Q3 2023 Franklin Street Properties Corp Earnings Call
Speaker 1: Good morning and welcome to the Franklin Street Properties Corp, 3rd quarter 2023 earnings call. All participants are.
Good morning, and welcome to the Franklin Street Properties Corp, third quarter, 2023 earnings call.
All participants are now in listen only mode.
Speaker 1: After the speaker's remarks, there will be a question and answer session.
After the Speakers' remarks, there will be a question and answer session.
Speaker 1: Join the queue for questions, simply press star, then the number one on your telephone keypad.
To join the queue for questions simply press Star then the number one on your telephone keypad.
Speaker 1: If you would like to withdraw your question please press star 1.
I would like to withdraw your question. Please press star one again.
Speaker 1: I would now like to turn the call over to Mr. Scott Carter, General Counsel. Please go ahead.
I would now like to turn the call over to Mr. Scott Carter General Counsel. Please go ahead Sir.
Okay.
Speaker 2: Good morning and welcome to the Franklin Street Properties third quarter, 2023 earnings call. Joining me this morning are George Carter, our chief executive officer, John Domeric, 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 Daly and Wolf Run.
Good morning, and welcome to the Franklin Street properties third quarter 2023 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 as well Brian.
Speaker 2: Hold Executive Vice President of MSP Property Management.
All the executive Vice President of FSP property management.
Speaker 2: Please note that various remarks that we may make about future expectations, plans and prospects for the company may constitute or looking statement.
Please note that various remarks that we may make about future expectations plans and prospects for the company.
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 statements as a result of various important factors, including those discussed in the risk factors section of.
Speaker 2: for purposes of the State Parper provisions under the Private Security Litigation Reform Act 1995. Actual results made different, materially from those indicated by these board looking statements as a result of various important factors.
Speaker 2: including those discussed in the risk factor section of our annual report on form 10K for the year-end in December 31, 2022. As amended by our quarterly reports on form 10Q, all of which are on file with the SCC. In addition, these board looking statements.
Our annual report on Form 10-K for the year ended December 31, 2022 as amended by our quarterly reports on Form 10-Q, all of which are on file with the guests. Each day. In addition, these forward looking statements represent the company's expectations only as of today November.
Speaker 2: The company's expectations only as of today, November 8, 2020, while the company may elect to update these four looking statements and specifically to claim any obligation to do so. Any four looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today.
2023, while the company may elect to update these forward looking statements. It 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.
Speaker 2: Times during this call, we may refer to funds from operations for FFO, reconciliation of FFO, and other non- GAAP financial managers to GAPN and income are contained in yesterday's press release, which is available in the Investor Relations section of our website at www.fsprtit.com. Now I'll turn the call over to John Dumer.
During this call we may refer to funds from operations or <unk> reconciliations of <unk> and other non-GAAP financial measures to GAAP net income are contained in Yesterdays press release, which is available on the Investor Relations section of our website at Www Dot FSP.
E <unk> dot com.
I'll turn the call over to John John.
Speaker 3: Thank you Scott and good morning everyone. I'm going to have to give a brief overview of our third quarter results and act to what I'll pass the call to Joe.
Thank you Scott and good morning, everyone.
Ill give a brief overview of our third quarter results.
Afterward, I'll pass the call to George for his thoughts.
Speaker 3: As a reminder, our comments today will refer to our earnings release, supplemental package and the 10Q, which Scott mentioned can be found on our website.
As a reminder, our comments today will refer to our earnings release.
Elemental package and the 10-Q, which as Scott mentioned can be found on our website.
Speaker 3: We reported funds from Operation Arrepo of about $7.5 million or $0.7 per share for the third quarter of 23. And a gap net loss of about $0.45.7 million or $0.44 per share for the third quarter of 23.
We reported funds from operation or <unk> of about $7 5 million or <unk> <unk> per share for the third quarter of 'twenty three.
