Q1 2022 Franklin Street Properties Corp Earnings Call

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Good morning, and thank you for attending today's Franklin Street Properties Corp, Q1, 2022 earnings call. My name is Selena and I will be your moderator all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you like to.

I'll ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Scott Carter General Counsel. Please go ahead.

Good morning, and welcome to the Franklin Street properties first quarter 2022 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, and John Donahue President of FSP property management also joining me. This morning are Toby Daley and Willebrand, both executive Vice President of FSP.

P 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 Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking.

King statement as a result of various important factors, including those discussed in the risk factors section.

All of our annual report on Form 10-K for the year ended December 31, 2021, which is on file with the SEC. In addition, these forward looking statements represent the company's expectations only as of today may four 2022, while the company may elect to update these forward looking statements.

It's specifically disclaims any obligation to do so any forward looking statements 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 <unk>.

<unk> and other GAAP 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 Dot FSP Rei Dot Com now I will turn the call over to John Demeritt John .

Thank you Scott and good morning, everyone.

I'm going to give a brief overview of our first quarter results afterward, I'll pass the call to George for his comments.

As a reminder, our comments today will refer to our earnings release supplemental package and 10-Q.

Which as Scott mentioned can be found on our website.

We reported funds from operations or <unk> of about $11 6 million or <unk> 11 per share for the first quarter of 'twenty two.

And we reported a GAAP net loss of about $4 2 million or <unk> <unk> per share for the first quarter.

At March 31, 'twenty, two we had $515 million of debt outstanding.

Our net debt to EBITDA ratio was seven four times as of March 31 22.

Compared to eight nine times at March 31, 21.

The decrease in that ratio was primarily a result of the impact of asset sales and debt repayments made in the last year.

Our debt service coverage ratio was 315 times for the first quarter of 'twenty, two compared to three nine times for the first quarter of 'twenty one.

As of March 31, 22, we have liquidity of about $208 million between availability on our revolver and cash on hand.

As a reminder reminder, all of our debt remains unsecured.

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

Thank you John and again welcome to Franklin Street properties first quarter 2022 earnings call.

For those that have followed Franklin Street through 2021 and into the first quarter of 2022.

You know that for full year 2022, we are focused on continuing to execute many of the same primary business objectives and goals, we set last year in 2021.

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A major efforts this year will focus on continuing to lease vacant office space in our portfolio of properties.

Which we have about one 6 million square feet available to lease out of our total of about $6 9 million square feet or about 23% as of the end of the first quarter.

We are continuing our disposition efforts of specific office properties.

Where we believe that those properties short to intermediate term valuation potential has been reached.

We also intend to continue to further pay down our debt with the bulk of any property disposition proceeds.

All of our debt as John just mentioned is unsecured so any properties can be sold and all available sale proceeds are able to be used for debt reduction.

Without any asset specific debt prepayment penalties being incurred.

And we plan to continue to repurchase FSP common shares in the open market under our previously announced stock repurchase plan.

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At this time, we are maintaining our previously announced property disposition guidance for full year 2022.

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

However, our disposition guidance is subject to change for a variety of reasons, including economic conditions are.

Office market conditions and geopolitical events.

We will update our disposition guidance quarterly in our earnings releases.

Now I'd like to turn the call over to John Donahue, President of FSP property Management Company John .

Thank you George good morning, everyone.

The FSP portfolio was approximately 77, 3% leased at the end of the first quarter.

As compared to 78, 4% leased at the end of the fourth quarter.

The decrease is attributable to lease maturities primarily in Denver.

FSP finalized approximately 131000 square feet of total leasing during the first quarter of 2022, including 103000 square feet of new leases.

Demand for office space in regards to space requirements of active tenants.

Across the majority of Fsp's portfolio markets has improved slowly and modestly during this calendar year.

Particularly for small to mid sized requirements.

Subsequent to quarter end, we have executed approximately 63000 square feet of new leases. The large majority of which are for FSP assets in Dallas and Houston.

In addition, we are currently tracking in excess of 700000 square feet.

New prospective tenants, including approximately 500000 square feet of prospects that have identified FSP assets on their respective shortlists.

Lease expirations for the remainder of calendar 2022, total approximately 295000 square feet, representing four 3% of Fsp's portfolio.

The growing pipeline of prospective tenants combined with minimal lease expirations provides FSP with an ideal opportunity to increase occupancy in the second half of 2022.

