F r a n k l i n S t r e e t P r o p e r t i e s
2 0 1 5 A n n u a l R e p o r t
401 Edgewater Place
Wakefield, MA 01880
P 800.950.6288 F 781.246.2807
www.franklinstreetproperties.com
Corporate Headquarters
Franklin Street Properties Corp.
401 Edgewater Place, Suite 200
Wakefield, MA 01880
Telephone: 800.950.6288
www.franklinstreetproperties.com
Stock Listing
Franklin Street Properties Corp.’s
Common Stock trades on the
NYSE MKT under the symbol “FSP”
Transfer Agent
American Stock Transfer
and Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
Telephone: 800.937.5449
www.amstock.com
Outside Counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Telephone: 617.526.6000
Independent Registered
Public Accounting Firm
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Telephone: 617.266.2000
Investor Relations Contact
Georgia Touma, Director of Investor Relations
Franklin Street Properties Corp.
401 Edgewater Place, Suite 200
Wakefield, MA 01880
Telephone: 877.686.9496
investorrelations@franklinstreetproperties.com
Executive Officers
Jeffrey B. Carter
Chief Investment Officer
Scott H. Carter
General Counsel and Secretary
John G. Demeritt
Chief Financial Officer and Treasurer
Annual Meeting
Information
Thursday, May 12, 2016
11:00 a.m. local time
Four Points by Sheraton Wakefield
Boston Hotel & Conference Center
1 Audubon Road
Wakefield, MA 01880
Board of Directors
as of January 1, 2016
George J. Carter*
Chairman and Chief Executive Officer
Janet P. Notopoulos*
President, FSP Property Management LLC
John N. Burke, CPA
Chair of the Audit Committee
Member of the Compensation and Nominating
and Corporate Governance Committees
Brian N. Hansen
Chair of the Nominating and
Corporate Governance Committee
Member of the Audit and
Compensation Committees
Kenneth A. Hoxsie
Member of the Audit and
Nominating and Corporate
Governance Committees
Dennis J. McGillicuddy
Member of the Audit Committee
Georgia Murray
Lead Independent Director
Chair of the Compensation Committee
Member of the Nominating and
Corporate Governance Committee
Kathryn P. O’Neil
Member of the Compensation and Nominating and
Corporate Governance Committees
*Each is also an Executive Officer
of the Company
9 9 9 P e a c h t r e e S t r e e t | A t l a n t a , G e o r g i a
F r a n k l i n S t r e e t P r o p e r t i e s C o r p .
Franklin Street Properties Corp. (the “Company”, “FSP”, “we” or “our”) (NYSE MKT: FSP) is a real estate investment trust
that owns and operates a portfolio of high-quality office buildings in select major markets in the U.S. We are focused
on long-term value creation, as well as achieving current income, by making property investments in select urban
infill and central business district (CBD) locations where we possess long-term first-hand knowledge and experience.
Additionally, we seek to invest in markets that exhibit what FSP believes are long-term sustainable, domestic and global
macroeconomic drivers that have the potential to result in above-average employment growth within those markets.
Cities attracting attention from FSP must also demonstrate a track record of committed investment into infill and CBD
infrastructure, and a diversified local economy. Primary emphasis has been placed on our top five core markets of
Atlanta, Dallas, Denver, Houston and Minneapolis. As of December 31, 2015, FSP owned 36 office properties in 13 states,
consisting of approximately 9.5 million rentable square feet. Approximately 71% of FSP’s owned portfolio (in square
feet) is within these top five core markets. FSP’s portfolio was approximately 91.6% leased as of December 31, 2015.
The principal revenue sources from our real estate operations include rental income from tenants who lease our office
space, interest income from secured first mortgage loans made on some of our sponsored office properties, proceeds
from property dispositions and fee income from asset/property management and development services. In order to
create value for our shareholders, the Company seeks to grow revenue through higher occupancies and rental rate levels
in its directly-owned portfolio, acquire additional high-quality assets below replacement cost with attractive future
leasing opportunities and engage in select new development of properties. The Company also continuously reviews
and evaluates its real estate property portfolio for potentially advantageous dispositions that may realize investment
returns through gains on sale.
Based
in Wakefield, Massachusetts, FSP
is a Maryland corporation. The Company was originally founded
in 1997 and has been publicly-traded since mid-2005. To learn more about FSP please visit our website at:
www.franklinstreetproperties.com
This Annual Report contains “forward-looking statements” within the meaning of federal securities laws. For more information, please refer to the
discussion in the first paragraph of Part II, Item 7 in the attached Annual Report on Form 10-K for the year ended December 31, 2015.
C o v e r P r o p e r t i e s :
1 9 9 9 B r o a d w a y | D e n v e r, C o l o r a d o
O n e a n d Tw o R a v i n i a D r i v e | A t l a n t a , G e o r g i a
1
F e l l o w S t o c k h o l d e r s
Our Company experienced its fi rst year in the last fi ve, of lower profi ts as measured by funds from
operations or FFO1. For the full year 2015, our FFO totaled approximately $106.9 million or $1.07 per
share. The results refl ect a 5% decrease in FFO from the 2014 level of approximately $112.5 million
or $1.12 per share. Over the previous four years, FSP averaged better than 8% FFO growth per year.
Additionally, during 2015 we recorded $23.7 million in gains on the sale of four of our non-core
suburban offi ce properties. Dividend distributions paid/declared for full year 2015 totaled $0.76 per
share, unchanged from 2014. These results were anticipated primarily as a result of our initiative to
transition FSP’s property portfolio from smaller, suburban offi ce assets located in many diverse markets
across the U.S. to larger urban-infi ll/CBD offi ce assets located primarily in our fi ve core markets of
Atlanta, Dallas, Denver, Houston and Minneapolis. Our actual 2015 FFO of $1.07 per share was within
our initial full year 2015 FFO guidance range of $1.03 to $1.08 per share.
During 2015, the broader U.S. economy continued to generate slow but positive GDP growth and
higher overall employment levels. National offi ce property statistics also continued to show modest
improvement in both rental rate and occupancy metrics. Our directly-owned portfolio of 36 offi ce
properties totaling approximately 9.5 million square feet, fi nished 2015 at a 91.6% overall leased rate.
We believe the most likely outlook for the U.S. economy in 2016 is one of continued slow growth, and
even though the Federal Reserve has begun the process of normalizing interest rates, we think that
process will take signifi cant time and still provide a historically low interest rate environment over
the next few years. The broader U.S. economy in 2016 could be meaningfully impacted by economic
1FFO is a non-GAAP fi nancial 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 defi nition of FFO and a reconciliation of net income to FFO.
2
1 2 0 E a s t B a l t i m o r e S t r e e t | B a l t i m o r e , M a r y l a n d
activity in other large countries, relative global currency values, important geopolitical events as well
as the capital markets’ perception of our own presidential election activity and the resulting potential
future economic consequences.
As we begin 2016, our property portfolio is operating smoothly, with existing and known
upcoming vacancy activity being marketed to numerous potential tenants. We expect ongoing
property disposition/acquisition activity during 2016 as we continue to execute our repositioning
plan of FSP’s offi ce portfolio. Once complete, we believe our newly acquired urban/CBD offi ce assets,
primarily located in our fi ve core markets, will have the potential to provide strong FFO growth over
extended periods of time. We believe that taking a modest step back in our near term profi t growth
metrics as a natural market consequence of executing this property portfolio transformation, could
provide higher profi t and asset value growth over a much longer future than remaining with our
former/current suburban offi ce portfolio. We look forward with anticipation to renewing our FFO
profi t growth from our newly transformed offi ce property portfolio.
Thank you for your continued trust, confi dence and support.
George J. Carter
Chairman & Chief Executive Offi cer
We s t c h a s e | H o u s t o n , Te x a s
3
A t l a n t a
D a l l a s
D e n v e r
H o u s t o n
4
M i n n e a p o l i s
P o r t f o l i o Tr a n s f o r m a t i o n U n d e r w a y
At FSP, we believe that the 2008 fi nancial crisis, subsequent recession and changing U.S. population
demographics have had a generational eff ect on the U.S. economy that includes among other things,
a longer-lasting but slower growth upcycle than is typical. This, combined with a lack of signifi cant U.S.
Government policy-driven fi scal initiatives, and a distinct slowing of growth in the economies of many
of our country’s largest trading partners, makes cyclical investing in suburban commodity offi ce assets
less attractive than longer-term ownership of urban infi ll and CBD properties.
This view of the U.S. and global economy has infl uenced us to initiate a strategic shift in the future
composition of our property portfolio. We believe that positioning capital in Class “A” offi ce properties
located in dense amenity-rich infi ll and/or CBD environments possessing strong long-term employment
growth drivers could better position our shareholders to participate in an extended appreciation cycle.
In 2015, FSP emphasized as a key strategic focus, investment into such urban infi ll offi ce properties
within the strongest urban districts of our top fi ve core markets of Atlanta, Dallas, Denver, Houston and
Minneapolis. We believe these markets off er long-term macro-economic drivers that have the potential
to grow employment over and above broader U.S. averages. At the same time, we are selectively selling
our commodity suburban properties, both in our fi ve core markets and in our non-core markets, when
we believe value maximization can be achieved.
Consistent with this outlook, during 2015 FSP announced the disposition of Willow Bend Offi ce Center
in Plano, Texas; Eden Bluff Corporate Center in Eden Prairie, Minnesota; Park Seneca in Charlotte, North
Carolina; and Montague Business Center in San Jose, California. All of these assets were commodity
suburban properties that were sold at signifi cant gains, and facilitated our reinvestment of those
proceeds into our newest acquisition of Two Ravinia, a 442,000 square foot, multi-tenant offi ce tower
located in the Central Perimeter of Atlanta, Georgia.
As we look ahead, we are anticipating further dispositions of non-core/commodity properties and
subsequent re-investment into urban/infi ll assets within our core markets. This process of recycling
will likely span 2016 and into 2017. We are confi dent that this process will generate greater long-term
property values and dividend returns for our shareholders.
1 9 9 9 B r o a d w a y | D e n v e r, C o l o r a d o
5
6
O n e a n d Tw o R a v i n i a D r i v e | A t l a n t a , G e o r g i a
A t l a n t a | D a l l a s | D e n v e r | H o u s t o n | M i n n e a p o l i s
Franklin Street Properties owns and/or manages approximately
12.4 million square feet of offi ce space located in 15 diff erent states
(as of December 31, 2015).
Approximately 71% (in square feet) of FSP’s owned
portfolio is within our top fi ve core markets.
L i b e r t y P l a z a | A d d i s o n , Te x a s
7
F S P F i n a n c i a l H i g h l i g h t s
Balance Sheet Data – Year Ended December 31
(In thousands, except per share amounts)
2011 2012 2013 2014 2015
Total assets $ 1,407,348
$ 1,526,068 $ 2,044,034 $ 1,936,390 $ 1,921,368
Total liabilities
485,981
661,319
993,868
956,743 985,712
Total shareholders’ equity
921,367
864,749 1,050,166
979,647 935,656
Shares outstanding at year-end 82,937
82,937
100,187
100,187 100,187
Shareholders’ equity per share
$ 11.11
$ 10.42 $ 10.48 $ 9.78 $ 9.34
Dividends paid
for the year ended December 31 $ 62,177
$ 63,032 $ 69,588 $ 76,142 $ 76,142
8
9 9 9 P e a c h t r e e S t r e e t | A t l a n t a , G e o r g i a
Dividends Paid (per share)
as of December 31
Total Revenue (in thousands)
as of December 31
$0.76
$0.76
$0.76
$0.76
$0.76
$249,683
$243,867
$213,636
$138,041
$161,580
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Funds from Operations (FFO)* (per share)
as of December 31
Total Market Capitalization (TMC, in thousands)**
as of December 31
$0.89
$0.97
$1.07
$1.12
$1.07
$2,123,739
$2,117,299
$1,946,940
$1,637,709
$1,274,227
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
*
FFO 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.
**
The Company calculates Total Market Capitalization as the sum of the closing share price for the date of the calculation multiplied by the number of shares outstanding
on the date of the calculation, plus the sum of debt outstanding on the date of the calculation.
9
S t r i d e s i n S u s t a i n a b i l i t y
FSP has a core belief that the sustainability of our real estate portfolio is a critical component of our overall business
strategy. The reduction of our environmental footprint, especially through decreases in energy and water usage, remains
a primary focus. The Company recognizes that our asset class, commercial office properties, has a significant impact on
the environment. The reduction of that impact through sustainability efforts allows us to have a positive environmental
influence, while also increasing tenant satisfaction levels and reducing operating costs.
In the past year, FSP was awarded the 2015 Green Star designation by the Global Real Estate Sustainability Benchmark
(GRESB®). GRESB is an international organization which assesses the sustainability performance of commercial real
estate portfolios around the globe. GRESB utilizes a quadrant model to visualize score results and FSP’s score earned the
Company a position in the highest quadrant. As part of the Company’s participation in the GRESB benchmark survey, FSP
was evaluated regarding its efforts in areas such as management and policy, monitoring and environmental management
system, performance indicators, and building verification and benchmarking.
FSP continues to enhance the energy efficiency of our portfolio of properties. Key aspects of our energy management
process include the active monitoring of near real-time energy data, specialized energy software alerts, and regular team
energy performance review calls. Our properties also participate in utility demand response programs where available,
which provide regular payments in exchange for enacting an emergency energy curtailment plan in the event of a
grid emergency.
FSP utilizes the EPA’s ENERGY STAR® program to track our progress in energy efficiency. As of year-end 2015, over 65% of
our square footage, either owned or asset-managed by FSP, had earned the ENERGY STAR label, denoting that their energy
performance is among the top 25% of similar properties.
In addition to GRESB and ENERGY STAR, a supplementary third-party verified tool that FSP employs to measure and track
our overall sustainability efforts is the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED®)
rating system. Approximately half of the square footage either owned or asset-managed by FSP has been awarded LEED
certification under one of the various LEED rating systems, recognizing these buildings’ environmental performance in
areas such as energy, water and waste management and indoor environmental quality.
FSP is committed to the ongoing enhancement of our portfolio of buildings and operations in a manner that is sensitive to
our tenants and investors, as well as the environment. The achievement of the GRESB 2015 Green Star and the significant
percentage of FSP properties which have an ENERGY STAR label or a LEED certification, are examples of the results of these
efforts. In the coming year, FSP will remain focused on striving to find innovative means to attain our environmental and
financial goals.
