Q4 2021 Franklin Street Properties Corp Earnings Call

February 16, 2022

Hello, good morning everyone and welcome to the Franklin Street Properties Corp 4th Quarter and 4th Year 2021 results. My name is Gemma and I'll be the operator for today. If you'd like to ask a question please press star followed by 1 in your telephone keypad and if you change your mind please press star followed by 2. These will be taken during the Q&A session.

Hi, Good morning, everyone and welcome to the Franklin Street properties Corp, fourth quarter and full year 'twenty 'twenty. One results. My name is Jennifer and I'll be the operator for today, if you'd like to ask a question. Please press star flip I wanted to kind of think he pad and have you changed your mind. Please press star followed by cheap these will be taken during the Q&A session today.

I'd now like to hand the call over to Scott Carter, General Counsel. Please go ahead, Scott. Thank you.

I'd now like to hand, the call over to Scott Carter General Counsel. Please go ahead Scott. Thank you.

Good morning and welcome to the Franklin Street Properties fourth quarter 2021 earnings call. Joining me this morning are George Carter, our Chief Executive Officer, John DeMeritt, our Chief Financial Officer, Jeff Carter, our President and Chief Investment Officer, John Donahue, President of FSP Property Management, and Will Friend, Executive Vice President of FSP Property Management.

Good morning, and welcome to the Franklin Street properties fourth quarter 2021 earnings call. Joining me. This morning are George Carter, Our Chief Executive Officer, John Demeritt, Our Chief Financial Officer, Jeff Carter, Our President and Chief Investment Officer, John Donahue.

Residents of FSP property management, and will friend Executive Vice President of FSP property management. Please note that various remarks that we may make about future expectations plans and prospects for the company may constitute forward looking statements for purposes of the safe Harbor provisions under the private.

Please note that various remarks that we may make about future expectations, plans, and prospects for the company may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

<unk> Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factors section of our annual report on Form 10-K for the year ended December 31 2002.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factor section of our annual report on Form 10-K for the year ended December 31, 2021, which is on file with the SEC.

<unk>, one which is on file with the SEC. In addition, these forward looking statements represent the company's expectations only as of today February 16, 2022, while the company may elect to update these forward looking statements. It specifically disclaims any obligation to do so any forward looking statements.

In addition, these forward-looking statements represent the company's expectations only as of today, February 16, 2022.

While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.

Any forward-looking statement should not be relied upon as representing the company's estimates or views as of any date subsequent to today.

Should not be relied upon as representing the company's estimates or views as of any date subsequent to today.

At times during this call, we may refer to funds from operations or FFO. Reconciliations of FFO and other non-GAAP financial measures to GAAP net income are contained in yesterday's press release, which is available in the investor relations section of our website at www.fspreit.com. Now I'll turn the call over to John DeMeritt. John ? Thank you. Thank you.

During this call we may refer to funds from operations are up about reconciliations of <unk> and other non-GAAP financial measures to GAAP net income are contained in yesterday's press release, which is available on the Investor Relations section of our website at www dot FSP or <unk> dot com.

Now I'll turn the call over to John Demeritt John .

Thank you Scott and good morning, everyone.

I'm going to give a very brief overview of our fourth quarter and year-end results, and afterward I'll pass the call to George for his comments.

I'm going to give a very brief overview of our fourth quarter and year end results.

Afterward, I will pass the call to George for his comments.

As a reminder, our comments today will refer to our earnings release, supplemental package, and 10-K, which, as Scott mentioned, can be found on our website.

As a reminder, our comments today will refer to our earnings release.

Elemental package and 10-K, which as Scott mentioned can be found on our website.

We reported net income of about $78.6 million or $0.75 per share for the fourth quarter of 2021.

We reported net income of about $78 6 million or <unk> 75 per share for the fourth quarter of 2021.

and $92.7 million or $0.87 per share for the full year 2021.

And $92 7 million or <unk> 87 per share for the full year 2021.

We reported funds from operations, or FFO, of about $11 million or $0.10 per share for the fourth quarter of 2021, and $58.5 million or $0.55 per share for the full year of 2021.

We reported funds from operations or <unk> of about $11 million or <unk> 10 per share for the fourth quarter of 'twenty one.

And $58 5 million or <unk> 55 per share for the full year of 2021.

During Q4, we completed the sale of three properties at a net gain of about $83.9 million and used the proceeds from those sales to repay $200 million of our 2023 term loan maturity and $15 million to repay a drawn balance on our revolver.

During Q4, we completed the sale of three properties at a net gain of about $83 9 million and used the proceeds from those sales to repay $200 million of our 2023 term loan maturity and $15 million to repay a drawn balance on our revolver.

Looking back, we had approximately $1 billion in debt at the end of September of 2020.

Looking back we had approximately 1 billion in debt at the end of September of 2020, we.

We sold the property at the end of December 2020 and 10 properties were sold during 2021.

We sold the property at the end of December in 2020, and 10 properties were sold during 2021.

We used asset sale proceeds primarily to repay about 53% of our debt.

We use asset sale proceeds primarily to repay about 53% of our debt.

At December 31st, 21, we had $475 million of debt outstanding.