And a GAAP net loss of about $45 7 million or <unk> 44 cents per share for the third quarter of 'twenty three.
Speaker 3: On a unit of 8 basis, we reported FFO about 23 million or 22 cents per share for the nine months that it's September 30, 23.
On a year to date basis, we reported a football about.
About 23 million or <unk> 22 per share for the nine months ended September 32003.
Speaker 3: a Gavnet loss of about 51.7 million or 50 cents per share for the nine months ended September
And a GAAP net loss of about $51 7 million or 50.
Per share for the nine months ended September of 'twenty three.
Speaker 3: As of September 30th, 23, we had 395 million total that outstanding, including 80 million drawn on our revolver, which had about 70 million available at the time.
As of September 30th 'twenty, three we had 395 million total debt outstanding including $80 million drawn on our revolver, which had about $70 million available at the time.
Speaker 3: We had about 10.6 million in cash on hand at 9.30, so there was total liquidity of about 80.6 million at the end of September .
We had about $10 6 million in cash on hand at 930. So there was total liquidity of about $86 million at the end of September.
With that I'll turn the call over to George George.
Speaker 4: Thank you, John . And again, welcome to Frank and Street Properties 3rd quarter, 2023 earnings call. It's the 4th quarter of...
Thank you John and again welcome to Franklin Street properties third quarter 2023 earnings call.
As the fourth quarter of 2023 begins.
Speaker 4: We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate.
We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets.
Speaker 4: We will seek to increase shareholder value by continuing to number one, pursue the sale of select property.
We will seek to increase shareholder value by continuing to number one pursue the sale of select properties where.
Speaker 4: where we believe that shorter term valuation potential has been reached.
We believe that shorter term valuation potential has been reached.
Speaker 4: and to strive to increase occupancy through the leasing of vacant space.
And to strive to increase occupancy to the leasing of vacant space.
Speaker 4: We intend to use proceeds from property dispositions primarily for continued debt reduction.
We intend to use proceeds from property dispositions, primarily for continued debt reduction.
Speaker 4: On last quarter's earnings call, that is for the second quarter of 2023.
On last quarter's earnings call that is for the second quarter of 2023.
Speaker 4: I talked about, among other things, the metric of price per square foot in considering the potential value proposition of an investment in Frank on street property.
Talked about among other things the metric of price per square foot and considering the potential value proposition of an investment in Franklin Street properties.
Speaker 4: And while there are a number of other valid metrics that can be used to try and determine value at FSP.
And while there are a number of other valid metrics that can be used to try and determine value at FSP.
Speaker 4: Price per square foot is one that we believe is particularly relevant to our specific property portfolio.
Price per square foot is one that we believe is particularly relevant to our specific property portfolio.
Speaker 4: Last quarter, we said that since December of 2020, when we really started our current property disposition plan.
Last quarter, we said that since December of 2020, when we really started our current property disposition plan.
Speaker 4: we had sold approximately $852 million of property.
We have sold approximately $852 million of property.
Speaker 4: representing about 3.85 million square feet.
Representing about 385 million square feet.
Speaker 4: which equated to an approximately $220 per square foot average price.
Which equated to an approximately $220 per square foot average price.
Okay.
Speaker 4: to update those metrics to today with the completed sales of Forest Park and post third quarter one legacy.
To update those metrics to today with the completed sales of course park and post third quarter one legacy.
Speaker 4: We have now sold approximately 909 million of property, representing about 4.1 million square feet.
We have now sold approximately $909 million of property, representing about four 1 million square feet.
Speaker 4: which still equates to an approximately $220 per square foot average price.
Still equates to an approximately $220 per square foot average price.
Speaker 4: and anticipated future property dispositions that we believe are likely to occur during the balance of this year would actually have a slightly higher average price per square foot than 220.
And anticipated future property dispositions that we believe are likely to occur during the balance of this year would actually have a slightly higher average price per square foot and $220.