10
Following is the Annual Report on Form 10-K
for the fiscal year ended December 31, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2015
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File No. 001-32470
FRANKLIN STREET PROPERTIES CORP.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
401 Edgewater Place, Suite 200, Wakefield, Massachusetts
(Address of principal executive offices)
04-3578653
(I.R.S. Employer
Identification No.)
01880
(Zip Code)
Registrant’s telephone number, including area code: (781) 557-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $.0001 par value per share
Name of each exchange on which registered:
NYSE MKT
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:134).
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:134) No (cid:95).
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (cid:95) No (cid:134).
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes (cid:95) No (cid:134).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:95)
Accelerated filer (cid:134)
Non-accelerated filer (cid:134) (Do not check if a smaller reporting company)
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:95).
The aggregate market value of the voting and non-voting common equity held by non-affiliates based on the closing sale price as reported on
NYSE MKT, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2015, was approximately
$1,087,162,776.
There were 100,187,405 shares of common stock of the registrant outstanding as of February 12, 2016.
Documents incorporated by reference: The registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the
Securities Exchange Act of 1934, as amended, to be used in connection with the registrant’s Annual Meeting of Stockholders to be held on May 12, 2016
(the “Proxy Statement”). The information required in response to Items 10 — 14 of Part III of this Form 10-K, other than that contained in Part I under
the caption, “Directors and Executive Officers of FSP Corp.,” is hereby incorporated by reference to the Proxy Statement.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Stock Performance Graph
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
SIGNATURES
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15
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22
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46
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PART I
Item 1. Business
History
Our company, Franklin Street Properties Corp., which we refer to as FSP Corp., the Company, we or our, is a
Maryland corporation that operates in a manner intended to qualify as a real estate investment trust, or REIT, for federal
income tax purposes. Our common stock is traded on the NYSE MKT under the symbol “FSP”. FSP Corp. is the
successor to Franklin Street Partners Limited Partnership, or the FSP Partnership, which was originally formed as a
Massachusetts general partnership in January 1997 as the successor to a Massachusetts general partnership that was
formed in 1981. On January 1, 2002, the FSP Partnership converted into FSP Corp., which we refer to as the conversion.
As a result of this conversion, the FSP Partnership ceased to exist and we succeeded to the business of the FSP
Partnership. In the conversion, each unit of both general and limited partnership interests in the FSP Partnership was
converted into one share of our common stock. As a result of the conversion, we hold, directly and indirectly, 100% of
the interest in three former subsidiaries of the FSP Partnership: FSP Investments LLC, FSP Property Management LLC,
and FSP Holdings LLC. We operate some of our business through these subsidiaries.
Our Business
We are a REIT focused on commercial real estate investments primarily in office markets and currently operate
in only one segment: real estate operations. The principal revenue sources for our real estate operations include rental
income from real estate leasing, interest income from secured loans made on office properties, property dispositions and
fee income from asset/property management and development.
Our current strategy is to invest in select urban infill and central business district properties, with primary
emphasis on our top five markets of Atlanta, Dallas, Denver, Houston and Minneapolis. We believe that our top five
markets have macro-economic drivers that have the potential to increase occupancies and rents. We will also monitor
San Diego, Silicon Valley, Greater Boston and Greater Washington, DC, as well as other markets, for opportunistic
investments. We seek value-oriented investments with an eye towards long-term growth and appreciation, as well as
current income.
Previously we also operated in an investment banking segment, which was discontinued in December 2011.
Our investment banking segment generated brokerage commissions, loan origination fees, development services and
other fees related to the organization of single-purpose entities that own real estate and the private placement of equity in
those entities. We refer to these entities, which are organized as corporations and operated in a manner intended to
qualify as REITs, as Sponsored REITs. On December 15, 2011, we announced that our broker/dealer subsidiary, FSP
Investments LLC, would no longer sponsor the syndication of shares of preferred stock in newly-formed Sponsored
REITs. On July 15, 2014, FSP Investments LLC withdrew its registration as a broker/dealer with FINRA.
From time-to-time we may acquire real estate or invest in real estate by making secured loans on real estate.
We may also pursue on a selective basis the sale of our properties to take advantage of the value creation and demand for
our properties, or for geographic or property specific reasons.
Real Estate
We own and operate a portfolio of real estate consisting of 36 office properties as of December 31, 2015. We
derive rental revenue from income paid to us by tenants of these properties. See Item 2 of this Annual Report on
Form 10-K for more information about our properties. From time-to-time we dispose of properties generating gains or
losses in an ongoing effort to improve and upgrade our portfolio. We also held preferred stock investments in two
Sponsored REITs as of December 31, 2015, from which we record our share of income or loss under the equity method
of accounting, and from which we receive dividends.
1
We provide asset management, property management, property accounting, investor and/or development
services to our portfolio and certain of our Sponsored REITs through our subsidiaries FSP Investments LLC and FSP
Property Management LLC. FSP Corp. recognizes revenue from its receipt of fee income from Sponsored REITs that
have not been consolidated or acquired by us. Neither FSP Investments LLC nor FSP Property Management LLC
receives any rental income.
From time-to-time we may make secured loans to Sponsored REITs in the form of mortgage loans or revolving
lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. We anticipate that
these loans will be repaid at their maturity or earlier from long-term financings of the underlying properties, cash flows
from the underlying properties or some other capital event. We refer to these loans as Sponsored REIT Loans. We had
six Sponsored REIT Loans secured by real estate outstanding as of December 31, 2015, from which we derive interest
income.
Investment Objectives
Our investment objectives are to create shareholder value by increasing revenue from rental, dividend, interest
and fee income and net gains from sales of properties and increase the cash available for distribution in the form of
dividends to our stockholders. We expect that we will continue to derive real estate revenue from owned properties and
Sponsored REIT Loans and fees from asset management, property management and investor services. We may also
acquire additional real properties.
We may acquire, and have acquired, real properties in any geographic area of the United States and of any
property type. We own 36 properties that are located in 13 different states. See Item 2 of this Annual Report on
Form 10-K for more information about our properties.
From time to time, as market conditions warrant, we may sell properties owned by us. We sold an office
property located in Plano, Texas on February 23, 2015 at a $1.5 million gain, an office property located in Eden Prairie,
Minnesota on March 31, 2015 at a $9.0 million gain, an office property located in Charlotte, North Carolina on May 13,
2015 at a $0.9 million gain and an office property located in San Jose, California on December 9, 2015 at a $12.3 million
gain. We also sold one office property located in Colorado Springs, Colorado on December 3, 2014 at a $0.9 million
gain and one office property located in Richardson, Texas on October 29, 2013 at a $2.2 million gain. When we sell a
property, we either distribute some or all of the sale proceeds to our stockholders as a distribution or retain some or all of
such proceeds for investment in real properties or other corporate activities.
We rely on the following principles in selecting real properties for acquisition by FSP Corp. and managing them
after acquisition:
(cid:120) we seek to buy or develop investment properties at a price which produces value for investors and avoid
overpaying for real estate merely to outbid competitors;
(cid:120) we seek to buy or develop properties in excellent locations with substantial infrastructure in place around them
and avoid investing in locations where the future construction of such infrastructure is speculative;
(cid:120) we seek to buy or develop properties that are well-constructed and designed to appeal to a broad base of users
and avoid properties where quality has been sacrificed for cost savings in construction or which appeal only to a
narrow group of users;
(cid:120) we aggressively manage, maintain and upgrade our properties and refuse to neglect or undercapitalize
management, maintenance and capital improvement programs; and
(cid:120) we believe that we have the ability to hold properties through down cycles because we generally do not have
significant leverage on the Company, which could place the properties at risk of foreclosure. As of
February 12, 2016, none of our 36 properties was subject to mortgage debt.
Competition
With respect to our real estate investments, we face competition in each of the markets where our properties are
located. In order to establish, maintain or increase the rental revenues for a property, it must be competitive on location,
2
cost and amenities with other buildings of similar use. Some of our competitors may have significantly more resources
than we do and may be able to offer more attractive rental rates or services. On the other hand, some of our competitors
may be smaller or have less fixed overhead costs, less cash or other resources that make them willing or able to accept
lower rents in order to maintain a certain occupancy level. In markets where there is not currently significant existing
property competition, our competitors may decide to enter the market and build new buildings to compete with our
existing projects or those in a development stage. Our competition is not only with other developers, but also with
property users who choose to own their building or a portion of the building in the form of an office condominium.
Competitive conditions are affected by larger market forces beyond our control, such as general economic conditions,
that may increase competition among landlords for quality tenants, and individual decisions by tenants that are beyond
our control.
Employees
We had 40 employees as of December 31, 2015 and 40 employees as of February 12, 2016.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, and, in accordance
therewith, we file reports and other information with the SEC. The reports and other information we file can be
inspected and copied at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Such reports
and other information may also be obtained from the web site that the SEC maintains at http://www.sec.gov. Further
information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
We make available, free of charge through our website http://www.franklinstreetproperties.com our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with the SEC.
Reports and other information concerning us may also be obtained electronically through a variety of databases,
including, among others, the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) program at
http://www.sec.gov, Knight-Ridder Information Inc., Federal Filing/Dow Jones and Lexis/Nexis.
We will voluntarily provide paper copies of our filings and code of ethics upon written request received at the
address on the cover of this Annual Report on Form 10-K, free of charge.
Directors and Executive Officers of FSP Corp.
The following table sets forth the names, ages and positions of all our directors and executive officers as of
February 12, 2016.
Name
George J. Carter (6)
Janet Prier Notopoulos (4)
John N. Burke (1) (2) (3) (5) (7)
Brian N. Hansen (1) (2) (3) (4) (9)
Kenneth Hoxsie (1) (3) (5)
Dennis J. McGillicuddy (1) (4)
Georgia Murray (2) (3) (6) (8) (10)
Kathryn P. O'Neil (2) (3) (5)
Jeffery B. Carter
Scott H. Carter
John G. Demeritt
Position
Age
67 President, Chief Executive Officer and Director
68 Executive Vice President and Director
54 Director
44 Director
65 Director
74 Director
65 Director
52 Director
44 Executive Vice President and Chief Investment Officer
44 Executive Vice President, General Counsel and Secretary
55 Executive Vice President, Chief Financial Officer and Treasurer
3
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee
(4) Class I Director
(5) Class II Director
(6) Class III Director
(7) Chair of the Audit Committee
(8) Chair of the Compensation Committee
(9) Chair of the Nominating and Corporate Governance Committee
(10) Lead Independent Director
George J. Carter, age 67, is President, Chief Executive Officer and has been a Director of FSP Corp. since
2002. Mr. Carter is responsible for all aspects of the business of FSP Corp. and its affiliates, with special emphasis on
the evaluation, acquisition and structuring of real estate investments. Prior to the conversion, he was President of the
general partner of the FSP Partnership (the “General Partner”) and was responsible for all aspects of the business of the
FSP Partnership and its affiliates. From 1992 through 1996 he was President of Boston Financial Securities, Inc.
(“Boston Financial”). Prior to joining Boston Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a
commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988, Mr. Carter served as Managing Director in
charge of marketing at First Winthrop Corporation, a national real estate and investment banking firm headquartered in
Boston, Massachusetts. Prior to that, he held a number of positions in the brokerage industry including those with
Merrill Lynch & Co. and Loeb Rhodes & Co. Mr. Carter is a graduate of the University of Miami (B.S.).
Janet Prier Notopoulos, age 68, is an Executive Vice President of FSP Corp. and has been a Director of FSP
Corp. and President of FSP Property Management LLC since 2002. Ms. Notopoulos has as her primary responsibility
the oversight of the management of the real estate assets of FSP Corp. and its affiliates. Prior to the conversion,
Ms. Notopoulos was a Vice President of the General Partner. Prior to joining the FSP Partnership in 1997,
Ms. Notopoulos was a real estate and marketing consultant for various clients. From 1975 to 1983, she was Vice
President of North Coast Properties, Inc., a Boston real estate investment company. Between 1969 and 1973, she was a
real estate paralegal at Goodwin, Procter & Hoar. Ms. Notopoulos is a graduate of Wellesley College (B.A.) and the
Harvard School of Business Administration (M.B.A).
John N. Burke, age 54, has been a Director of FSP Corp. since 2004 and Chair of the Audit Committee since
June 2004. Mr. Burke is a certified public accountant with over 30 years of experience in the practice of public
accounting working with both private and publicly traded companies with extensive experience serving clients in the real
estate and REIT industry. His experience includes analysis and evaluation of financial reporting, accounting systems,
internal controls and audit matters. Mr. Burke has been involved as an advisor on several public offerings, private equity
and debt financings and merger and acquisition transactions. Mr. Burke’s consulting experience includes a wide range of
accounting, tax and business planning matters. Prior to starting his own firm in 2003, Mr. Burke was an Audit Partner in
the Boston office of BDO USA, LLP. Mr. Burke is a member of the American Institute of Certified Public Accountants
and the Massachusetts Society of CPAs. Mr. Burke earned an M.S. in Taxation and studied undergraduate accounting at
Bentley University.
Brian N. Hansen, age 44, has been a Director of FSP Corp. since 2012 and Chair of the Nominating and
Corporate Governance Committee since 2013. Since 2007, Mr. Hansen has served as President and Chief Operating
Officer of Confluence Investment Management LLC, a St. Louis based Registered Investment Advisor. Prior to founding
Confluence in 2007, Mr. Hansen served as a Managing Director in A.G. Edwards’ Financial Institutions & Real Estate
Investment Banking practice. While at A.G. Edwards, Mr. Hansen advised a wide variety of Real Estate Investment
Trusts on numerous capital markets transactions, including public and private offerings of debt and equity securities as
well as the analysis of various merger & acquisition opportunities. Prior to joining A.G. Edwards, Mr. Hansen served as
a Manager in Arthur Andersen LLP’s Audit & Business Advisory practice. Mr. Hansen serves on the board of a number
of non-profit entities and the Investment Committee of the Archdiocese of St. Louis. Mr. Hansen earned his M.B.A.
from the Kellogg School of Management at Northwestern University and his Bachelor of Science in Commerce from
DePaul University. Mr. Hansen is a Certified Public Accountant.