At December 31, 21, we had $475 million of debt outstanding.

We ended 2020 with a net debt-to-EBITDA ratio of 8.7 times, which has since dropped very significantly to 6.2 times at the end of 2021, primarily as a result of our

We ended 2020 with a net debt to EBITDA ratio of eight seven times, which has since dropped very significantly to six two times at the end of 'twenty one.

Primarily as a result of our debt repayment strategy.

Our debt service coverage ratio is over three times for the fourth quarter as well.

Our debt service coverage ratio was over three times for the fourth quarter as well.

We believe that in 2021, we have meaningfully lowered our leverage and strengthened our balance.

We believe that in 2021, we are meaningfully lowered our leverage and strengthen our balance sheet.

Shortly after year end, we entered into a new revolver with availability of 237.5 million and terminated our existing revolver.

Shortly after year end, we entered into a new revolver with availability of $237 5 million and terminated our existing revolver.

We appreciate our bank group and believe this new revolver will serve us and our liquidity needs as we look ahead. As a reminder, all of our debt remains unsecured.

We appreciate our bank group and I believe this new revolver will serve us and our liquidity needs as we look ahead.

As a reminder, all of our debt remains unsecured.

With that I'll turn the call over to George.

Thank you, John . And again, welcome to Franklin Street Properties fourth quarter and full year 2021 earnings call.

Thank you John and again welcome to Franklin Street properties fourth quarter, and full year 2021 earnings call.

I'd like to report that FSP executed very well on its primary 2021 strategies to reduce debt and to lease office space. 2021 achievements include the sale of 999 Peach Tree.

I would like to report that FSP executed very well on its primary 2021 strategies to reduce debt and to lease office space.

2021 achievements.

The sale of 99, nine Peachtree in Atlanta for $223 9 million.

a lease of approximately 100,000 square feet with a new tenant at our Persian Park property in Atlanta.

A lease of approximately 100000 square feet with a new tenant at our Pershing Park property in Atlanta.

And a lease renewal for approximately 250,000 square feet at Eldridge Green in Houston.

And a lease renewal for approximately 250000 square feet at Eldridge Green in Houston.

For a full year 2021, we sold 10 properties for aggregate gross proceeds of approximately $603 million.

For full year 2021, we sold 10 properties for aggregate gross proceeds of approximately $603 million.

We purchased approximately 3.4 million shares of our common stock for approximately 18.2 million.

We purchased approximately three 4 million shares of our common stock for approximately $18 2 million.

And we have reduced our total indebtedness since September thirtieth 2020 by approximately 53%, from approximately one billion to approximately four hundred and seventy Five million.

And we have reduced our total indebtedness since September 32020 by approximately 53% from approximately $1 billion to approximately $475 million.

Looking forward, we are very optimistic that our remaining office portfolio has significant upside leasing potential in a post COVID-19 environment.

that our remaining office portfolio has significant upside leasing potential in a post-COVID-19 environment.

And so in 2022, we will continue to focus all energies to leasing more of our available office space.

We also continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets and intend to continue

We also continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets.

And intend to continue our current strategy.

seeking to realize that shareholder value through the sale of select properties where we believe that short to intermediate term valuation potential has been reached.

Ah seeking to realize that shareholder value through the sale of select properties, where we believe it's short to intermediate term valuation potential has been reached.

At this time, we are estimating property dispositions for 2022 to be in the range of $250 to $350 million in aggregate gross proceeds.

At this time, we are estimating property dispositions for 2022.

To be in the range of $250 million to $350 million in aggregate gross proceeds.

We intend to use the proceeds from any future dispositions for continued debt reduction, continued

We intend to use the proceeds from any future dispositions or.

Our continued debt reduction continued.

Continued repurchases of our common stock.

And any special dividends required to beat requirements as well.

And any special dividends required to meet REIT requirements.

As well as other general corporate purposes.

Okay.

With that, I would like to turn the call over now to John Donahue, President of FSP Property Management Corp. John ?

With that I would like to turn the call over now to John Donahue.

President of FSP property Management Corp, John .

Thank you George good morning, everyone.

The FSP portfolio was approximately 78% least at the end of the fourth quarter as compared to 79% least at the end of the third.

The FSP portfolio was approximately 78, 4% leased at the end of the fourth quarter as compared to 78, 8% leased at the end of the third quarter.

The decrease is primarily attributable to asset disposition.

The decrease is primarily attributable to asset dispositions.

FSP finalized over 1 million square feet of total leasing during calendar 2021, including new deals, expansions, and renewals.

FSP finalized over 1 million square feet of total leasing during calendar 2021, including new deals expansions and renewals.

The leasing momentum that had been escalating on multiple occasions during 2021 was interrupted by the Delta variant surge and most recently by the Omicron variant surge.

The leasing momentum that had been escalating on multiple occasions. During 2021 was interrupted by the Delta variant surge and most recently by the Omicron variant search.

However, we are currently witnessing leasing momentum once again, with demand for office space in our portfolio improving on a weekly basis.

However, we are currently witnessing leasing momentum once again with demand for office space in our portfolio improving on a weekly basis.