Okay.
Speaker 4: My point is that this average price per square foot metric for FSP's properties
My point is that this average price per square foot metric for Fsp's properties.
Is one which has been tested and has been fairly consistent and.
Speaker 4: and has been fairly consistent in a generally very challenged commercial office property market.
And a generally very challenged commercial office property market.
Speaker 4: And while we can't give assurances as to what any individual property will sell for in the future.
And while we can't give assurances as to what any individual property will sell for in the future.
Speaker 4: We continue to believe that price per square foot is one interesting and valid metric to help measure value at FSP.
We continue to believe that price per square foot is one interesting and valid metric to help measure value at FSP.
Speaker 4: Taking this average price per square foot metric and relating it to our remaining debt is interesting as one view, and only one view, of a loan-to-value calculation and potential leverage.
Taking this average price per square foot metric and related to our remaining debt is interesting as one view and only one view.
The loan to value calculation and potential leverage risk.
Speaker 4: you have our end of third quarter approximate debt level of about $400 million.
You have our end of third quarter approximate debt level of about $400 million.
Speaker 4: against approximately 6.2 million square feet of property.
Against approximately $6 2 million square feet of property portfolio.
Speaker 4: which equates to about $65 of debt per year.
Which equates to about $65.
Debt per square foot.
Speaker 4: If you believe the 6.2 million remaining square feet of property in the FSP portfolio would continue to reflect an average of $220 per square foot of value.
If you believe the $6 $2 million remaining square feet of property in the FSP portfolio, which continued to reflect an average of $220 per square foot of value.
Speaker 4: Then total FSP death at the end of the third quarter would reflect about a 30%
Then total FSP debt at the end of the third quarter would reflect about a 30%.
Loan to value relationship.
Speaker 4: If you consider the post-third quarter completed sale of one legacy for 48 million gross proceeds.
If you consider the post third quarter completed sale of one legacy for $48 million gross proceeds.
Speaker 4: and anticipated additional disposition proceeds from further potential property sales during the balance of this year.
And anticipated additional disposition proceeds from further potential property sales during the balance of this year.
Speaker 4: with the majority of those proceeds primarily used for further debt reduction.
With the majority of those proceeds primarily used for further debt reduction.
Speaker 4: then the percentage loan-to-value metric is likely to fall significantly lower than 30%.
Then the percentage of loan to value metric is likely to fall significantly lower than 30%.
Speaker 4: Again, we intend to continue to use proceeds from further property dispositions, primarily for continued debt reduction.
Yes.
Again, we intend to continue to use proceeds from further property dispositions primarily for continued debt reduction.
Speaker 4: since the beginning of our recent disposition program through the third quarter of 2023.
Since the beginning of our recent disposition program through the third quarter of 2023.
Speaker 4: We have repaid approximately 60% of our debt.
We have repaid approximately 60% of our debt.
Speaker 4: which we believe has reduced risk to all FSP stacle.
Which we believe is reduced risk to all fsp's stakeholders. In this currently challenged office property market, while increasing the quality and longer term potential of their continued investment.
Speaker 4: in this currently challenged office property market, while increasing the quality and longer term potential of their continued investment.
Speaker 4: with the recent sale of one legacy and anticipated future dispositions this year.
With the recent sale of one legacy and anticipated future dispositions this year.
Speaker 4: We believe we are likely to continue repayment of our total debt down further to between $300 and $220 million. Down 70 to 78% from its former maximum amount of approximately $1 billion.
We believe we are likely to continue repayment of our total debt down further to between 300 and $220 million down 70% to 78% from its former maximum amount of approximately $1 billion.
Speaker 4: Now for more color on our leasing activity, I will turn the call over to John Donahue, President of FSP Property Management Court. John ?
Now for more color on our leasing activity I will turn the call over to John Donahue President of FSP property Management Corp. John.
Thank you George good morning, everyone.