4
Kenneth Hoxsie, age 65, has been a Director of FSP Corp. since January 1, 2016. Mr. Hoxsie was a Partner
at the international law firm of Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) until his retirement on
December 31, 2015. He joined Hale and Dorr (the predecessor of WilmerHale) in 1981, subsequently worked at Copley
Real Estate Advisors, an institutional real estate investment advisory firm, and rejoined Hale and Dorr in 1994. Mr.
Hoxsie has over 30 years’ experience in real estate capital markets transactions, fund formation, public company
counselling and mergers and acquisitions and has advised the Company since its formation in 1997. Mr. Hoxsie earned
his J.D. (Cum Laude) from Harvard Law School, his M.A. from Harvard University and his B.A. (Summa Cum Laude)
from Amherst College, where he was elected to Phi Beta Kappa.
Dennis J. McGillicuddy, age 74, has been a Director of FSP Corp. since May 2002. Mr. McGillicuddy
graduated from the University of Florida with a B.A. degree and from the University of Florida Law School with a J.D.
degree. In 1968, Mr. McGillicuddy joined Barry Silverstein in founding Coaxial Communications, a cable television
company. In 1998 and 1999, Coaxial sold its cable systems. Mr. McGillicuddy has served on the boards of various
charitable organizations. He is currently president of the Board of Trustees of Florida Studio Theater, a professional non-
profit theater organization, and he serves as a Co-Chair, together with his wife, of Embracing Our Differences, an annual
month-long art exhibit that promotes the values of diversity and inclusion. Mr. McGillicuddy also is a member of the
Advisory Board to the Center For Mindfulness In Medicine, Health Care & Society, University of Massachusetts
Medical School.
Georgia Murray, age 65, has been a Director of FSP Corp. since April 2005, Chair of the Compensation
Committee since October 2006 and Lead Independent Director since February 2014. Ms. Murray is retired from Lend
Lease Real Estate Investments, Inc., where she served as a Principal from November 1999 until May 2000. From 1973
through October 1999, Ms. Murray worked at The Boston Financial Group, Inc., serving as Senior Vice President and a
Director at times during her tenure. Boston Financial was an affiliate of the Boston Financial Group, Inc. She is a past
Trustee of the Urban Land Institute and a past President of the Multifamily Housing Institute. Ms. Murray previously
served on the Board of Directors of Capital Crossing Bank. She also serves on the boards of numerous non-profit
entities. Ms. Murray is a graduate of Newton College.
Kathryn P. O’Neil, age 52, has been a Director of FSP Corp. since January 1, 2016. Ms. O’Neil was a
Director at Bain Capital in the Investor Relations area where she focused on Private Equity and had oversight of the
Investment Advisory Community from 2011 until her retirement in 2014. From 1999 to 2007, Ms. O’Neil was a Partner
at FLAG Capital Management LLC, a manager of fund-of-funds investment vehicles in Private Equity, Venture Capital,
Real Estate and Natural Resources. Previously, Ms. O’Neil was an Investment Consultant at Cambridge Associates
where she specialized in Alternative Assets. Ms. O’Neil currently serves on a variety of non-profit boards, including the
Board of Directors and Finance Committee of Horizon’s for Homeless Children, the Advisory Council and Investment
Committee for the Trustees of Reservations, and the Board of Overseers of the Peabody Essex Museum, where she is a
member of the Finance, Audit, and Investment Committees. Ms. O’Neil is a Trustee Emeritus of Colby College and a
former member of the Board of Overseers of the Boston Museum of Science. Ms. O’Neil holds a B.A. (Summa Cum
Laude) and M.A. (Honorary) from Colby College where she was elected to Phi Beta Kappa. Ms. O’Neil received her
M.B.A. from The Harvard Graduate School of Business Administration.
Jeffrey B. Carter, age 44, is Executive Vice President and Chief Investment Officer of FSP Corp. Mr. Carter
was appointed to that position in February 2012. Previously, Mr. Carter served as Senior Vice President and Director of
Acquisitions of FSP Corp. from 2005 to 2012 and as Vice President - Acquisitions from 2003 to 2005. Mr. Carter is
primarily responsible for developing and implementing the Company’s investment strategy, including coordination of
acquisitions and dispositions. Prior to joining FSP Corp., Mr. Carter worked in Trust Administration for Northern Trust
Bank in Miami, Florida. Mr. Carter is a graduate of Arizona State University (B.A.), The George Washington University
(M.A.) and Cornell University (M.B.A.). Mr. Carter’s father, George J. Carter, serves as President, Chief Executive
Officer and a Director of FSP Corp. and Mr. Carter’s brother, Scott H. Carter, serves as Executive Vice President,
General Counsel and Secretary of FSP Corp.
Scott H. Carter, age 44, is Executive Vice President, General Counsel and Secretary of FSP Corp. Mr. Carter
has served as General Counsel since February 2008. Mr. Carter joined FSP Corp. in October 2005 as Senior Vice
President and In-house Counsel. Mr. Carter has as his primary responsibility the management of all of the legal affairs
5
of FSP Corp. and its affiliates. Prior to joining FSP Corp. in October 2005, Mr. Carter was associated with the law firm
of Nixon Peabody LLP, which he originally joined in 1999. At Nixon Peabody LLP, Mr. Carter concentrated his
practice on the areas of real estate syndication, acquisitions and finance. Mr. Carter received a Bachelor of Business
Administration (B.B.A.) degree in Finance and Marketing and a Juris Doctor (J.D.) degree from the University of
Miami. Mr. Carter is admitted to practice law in the Commonwealth of Massachusetts. Mr. Carter’s father, George J.
Carter, serves as President, Chief Executive Officer and a Director of FSP Corp. and Mr. Carter’s brother, Jeffery B.
Carter, serves as Executive Vice President and Chief Investment Officer of FSP Corp.
John G. Demeritt, age 55, is Executive Vice President, Chief Financial Officer and Treasurer of FSP Corp.
and has been Chief Financial Officer since March 2005. Mr. Demeritt previously served as Senior Vice President,
Finance and Principal Accounting Officer since September 2004. Prior to September 2004, Mr. Demeritt was a Manager
with Caturano & Company, an independent accounting firm (which later merged with McGladrey) where he focused on
Sarbanes Oxley compliance. Previously, from March 2002 to March 2004 he provided consulting services to public and
private companies where he focused on SEC filings, evaluation of business processes and acquisition integration.
During 2001 and 2002 he was Vice President of Financial Planning & Analysis at Cabot Industrial Trust, a publicly
traded real estate investment trust, which was acquired by CalWest in December 2001. From October 1995 to
December 2000 he was Controller and Officer of The Meditrust Companies, a publicly traded real estate investment trust
(formerly known as the The La Quinta Companies, which was then acquired by the Blackstone Group), where he was
involved with a number of merger and financing transactions. Prior to that, from 1986 to 1995 he had financial and
accounting responsibilities at three other public companies, and was previously associated with Laventhol & Horwath,
an independent accounting firm from 1983 to 1986. Mr. Demeritt is a Certified Public Accountant and holds a Bachelor
of Science degree from Babson College.
Each of the above executive officers has been a full-time employee of FSP Corp. for the past five fiscal years.
George J. Carter, Jeffrey B. Carter, Janet Prier Notopoulos, and John G. Demeritt is each also a director of
FSP 303 East Wacker Drive Corp., which is a public reporting company and a Sponsored REIT. Each of these directors
holds office from the time of his or her election until the next annual meeting and until a successor is elected and
qualified, or until such director’s earlier death, resignation or removal.
Item 1A
Risk Factors
The following important factors, among others, could cause actual results to differ materially from those
indicated by forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by
management from time-to-time.
Economic conditions in the United States could have a material adverse impact on our earnings and financial
condition.
Because economic conditions in the United States may affect real estate values, occupancy levels and property
income, current and future economic conditions in the United States could have a material adverse impact on our
earnings and financial condition. The economy in the United States is continuing to experience a period of slow
economic growth, with declining unemployment from recent levels and increased credit risk premiums for a number of
market participants. These conditions may continue or worsen in the future. Economic conditions may be affected by
numerous factors, including but not limited to, slow growth and/or recessionary concerns, inflation, increases in the
levels of unemployment, energy prices, changes in currency exchange rates, fiscal and tax policy uncertainty,
geopolitical events, changes in government regulations, regulatory uncertainty, the availability of credit and interest
rates. Future economic factors may negatively affect real estate values, occupancy levels and property income.
6
If a Sponsored REIT defaults on a Sponsored REIT Loan, we may be required to keep a balance outstanding on
our unsecured credit facilities or use our cash balance to repay our unsecured credit facilities, which may reduce
cash available for distribution to our stockholders or for other corporate purposes.
From time-to-time, we may draw on the BAML Credit Facility (as defined in Note 4 to the Consolidated
Financial Statements) or the BMO Term Loan (as defined in Note 4 to the Consolidated Financial Statements) to make
secured loans to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs,
capital expenditures, leasing costs and for other purposes. We refer to these loans as Sponsored REIT Loans. We
anticipate that each Sponsored REIT Loan will be repaid at maturity or earlier from long term financing of the property
securing the loan, cash flows from that underlying property or some other capital event. If a Sponsored REIT defaults on
a Sponsored REIT Loan, the Sponsored REIT could be unable to fully repay the Sponsored REIT Loan and we would
have to satisfy our obligation under the BAML Credit Facility and/or the BMO Term Loan through other means. If we
are required to use cash for this purpose, we would have less cash available for distribution to our stockholders or for
other corporate purposes.
Our operating results and financial condition could be adversely affected if we are unable to refinance the BAML
Credit Facility or the BMO Term Loan.
There can be no assurance that we will be able to refinance the revolving line of credit portion of the BAML
Credit Facility upon its maturity on October 29, 2018 (subject to extension until October 29, 2019), the term loan portion
of the BAML Credit Facility upon its maturity on September 27, 2017 or the BMO Term Loan upon its maturity on
August 26, 2020, that any such refinancings would be on terms as favorable as the terms of the BAML Credit Facility or
the BMO Term Loan, or that we will be able to otherwise obtain funds by selling assets or raising equity to make
required payments on the BAML Credit Facility or the BMO Term Loan. If we are unable to refinance the BAML
Credit Facility or the BMO Term Loan at maturity or meet our payment obligations, the amount of our distributable cash
flow and our financial condition would be adversely affected.
Failure to comply with covenants in the BAML Credit Facility and the BMO Term Loan credit agreements could
adversely affect our financial condition.
The BAML Credit Facility and the BMO Term Loan credit agreements contain customary affirmative and
negative covenants for credit facilities of this type, including limitations with respect to indebtedness, liens, investments,
mergers and acquisitions, disposition of assets, changes in business, certain restricted payments, the requirement to have
subsidiaries provide a guaranty in the event that they incur recourse indebtedness and transactions with affiliates. The
BAML Credit Facility and the BMO Term Loan credit agreements also contain financial covenants that require us to
maintain a minimum tangible net worth, a maximum leverage ratio, a maximum secured leverage ratio, a minimum fixed
charge coverage ratio, a maximum unencumbered leverage ratio, minimum unsecured interest coverage and a maximum
ratio of certain investments to total assets. Our continued ability to borrow under the BAML Credit Facility and the
BMO Term Loan is subject to compliance with our financial and other covenants. Failure to comply with such
covenants could cause a default under the BAML Credit Facility or the BMO Term Loan, and we may then be required
to repay either or both of them with capital from other sources. Under those circumstances, other sources of capital may
not be available to us, or be available only on unattractive terms.
We may use the BAML Credit Facility or the BMO Term Loan to finance the acquisition of real properties and
for other permitted investments; to finance investments associated with Sponsored REITs, to refinance or retire
indebtedness and for working capital and other general business purposes, in each case to the extent permitted under the
respective credit agreements. If we breach covenants in the BAML Credit Facility or the BMO Term Loan credit
agreements, the lenders can declare a default. A default under the BAML Credit Facility or the BMO Term Loan credit
agreements could result in difficulty financing growth in our business and could also result in a reduction in the cash
available for distribution to our stockholders or for other corporate purposes. A default under the BAML Credit Facility
or the BMO Term Loan credit agreements could materially and adversely affect our financial condition and results of
operations.
7
An increase in interest rates would increase our interest costs on variable rate debt and could adversely impact
our ability to refinance existing debt or sell assets.
As of December 31, 2015, we had approximately $290 million of indebtedness under the revolving line of
credit portion of our BAML Credit Facility that bears interest at variable rates based on our credit rating, and we may
incur more of such indebtedness in the future. Borrowings under the revolving line of credit portion of our BAML
Credit Facility may not exceed $500 million outstanding at any time, although such amount may be increased by up to an
additional $250 million through the exercise of an accordion feature. The term loan portion of our BAML Credit Facility
is for $400 million. On September 27, 2012, we fixed the base LIBOR rate on the term loan portion of our BAML
Credit Facility at 0.75% for five years by entering into an interest rate swap agreement. The BMO Term Loan is for
$220 million, although such amount may be increased by up to an additional $50 million through the exercise of an
accordion feature. On August 26, 2013, we fixed the base LIBOR rate on the BMO Term Loan at 2.32% for seven years
by entering into an interest rate swap agreement. In the future, if interest rates increase, then the interest costs on our
unhedged variable rate debt will also increase, which could adversely affect our cash flow, our ability to pay principal
and interest on our debt and our ability to make distributions to stockholders. In addition, rising interest rates could limit
our ability to incur new debt or to refinance existing debt when it matures. From time to time, we may enter into
additional interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors.
While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risks
that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement
of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-
effective cash flow hedges. In addition, an increase in interest rates could decrease the amount third parties are willing to
pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or
other conditions
Downgrades in our credit ratings could increase our borrowing costs or reduce our access to funding sources in
the credit and capital markets.
We are currently assigned a corporate credit rating from Moody’s Investors Service, Inc. (“Moody’s”)
based on its evaluation of our creditworthiness. Although our corporate credit rating from Moody’s is currently
investment grade, there can be no assurance that we will not be downgraded or that our rating will remain investment
grade. If our credit rating is downgraded or other negative action is taken, we could be required, among other things, to
pay additional interest and fees on outstanding borrowings under the BAML Credit Facility and the BMO Term Loan.