In the majority of FSP's markets across the country, there are improving fundamentals, shrinking sublease space, additional office reopenings, and growth in the pipeline of new potential commitments.

And the majority of Fsp's markets across the country. There are improving fundamentals shrinking sublease space additional office re openings and growth in the pipeline of new potential commitments.

FSP is currently tracking approximately 700,000 square feet of potential new tenant prospects.

FSP is currently tracking approximately 700000 square feet of potential new tenant prospects.

included in the 700,000 square feet of prospects, there are approximately 400,000 square feet of new tenant prospects that have shortlisted FSP assets, identified an FSP building as their top choice, or signed a letter of intent.

Included in the 700000 square feet of prospects. There are approximately 400000 square feet of new tenant prospects that have shortlisted FSP assets identified an FSP building as their top choice or signed a letter of intent.

We continue to be encouraged by meaningful growth in leasing activity and FSP's healthy pipeline of prospective tenants. Thank you.

We continue to be encouraged by meaningful growth in leasing activity.

<unk> healthy pipeline with respective tenants.

Thank you I will now turn it over to Jeff Carter.

Thank you, John . Good morning, everyone. We here at Franklin Street Properties hope that everyone remains safe and healthy.

Thank you John Good morning, everyone. We here at Franklin Street properties opened that everyone remains safe and healthy as.

As we start 2022, FSP continues with our efforts to materially reduce corporate indebtedness at the company through select property sales. Importantly,

As we start 2020 to FSP continues with our efforts to materially reduce corporate indebtedness at the company through select property sales importantly, we believe that our disposition efforts during 2021, which effectively began at the end of 2020 have served to highlight a disparity there.

We believe that our disposition efforts during 2021, which effectively began at the end of 2020, have served to highlight a disparity that exists between our public share price and the true market value of our real estate assets. And so we believe our dispositions have been capturing associated embedded value for our shareholders.

That exists between our public share price and the true market value of our real estate assets and so we believe our dispositions have been capturing in.

Embedded value for our shareholders.

More specifically, for the full year of 2021, FSP completed approximately $603 million in total property sales and an aggregate weighted average in place cap rate of approximately 5.5%.

More specifically for the full year of 2021, FSP completed approximately $603 million and total property sales and an aggregate weighted average in place cap rate of approximately five 5%.

During the fourth quarter, specifically, FSP completed three dispositions, totaling about $263.9 million. That included 999 Peachtree and Atlanta for $223.9 million in October , and Meadow Point and Stonecroft, both in Chantilly, Virginia, for $40 million in November .

During the fourth quarter, specifically FSP completed three dispositions totaling about $263 9 million that included 90 99 Peachtree in Atlanta for $223 $9 million in October and metal point in stone cross both in Chantilly, Virginia for $40 million in November .

Looking at 2022 more specifically, FSP has confirmed expected disposition guidance of between $250 million and $350 million in aggregate gross proceeds for the calendar year. Similarly to last year, with any potential upcoming property sales, FSP intends to continue to utilize disposition proceeds primarily to pay down debt.

Looking at 2022, more specifically FSP has confirmed expected disposition guidance of between $250 million and $350 million in aggregate gross proceeds for the calendar year. Similarly to last year with any potential upcoming property sales FSP.

<unk> intends to continue to utilize disposition proceeds primarily to pay down debt.

FSP currently is or will soon be seeking price discovery on Eldridge Green and Park 10 in Houston, Texas 909 Davis and Evanston, Illinois and 380 and 390 interlock and in Broomfield, Colorado And we will continue to provide updates as appropriate

FSP currently has or will soon be seeking price discovery on Eldridge Green and park 10 in Houston, Texas, 909, Davis in Evanston, Illinois, and 380, and 390, Interlaken and Broomfield, Colorado, and we will continue to provide updates as appropriate.

Our criteria for selecting potential properties for disposition...

Our criteria for selecting potential properties for disposition continues to be asset specific and not market specific we consider a variety of factors, including analyzing respective short to intermediate term value potential.

continues to be asset specific and not market specific. We consider a variety of factors, including analyzing respective short to intermediate term value potential.

Lastly, in an effort to try to add a bit of color around what we are experiencing in the marketplace on investment sales, FSP has generally been seeing strong demand for well-located and high-quality office properties from a diverse group of buyers. To date, the strongest interest has been from private buyers, but public buyers are also increasingly looking and participating.

Lastly, in an effort to try to add a bit of color around what we are experiencing in the marketplace on investment sales FSP has generally been seeing strong demand for well located and high quality office properties from a diverse group of buyers to date. The strongest interest has been from private buyers, but public by.

<unk> are also increasingly looking and participating intra.

Interest has also brought in for mostly single or few tenant properties with strong weighted average lease terms to also select interest in core plus and even value add.

Interest has also brought in for mostly single where few tenant properties with strong weighted average lease terms to also select interest in core plus and even value add.

Strongest interest has been in the suburbs, but infill is also seeing exploration as well.

and winning bidders are underwriting a return to a more normalized economy and office-use landscape.

And winning bidders are underwriting a return to a more normalized economy and office use landscape.