Speaker 2: The FSP directly owned portfolio was approximately 74.8% least at the end of the third quarter compared to 75.7% least at the end of the second quarter and 75.6% least as of year end 2022.
The SSP directly owned portfolio was approximately 74, 8% leased at the end of the third quarter compared to 75, 7% leased at the end of the second quarter and 75, 6% leased as of year end 2022.
Speaker 5: The decrease was primarily attributable to these aspirations in Denver and Minneapolis, and secondarily due to property dispositions during the first nine months of the year.
The decrease was primarily attributable to lease explorations in Denver, and Minneapolis, and secondarily due to property dispositions during the first nine months of the year.
Speaker 5: Economic occupancy of the directly owned portfolio was approximately 71.9% at the end of the third quarter compared to 72.1% at the end of the second quarter.
Economic occupancy of the directly owned portfolio was approximately 71, 9% at the end of the third quarter compared to 72, 1% at the end of the second quarter.
Speaker 5: The decrease was primarily attributable to multiple tentative parkers during the third quarter.
The decrease was primarily attributable to multiple tenant departures during the third quarter.
Speaker 5: FSP finalized approximately 571,000 square feet of total leasing during the first nine months of 2023, which included approximately 365,000 square feet of renewals and expansions along with 206,000 square feet of new tenant leasing.
SSP finalized approximately 571000 square feet of total leasing during the first nine months of 2023, which included approximately 365000 square feet of renewals and expansions along with 206000 square feet of new.
New tenant leases.
Speaker 5: The leasing results for calendar 2023 have already surpassed the total leasing figures from calendar 2022.
The leasing results for calendar 2023 have already surpassed the total leasing figures from calendar 2022.
Speaker 5: New tenant demand has been picking up momentum as the pipeline of prospects has grown steadily during the last several months to approximately 900,000 square feet of prospective new tenants, including more than 500,000 square feet of prospects that have identified FSB assets on their respective short lists.
New tenant demand has been picking up momentum.
The pipeline of prospects has grown steadily during the last several months to approximately 900000 square feet of prospective new tenants, including more than 500000 square feet of prospects that have identified FSP assets on their respective shortlists.
Speaker 5: The positive trend has been most significant in FSP suburban markets, including Houston, Dallas, and Richmond.
The positive trend has been most significant in FSP suburban markets, including Houston, Dallas and Richmond.
Speaker 5: We are also encouraged by recent activity in downtown Denver, which has witnessed an increase in tours and schedule tours as well.
We are also encouraged by recent activity in downtown Denver, which has witnessed an increase in tours and scheduling tours as well.
Speaker 5: These aspirations for the remainder of calendar 2023, total approximately 90,000 square feet, which represents approximately 1.5% of FSP's directly bone portfolio.
Lease expirations for the remainder of calendar 2023, total approximately 90000 square feet, which represents approximately one 5% of fsp's directly owned portfolio.
Speaker 5: FSP continues to work with existing tenants that are engaged for potential renewals that total over 250,000 square feet and also includes approximately 50,000 to 70,000 square feet of expansions. Thank you. I will now turn it over to Jeff Carden.
FSP continues to work with existing tenants that are engaged for potential renewals that total over 250000 square feet and it also includes approximately 50000.
The 70000 square feet of expansions.
Thank you I will now turn it over to Jeff Carter.
Thank you John and good morning, everyone I.
Speaker 6: I will be discussing FSP's continued focus on selectively selling properties in order to further reduce indebtedness at FSP as well as to unlock value for our shareholders that we believe is not being accurately reflected in our current share price.
I will be discussing Fsp's continued focus on selectively selling properties in order to further reduce indebtedness at FSP as well as to unlock value for our shareholders that we believe is not being accurately reflected in our current share price during the third quarter on August 9th FSP.