Credit rating reductions by one or more rating agencies could also adversely affect our access to funding
sources, the cost and other terms of obtaining funding as well as our overall financial condition, operating results and
cash flow.
If we are not able to collect sufficient rents from each of our owned real properties, or investments in Sponsored
REITs or collect interest on Sponsored REIT Loans we fund, we may suffer significant operating losses or a
reduction in cash available for future dividends.
A substantial portion of our revenue is generated by the rental income of our real properties and investments in
Sponsored REITs. If our properties do not provide us with a steady rental income or we do not collect interest income
from Sponsored REIT Loans we fund, our revenues will decrease, which may cause us to incur operating losses in the
future and reduce the cash available for distribution to our stockholders.
We may not be able to identify properties that meet our criteria for purchase.
Growth in our portfolio of real estate is dependent on the ability of our acquisition executives to identify
properties for sale and/or development which meet the applicable investment criteria. To the extent they fail to identify
such properties, we would be unable to increase the size of our portfolio of real estate, which could reduce the cash
otherwise available for distribution to our stockholders.
8
We are dependent on key personnel.
We depend on the efforts of George J. Carter, our President and Chief Executive Officer and a Director; John
G. Demeritt, our Chief Financial Officer, Treasurer and an Executive Vice President; Jeffery B. Carter, our Chief
Investment Officer and an Executive Vice President; Janet Prier Notopoulos, an Executive Vice President and a Director;
and Scott H. Carter, our General Counsel, Secretary and an Executive Vice President. If any of our executive officers
were to resign, our operations could be adversely affected. We do not have employment agreements with any of our
executive officers. On February 5, 2016, Ms. Notopoulos informed us that she will resign her position as our Executive
Vice President in May 2016. We believe that other executives will perform Ms. Notopoulos’ duties and that there will
be no disruption to our operations, but there can be no assurance that this will be the case.
Our level of dividends may fluctuate.
Because our real estate occupancy levels and rental rates can fluctuate, there is no predictable recurring level of
revenue from such activities. As a result of this, the amount of cash available for distribution may fluctuate, which may
result in our not being able to maintain or grow dividend levels in the future.
We face risks from tenant defaults or bankruptcies.
If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and
may incur substantial costs in protecting our investment. In addition, at any time, a tenant of one of our properties may
seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant’s lease and
thereby cause a reduction in cash available for distribution to our stockholders.
The real properties held by us may significantly decrease in value.
As of February 16, 2016, we owned 36 properties. Some or all of these properties may decline in value. To the
extent our real properties decline in value, our stockholders could lose some or all of the value of their investments. The
value of our common stock may be adversely affected if the real properties held by us decline in value since these real
properties represent the majority of the tangible assets held by us. Moreover, if we are forced to sell or lease the real
property held by us below its initial purchase price or its carrying costs, respectively, or if we are forced to lease real
property at below market rates because of the condition of the property, our results of operations would be adversely
affected and such negative results of operations may result in lower dividends being paid to holders of our common
stock.
New acquisitions may fail to perform as expected.
We may fund the acquisition of new properties with cash, by drawing on the revolving line of credit portion of
our BAML Credit Facility, by assuming existing indebtedness, by entering into new indebtedness, by issuing debt
securities, by issuing shares of our stock or by other means. During the year ended December 31, 2015, we acquired one
property located in Georgia. During the year ended December 31, 2014, we did not acquire any properties. During the
year ended December 31, 2013, we acquired one property located in Georgia and two properties located in Colorado.
Newly acquired properties may fail to perform as expected, in which case, our results of operations could be adversely
affected.
We face risks in owning, developing and operating real property.
An investment in us is subject to the risks incident to the ownership, development and operation of real estate-
related assets. These risks include the fact that real estate investments are generally illiquid, which may affect our ability
to vary our portfolio in response to changes in economic and other conditions, as well as the risks normally associated
with:
(cid:120)
(cid:120)
changes in general and local economic conditions;
the supply or demand for particular types of properties in particular markets;
9
(cid:120)
(cid:120)
(cid:120)
(cid:120)
changes in market rental rates;
the impact of environmental protection laws;
changes in tax, real estate and zoning laws; and
the impact of obligations and restrictions contained in title-related documents.
Certain significant costs, such as real estate taxes, utilities, insurance and maintenance costs, generally are not
reduced even when a property’s rental income is reduced. In addition, environmental and tax laws, interest rate levels,
the availability of financing and other factors may affect real estate values and property income. Furthermore, the supply
of commercial space fluctuates with market conditions.
We may encounter significant delays in reletting vacant space, resulting in losses of income.
When leases expire, we may incur expenses and may not be able to re-lease the space on the same terms. While
we cannot predict when existing vacant space in properties will be leased, if existing tenants with expiring leases will
renew their leases or what the terms and conditions of the lease renewals will be, we expect to renew or sign new leases
at current market rates for locations in which the buildings are located, which in some cases may be below the expiring
rates. Certain leases provide tenants the right to terminate early if they pay a fee. If we are unable to re-lease space
promptly, if the terms are significantly less favorable than anticipated or if the costs are higher, we may have to reduce
distributions to our stockholders. Typical lease terms range from five to ten years, so up to approximately 20% of our
rental revenue from commercial properties could be expected to expire each year.
We face risks of tenant-type concentration.
As of December 31, 2015, approximately 17% and 10% of our tenants as a percentage of the total rentable
square feet operated in the energy services industry and the bank and credit services industry, respectively. An economic
downturn in these or any industry in which a high concentration of our tenants operate or in which a significant number
of our tenants currently or may in the future operate, could negatively impact the financial condition of such tenants and
cause them to fail to make timely rental payments or default on lease obligations, fail to renew their leases or renew their
leases on terms less favorable to us, become bankrupt or insolvent, or otherwise become unable to satisfy their
obligations to us, which could adversely affect our financial condition and results of operations.
We face risks from geographic concentration.
The properties in our portfolio as of December 31, 2015, by aggregate square footage, are distributed
geographically as follows: South — 47.1%, West — 22.8%, Midwest — 16.1% and East — 14.0%. However, within
certain of those regions, we hold a larger concentration of our properties in Greater Denver, Colorado — 21.2%, Atlanta,
Georgia — 19.4%, Dallas, Texas — 12.9% and Houston, Texas — 12.6%. We are likely to face risks to the extent that
any of these areas in which we hold a larger concentration of our properties suffer deteriorating economic conditions.
Given the fact that the Dallas, Denver and Houston metropolitan areas have a significant presence in the energy sector, a
prolonged period of low oil or natural gas prices, or other factors negatively impacting the energy industry could have an
adverse impact on our ability to maintain the occupancy of our properties in those areas or could cause us to lease space
at rates below current in-place rents, or at rates below the rates we have leased space in those areas in the prior year. In
addition, factors negatively impacting the energy industry could reduce the market values of our properties in those areas
which could reduce our net asset value and adversely affect our financial condition and results of operations, or cause a
decline in the value of our common stock.
We compete with national, regional and local real estate operators and developers, which could adversely affect
our cash flow.
Competition exists in every market in which our properties are currently located and in every market in which
properties we may acquire in the future will be located. We compete with, among others, national, regional and
numerous local real estate operators and developers. Such competition may adversely affect the percentage of leased
space and the rental revenues of our properties, which could adversely affect our cash flow from operations and our
ability to make expected distributions to our stockholders. Some of our competitors may have more resources than we
10
do or other competitive advantages. Competition may be accelerated by any increase in availability of funds for
investment in real estate. For example, decreases in interest rates tend to increase the availability of funds and therefore
can increase competition. To the extent that our properties continue to operate profitably, this will likely stimulate new
development of competing properties. The extent to which we are affected by competition will depend in significant part
on both local market conditions and national and global economic conditions.
We are subject to possible liability relating to environmental matters, and we cannot assure you that we have
identified all possible liabilities.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property
may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property.
Such laws may impose liability without regard to whether the owner or operator knew of, or caused, the release of such
hazardous substances. The presence of hazardous substances on a property may adversely affect the owner’s ability to
sell such property or to borrow using such property as collateral, and it may cause the owner of the property to incur
substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property
could result in the owner incurring substantial liabilities as a result of a claim by a private party for personal injury or a
claim by an adjacent property owner for property damage.
In addition, we cannot assure you that:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
future laws, ordinances or regulations will not impose any material environmental liability;
proposed legislation to address climate change will not increase utility and other costs of operating our
properties which, if not offset by rising rental income and/or paid by tenants, would materially and adversely
affect our financial condition and results of operations;
the current environmental conditions of our properties will not be affected by the condition of properties in the
vicinity of such properties (such as the presence of leaking underground storage tanks) or by third parties
unrelated to us;
tenants will not violate their leases by introducing hazardous or toxic substances into our properties that could
expose us to liability under federal or state environmental laws; or
environmental conditions, such as the growth of bacteria and toxic mold in heating and ventilation systems or
on walls, will not occur at our properties and pose a threat to human health.
We are subject to compliance with the Americans With Disabilities Act and fire and safety regulations, any of
which could require us to make significant capital expenditures.
All of our properties are required to comply with the Americans With Disabilities Act (ADA), and the
regulations, rules and orders that may be issued thereunder. The ADA has separate compliance requirements for “public
accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to persons with
disabilities. Compliance with ADA requirements might require, among other things, removal of access barriers.
Noncompliance with such requirements could result in the imposition of fines by the U.S. government or an award of
damages to private litigants.
In addition, we are required to operate our properties in compliance with fire and safety regulations, building
codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become
applicable to our properties. Compliance with such requirements may require us to make substantial capital
expenditures, which expenditures would reduce cash otherwise available for distribution to our stockholders.
We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets
Control.
Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States
Department of the Treasury, or OFAC, maintains a list of persons designated as terrorists or who are otherwise blocked
or banned, which we refer to as Prohibited Persons. OFAC regulations and other laws prohibit conducting business or
engaging in transactions with Prohibited Persons (the “OFAC Requirements”). Our current leases and certain other
11
agreements require the other party to comply with the OFAC Requirements. If a tenant or other party with whom we
contract is placed on the OFAC list we may be required by the OFAC Requirements to terminate the lease or other
agreement. Any such termination could result in a loss of revenue or a damage claim by the other party that the
termination was wrongful.
Security breaches and other disruptions could compromise our information and expose us to liability, which
could cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data concerning investors in the Sponsored
REITS, tenants and vendors. Despite our security measures, our information technology and infrastructure may be
vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach
could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
Any such access, disclosure or other loss of information could result in legal claims or proceedings and liability under
laws that protect the privacy of personal information, and could damage our reputation.
Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our
properties.
We have significant investments in markets that may be the targets of actual or threatened terrorism attacks in
the future. As a result, some tenants in these markets may choose to relocate their businesses to other markets or to
lower-profile office buildings within these markets that may be perceived to be less likely targets of future terrorist
activity. This could result in an overall decrease in the demand for office space in these markets generally or in our
properties in particular, which could increase vacancies in our properties or necessitate that we lease our properties on
less favorable terms or both. In addition, future terrorist attacks in these markets could directly or indirectly damage our
properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of
the foregoing, our ability to generate revenues and the value of our properties could decline materially. See also “We
may lose capital investment or anticipated profits if an uninsured event occurs.”
We may lose capital investment or anticipated profits if an uninsured event occurs.
We carry, or our tenants carry, comprehensive liability, fire and extended coverage with respect to each of our
properties, with policy specification and insured limits customarily carried for similar properties. There are, however,
certain types of losses that may be either uninsurable or not economically insurable. Should an uninsured material loss
occur, we could lose both capital invested in the property and anticipated profits.
Our employee retention plan may prevent changes in control.
During February 2006, our Board of Directors approved a change in control plan, which included a form of
retention agreement and discretionary payment plan. Payments under the discretionary plan are capped at 1% of the
market capitalization of FSP Corp. as reduced by the amount paid under the retention plan. The costs associated with
these two components of the plan may have the effect of discouraging a third party from making an acquisition proposal
for us and may thereby inhibit a change in control under circumstances that could otherwise give the holders of our
common stock the opportunity to realize a greater premium over the then-prevailing market prices.
Further issuances of equity securities may be dilutive to current stockholders.
The interests of our existing stockholders could be diluted if we issue additional equity securities to finance
future acquisitions, repay indebtedness or to fund other general corporate purposes. Our ability to execute our business
strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit and other
forms of secured and unsecured debt, and equity financing.
12
The price of our common stock may vary.
The market prices for our common stock may fluctuate with changes in market and economic conditions,
including the market perception of REITs in general, and changes in our financial condition and results of operations.
Such fluctuations may depress the market price of our common stock independent of the financial performance of FSP
Corp. The market conditions for REIT stocks generally could affect the market price of our common stock.
We would incur adverse tax consequences if we failed to qualify as a REIT.
The provisions of the tax code governing the taxation of real estate investment trusts are very technical and
complex, and although we expect that we will be organized and will operate in a manner that will enable us to meet such
requirements, no assurance can be given that we will always succeed in doing so. In addition, as a result of our past
acquisition of certain Sponsored REITs by merger, which we refer to as target REITs, we might no longer qualify as a
real estate investment trust. We could lose our ability to so qualify for a variety of reasons relating to the nature of the
assets acquired from the target REITs, the identity of the stockholders of the target REITs who become our stockholders
or the failure of one or more of the target REITs to have previously qualified as a real estate investment trust. Moreover,
you should note that if one or more of the target REITs that we acquired in May 2008, April 2006, April 2005 or
June 2003 did not qualify as a REIT immediately prior to the consummation of its acquisition, we could be disqualified
as a REIT as a result of such acquisition.
If in any taxable year we do not qualify as a real estate investment trust, we would be taxed as a corporation and
distributions to our stockholders would not be deductible by us in computing our taxable income. In addition, if we were
to fail to qualify as a real estate investment trust, we could be disqualified from treatment as a real estate investment trust
in the year in which such failure occurred and for the next four taxable years and, consequently, we would be taxed as a
regular corporation during such years. Failure to qualify for even one taxable year could result in a significant reduction
of our cash available for distribution to our stockholders or could require us to incur indebtedness or liquidate
investments in order to generate sufficient funds to pay the resulting federal income tax liabilities.
Provisions in our organizational documents may prevent changes in control.