Most interest that we have seen has been domestic in nature, but some international groups have been looking as well.

Interest that we have seen has been domestic in nature, but some international groups have been looking as well.

And with that, we thank you for listening to our earnings conference call today. And now at this time, we'd like to open up the call for any questions. Gemma?

And with that we thank you for listening to our earnings conference call today and now at this time, we'd like to open up the call for any questions Chairman.

Thank you and as a reminder if you would like to ask a question please press star followed by one on the telephone keypad and if you change your mind it's star followed by two.

Thank you and as a reminder, if you would like to ask a question. Please press star followed by one in this telephone keypad and if you change your mind <unk> followed by <unk>.

Our first question today comes from Rob Stevenson of Janay. Please go ahead Rob, you are

Our first question today comes from Rob Stevenson of Janney.

Please go ahead, Bob Your line is now open.

uh... good morning guys uh... other dispositions took the two fifty three fifty reflect just uh... five properties that you guys have identified and the roughly one point one million square feet or doesn't include other stuff as well

Good morning, guys.

On the disposition does the $2 15 to $3 50 reflect just five properties that you guys have identified and they are roughly $1 1 million square feet or does it include other stuff as well.

Hi, Rob. This is Jeff Carter. Good morning. It includes the assets that we've noted.

Hi, Rob This is Jeff Carter good morning. It includes the assets that we've noted.

Okay, so anything else that you do besides those five would be in addition to the current guidance?

Okay. So anything else that you do be besides those five would be an addition to the current guidance.

That would be correct and we will update quarterly.

and then george how the board thinking about the continued disposition and you know and another options here i mean the stock price

And then George how is the board thinking about the continued disposition and you know another options here I mean, the stock price Hasnt Budged I assume that you and the board and the rest of the management team had been a little disappointed by that.

hasn't budged i assume that you in the board the rest the management team have been a little disappointed by that uh... that it's not reflecting more of a value as you you know drop the leverage and you know by addition by subtraction in some cases improve the at the asset quality you know if the stock continues to be in this sort of five six dollar range how long you know is the board willing to do to maintain that and sort of what are the next steps for you guys

That is not reflecting more of a value as you dropped elaborate and bye.

In addition by subtraction in some cases improve the asset quality, what you know if the stock continues to be in the sort of five six dollar range.

How long.

The board willing to do to maintain that and sort of what are the next steps for you guys.

Hi, Rob.

So, you know.

So.

No.

Good question. And, and the answer to that question is somewhat multifaceted. First, I would say that the strategy that we

Good question.

And.

The answer to that question is somewhat multifaceted first I would say.

The strategy that we.

executed on in 2021.

Executed on in 2021.

If you take.

stock at the close of 2021 and then what it did.

<unk>.

Stock at the close of 2021, and then what it did.

or at the close of 2020 and then the close of 2021.

Okay.

The close of 2020 intended to close to 2021.

The market actually did value our stock higher year over year and when you add.

The market actually did.

The value of our stock higher year over year again, when you add.

dividends into that equation. Actually, our return to our shareholders for 2021 was

Dividends into that equation actually are our return to our shareholders.

For 2021 was.

Reasonable just isolating that year.

Obviously, looking over a broader timeframe and spectrum, we are disappointed in prices.

Obviously looking over a broader timeframe in spectrum.

We are disappointed in the price of our stock.

and the board is very focused on the

The.

Our board is very focused.

The best way to.

to get the best value risk-reward adjusted.

To get the best value risk reward adjusted.

For our shareholders.

And that way, right now, in front of us, for 2022, is the way that we have outlined with continued.

And that way.

Right now in front of US for 2022 is the way that we have outlined with continued.

dispositions as a large focus, but

Dispositions as a.

A large focus.

But with.

great effort and commitment to leasing what we believe are fantastic properties and fantastic markets that we think will do real well over the next year or two.

A great a great effort and commitment to leasing what we believe are fantastic properties and fantastic markets that we think will do well over the next year or two in terms of leasing and adding value to those properties in that commitment.

leasing and adding value to those properties and that commitment is

As is.

unrelenting by the board. I would say, I would say that one of the things to.

Unrelenting by the board.

I would say I would say that one of the things too.

to consider and watch this year, during 2022, is, in fact, what happened.

To consider and watch this year during 2022 is in fact what happens.

in the broader office market relative.

In the broader office market.

<unk>.

Relative to Covid.

and office return. Again, we've had a lot of false starts here over the last couple of years. We'll see where this one goes. We're optimistic. I think the office market is generally optimistic.

Office return.

Again, we've had a lot of false starts here over the last couple of years, we'll see where this one goes.

We're optimistic I think the office market is generally optimistic.

We specifically also have

We specifically also have.

<unk> faced in the last few years, a real headwind and some of our energy markets specifically Houston.

faced in the last few years a real headwind in some of our energy markets, specifically Houston and downtown.

<unk>.

Some of those headwinds may be turning to tailwinds. Time will tell. But again, as we proceed through 22 and 23, our ability to lease and add value to those properties in those particular markets that are heavily energy concentrated is something that the board and all of us will be watching closely in terms of adding value.

Denver.