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 for 2020 to FSP is continuing to work to unlock value for our shareholders that we believe is not being accurately reflected within our current share price as George referenced in his remarks, we are striving to capture embedded <unk>.

Pretty value through the sale of select assets when we believe that their respective short to intermediate term potential has been reached for 2020 to FSP has reaffirmed our expected disposition guidance of between $250 million and $350 million an aggregate gross sales proceeds.

With the majority of anticipated sales most likely to occur in the second half of the year.

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

For competitive reasons in the marketplace, we will not share specifics on any potential sale until appropriate.

The criteria for selecting property dispositions continues to be asset specific versus market centric.

And we consider a variety of factors, including analyzing the potential for short to intermediate term value gains at respective properties.

We also wanted to share some additional color regarding what we are seeing in the real estate investment sales marketplace. In this recent environment of increased turbulence in the capital markets.

Despite heightened uncertainties in the marketplace, which prospective investors are contemplating FSP has continued to see interest in our property offerings, specifically as well as ongoing demand for well located and high quality office properties generally even within this environment, we will continue to monitor the market.

Place for potential impacts to date.

Buyers on our dispositions as well as on comparable sales that we've tracked continue by and large to come from investors, who were underwriting a return to a more normalized economy and office use setting.

Our disposition efforts remains subject to adjustment for a variety of reasons, including economic conditions, and we will continue to update our disposition guidance quarterly for the marketplace.

And with that I. 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 Celina.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by team again to ask a question press Star one.

Reminder, if you'd like.

A speaker phone please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.

The first question comes from Dave Rodgers with Baird. Please proceed.

Hey, guys. This is Nick on for Dave.

Maybe first question I'm Gonna asset sales and my assets currently in price discovery have you seen any noticeable change in maybe the bidding pool and our pricing with the rise in interest rates and then second part of that are there any assets further along in the process.

And if so if you could comment on the geography of that.

So the first part of the question having to do with interest rates.

Recent market conditions.

We have seen the impact that higher interest rates have had as well as other factors supply chain Covid, Ukraine. They have certainly increased uncertainty amongst prospective buyers in the marketplace.

The recent turbulence that we've seen in the capital markets has been a topic for discussion within the investment sales market place and we will continue to watch for any macro level impact sand for impacts on from micro level objectives, but your broader point, what we can say now though is at this time, we still believe that our goals for the year.

There are appropriate and achievable at pricing levels that fall within our expected ranges, but we will keep the market apprised quarterly on that and secondly, you or your other question related to geography and timing.

Yes, as I indicated in my remarks, we expect the majority of our sales if successful to close in the second half of this year and so we'll keep we'll keep you posted specifically as we have more to report there.

Thanks, and then maybe the next one's for John kind of commenting on the AR and.

On the leasing and maybe the 500000 square foot feet of short listed tenants I guess what markets are most active there and how much of that is current vacancy leasing.

Good morning, Nick.

It's John .

So the 500000 square feet of.

New prospects is four <unk>.

Vacancy none of that is for space that is currently leased.

The.

Large majority of number of prospects.

Are in Texas.

Dallas and Houston and.

Ed.

Other sunbelt markets.

The largest weighting of the square footage at this moment in time.

As in Virginia, and in Texas, we have a large block of space at <unk> and we have a number of prospects.

Or a larger size that are moving along the process. So I would say by waiting and square feet, you would go Virginia, the Dallas and Houston.

Great and then maybe the last one just with the vacancy how much additional capital is needed to lease up some of those vacancy in the portfolio.

Yeah.

Well that varies asset by asset of course, and we have been positioning our assets all during COVID-19.

So the majority of our portfolio is.

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Repositioned and ready for new tenants.

The more recent departures such as 10 to 117th Street with.

The lease exploration or a vintage of new field, we've been working on upgrading the amenities.

And we also had been finalizing some projects in Dallas with departures over the last year or so but.

The lion's share of the portfolio is already to go and despite the fact that tenants that are looking for 10 to 15 year requirements, they're looking for for larger T. I S.

We feel like we're in a very good position.

That's all for me thanks, guys.

Thank you Dave.

There are no additional questions registered at that time, So I will pass the call back over to George for closing remarks.

Thank you very much for tuning into our.

Earnings call and we look forward to second quarter. Thank you very much have a great day everybody.

That concludes the Franklin Street properties Corp, Q1, 2022 earnings call. Thank you for your participation you may now disconnect your lines.

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