Our Articles of Incorporation and Bylaws contain provisions, described below, which may have the effect of
discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change of control under
circumstances that could otherwise give the holders of our common stock the opportunity to realize a premium over the
then-prevailing market prices.
Ownership Limits. In order for us to maintain our qualification as a real estate investment trust, the holders of
our common stock may be limited to owning, either directly or under applicable attribution rules of the Internal Revenue
Code, no more than 9.8% of the lesser of the value or the number of our equity shares, and no holder of common stock
may acquire or transfer shares that would result in our shares of common stock being beneficially owned by fewer than
100 persons. Such ownership limit may have the effect of preventing an acquisition of control of us without the approval
of our board of directors. Our Articles of Incorporation give our board of directors the right to refuse to give effect to the
acquisition or transfer of shares by a stockholder in violation of these provisions.
Staggered Board. Our board of directors is divided into three classes. The terms of these classes are staggered
and will expire in 2016, 2017 and 2018, respectively. Directors of each class are elected for a three-year term upon the
expiration of the respective term of each class. The staggered terms for directors may affect our stockholders’ ability to
effect a change in control even if a change in control may be in the stockholders’ best interests.
Preferred Stock. Our Articles of Incorporation authorize our board of directors to issue up to 20,000,000 shares
of preferred stock, par value $.0001 per share, and to establish the preferences and rights of any such shares issued. The
issuance of preferred stock could have the effect of delaying or preventing a change in control even if a change in control
may be in our stockholders’ best interest.
13
Increase of Authorized Stock. Our board of directors, without any vote or consent of the stockholders, may
increase the number of authorized shares of any class or series of stock or the aggregate number of authorized shares we
have authority to issue. The ability to increase the number of authorized shares and issue such shares could have the
effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best interest.
Amendment of Bylaws. Our board of directors has the sole power to amend our Bylaws. This power could have
the effect of delaying or preventing a change in control even if a change in control may be in our stockholders’ best
interests.
Stockholder Meetings. Our Bylaws require advance notice for stockholder proposals to be considered at annual
and special meetings of stockholders and for stockholder nominations for election of directors at annual and special
meetings of stockholders. The advance notice provisions require a proponent to provide us with detailed information
about the proponent and/or nominee. Our Bylaws also provide that stockholders entitled to cast more than 50% of all the
votes entitled to be cast at a meeting must join in a request by stockholders to call a special meeting of stockholders and
that a specific process for the meeting request must be followed. These provisions could have the effect of delaying or
preventing a change in control even if a change in control may be in the best interests of our stockholders.
Supermajority Votes Required. Our Articles of Incorporation require the affirmative vote of the holders of no
less than 80% of the shares of capital stock outstanding and entitled to vote in order (i) to amend the provisions of our
Articles of Incorporation relating to the classification of directors, removal of directors, limitation of liability of officers
and directors or indemnification of officers and directors or (ii) to amend our Articles of Incorporation to impose
cumulative voting in the election of directors. These provisions could have the effect of delaying or preventing a change
in control even if a change in control may be in our stockholders’ best interest.
Item 1B. Unresolved Staff Comments.
None.
14
Item 2.
Properties
Set forth below is information regarding our properties as of December 31, 2015:
Property Location
Office
678-686 Hillview Drive
Milpitas, CA 95035
600 Forest Point Circle
Charlotte, NC 28273
Date of
Purchase (1)
Approx.
Square
Feet
Percent
Leased as
of 12/31/15 of Tenants
Approx.
Number
Major Tenants (2)
3/9/99
36,288
100 %
1 Headway Technologies, Inc.
7/8/99
62,212
100 %
1 American National Red Cross
14151 Park Meadow Drive
Chantilly, VA 20151
3/15/01
138,537
100 %
5 American Systems Corporation
Omniplex World Services
Booz Allen Hamilton, Inc.
1370 & 1390 Timberlake
Manor Parkway,
Chesterfield, MO 63017
501 & 505 South 336th
Street
Federal Way, WA 98003
50 Northwest Point Rd.
Elk Grove Village, IL
60005
1350 Timberlake Manor
Parkway
Chesterfield, MO 63017
16285 Park Ten Place
Houston, TX 77084
5/24/01
234,023
95 %
5 Centene Management Company, LLC
Amdocs, Inc.
9/14/01
117,010
67 %
15 SunGard Availability Services, LP
12/5/01
176,848
100 %
1 Citicorp Credit Services, Inc.
3/4/02
116,197
96 %
3 Centene Management Company, LLC
Edgewell Personal Care Company
6/27/02
157,460
63 %
7 Bluware, Inc.
15601 Dallas Parkway
Addison, TX 75001
9/30/02
290,041
93 %
Subsea Solutions LLC
BAE Systems Land & Armaments, LP
9 Federal National Mortgage Association
Behringer Harvard Holdings, LLC
Compass Production Partners, LP
1500 & 1600 Greenville
Ave.
Richardson, TX 75080
6550 & 6560 Greenwood
Plaza
Englewood, CO 80111
3815-3925 River Crossing
Pkwy
Indianapolis, IN 46240
3/3/03
300,887
100 %
5 ARGO Data Resource Corp.
VCE Company, LLC
Id Software, LLC
2/24/05
196,236
100 %
4 DIRECTV, Inc.
Kaiser Foundation Health Plan
7/6/05
205,059
91 %
15 Somerset CPAs, P.C.
Crowe Horwath, LLP
15
Property Location
Date of
Purchase (1)
Approx.
Square
Feet
Percent
Leased as
of 12/31/15 of Tenants
Approx.
Number
Major Tenants (2)
5055 & 5057 Keller
Springs Rd.
Addison, TX 75001
5505 Blue Lagoon Drive
Miami, FL 33126
5600, 5620 & 5640 Cox
Road
Glen Allen, VA 23060
1293 Eldridge Parkway
Houston, TX 77077
380 Interlocken Crescent
Broomfield, CO 80021
3625 Cumberland
Boulevard
Atlanta, GA 30339
2/24/06
218,934
82 %
28 See Footnote 3
11/6/03
212,619
100 %
1 Burger King Corporation
7/16/03
298,456
100 %
6 SunTrust Bank
General Electric Company
ChemTreat, Inc.
1/16/04
248,399
100 %
1 CITGO Petroleum Corporation
8/15/03
240,185
97 %
10 VMWare, Inc.
MWH Americas, Inc
Cooley LLP
Sierra Financial Services, Inc.
6/27/06
387,267
85 %
24 Century Business Services, Inc.
Bennett Thrasher PC
Randstad General Partner (US)
Gas South LLC
8 Vail Holdings, Inc.
AppExtremes, LLC
390 Interlocken Crescent
12/21/06
241,516
85 %
120 East Baltimore St.
Baltimore, MD 21202
16290 Katy Freeway
Houston, TX 77094
2291 Ball Drive
St Louis, MO 63146
45925 Horseshoe Drive
Sterling, VA 20166
4807 Stonecroft Blvd.
Chantilly, VA 20151
121 South Eighth Street
Minneapolis, MN 55402
6/13/07
325,445
85 %
18 SunTrust Bank
State’s Attorney for Baltimore City
State Retirement and Pension Systems
of Maryland
9/28/05
156,746
100 %
3 Murphy Exploration and Production
Company
12/11/08
127,778
100 %
1 Monsanto Company
12/26/08
136,658
92 %
2 Giesecke & Devrient America, Inc.
6/26/09
111,469
100 %
1 Northrop Grumman Systems Corp.
6/29/10
305,990
88 %
38 TCF National Bank
16
Property Location
801 Marquette Ave. South
Minneapolis, MN 55402
4820 Emperor Boulevard
Durham, NC 27703
5100 & 5160 Tennyson
Pkwy
Plano, TX 75024
7500 Dallas Parkway
Plano, TX 75024
909 Davis Street
Evanston, IL 60201
One Ravinia Drive
Atlanta, Georgia
Two Ravinia Drive
Atlanta, Georgia
10370 & 10350 Richmond
Ave.
Houston, TX 77042
1999 Broadway
Denver, CO
999 Peachtree
Atlanta, GA
1001 17th Street
Denver, CO
Total Office
Date of
Purchase (1)
Approx.
Square
Feet
Percent
Leased as
of 12/31/15 of Tenants
Approx.
Number
Major Tenants (2)
6/29/10
169,704
97 %
1 TCF National Bank
3/4/11
259,531
100 %
1 Quintiles Transnational Corp.
3/10/11
202,600
100 %
1 Denbury Onshore LLC
3/24/11
214,110
100 %
6 ADS Alliance Data Systems, Inc.
Americorp., Inc. d/b/a Altair Global
9/30/11
195,245
100 %
6 Houghton Mifflin Harcourt
Publishing Company
Northshore University Healthsystem
7/31/12
386,603
95 %
16 T-Mobile South LLC
Internap Network Services Corporation
Cedar Technologies
4/8/15
442,130
81 %
43 Document Technologies, LLC
Workday, Inc.
RGN Atlanta XIV, LLC
11/1/12
629,025
87 %
49 Petrobras America, Inc.
5/22/13
676,379
83 %
29 United States Government
7/1/13
621,946
95 %
40 Sutherland Asbill Brennan LLP
Heery International, Inc.
8/28/13
655,420
89 %
37 WPX Energy. Inc.
Newfield Exploration
9,494,953
92 %
(1) Date of purchase or merged entity date of purchase.
(2) Major tenants that occupy 10% or more of the space in an individual property.
(3) No tenant occupies more than 10% of the space.
All of the properties listed above are owned, directly or indirectly, by us. None of our properties are subject to any
mortgage loans. We have no material undeveloped or unimproved properties, or proposed programs for material
renovation, improvement or development of any of our properties in 2016. We believe that our properties are adequately
covered by insurance as of December 31, 2015.
17
The information presented below provides the weighted average GAAP rent per square foot for the year ending
December 31, 2015 for our properties and weighted occupancy square feet and percentages. GAAP rent includes the
impact of tenant concessions and reimbursements. This table does not include information about properties held by our
investments in nonconsolidated REITs or those which we have provided Sponsored REIT Loans.
Property Name
City
State Renovated Square Feet
Sq. Ft.
2015 (a)
Year Built
or
Weighted
Net Rentable Occupied
Weighted
Occupied
Percentage as of
December 31,
Weighted
Average
Rent per Occupied
Square Feet (b)
Charlotte
Chantilly
Glen Allen
Baltimore
Forest Park
Meadow Point
Innsbrook
East Baltimore
Loudoun Tech
Dulles
Center
Stonecroft
Chantilly
Emperor Boulevard Durham
NC
VA
VA
MD
VA
VA
NC
East total
Northwest Point
909 Davis Street
River Crossing
Timberlake
Timberlake East
Lakeside Crossing
121 South 8th Street Minneapolis
801 Marquette Ave Minneapolis
Elk Grove Village IL
IL
Evanston
IN
Indianapolis
MO
Chesterfield
Chesterfield
MO
Maryland Heights MO
MN
MN
Midwest total
Blue Lagoon Drive Miami
One Overton Place Atlanta
Houston
Park Ten
Addison
Addison Circle
Richardson
Collins Crossing
Houston
Eldridge Green
FL
GA
TX
TX
TX
TX
1999
1999
1999
1989
1999
2008
2009
1999
2002
1998
1999
2000
2008
1974
1923
2002
2002
1999
1999
1999
1999
62,212
138,537
298,456
325,445
62,212
132,580
298,217
265,954
136,658
111,469
259,531
176,848
195,245
205,059
234,023
116,197
127,778
305,990
169,704
125,766
111,469
259,531
1,332,308 1,255,729
176,848
193,683
192,058
140,250
37,474
127,778
263,855
165,275
1,530,844 1,297,221
212,619
314,654
99,357
252,916
299,804
248,399
212,619
387,267
157,460
290,041
300,887
248,399
100.0 % $
95.7 %
99.9 %
81.7 %
92.0 %
100.0 %
100.0 %
94.3 %
100.0 %
99.2 %
93.7 %
59.9 %
32.3 %
100.0 %
86.2 %
97.4 %
84.7 %
100.0 %
81.3 %
63.1 %
87.2 %
99.6 %
100.0 %
13.96
27.37
18.75
23.61
17.83
37.54
36.03
25.60
24.51
36.08
20.57
21.87
22.24
24.43
22.78
3.82
22.31
22.25
24.38
30.96
25.44
24.42
31.04
18
The following table is continued from the previous page and provides the weighted average GAAP rent per square foot
for the year ending December 31, 2015 for our properties and weighted occupancy square feet and percentages. GAAP
rent includes the impact of tenant concessions and reimbursements. This table does not include information about
properties held by our investments in nonconsolidated REITs or those which we have provided Sponsored REIT Loans.
Property Name
City
State Renovated Square Feet
Sq. Ft.
2015 (a)
Year Built
or
Weighted
Net Rentable Occupied
Weighted
Occupied
Percentage as of
December 31,
Weighted
Average
Rent per Occupied
Square Feet (b)
Park Ten Phase II
Liberty Plaza
Legacy Tennyson
Center
One Legacy Circle
One Ravinia Drive
Two Ravinia Drive
Westchase I & II
999 Peachtree
South Total
380 Interlocken
1999 Broadway
1001 17th Street
Greenwood Plaza
390 Interlocken
Hillview Center
Federal Way
West Total
Grand Total
Houston
Addison
TX
TX
2006
1985
156,746
218,934
156,746
181,606
100.0 % $
83.0 %
Plano
Plano
Atlanta
Atlanta
Houston
Atlanta
TX 1999/2008
TX
GA
GA
TX 1983/2008
GA
2008
1985
1987
1987
202,600
214,110
386,603
442,130
629,025
621,946
202,600
214,110
367,273
337,566
581,345
592,528
4,468,767 4,061,523
2000
1986
Broomfield CO
CO
Denver
Denver
CO 1977/2006
Englewood CO
Broomfield CO
CA
Milpitas
Federal Way WA
2000
2002
1984
1982
240,185
676,379
655,420
196,236
241,516
36,288
117,010
231,755
574,990
553,895
196,236
173,409
36,288
68,661
2,163,034 1,835,234
100.0 %
100.0 %
95.0 %
76.4 %
92.4 %
95.3 %
90.9 %
96.5 %
85.0 %
84.5 %
100 %
71.8 %
100.0 %
58.7 %
84.8 %
30.98
20.88
17.23
33.45
22.87
24.50
34.16
30.06
27.23
30.04
31.97
34.31
24.22
28.18
16.34
18.75
30.44
9,494,953 8,449,707
89.0 % $
26.93
(a) Based on weighted occupied square feet for the year ended December 31, 2015, including month-to-month tenants,
divided by the Property’s net rentable square footage.