Some of those headwinds may be turning to <unk> time will tell but again as we proceed through 'twenty two and 'twenty three.

Our ability to lease and add value.

To those properties in those particular markets that are heavily energy concentrated is something that.

Board and all of us will be watching closely in terms of adding value.

for the shareholders. And lastly, I would say that.

For the shareholders and lastly, I would say.

That.

At this point.

The two things that are really...

Two.

Two things that are really.

we believe very meaningful for our shareholders is, number one and most important, the continued reduction of deaths.

We believe very meaningful for our shareholders.

Is number one and most important the continued reduction of debt.

As long as we

As long as long as we.

Reduce debt.

with proceeds from

With proceeds from.

Dispositions.

Equity values, remaining equity values in our portfolio should be real solid for our shareholders, at least that's what we feel.

Equity values remaining equity values in our portfolio should should be real solid for our shareholders at least that's what we feel.

And returning that value in terms of a better balance sheet, lower risk.

And returning that value in terms of a better balance sheet lower risk.

the ability to grow again off the balance sheet if that is the

The ability to grow again off the balance sheet, if if that is the.

objective going forward with future acquisitions, definitely will be improved.

Objective going forward with future acquisitions definitely definitely will be improved.

Along with that, sending cash to investors as we did last year from gains that we experienced on dispositions.

Along with that.

Sending cash to investors.

As we did last year.

From gains that we experienced on dispositions.

We.

have successful dispositions, and if those dispositions have gains, is another way to return that value to shareholders. And of course, lastly, is repurchases of our stock. So I think it's long-winded, Rob, but I think the path in front of us is a long-winded path.

Have successful dispositions and if those dispositions have games is another way to return that value to shareholders.

And of course lastly is.

Repurchases.

Our stock so so.

I think it's long winded, Rob, but I think the.

The path in front of us for 2022.

so long as our share price remains where we believe it is so much lower than the net value of our continuing real estate portfolio of assets is as we've explained and beyond that

So long as our share price remains where we believe it is so much lower than the net value of our continuing real estate portfolio of assets is is as we are.

Blaine and beyond that.

We will let the market now.

Okay, fair enough. And then one last one for me, for John DeMeritt. You know, you have, of the remaining $475 million of debt, you have some, you know, sub twos, some low fours, some high fours. What's the, you know, assuming that you get, you know, somewhere, you know, three, $350 million of disposition proceeds this year, what debt, what's the order of...

Okay Fair enough and then one last one for me for John Demeritt.

You have the remaining $475 million of debt you have some sub to some low for some high fours whats the assuming that you get.

Somewhere $3 million to $350 million of disposition proceeds this year.

What's the order of debt that youll attack and what type of pre penalty prepayment penalties. If any are there going to be involved in that.

debt that you'll attack, and what type of pre-payment penalties, if any, are there going to be involved in that?

Well, the first most likely would be the $110 million that remains on what was a $400 million term loan that matures in January of next year.

Well the first most likely would be about 110 million that remains on what was a $400 million term loan.

That matures in January of next year.

So the, you know, first $110 million will go against that. There is no prepayment penalty on that. We would be accelerating some deferred financing costs, you know, depending on when we paid it off.

For a $110 million of go go against that there is no prepayment penalty on that.

We will be accelerating some deferred financing costs.

Ending on when we paid it off but I don't think that's a significant amount of money.

But I don't think that's a significant amount of money. The second piece of debt would be the $165 million term loan that we have that was.

The second piece of that would be the $165 million.

Term loan that we have that.

<unk>.

led by Bank of Montreal. That one's due in the end of January of 2024.

Led by bank of Montreal that one's due in the end of January of 2024.

That one does have a swap on it, so if we were to repay that, we'd have to break the swap and incur, you know, some costs from that. And I looked at the value of that swap at the end of January , you know, where rates have been...

That one does have a swap on it.

So if we were to repay that we'd have to break the swap and incur some costs from that and I looked at the value of that swap at the end of January where rates have been rising.

That does have a tendency to reduce the amount of the swap liability we have on it. I think it was 5.3 million at year end, and by the end of January , it was around 3.5 million, something like that. So if we pay that 165 back, there will be some portion of that that we will need to break a swap on, unless rates rise significantly.

That does have a tendency to reduce the amount of the swap liability. We have on it I think it was $5 3 million at year end and by the end of January it was around $3 5 million something like that so if we pay that 165 back there'll be some portion of that that we will.

We'll need to break a swap line unless rates rise significantly.

Okay, so the series A and B senior notes are not something that you're going to likely get to with this round of dispositions.

Okay. So the series a and B senior notes are not something that youre going to likely get to with this round of dispositions.

No, I don't think so. And that has, they have a yield maintenance component to them that is pretty expensive on those two pieces of.

No I don't think so and that has.

They have a yield maintenance component to them that it's pretty expensive on those two pieces of data.

And when do they start becoming more in the sort of less on risk to take out?

And when do they start becoming more in the sort of less onerous to take out.

Well, 116 million of it matures in December of 24, and then 84 million matures in December of 27. So, the 24 maturity, you know, would start to come down, you know, over the next couple of years. Okay. All right. Thanks, guys. I appreciate the time.