Speaker 6: During the third quarter, on August 9th, the FSP sold our last remaining single story, Lex office building known as Forest Park in Charlotte, North Carolina, for approximately $9.2 million.
Sold our last remaining single story Flex office building bonus Forest Park in Charlotte, North Carolina for approximately $9 $2 million. Additionally.
Speaker 6: Additionally, after the close of the third quarter on October 26th, FSP completed the sale of one legacy circle, greater Dallas for approximately $48 million gross.
Additionally, after the close of the third quarter on October 26th FSP completed the sale of one legacy circle, greater Dallas for approximately $48 million gross.
Speaker 6: Looking ahead, FSP has three pending dispositions under respective purchase and sale agreements representing a combined approximately $153 million in gross sales proceeds. And that reflect an average price per square foot of approximately $227.
Looking ahead FSP has three ending dispositions under respective purchase and sale agreements representing a combined approximately $153 million in gross sales proceeds and that reflect an average price per square foot of approximately $227.
Speaker 6: Two of the pending dispositions currently have hard, non-refundable deposits with one still being in its respective due diligence period.
Two of the pending dispositions currently have hard nonrefundable deposits with one still being in its respective due diligence period.
Speaker 6: At this time, FSP anticipates closing on these properties prior to year end, and we'll keep the market informed as appropriate.
At this time FSP anticipates closing on these properties prior to year end and we will keep the market informed as appropriate.
Speaker 6: Assuming successful closings on the pending dispositions described, there are approximately $153 million in gross proceeds will be added to the just received gross proceeds of $48 million from the sale of one legacy circle for a total of approximately $201 million that we intend to primarily direct towards further reducing indebtedness at FSP.
Assuming successful closings on the pending dispositions described.
There are approximately $153 million in gross proceeds will be added to the just received gross proceeds of $48 million from the sale of one legacy circle for a total of approximately $201 million that we intend to primarily directed towards further reducing indebtedness at FSP.
Right.
Speaker 6: As we reported over recent quarters, the market for office property sales and financing remains challenging and in particular with respect to large office properties and to our bulk office portfolios.
As we have reported over recent quarters the market for office property sales and financings remains challenging and in particular with respect to large office properties and door bulk office portfolios.
Speaker 6: There are indeed fewer buyers than in the past. And not unexpectedly, deep value buyers are also looking for distressed opportunities, but so are buyers who have an eye towards the longer term value in growth proposition of the office asset class. And we have been successful to date in finding such groups. This will remain a key focus here.
Their R&D fewer buyers than in the past and not unexpectedly deep value buyers are also looking for distressed opportunities, but so our buyers who have an eye towards the longer term value and growth proposition of the office asset class and we have been successful to date and findings such groups.
This will remain a key focus here at FSP.
Speaker 6: The current reduction in liquidity and constrained blending environment when combined with rising interest rates in the post-COVID environment are primarily responsible for the currently and historically difficult conditions and have reduced the ability of real estate investors to reliably procure both the needed debt and equity capital to facilitate the closing of property purchases.
The current reduction in liquidity and constrained blending environment when combined with rising interest rates in the post COVID-19 environment are primarily responsible for the currently and historically difficult conditions and have reduced the ability of real estate investors to reliably procure both the needed.
Debt and equity capital to facilitate the closing of property purchases FSP continues however to see real interest from prospective buyers as investors continue to seek high quality and well located office properties.
Speaker 6: FSP continues to oversee real interests from prospective buyers as investors continue to see high quality and will locate it off as properties.
Speaker 6: For competitive reasons that we believe to be in the interest of all of our stakeholders in this currently challenged market environment, we will not be sharing specific information on individual pending dispositions. And we look forward to keeping the market informed as in one appropriate. 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 to any questions. Brianna?
For competitive reasons that we believe to be in the interest of all of our stakeholders and this currently challenged market environment, we will not be sharing specific information on individual pending dispositions and we look forward to keeping the market informed as and when appropriate.