(b) Represents annualized GAAP rental revenue for the year ended December 31, 2015 per weighted occupied square
foot.
19
The information presented below is a lease expiration table for ten years and thereafter, stating (i) the number of tenants
whose leases will expire, (ii) the total area in square feet covered by such leases, (iii) the annual rental represented by
such leases in dollars and by square feet, and (iv) the percentage of gross annual rental represented by such leases.
Year of
Lease
Expiration
December 31,
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026 and thereafter
Number of
Leases
Expiring
Within the
Year (a)
Rentable
Square
Footage
Subject to
Expiring
Leases
Annualized Percentage
Rent
of Total
Per Square Annualized
Foot Under Rent Under
Expiring
Leases
Expiring
Leases
Annualized
Rent Under
Expiring
Leases (b)
Cumulative
Total
76 (c)
71
74
66
58
31
27
19
9
9
10
450
1,111,385
1,107,685
1,286,426
851,253
753,234
998,305
626,267
296,418
320,671
450,699 (d)
893,003 $ 17,213,994 $ 19.28
28.86
28.77
25.98
27.70
24.26
28.91
17.34
25.78
18.74
24.94
8,695,346 $ 221,038,636 $ 25.42
32,072,789
31,862,810
33,419,650
23,580,658
18,274,036
28,862,414
10,858,863
7,642,735
6,008,364
11,242,324
7.8 %
7.8 %
22.3 %
14.5 %
36.7 %
14.4 %
51.8 %
15.1 %
62.5 %
10.7 %
70.8 %
8.3 %
83.9 %
13.1 %
88.8 %
4.9 %
92.2 %
3.4 %
2.7 %
94.9 %
5.1 % 100.0 %
100.0 %
Vacancies as of 12/31/15
Total Portfolio Square Footage
799,607
9,494,953
(a) The number of leases approximates the number of tenants. Tenants with lease maturities in different years are
included in annual totals for each lease. Tenants may have multiple leases in the same year.
(b) Annualized rent represents the monthly rent charged, including tenant reimbursements, for each lease in effect at
December 31, 2015 multiplied by 12. Tenant reimbursements generally include payment of real estate taxes,
operating expenses and common area maintenance and utility charges.
(c) Includes 22 leases that are month-to-month.
(d) Includes 85,050 square feet that are non-revenue producing building amenities.
20
Item 3. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of our
business. Although occasional adverse decisions (or settlements) may occur, we believe that the final disposition of such
matters will not have a material adverse effect on our financial position, cash flows or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on the NYSE MKT under the symbol “FSP”. The following table sets forth the
high and low sales prices on the NYSE MKT for the quarterly periods indicated.
Three Months
Ended
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Range
High
Low
$ 11.81 $ 9.45
$ 12.04 $ 10.17
$ 13.06 $ 11.28
$ 13.60 $ 12.15
$ 12.76 $ 11.19
$ 12.76 $ 11.14
$ 12.95 $ 11.04
$ 13.18 $ 11.69
As of February 4, 2016, there were 10,130 holders of our common stock, including both holders of record
and participants in securities position listings.
On January 8, 2016, our board of directors declared a dividend of $0.19 per share of our common stock
payable to stockholders of record as of January 22, 2016 that was paid on February 11, 2016. Set forth below are the
distributions per share of common stock made by FSP Corp. in each quarter since 2014.
Quarter
Ended
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Distribution Per Share of
Common Stock of FSP Corp.
$
$
$
$
0.19
0.19
0.19
0.19
$
$
$
$
0.19
0.19
0.19
0.19
While not guaranteed, we expect that cash dividends on our common stock comparable to our most recent
quarterly dividend will continue to be paid in the future. See Part I, Item 1A Risk Factors, “Our level of dividends may
fluctuate.”, for additional information.
21
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the Company’s common stock
between December 31, 2010 and December 31, 2015 with the cumulative total return of (1) the NAREIT Equity Index,
(2) the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500”) and (3) the Russell 2000 Total Return Index
over the same period. This graph assumes the investment of $100.00 on December 31, 2010 and assumes that any
distributions are reinvested.
As of December 31,
FSP
NAREIT Equity
S&P 500
Russell 2000
Notes to Graph:
2010 2011 2012 2013 2014 2015
$ 100 $ 74 $ 98 $ 101 $ 110 $ 99
176
181
155
130
118
111
100
100
100
133
157
155
171
178
162
108
102
96
The above performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the
Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing
under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we
specifically incorporate it by reference into such filing.
22
Item 6. Selected Financial Data
The following selected financial information is derived from the historical consolidated financial statements
of FSP Corp. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Item 7 and with FSP Corp.’s consolidated financial statements and related notes
thereto included in Item 8.
(In thousands, except per share amounts)
2015
Year Ended December 31,
2013
2012
2014
2011
Operating Data:
Total revenue
Income from:
Income from continuing operations
Income from discontinued operations
Net income
Basic and diluted income per share:
Continuing operations
Discontinued operations
Total
$ 243,867 $ 249,683 $ 213,636 $ 161,580 $ 138,041
35,014
—
35,014
13,148
—
13,148
17,294
2,533
19,827
22,950
(15,317)
7,633
19,357
24,167
43,524
$
$
0.35 $
—
0.35 $
0.13 $
—
0.13 $
0.18 $
0.03
0.21 $
0.28 $
(0.19)
0.09 $
0.24
0.29
0.53
Distributions declared per share outstanding:
$
0.76 $
0.76 $
0.76 $
0.76 $
0.76
2015
2014
As of December 31,
2013
2012
2011
Balance Sheet Data:
Total assets
Total liabilities
Total shareholders’ equity
$ 1,921,368 $ 1,936,390 $ 2,044,034 $ 1,526,068 $ 1,407,348
485,981
921,367
993,868
1,050,166
956,743
979,647
985,712
935,656
661,319
864,749
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated financial
statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The
following discussion and other parts of this Annual Report on Form 10-K may also contain forward-looking statements
based on current judgments and current knowledge of management, which are subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements.
Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned
that our forward-looking statements involve risks and uncertainty, including without limitation, economic conditions in
the United States, disruptions in the debt markets, economic conditions in the markets in which we own properties, risks
of a lessening of demand for the types of real estate owned by us, uncertainties relating to fiscal policy, changes in
government regulations and regulatory uncertainty, geopolitical events, and expenditures that cannot be anticipated such
as utility rate and usage increases, unanticipated repairs, additional staffing, insurance increases and real estate tax
valuation reassessments. See “Risk Factors” in Item 1A. 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 may not update any of the forward-looking statements after the date this Annual Report on Form 10-K is filed to
conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.
Overview
FSP Corp., or we or the Company, operates in the real estate operations segment. The real estate operations
segment involves real estate rental operations, leasing, secured financing of real estate and services provided for asset
management, property management, property acquisitions, dispositions and development. Our current strategy is to
invest in select urban infill and central business district properties, with primary emphasis on our top five markets of
Atlanta, Dallas, Denver, Houston and Minneapolis. We believe that our top five markets have macro-economic drivers
that have the potential to increase occupancies and rents. We will also monitor San Diego, Silicon Valley, Greater
Boston and Greater Washington, DC, as well as other markets, for opportunistic investments. FSP Corp. seeks value-
oriented investments with an eye towards long-term growth and appreciation, as well as current income.
Approximately 6.7 million square feet, or approximately 71% of our total owned portfolio, is located in our top
five markets. We are currently undertaking an initiative to dispose of our smaller, suburban office assets and to replace
them with larger urban infill and central business district office assets located primarily in our top five markets. As we
execute this strategy, short term operating results could be adversely impacted. However, once complete, we believe that
the transformed portfolio has the potential to provide higher profit and asset value growth over a longer period of time.
The main factor that affects our real estate operations is the broad economic market conditions in the United
States. These market conditions affect the occupancy levels and the rent levels on both a national and local level. We
have no influence on broader economic/market conditions. We look to acquire and/or develop quality properties in good
locations in order to lessen the impact of downturns in the market and to take advantage of upturns when they occur.
Trends and Uncertainties
Economic Conditions
The economy in the United States is continuing to experience a period of slow economic growth, with declining
unemployment from recent levels, which directly affects the demand for office space, our primary income producing
asset. The broad economic market conditions in the United States are affected by numerous factors, including but not
limited to, inflation and employment levels, energy prices, slow economic growth and/or recessionary concerns,
uncertainty about government fiscal and tax policy, changes in currency exchange rates, geopolitical events, the
regulatory environment, the availability of credit and interest rates. In addition, the Federal Reserve Bank has indicated
that it anticipates raising interest rates further in 2016. Any increase in interest rates could result in increased borrowing
costs to us. However, we could also benefit from any further improved economic fundamentals and increasing levels of
employment. We believe that the economy is in the early stages of a cyclically-slower but prolonged broad-based
24
upswing. However, future economic factors may negatively affect real estate values, occupancy levels and property
income.
Real Estate Operations
Leasing
Our real estate portfolio was approximately 91.6% leased as of December 31, 2015 and approximately 92.8%
leased as of December 31, 2014. The 1.2% decrease in leased space was a result of a lease expirations and terminations
during 2015 that were not leased at December 31, 2015. As of December 31, 2015 we had 800,000 square feet of
vacancy in our portfolio compared to 689,000 at December 31, 2014. During the year ended December 31, 2015, we
leased approximately 1,319,000 square feet of office space, of which approximately 957,000 square feet were with
existing tenants, at a weighted average term of 5.3 years. On average, tenant improvements for such leases were $13.17
per square foot, lease commissions were $5.81 per square foot and rent concessions were approximately three months of
free rent. Average GAAP base rents under such leases were $28.66 per square foot, or 10.4% higher than average rents
in the respective properties as applicable compared to the year ended December 31, 2014.
As of December 31, 2015, leases for approximately 9.4% and 11.7% of the square footage in our portfolio are
scheduled to expire during 2016 and 2017, respectively. As the first quarter of 2016 begins, we believe that our property
portfolio is well stabilized, with a balanced lease expiration schedule, and that existing vacancy is being actively
marketed to numerous potential tenants. We believe that most of our largest property markets are now experiencing
generally steady or improving rental conditions. We anticipate continued positive leasing activity within the portfolio
during 2016.
While we cannot generally predict when existing vacancy in our real estate portfolio will be leased or if existing
tenants with expiring leases will renew their leases or what the terms and conditions of the lease renewals will be, we
expect to renew or sign new leases at then-current market rates for locations in which the buildings are located, which
could be above or below the expiring rates. Also, even as the economy recovers, we believe the potential for any of our
tenants to default on its lease or to seek the protection of bankruptcy still exists. If any of our tenants defaults on its
lease, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our
investment. In addition, at any time, a tenant of one of our properties may seek the protection of bankruptcy laws, which
could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in cash available for
distribution to our stockholders.
Real Estate Acquisition and Investment Activity
During 2016:
(cid:120)
(cid:120)
on January 19, we received approximately $37.5 million from FSP 385 Interlocken Development Corp.
as repayment in full of a Sponsored REIT Loan; and
additional potential real estate investment opportunities are actively being explored and we would
anticipate further real estate investment in the future.
During 2015:
(cid:120) we funded advances on Sponsored REIT Loans for revolving lines of credit in the aggregate amount of
(cid:120)
(cid:120)
approximately $4.0 million;
on April 8, we acquired an office property with approximately 442,130 rentable square feet of space
for $78.0 million located in the Central Perimeter Submarket of Atlanta, Georgia: and
on December 7, we funded a Sponsored REIT Loan for a mortgage loan secured by a property of
approximately $21.0 million.
During 2014:
(cid:120) we funded advances on Sponsored REIT Loans for revolving lines of credit in the aggregate amount of
approximately $11.2 million;
25
(cid:120)
(cid:120)
on June 19, we received approximately $13.9 million from FSP Galleria North Corp. as repayment in
full of a Sponsored REIT Loan; and
on December 23, we received approximately $3.4 million from FSP Highland Place I Corp. as
repayment in full of a Sponsored REIT Loan.
During 2013:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
on May 22, we acquired an office property with approximately 680,277 rentable square feet of space
for $183.0 million located in the central business district of Denver, Colorado;
on July 1, we acquired an office property with approximately 621,007 rentable square feet for $157.9
million located in the midtown submarket of Atlanta, Georgia;
on August 28, we acquired an office property with approximately 655,565 rentable square feet of space
for $217.0 million located in the central business district of Denver, Colorado;
on December 6, we received approximately $2.35 million from FSP 505 Waterford Corp. as repayment
in full of a Sponsored REIT Loan; and
(cid:120) we funded advances on Sponsored REIT Loans for revolving lines of credit in the aggregate amount of
approximately $8.2 million.
Dispositions and Discontinued Operations
During 2014, the Company early adopted Accounting Standards Update (“ASU”) No. 2014-08, Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No. 2014-08 clarifies that
discontinued operations presentation applies only to disposals representing a strategic shift that has (or will have) a major
effect on an entity’s operations and financial results (e.g., a disposal of a major geographical area, a major line of
business, a major equity method investment or other major parts of an entity). This ASU standard establishes criteria to
evaluate whether transactions should be classified as discontinued operations and requires additional disclosure for
discontinued operations and new disclosures for individually material disposal transactions that do not meet the
definition of a discontinued operation. This standard was applied prospectively during 2014. For periods prior to 2014,
the Company reported as discontinued operations, the income and expenses associated with a disposal group (i) that
qualified as a component of an entity, (ii) for which cash flows were eliminated from the ongoing operations of the
entity, and (iii) in which the Company will not have significant continuing involvement. Comparability between 2014
and prior years is affected as a result of the adoption of the new standard. The rental revenues, operating and
maintenance expenses and depreciation and amortization for a property sold in 2015 and 2014 are included in income
from continuing operations. For 2013, a property sold is presented as discontinued operations, which required
reclassifications of rental revenues, operating and maintenance expenses and depreciation and amortization to income or
loss from discontinued operations.