Well $116 million of it matures in December .

24 $84 million matures in December of 'twenty seven.

21 maturity.

Start to come down over the next couple of years.

Okay.

Alright, Thanks, guys appreciate the time.

Yes.

Our next question on the line comes from Dave Rogers of BARD. Please go ahead Dave, thank you.

Our next question on the line comes from Dave Dave Rodgers Sorry thought. Please go ahead. Thank you.

Yeah, good morning, everybody. George, I wanted to follow up on your your just your prior comment a moment ago, I think, you know, going into the pandemic enterprise value just under 2 billion.

Yes, good morning, everybody George I wanted to follow up on your just your prior comment a moment ago, I think going into the pandemic enterprise value just under $2 billion Youre on track to sell about $1 billion of assets over the same time G&A kind of keeps going up. So if you are not really that interested in selling the company as a whole how do you downsize the company how.

you're on track to sell about a billion dollars of assets over the same time, you know, GNA kind of keeps going up. So if you're not really that interested in selling the company as a whole, how do you downsize the company? How do you right-size the overall organization to be this smaller company that you're heading toward as you think about kind of not, you know, not pursuing that strategic alternative?

Do you rightsize the overall organization to be the smaller company that you are heading toward.

As you think about kind of not not pursuing that strategic alternative.

Well, as you've asked this question before, Dave, and I will.

Well as you've asked this question before Dave and I will.

say it again and as clear as I can, we are constantly...

Say it again, we're as clear as I can.

We are constantly reviewing all strategic alternatives.

The business plan for 2022, we

The business plan for 2022.

at this point have laid out and business plans have changed during the course of the year. But that is the business plan as we start in 2022. But all strategic alternatives, all strategic alternatives...

At this point.

<unk> laid out and business plans.

Can change during the course of the year, but that is the business plan as we've started 2022, but all strategic alternatives. All strategic alternatives are always been reviewed and are on the table.

are always being reviewed and are on the table. And so,

And so.

Assuming that we are going to.

stay a much smaller company for a much longer period of time and have to right-size G&A and all of the other things that you would do if that, in fact, is where we go, is probably.

Stay a much smaller company for a much longer period of time and have to rightsize G&A and all of the other things that you would if that in fact is where we sell.

Is probably not a good assumption in terms in.

in terms, in the sense of, again, all options continuing to be on the table. And once,

In the sense of again, all options continuing to be on the table and once.

Long term.

option is chosen and again

<unk> has chosen.

And again.

Sure.

We'll learn a lot this year post-COVID, hopefully post-COVID, gee, I hope post-COVID. Those long-term decisions and what strategic decisions we make long-term, including

We'll learn a lot this year post COVID-19 , hopefully post Covid post COVID-19 .

Those those long term decisions and what strategic decisions, we make long term.

Including including.

Flowing again significantly.

Okay.

Number of potential ways.

We will tackle what is necessary to tackle to make the company the most profitable it can be in whatever strategic scenario we choose.

We will tackle what is necessary to tackle the company the most profitable and can be and whatever strategic scenario would choose.

Okay, Yes fair enough on that I think.

On the dispositions, you had talked about the energy markets getting better, and I think, Jeff, you also might have mentioned, you know, kind of the value-add market improving for acquisitions or your dispositions.

On the disposition you had talked about the energy market is getting better and I think Jeff you also might have mentioned.

The value add market improving for acquisitions or your disposition.

That said, I think what you've just teed up this year is somewhere between 99 and 91 percent leased. So, you know, obviously adding more to the backlog of what needs to be leased and kind of pressuring the leased percentage. Why not pursue a little bit more? Why not tag on some of those value-add assets in those markets at Houston or at Denver, you know, as opposed to just selling, you know, the well-leased, well-located assets?

That said I think what you've just teed up this year is somewhere between 99 and 91% leased so obviously, adding more to the backlog of what needs to be leased and kind of pressuring the lease percentage why not pursue a little bit more why not tag on some of those value add assets in those markets like Houston or Denver.

As opposed to just selling.

The well leased well located assets.

Dave, this is Jeff. We are evaluating assets on an asset specific basis, not a market specific basis, and so we're selling assets when we feel like the value potential is correct to sell them, and the assets that we are not selling are assets that we believe have tremendous upside potential for our shareholders and great opportunity for continued ownership.

Dave This is Jeff we are evaluating assets on an asset specific basis not on a market specific basis and so we are selling assets. When we feel like the value potential is correct to sell them and the assets that we are not selling our assets.

That we believe have tremendous upside potential for our shareholders and great opportunity for continued ownership.

Okay, that's fair. And then I guess maybe, John , donning you one question for you on the leasing front. You mentioned 700,000 square feet, obviously quite a bit of wood to chop, about a million six of vacancy in the portfolio right now. Can you talk about kind of known move-ins and known move-outs at this point and how you see that impacting kind of the cadence of 2022?

Okay. That's fair and then I guess, maybe John Donahue. One question for you on the leasing front, you mentioned 700000 square feet, obviously quite a bit of wood to chop about one 6% vacancy in the portfolio right. Now can you talk about kind of known move ins and known move.

