230.7 million. In August we closed on a seven-year, $220 million term loan to lock in attractive longer-term interest rates. As of year-end 2013, our current debt to total market capitalization was 43.6% and our balance sheet remains extremely flexible, with no property secured debt.
Looking ahead, we believe FSP is well positioned to continue to deliver meaningful growth in 2014 for the following reasons:
First, our portfolio of office properties is concentrated in large in-fill, centrally-located areas within Atlanta, Dallas, Denver, Houston, and Minneapolis; markets that have specific, strong macro-economic growth drivers that have the potential to propel occupancies and rents faster than the broader U.S. economy.
Second, we will benefit from a full year of income from our 2013 acquisitions. 2013 was a strong year of acquisitions for FSP, and we believe that our active leasing efforts at 1001 17th Street in Denver represent a significant opportunity for us to create additional value. As always, we continuously watch the broader real estate markets for attractive property acquisitions, and we will continue to pursue acquisitions of large, centrally-located assets within our core markets.
In closing, the team at FSP remains focused on creating value for all our shareholders. We are well positioned to outperform in the current market and beyond with our newly expanded, well-located portfolio of office properties and strong balance sheet.
Thank you for your continued trust, confidence and support.
George J. Carter
Chairman & Chief Executive Officer
1FFO is a non-GAAP financial measure currently used in the real estate industry that we believe provides useful information to investors. Please refer to page A-1 of this Annual Report for a definition of FFO and a reconciliation of net income to FFO.