Property Dispositions
During 2015, we sold an office property located in Plano, Texas on February 23, 2015 at a $1.5 million gain,
sold an office property located in Eden Prairie, Minnesota on March 31, 2015 at a $9.0 million gain, sold an office
property located in Charlotte, North Carolina on May 13, 2015 at a $0.9 million gain and sold an office property located
in San Jose, California on December 9, 2015 at a $12.3 million gain. During 2014, we sold an office property located in
Colorado Springs, Colorado on December 3, 2014 at a $0.9 million gain. The disposal of these properties does not
represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the
properties remain classified within continuing operations for all periods presented.
We sold an office property located in Richardson, Texas on October 29, 2013 at a $2.2 million gain. The
operating results of this property are classified as discontinued operations in our consolidated financial statements for all
periods presented.
We will continue to evaluate our portfolio, and in the future may decide to dispose of additional properties from
time-to-time in the ordinary course of business. We believe that the current property sales environment is improving in
many markets relative to both liquidity and pricing. We believe that both improving office property fundamentals as
well as attractive financing availability will likely be required to continue to be an improvement in the marketplace for
26
potential property dispositions. As an important part of our total return strategy, we intend to be active in property
dispositions when we believe that market conditions warrant such activity and, as a consequence, we continuously
review and evaluate our portfolio of properties for potentially advantageous dispositions.
Critical Accounting Policies
We have certain critical accounting policies that are subject to judgments and estimates by our management and
uncertainties of outcome that affect the application of these policies. We base our estimates on historical experience and
on various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate
our estimates. In the event estimates or assumptions prove to be different from actual results, adjustments are made in
subsequent periods to reflect more current information. The accounting policies that we believe are most critical to the
understanding of our financial position and results of operations, and that require significant management estimates and
judgments, are discussed below. Significant estimates in the consolidated financial statements include the allowance for
doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment considerations and the valuation of
derivatives.
Critical accounting policies are those that have the most impact on the reporting of our financial condition and
results of operations and those requiring significant judgments and estimates. We believe that our judgments and
estimates are consistently applied and produce financial information that fairly presents our results of operations. Our
most critical accounting policies involve our investments in Sponsored REITs and our investments in real property.
These policies affect our:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
allocation of purchase price;
allowance for doubtful accounts;
assessment of the carrying values and impairments of long lived assets;
useful lives of fixed assets and intangibles;
valuation of derivatives;
classification of leases; and
ownership of stock in a Sponsored REIT and related interests.
These policies involve significant judgments made based upon our experience, including judgments about
current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability of our tenants to
perform their obligations to us, current and future economic conditions and competitive factors in the markets in which
our properties are located. Competition, economic conditions and other factors may cause occupancy declines in the
future. In the future we may need to revise our carrying value assessments to incorporate information which is not now
known and such revisions could increase or decrease our depreciation expense related to properties we own, result in the
classification of our leases as other than operating leases or decrease the carrying values of our assets.
Allocation of Purchase Price
We allocate the value of real estate acquired among land, buildings, improvements and identified intangible
assets and liabilities, which may consist of the value of above market and below market leases, the value of in-place
leases, and the value of tenant relationships. Purchase price allocations and the determination of the useful lives are
based on management’s estimates. Under some circumstances we may rely upon studies commissioned from
independent real estate appraisal firms in determining the purchase price allocations.
Purchase price allocated to land and building and improvements is based on management’s determination of the
relative fair values of these assets assuming the property was vacant. Management determines the fair value of a property
using methods similar to those used by independent appraisers. Purchase price allocated to above or below market leases
is based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid pursuant to the in-place leases including consideration of
potential lease renewals and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a
period equal to the remaining non-cancelable terms of the respective leases. This aggregate value is allocated between
in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each
tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value because such
27
value and its consequence to amortization expense is immaterial for acquisitions reflected in our financial statements.
Factors considered by us in performing these analyses include (i) an estimate of carrying costs during the expected lease-
up periods, including real estate taxes, insurance and other operating income and expenses, and (ii) costs to execute
similar leases in current market conditions, such as leasing commissions, legal and other related costs. If future
acquisitions result in our allocating material amounts to the value of tenant relationships, those amounts would be
separately allocated and amortized over the estimated life of the relationships.
Allowance for Doubtful Accounts
We provide an allowance for doubtful accounts based on our estimate of a tenant’s ability to make future rent
payments. The computation of this allowance is based in part on the tenants’ payment history and current credit status.
Impairment
We periodically evaluate our real estate properties for impairment indicators. These indicators may include
declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an
asset before the end of its estimated useful life or legislative, economic or market changes that permanently reduce the
value of our investments. If indicators of impairment are present, we evaluate the carrying value of the property by
comparing it to its expected future undiscounted cash flows. If the sum of these expected future cash flows is less than
the carrying value, we reduce the net carrying value of the property to the present value of these expected future cash
flows. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows.
If we misjudge or estimate incorrectly or if future tenant profitability, market or industry factors differ from our
expectations, we may record an impairment charge which is inappropriate or fail to record a charge when we should have
done so, or the amount of such charges may be inaccurate.
Depreciation and Amortization Expense
We compute depreciation expense using the straight-line method over estimated useful lives of up to 39 years
for buildings and improvements, and up to 15 years for personal property. Costs incurred in connection with leasing
(primarily tenant improvements and leasing commissions) are capitalized and amortized over the lease period. The
allocated cost of land is not depreciated. The value of above or below-market leases is amortized over the remaining
non-cancelable periods of the respective leases as an adjustment to rental income. The value of in-place leases, exclusive
of the value of above-market and below-market in-place leases, is also amortized over the remaining non-cancelable
periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to
that lease are written off. Inappropriate allocation of acquisition costs, or incorrect estimates of useful lives, could result
in depreciation and amortization expenses which do not appropriately reflect the allocation of our capital expenditures
over future periods, as is required by generally accepted accounting principles.
Derivative Instruments
We recognize derivatives on the balance sheet at fair value. Derivatives that do not qualify, or are not
designated as hedge relationships, must be adjusted to fair value through income. Derivative instruments designated in a
hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the
derivative instrument on the balance sheet as either an asset or liability. To the extent hedges are effective, a
corresponding amount, adjusted for swap payments, is recorded in accumulated other comprehensive income within
stockholders’ equity. Amounts are then reclassified from accumulated other comprehensive income to the income
statement in the period or periods the hedged forecasted transaction affects earnings. Ineffectiveness, if any, is recorded
in the income statement. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the
fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are
considered fair value hedges. We currently have no fair value hedges outstanding. Fair values of derivatives are subject
to significant variability based on changes in interest rates and counterparty credit risk. To the extent we enter into fair
value hedges in the future, the results of such variability could be a significant increase or decrease in our derivative
assets, derivative liabilities, book equity, and/or earnings.
28
Lease Classification
Some of our real estate properties are leased on a triple net basis, pursuant to non-cancelable, fixed term,
operating leases. Each time we enter a new lease or materially modify an existing lease we evaluate whether it is
appropriately classified as a capital lease or as an operating lease. The classification of a lease as capital or operating
affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations
require us to make estimates of, among other things, the remaining useful life and market value of a property, discount
rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases.
Ownership of Stock in a Sponsored REIT and Related Interests
We currently hold preferred stock interests in two Sponsored REITs. As a result of our common and preferred
stock interests in these two Sponsored REITs, we exercise influence over, but do not control these entities. These
preferred stock interests are accounted for using the equity method. Under the equity method of accounting our cost
basis is adjusted by our share of the Sponsored REITs’ operations and distributions received. We also agreed to vote our
preferred shares (i) with respect to any merger in the same manner that a majority of the other stockholders of the
Sponsored REIT vote for or against the merger and (ii) with respect to any other matter presented to a vote by the
stockholders of these Sponsored REITs in the same proportion as shares voted by other stockholders of that Sponsored
REIT.
We also previously held a preferred stock interest in a third Sponsored REIT, FSP Phoenix Tower Corp., which
we refer to as Phoenix Tower. On December 20, 2012, the property owned by Phoenix Tower was sold and, thereafter,
Phoenix Tower declared and issued a liquidating distribution for its preferred shareholders, from which we were entitled
to $4,866,000. As a result of the sale, we recognized our share of the gain of $1,582,000. We received approximately
$4,752,000 on January 4, 2013, $96,000 on September 30, 2013 and $18,000 on December 29, 2015.
The equity investments in Sponsored REITS are reviewed for impairment each reporting period. The Company
records impairment charges when events or circumstances indicate a decline in the fair value below the carrying value of
the investment has occurred and such decline is other-than-temporary. The ultimate realization of the equity investments
in Sponsored REITS is dependent on a number of factors, including the performance of each investment and market
conditions. An impairment charge is recorded if its determined that a decline in the value below the carrying value of an
equity investment in a Sponsored REIT is other than temporary.
Results of Operations
Impact of Real Estate Acquisitions, Dispositions and Investment Activity:
The results of operations for each of the acquired properties, and properties sold prior to their date of sale in
2015 or 2014, are included in our operating results as of their respective purchase dates or the date of funding and
repayment for mortgage investments, as applicable. Increases and decreases in rental revenues and interest income from
loans and expenses for the year ended December 31, 2015 compared to the year ended December 31, 2014, or for the
year ended December 31, 2014 compared to the year ended December 31, 2013, are primarily a result of the timing of
these acquisitions and dispositions and the contribution of these acquired properties after their acquisition date or sold
properties prior to their sale date in 2015 and 2014, as well as the effect on interest income from the dates of funding and
repayment on our mortgage investments.
Sales of Real Estate:
We sold an office property located in Plano, Texas on February 23, 2015 at a $1.5 million gain, sold an office
property located in Eden Prairie, Minnesota on March 31, 2015 at a $9.0 million gain, sold an office property located in
Charlotte, North Carolina on May 13, 2015 at a $0.9 million gain and sold an office property located in San Jose,
California on December 9, 2015 at a $12.3 million gain. We sold an office property located in Colorado Springs,
Colorado on December 3, 2014 at a $0.9 million gain and sold an office property located in Richardson, Texas on
29
October 29, 2013 at a $2.2 million gain. The operating results of property sold in 2013 are classified as discontinued
operations in our consolidated financial statements for all periods presented.
The following table shows financial results for the years ended December 31, 2015 and 2014.
(in thousands)
Revenues:
Rental
Related party revenue:
Management fees and interest income from loans
Other
Total revenues
Expenses:
Real estate operating expenses
Real estate taxes and insurance
Depreciation and amortization
Selling, general and administrative
Interest
Total expenses
Year ended December 31,
2014
Change
2015
$ 237,856 $ 243,341 $ (5,485)
5,930
81
243,867
6,241
101
249,683
(311)
(20)
(5,816)
61,890
38,660
91,359
13,291
25,432
230,632
62,032
36,857
95,915
12,983
27,433
235,220
(142)
1,803
(4,556)
308
(2,001)
(4,588)
Income before interest income, equity in losses and gain on sale of properties
Interest income
Equity in losses of non-consolidated REITs
Gain on sale of properties, less applicable income tax
13,235
1
(1,451)
23,662
14,463
3
(1,760)
940
(1,228)
(2)
309
22,722
Income before taxes on income
Taxes on income
Net income
35,447
433
13,646
498
21,801
(65)
$ 35,014 $ 13,148 $ 21,866
Comparison of the year ended December 31, 2015 to the year ended December 31, 2014
Revenues
Total revenues decreased by $5.8 million to $243.9 million for the year ended December 31, 2015, as compared
to the year ended December 31, 2014. The decrease was primarily a result of:
(cid:120) A decrease in rental revenue of approximately $5.5 million arising primarily from loss of revenue from the
disposition of a property on December 3, 2014 and the disposition of four properties during 2015. During 2015,
a property was sold on each of February 23, 2015, March 31, 2015, May 13, 2015 and December 9, 2015. In
addition, our rental revenues decreased because leased space in our real estate portfolio decreased
approximately 1.2 percentage points to 91.6% at December 31, 2015 compared to 92.8% at December 31, 2014.
These decreases were partially offset by increased rental revenue from a property we acquired on April 8, 2015.
(cid:120) A decrease in interest income from loans to Sponsored REITs of approximately $0.3 million as a result of
repayments of Sponsored REIT Loans and lower interest rates, which was partially offset by the funding of an
advance and a Sponsored REIT Loan we made in December 2015.
Expenses
Total expenses decreased by $4.6 million to $230.6 million for the year ended December 31, 2015, as compared to
the year ended December 31, 2014. The decrease was primarily a result of:
(cid:120) A decrease in depreciation and amortization of $4.5 million and real estate operating expenses of $0.1 million
as a result of the disposition of a property in December 2014 and the disposition of four properties during 2015.
30
A property was sold on each of February 23, 2015, March 31, 2015, May 13, 2015 and December 9, 2015. In
addition, our real estate operating expenses decreased because leased space in our real estate portfolio decreased
approximately 1.2% percentage points to 91.6% at December 31, 2015 compared to 92.8% at December 31,
2014. These decreases were partially offset by depreciation and amortization and real estate operating expenses
of a property we acquired on April 8, 2015.
(cid:120) A decrease to interest expense of approximately $2.0 million to $25.4 million for the year ended December 31,
2015 compared to the same period in 2014. The decrease was primarily attributable to lower interest rates
during the year ended December 31, 2015 compared to the year ended December 31, 2014.
These decreases were partially offset by:
(cid:120) An increase in real estate taxes and insurance of approximately $1.8 million, which was primarily the result of
increases in property taxes in properties in our portfolio and from a property we acquired on April 8, 2015,
which was partially offset by the disposition of a property in December 2014 and four properties 2015
(cid:120) An increase in selling, general and administrative expenses of approximately $0.3 million, which was primarily
the result of increased personnel related expenses and professional fees. We had 40 and 39 employees as of
December 31, 2015 and 2014, respectively, at our headquarters in Wakefield, Massachusetts.
Equity in losses of non-consolidated REITs
Equity in losses from non-consolidated REITs decreased approximately $0.3 million to a loss of $1.5 million during
the year ended December 31, 2015 compared to the same period in 2014. The decrease was primarily because equity in
loss from our preferred stock investment in a Sponsored REIT, FSP 303 East Wacker Drive Corp., which we refer to as
East Wacker, decreased $0.2 million during the year ended December 31, 2015, compared to the same period in 2014.