Out at this point and how you see that impacting kind of the cadence of 2022.

Sure Dave Good morning.

In terms of move-ins and move-outs, which would be economic occupancy, it will largely depend on...

In terms of move ins and move outs, which would be economic.

Economic occupancy.

It will largely depend on.

when assets are sold and which assets are sold, of course. But what we're seeing right now is a much better improving pipeline of decision making.

And when assets are sold and which assets are sold of course.

What we're seeing right now is a much better improving pipeline.

<unk>.

Decision, making.

and moving more quickly towards the finish line, which is, man, we've been waiting for that for quite a while. So if that continues with no surprises, I would expect the level of success to be...

And moving more quickly towards the finish line, which is we've been waiting for that for quite a while so if that continues with no surprises I would expect that.

The <unk>.

The level of success to be not.

not just inching along or being linear, but might really surge and move upward quickly. COVID is the big wild card, and these prospects that are looking at.

Not just inching along are being linear but might really surge in upward quickly COVID-19 is the big wildcard in these prospects that are looking at.

you know, long-term commitments need to just get over that hurdle of decision-making.

Long term commitments need need to just get over that hurdle of decision, making my sense right. Now is that we're in a better place than we were September October just a little bit better and it's very fragile depending on COVID-19 , but it is better and so there is more optimism and more positive talk.

My sense right now is that we're in a better place than we were September-October, just a little bit better, and it's very fragile depending on COVID, but it is better.

And so there is more optimism and more positive talk in the markets today than there were on multiple occasions last year. So if I had to guess, I would say that

Mark in the markets today than there were on multiple occasions last year. So if I had to guess I would say that this is this is not going to be an inching or linear progress throughout the year, but it could it could be.

This is not going to be an inching or a linear progress throughout the year, but it could be more quick and escalate quickly.

More quick.

And escalate quickly.

Thank you for that. Specifically, I know venitive is that about two thirds backfield and then any update on the direct TV space.

Thank you for that specifically on <unk> is that about two thirds back filled and then.

Any update on the Directv space.

So, in regards to VINTIV, we have released between 60% and 66% of that space and looking at new prospects for the balance, so we believe that we're done at this time with the subtenant.

So in regards to event as we have.

Re leased between 60 and 66% of that space.

And looking at new prospects for the balance. So we believe that were done at this time with the sub tenants. So Denver is the lion's share of our vacancy followed by Texas.

So Denver is the lion's share of our vacancy, followed by Texas. But the market has been improving greatly in Denver, especially downtown. And we do have a prospect that would backfill the DirecTV. We expect DirecTV to vacate over the next three, four months.

But the.

The market has been improving greatly in Denver, especially downtown.

And we do have a prospect.

Would backfill to Directv, we expect Directv to vacate over the next three or four months.

Downtime on that space.

Well, hard to say. I think, you know, we do have one very strong prospect, but, you know, we're probably looking at downtime of at least a quarter or two, maybe three quarters, but it's just hard to say.

Well hard to say.

Think we do have one very strong prospect, but.

We're probably looking at downtime.

Just a quarter or two maybe three quarters, but it's just hard to say.

Lastly, just the move in.

Blue Lagoon.

Blue Lagoon, the lease you just announced subsequent to the end of the quarter.

The lease you just announced subsequent to the end of the quarter.

Timing on that? That would be, yeah, the timing of the move-in would be as soon as they're done with build-out. And so at some point in the fourth quarter would be our estimate.

Timing on that.

Yes, the timing of the move in would be as soon as they're done with build out and so at some point in the fourth quarter would be our estimate.

Okay, and then I'm sorry, I had one more. WPX Energy, four months left, I think, on that term. What happens to that? Is that a sell or is that a release?

Okay, and then I'm, sorry, I had one more WP ex energy four months left I think on that term.

What happens to that is that is that a cell or is that a release.

That is a known move out in the release.

Okay.

Thank you for all the detail I appreciate it.

Youre welcome.

We shall now move to our final question on the line from Craig Kurakua from B Riley Securities. Please go ahead Craig, thank you.

We shall now move to our final question on the line from Craig correct.

From B Riley Securities. Please go ahead, great. Thank you.

Thanks. Good morning, guys. I wanted to circle back with another question related to Inventive. You made some headway here in the fourth quarter. Can you give us a sense of when those leases – I think there are three currently – are going to start paying rent at that property that vacates here over the next couple of months?

Yes. Thanks, Good morning, guys I wanted to circle back with another question related to <unk>.

You made some headway here in the fourth quarter can you give us a sense of.

Kind of when those leases I think there are three currently are going to start paying rent.

That's it that properties that vacates here over the next couple of months.

Hi Craig, it's John Donahue. I'm going to pass that along to Will Friend. Will, are you still with us?

Hi, Craig It's John Donahue.

I'm going to pass that along to will friend.

Are you still with us.

I am John .

Craig, are you asking from a free rent standpoint or from a cash rent standpoint? Because they all commence, the leases all commence March 1, and they have varying degrees of free rent as the terms are different, but on average, between 6 and 12 months.

Greg you're asking from a free rent standpoint from a from a cash earning standpoint, because they all commenced.