With that we thank you for listening to our earnings conference call today, and now wed like to open up the call to any questions Briana.
Speaker 1: Thank you. At this time, I would like to remind everyone in order to ask a question, please press star.
Thank you.
At this time I would like to remind everyone in order to ask a question. Please press star one.
Speaker 1: Your first question comes from Stephen Dumancki with Jenny. Please go ahead.
Your first question comes from Stephen Domanski with Janney. Please go ahead.
Speaker 7: Good morning gentlemen, do you plan on distributing a special dividend as a result of the disposition is during 2023? And if so, what would be the potential amount?
Good morning, gentlemen, do you plan on distributing a special dividend as a result of the dispositions during 2023 and if so what would be the potential amount.
Speaker 3: That's a John DeMarit CFO . There isn't any plan to make a special distribution at this point. Sorry.
This is John <unk> CFO.
There isn't any plan to make a special distribution at this point.
So I hope that answers the question.
Speaker 8: Yes, Steven's George. This, this, this, uh,
Yes, Stephen this is George.
This does this.
Speaker 4: We rule requirement for distribution. We will not, we believe trigger that this year. And so we will not be required under re-wills to maintain reach best, to distribute to dividend and we want to allocate those proceeds towards debt.
Rick rule requirement for distribution, we will not we believe trigger that this year and so we will not be required under REIT rules.
To maintain REIT status to distribute the dividend and we want to allocate those proceeds.
Towards debt repayment.
Speaker 7: Thank you, I appreciate it. Can you also please provide more insight on the three potential dispositions? And I guess just perhaps, is it within the projected price for square foot range that you previously mentioned in the call?
Thank you I appreciate it.
Could you also.
Please provide more insight on the three potential dispositions.
And I guess just perhaps.
Within the projected price per square foot range that you previously mentioned in the call.
Speaker 6: I guess, this is Jeff Carter. I appreciate the question. As I mentioned in my remarks, the currently pending dispositions of which there's three total approximately $153 million in gross sales proceeds and they reflect an average of approximately $227 per square foot.
Yes, Hi, this is Jeff Carter I appreciate the question.
As I mentioned in my remarks.
Currently pending dispositions.
Which theres three total approximately $153 million in gross sales proceeds and they reflect an average of approximately $227 per square foot.
Speaker 7: Thank you, thank you, that was very helpful. And just one last one. Regarding the lease, I guess, with EMC Corporation, approximately, and please correct me if I'm wrong, has a year left on its term. How have conversations progressed towards a potential renewal?
Excellent. Thank you. Thank you that's very helpful and just one last one.
Regarding the lease I guess with EMC Corporation.
And please correct me if I'm wrong has a year left on its term how have conversations progressed towards a potential renewal.
Speaker 5: Hi, it's John Donahue. There is...
Okay.
Hi, It's John Donahue.
There is.
Speaker 5: a subtenant occupying portion of that space. And we haven't been telling the public anything really about the conversations, but we are engaged and we'll keep the markets posted on how that progresses.
A subtenant occupying a portion of that space and we have been.
Ben.
Telling the public anything really about the conversations but we are engaged.
And we will keep the markets posted on on how that progresses.
Thank you, it's very beneficial to hear that I appreciate it.
Youre welcome.
Speaker 1: Seeing no further questions at this time, I will turn the call back over to George Carter for any closing remarks.
Seeing no further questions at this time I will turn the call back over to George Carter for any closing remarks.
Speaker 4: Thank you, Brianna, and thank you everyone for turning into the Franklin Street earning school. We look forward to finishing the year and we look forward to next quarter year ends call. Thank you very much and have a great day.
Thank you, Brian and thank you everyone for turning into the Franklin Street earnings call. We look forward to finishing the year and we look forward to next quarter year end call. Thank you very much and have a great day.
This concludes today's conference call you may now disconnect.
Speaker 9: The and and.
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Okay.
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Yes.