Gains on sale of properties, less applicable income tax
During the year ended December 31, 2015, we recorded gains on sale of four properties. We sold an office property
located in Plano, Texas on February 23, 2015 at a $1.5 million gain, an office property located in Eden Prairie,
Minnesota on March 31, 2015 at a $9.0 million gain, an office property located in Charlotte, North Carolina on May 13,
2015 at a $0.9 million gain and an office property located in San Jose, California on December 9, 2015 at a $12.3 million
gain. During the year ended December 31, 2014, we sold an office property located in Colorado Springs, Colorado on
December 3, 2014 at a gain of approximately $0.9 million.
Taxes on income
Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties that
decreased $76,000 while federal and other income taxes increased $11,000 for year ended December 31, 2015, compared
to the same period in 2014.
Net Income
Net Income for the year ended December 31, 2015 was $35.0 million compared to $13.1 million for the year ended
December 31, 2014, for the reasons described above.
31
The following table shows financial results for the years ended December 31, 2014 and 2013.
(in thousands)
Revenues:
Rental
Related party revenue:
Management fees and interest income from loans
Other
Total revenues
Expenses:
Real estate operating expenses
Real estate taxes and insurance
Depreciation and amortization
Selling, general and administrative
Interest
Total expenses
Year ended December 31,
2013
Change
2014
$ 243,341 $ 206,926 $ 36,415
6,241
101
249,683
6,646
64
213,636
(405)
37
36,047
62,032
36,857
95,915
12,983
27,433
235,220
51,100
31,616
78,839
11,911
21,054
194,520
10,932
5,241
17,076
1,072
6,379
40,700
Income before interest income, equity in losses and gain on sale of property
Interest income
Equity in losses of non-consolidated REITs
Gain on sale of property, less applicable income tax
14,463
3
(1,760)
940
19,116
16
(1,358)
—
(4,653)
(13)
(402)
940
Income before taxes on income
Taxes on income
Income from continuing operations
Discontinued operations:
Income from discontinued operations, net of income tax
Gain on sale or property, less applicable income tax
Total discontinued operations
13,646
498
17,774
480
(4,128)
18
13,148
17,294
(4,146)
—
—
—
375
2,158
2,533
(375)
(2,158)
(2,533)
Net income
$ 13,148 $ 19,827 $ (6,679)
Comparison of the year ended December 31, 2014 to the year ended December 31, 2013
Revenues
Total revenues increased by $36.0 million to $249.7 million for the year ended December 31, 2014, as
compared to the year ended December 31, 2013. The increase was primarily a result of:
(cid:120) An increase in rental revenue of approximately $36.4 million arising primarily from property acquisitions
in May 2013, July 2013 and August 2013, which were included in the year ended December 31, 2014; and
was partially offset by lower leased space of approximately 1.3% in the real estate portfolio at
December 31, 2014 compared to December 31, 2013.
(cid:120) The increase in revenues was partially offset by a decrease of approximately $0.4 million in interest income
from Sponsored REIT Loans that was principally the result of a $13.9 million repayment loan received in
June 2014 and to a lesser extent the result of a $3.4 million repayment received in December 2014.
32
Expenses
Total expenses increased by $40.7 million to $235.2 million for the year ended December 31, 2014, as
compared to the year ended December 31, 2013. The increase was primarily a result of:
(cid:120) An increase in real estate operating expenses and real estate taxes and insurance of approximately $16.1
million, and depreciation and amortization of $17.1 million, which were primarily from property
acquisitions in May 2013, July 2013 and August 2013 and were included in the year ended December 31,
2014.
(cid:120) An increase to interest expense of approximately $6.4 million to $27.4 million during the year ended
December 31, 2014 compared to the same period in 2013. The increase was primarily attributable the
BMO Term Loan for the full year of 2014 that we originally entered into in August of 2013.
(cid:120) An increase in selling, general and administrative expenses of approximately $1.1 million, which was
primarily the result of increased personnel related expenses and professional fees. We had 39 and 37
employees as of December 31, 2014 and 2013, respectively, at our headquarters in Wakefield,
Massachusetts.
Equity in losses of non-consolidated REITs
Equity in losses from non-consolidated REITs increased approximately $0.4 million to a loss of $1.8 million
during the year ended December 31, 2014 compared to the same period in 2013. The increase was primarily because
equity in loss from our preferred stock investment in a Sponsored REIT, FSP 303 East Wacker Drive Corp., increased
$0.5 million and was partially offset by a decrease in loss from our preferred stock investment in a Sponsored REIT, FSP
Grand Boulevard Corp., of $0.1 million during the during the year ended December 31, 2014 compared to the same
period in 2013.
Gain on sale of property less applicable income tax
On December 3, 2014, we sold an office property located in Colorado Springs, Colorado at a gain of
approximately $0.9 million. Gains or losses on sales of real estate prior to 2014 are reported in discontinued operations.
Taxes on income
Included in income taxes is the Revised Texas Franchise Tax, which is a tax on revenues from Texas properties
that increased $12,000 and federal income taxes that increased $6,000 for the year ended December 31, 2014, compared
to the year ended December 31, 2013.
Income from continuing operations
Income from continuing operations for the year ended December 31, 2014 was $13.1 million compared to $17.3
million for the year ended December 31, 2013, for the reasons described above.
Discontinued operations and gain (loss) on sale
Income from discontinued operations decreased $2.5 million for the year ended December 31, 2014 compared
to the year ended December 31, 2013. On October 29, 2013 we sold an office property located in Richardson, Texas at a
gain of approximately $2.2 million, which resulted in a reclassification of real estate income and expenses of this
property to discontinued operations for 2013.
Net income
Net income for the year ended December 31, 2014 was $13.1 million compared to $19.8 million for the year
ended December 31, 2013, for the reasons described above.
33
Non-GAAP Financial Measures
Funds From Operations
The Company evaluates performance based on Funds From Operations, which we refer to as FFO, as
management believes that FFO represents the most accurate measure of activity and is the basis for distributions paid to
equity holders. The Company defines FFO as net income (computed in accordance with GAAP), excluding gains (or
losses) from sales of property and acquisition costs of newly acquired properties that are not capitalized, plus
depreciation and amortization, including amortization of acquired above and below market lease intangibles and
impairment charges on properties or investments in non-consolidated REITs, and after adjustments to exclude equity in
income or losses from, and, to include the proportionate share of FFO from, non-consolidated REITs.
FFO should not be considered as an alternative to net income (determined in accordance with GAAP), nor as an
indicator of the Company’s financial performance, nor as an alternative to cash flows from operating activities
(determined in accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Company’s needs.
Other real estate companies and the National Association of Real Estate Investment Trusts, or NAREIT may
define this term in a different manner. We have included the NAREIT FFO definition in our table and note that other
REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT
definition differently than we do.
We believe that in order to facilitate a clear understanding of the results of the Company, FFO should be
examined in connection with net income and cash flows from operating, investing and financing activities in the
consolidated financial statements.
The calculations of FFO are shown in the following table:
(in thousands):
Net income (loss)
(Gain) loss on sale, less applicable income tax
Equity in (earnings) losses of non-consolidated REITs
FFO from non-consolidated REITs
Depreciation and amortization
NAREIT FFO
Acquisition costs of new properties
Funds From Operations
Net Operating Income (NOI)
For the Year Ended December 31,
2013
2014
2015
19,827
13,148 $
(940)
(2,158)
1,358
1,760
2,148
1,930
79,090
96,550
100,265
112,448
568
14
$ 35,014 $
(23,662)
1,451
2,732
91,201
106,736
154
$ 106,890 $ 112,462 $ 100,833
The Company provides property performance based on Net Operating Income, which we refer to as NOI.
Management believes that investors are interested in this information. NOI is a non-GAAP financial measure that the
Company defines as net income (the most directly comparable GAAP financial measure) plus selling, general and
administrative expenses, depreciation and amortization, including amortization of acquired above and below market
lease intangibles and impairment charges, interest expense, less equity in earnings of nonconsolidated REITs, interest
income, management fee income, gains or losses on the sale of assets and excludes non-property specific income and
expenses. The information presented includes footnotes and the data is shown by region with properties owned in both
periods, which we call Same Store. The Comparative Same Store results include properties held for the periods
presented and exclude significant nonrecurring income such as bankruptcy settlements and lease termination fees. NOI,
as defined by the Company, may not be comparable to NOI reported by other REITs that define NOI differently. NOI
34
should not be considered an alternative to net income as an indication of our performance or to cash flows as a measure
of the Company’s liquidity or its ability to make distributions. The calculations of NOI are shown in the following table:
(in thousands)
Region
East
MidWest
South
West
Same Store
Acquisitions
Property NOI from the portfolio
Property NOI on assets sold
Property NOI
Same Store
Less Nonrecurring
Items in NOI (a)
Comparative
Same Store
Net Operating Income (NOI)*
Year
Ended
Year
Ended
Rentable
Square Feet 31-Dec-15
31-Dec-14
1,333 $ 18,822 $ 18,357 $
1,531
4,026
2,163
9,053
14,439
63,703
32,268
129,232
18,054
65,793
34,164
136,368
465
Inc
(Dec)
%
Change
2.5 %
(3,615) (20.0)%
(3.2)%
(2,090)
(5.5)%
(1,896)
(5.2)%
(7,136)
442
9,495
3,214
132,446
2,234
3,214
(3,922)
(4,451)
$ 134,680 $ 143,053 $ (8,373)
—
136,368
6,685
2.4 %
(2.9)%
(3.0)%
(5.9)%
$ 129,232 $ 136,368 $ (7,136)
(5.2)%
1,152
1,223
(71)
0.0 %
$ 128,080 $ 135,145 $ (7,065)
(5.2)%
Reconciliation to Net income
Net Income
Add (deduct):
Discontinued operations
Loss provision or (gain) on sale of assets
Management fee income
Depreciation and amortization
Amortization of above/below market leases
Selling, general and administrative
Interest expense
Interest income
Equity in earnings of non-consolidated REITs
Non-property specific items, net
Property NOI from the continuing portfolio
Property NOI classified in discontinued operations
Property NOI
Year
Ended
31-Dec-15
Year
Ended
31-Dec-14
$
35,014 $
13,148
—
(23,662)
(2,468)
91,359
(158)
13,291
25,432
(5,230)
1,451
(349)
134,680
—
$ 134,680 $
—
(940)
(2,596)
95,915
635
12,983
27,433
(5,298)
1,760
13
143,053
—
143,053
(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.
35
Liquidity and Capital Resources
Cash and cash equivalents were $18.2 million and $7.5 million at December 31, 2015 and December 31, 2014,
respectively. The increase of $10.6 million in cash and cash equivalents in 2015 was comprised of $102.9 million
provided by operating activities less $38.1 million from investing activities, less $54.1 million used in financing
activities. Management believes that existing cash, cash anticipated to be generated internally by operations and our
existing debt financing will be sufficient to meet working capital requirements and anticipated capital expenditures for at
least the next 12 months. Although there is no guarantee that we will be able to obtain the funds necessary for our future
growth, we anticipate generating funds from continuing real estate operations. We believe that we have adequate funds
to cover unusual expenses and capital improvements, in addition to normal operating expenses. Our ability to maintain
or increase our level of dividends to stockholders, however, depends in significant part upon the level of rental income
from our real properties.
Operating Activities
The cash provided by our operating activities of $102.9 million is primarily attributable to net income of $35.0
million, less $23.7 million from gains on sales of properties, plus the add backs of $92.1 million of non-cash activities,
an increase in accounts payable and accrued expenses of $5.5 million, a $2.0 million decrease in tenant rent receivables,
a $0.7 million decrease in restricted cash, a $0.6 million increase from tenant security deposits and a $0.4 million
increase in prepaid expenses and other assets. These increases were partially offset by $8.3 million in payments of
deferred leasing commissions and a $1.4 million increase in lease acquisition costs.
Investing Activities
Our cash used in investing activities for the year ended December 31, 2015 of $38.1 million is primarily
attributable to $76.7 million used for an acquisition, $21.8 million in additions to real estate investments and office
equipment and a $25.0 million increase in Sponsored REIT Loans. These uses were partially offset $85.4 million of
proceeds on the sales of properties.
Financing Activities
Our cash used by financing activities for the year ended December 31, 2015 of $54.1 million is primarily
attributable to distributions paid to stockholders of $76.1 million and repayments of borrowings on the BAML Revolver
(as defined below) of $88.0 million, which were partially offset by borrowings under the BAML Revolver of $110.0
million.
BMO Term Loan
On October 29, 2014, the Company entered into an Amended and Restated Credit Agreement (the “BMO Credit
Agreement”) with the lending institutions referenced in the BMO Credit Agreement and Bank of Montreal, as
administrative agent (in such capacity, the “BMO Administrative Agent”), that continued a single, unsecured term loan
borrowing in the amount of $220 million (the “BMO Term Loan”). The BMO Term Loan was previously evidenced by
a Credit Agreement dated August 26, 2013 by and among the Company, certain of the Company’s wholly-owned
subsidiaries, the BMO Administrative Agent and those lenders from time to time a party thereto (the “Original BMO
Credit Agreement”). The purpose of the BMO Credit Agreement was to amend and restate the Original BMO Credit
Agreement in its entirety to provide, among other things, for the Company to become the sole borrower and for changes
to certain financial covenants. On August 26, 2013, the Company drew down the entire $220 million under the BMO
Term Loan, which remains fully advanced and outstanding under the BMO Credit Agreement. The BMO Term Loan
continues to have a seven year term that matures on August 26, 2020. The BMO Credit Agreement also continues to
include an accordion feature that allows up to $50 million of additional loans, subject to receipt of lender commitments
and satisfaction of certain customary conditions.
36
The BMO Term Loan bears interest at either (i) a number of basis points over LIBOR depending on the
Company’s credit rating (165 basis points over LIBOR at December 31, 2015) or (ii) a number of basis points over the
base rate depending on the Company’s credit rating (65 basis points over the base rate at December 31, 2015).
The actual margin over LIBOR rate or base rate is determined based on the Company’s credit rating pursuant to the
following grid:
LEVEL
I
II
III
IV
V
CREDIT
RATING
LIBOR RATE BASE RATE
MARGIN
MARGIN
A- / A3 (or higher)
BBB+ /Baa1
BBB /Baa2
BBB- /Baa3