The leases will commence March one and they have they have varying degrees of.

Free rent as the terms are.

Are different.

But.

On average.

Between six and 12 months.

Okay, Great that's helpful.

Just thinking about capital allocation, you have brought down the leverage considerably from last year and beginning this year in the low sixes. Do you have a target leverage that you're thinking about what Franklin Street looks like maybe post all of these dispositions that you're contemplating this year?

Yes.

Okay great.

And just thinking about capital allocation.

You have brought down the leverage considerably from last year and beginning this year kind of in the low sixes do you have a target leverage that you are thinking about.

What what Franklin Street looks like.

Maybe post all of these dispositions.

You are contemplating this year.

This is John DeMerit. We don't have a target leverage in mind, no. We've just got the disposition guidance that we're going to follow. I don't know if you want to add anything to that, George. I think that's right, Greg. John DeMerit mentioned earlier in the call the two-term loan.

This is John <unk>.

We don't have a target leverage.

In mind now we've just got the disposition guidance that we're going to follow I don't know if you want to add anything to that Georgia.

I think thats right Greg.

John North American mentioned earlier in the call.

The two term loans and.

And if we were able to achieve our target disposition.

If we were able to achieve our targeted dispositions.

and aggregate gross proceeds and so on, you would basically...

In aggregate gross proceeds and so on.

You would you would basically.

could basically get through the bulk of those two term loans, which would leave the private placement debt. And again, that assumes we got.

You could basically get through.

Bulk of those two term loans, which would leave the private placement debt.

And again that assumes we got through the dispositions.

Could we could.

contract that disposition guidance in future quarters or expand it.

Contract that disposition guidance in future quarters or expand it.

And that would leave.

private placement debt as our only debt with at least sort of what we put forward now relative to to dispositions and that would be you know

Private.

That is our only debt with at least sort of what we've put forward.

Now relative to.

Two dispositions that would be.

15%, 20% indebtedness.

Got it. And I guess just how is the board thinking about cost of capital when you're buying back debt at below 2% and then maybe 4% sort of beyond that versus your dividend yield currently north of a 6% and obviously there should be in theory some growth on top of that given the leasing upside. Is there the potential to maybe be a little bit more aggressive on the share buybacks here in 2022 given that you still have a healthy amount outstanding?

Got it and I guess, just how is the board thinking about cost of capital one year, when youre buying back debt at below 2%, maybe 4% sort of beyond that versus your dividend yield currently north of a six.

Obviously, there is there should be in theory, some growth on top of that given that the leasing upside is there is there the potential to maybe be a little bit more aggressive on the share buybacks here in 'twenty two given that you still have a healthy amount outstanding.

Uh, the short answer is yes, um, uh, if investing, which is, which is really.

The short answer is yes.

If it.

Investing which is which is really.

Really where.

Cost of capital.

value creation for our shareholders gets focused.

Yes.

Value creation for our shareholders gets focused here.

here and at the board level does potentially contemplate depending.

Here and at the board level.

It does.

Potentially contemplate.

Depending on.

The share price and other things.

More share.

buy back rather than less. And again, if.

Buyback rather than less.

Again.

If that were to occur if that were to occur.

certainly announce it. We would, if it were to occur, have to expand our repurchase program.

We will certainly announce it.

If it were to occur half two.

Expand our.

We purchased.

Program properly.

And.

And based upon our trading volume, our average trading volume.

And based upon our our trading volume our average trading volume.

and the procedures for repurchasing shares to...

The procedures for repurchasing shares.

Two.

To actually achieve.

stepped-up share repurchases of consequence, you would probably have to.

Step.

Stepped up share repurchases of consequence.

You would probably have to.

Sure.

Work hard at.

looking for potential block trades if they were available in the market properly under the program. So some of it is

Looking for potential block trades.

If they were available in the market properly under the program. So so some of it some of it is going to be achievable relative to our to our volume levels and the program that we <unk>.

going to be achievable relative to our volume levels and the program that we and virtually most companies that we purchase shares are under.

Virtually.

Most companies that we purchase shares are under.

Okay I appreciate the color. Thank you.

We have no further questions on the line, so I'll hand back over to George Carter for closing remarks. Thank you.

We have no further questions from the lines I will hand back over to George Carter for closing remarks. Thank you.

Just thank everybody for turning into the call today. 22 will be an exciting year for us and for the whole office market for that matter. We are looking forward to it. We're excited. The energy markets are interesting, but certainly there are a lot of moving parts for the office market and FSP in particular. Look forward to talking to you next quarter.

Just thank everybody for turning turning into the call today at 22 will be an exciting year for us and for the whole office market for that matter.

We are looking forward to it we're excited.

The energy markets are interesting, but certainly there are a lot of moving parts.

For the office market in FSP in particular to look forward to talking to you next quarter.

Thank you very much for joining us today, ladies and gentlemen, you may now disconnect your lines. Have a good afternoon.

Thank you very much for joining us today, ladies and gentlemen, you may now disconnect. Your lines have a good afternoon. Thank you.

The.

Yeah.

<unk>.

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Yes.

Sure.

[music].

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