Q4 2024 Franklin Street Properties Corp Earnings Call

Thank you for standing by my name is Karen and I will be your conference operator today at this time I would like to welcome everyone to the Franklin Street properties Corporation fourth quarter and full year 224 Russell.

All lines have been muted to prevent any background noise. After today's presentation. There will be an opportunity to ask question. You ask a question you May press star followed by the number one on your telephone keypad.

Do we draw your question Press Star followed by the number one again.

Speaker Change: I will now turn the call over to Scott Carter General Counsel the floor is yours.

Speaker Change: Good morning, and welcome to the Franklin Street properties fourth quarter 2024 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 Donny.

Speaker Change: <unk> President of FSP property management also joining me. This morning are Toby Daley and Wolf run both executive Vice President of FSP property management.

Speaker Change: 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.

Speaker Change: 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 2024.

Speaker Change: In addition, these forward looking statements represent the company's expectations only as of today that'd be worry 12 2025, 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.

Speaker Change: 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 were up by Paul Reconciliations of F. F O and other non-GAAP financial measures to GAAP net income are contained in yesterday's press release.

Speaker Change: Which is available on the Investor Relations section of our website at Www Dot F. S. P. R. E T Dot com now I will turn the call over to John Demeritt John.

Thank you Scott and good morning, everyone I'm.

Speaker Change: I'm going to give a brief overview of our fourth quarter results afterward, I'll pass the call to George for his thoughts.

Speaker Change: 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.

Speaker Change: We reported funds from operations or F. F O of about $2 $7 million of three cents per share for the fourth quarter of 2004 and.

Speaker Change: And $13 3 million or 13 cents per share for the full year of 24.

Speaker Change: We also reported a GAAP net loss of about eight and a half billion or eight cents for the fourth quarter of 'twenty four.

Speaker Change: Net loss of $52 7 million or <unk> 51 per share for the full year of 24.

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

Speaker Change: Okay.

George: Thank you John and again welcome to Franklin Street properties fourth quarter full year 2024 earnings call.

George: During the fourth quarter of 2024.

We leased a total of approximately 252000 square feet of office space within our approximately $4 8 million square foot directly owned property portfolio.

George: As previously reported on October 23, 2024.

George: Completed the sale of our last property in Atlanta, Georgia.

George: The property known as Pershing Park Plaza.

George: Sold for a gross selling price of $34 million.

George: On October 25, 2024, we repaid approximately 27 $4 million of our debt.

George: With a portion of the net proceeds from Pershing Park from the Pershing Park Plaza disposition.

George: Okay.

George: As of October 25, 2024, and December 31, 2024, our total indebtedness was approximately $253 million.

George: Equivalent to approximately $52 per square foot.

George: On our remaining approximately $4 8 million square foot directly owned property portfolio.

George: As we began 2025 we.

George: We are seeing at least for now.

George: A general increase in office property activity.

George: More employees are coming back to the office.

George: There is clearer longer term leasing requirements from bigger tenants.

George: And more capital is showing an interest in potential lending and equity investing in office.

If this current increase in office activity continues.

George: It should offer FSP exploration of better and more diverse opportunities.

George: To try and realize what we believe to be the solid intrinsic value of our underlying real estate assets for our shareholders.

Speaker Change: I will now turn the call over to John Donahue, President of our property management company for some color on leasing John.

George: Okay.

Speaker Change: Thank you George good morning, everyone.

Speaker Change: The FSP directly owned portfolio was approximately 73% leased at the end of the fourth quarter compared to 74% leased at the end of the third quarter at 74.0% leased at the end of calendar 2023.

Speaker Change: The decrease in leased occupancy during 2024 has been attributable to multiple property dispositions and to lease explorations.

Economic occupancy of the directly owned portfolio was approximately 68, 6% at the end of the fourth quarter compared to 71% at the end of calendar 2023.

Speaker Change: The decrease was primarily due to multiple property dispositions during the year.

Speaker Change: FSP finalized approximately 616000 square feet of total leasing during 2024, which included approximately 252000 square feet of total leasing during the fourth quarter.

Speaker Change: Approximately 445000 square feet of renewals and expansions were executed in 2024, along with 171000 square feet has been tenant leases.

Speaker Change: Leasing activity gained momentum during the second half of 2024 and finished strong in the final quarter.

Speaker Change: The pipeline of leasing prospects continue to increase into the first quarter as the overall number of new prospects seeking at least a full floor continue to trend upward.

Speaker Change: FSP is currently trapped tracking over 600000 square feet of prospective new tenants.

Speaker Change: Including nearly 350000 square feet of prospects that have identified FSP assets on their respective shortlists.

Speaker Change: In addition, FSP has been working with approximately 500000 square feet of potential renewals and expansions.

Speaker Change: Scheduled lease explorations for calendar 2025, total approximately 322000 square feet.

Speaker Change: Which represents approximately six 7% of fsp's directly owned portfolio.

Speaker Change: The new tenant pipeline combined with a modest amount of lease expirations in 2025 provides FSP with an opportunity for positive net absorption. During the next 12 months barring any surprises or the impact of potential dispositions.

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

Jeff Carter: Thank you John and good morning, everyone.

Jeff Carter: I will provide an update on our disposition activity for the fourth quarter of 2024 and for the full year as well as our perspective on current market conditions.

Jeff Carter: In 2020 for FSP completed the sale of three properties for total gross proceeds of approximately $100 million.

Jeff Carter: During the fourth quarter of 2024 and as previously reported.

Jeff Carter: We sold our Pershing Park Plaza property in Atlanta for $34 million.

Jeff Carter: Since the inception of our current disposition program that began in late 2020, FSP has completed approximately $1 1 billion and gross property sales that have resulted in an approximately 75% reduction in our corporate indebtedness.

Jeff Carter: And underscores our focus on strengthening our balance sheet and increasing financial flexibility.

Jeff Carter: While every property sale reflects unique attributes such as location occupancy levels tendency and rental rates. The sales completed to date and our disposition efforts have averaged approximately $211 per square foot.

Jeff Carter: We continue to believe that our current share price does not accurately reflect the intrinsic value of our underlying real estate assets and we will continue to seek to increase shareholder value by pursuing the sale of select properties.

Jeff Carter: When we believe that the short to intermediate term valuation potential has been reached.

Jeff Carter: Turning to market conditions, the office sales environment within our markets remained challenged during the fourth quarter of 'twenty four and was primarily dominated by buyers seeking distressed pricing.

Jeff Carter: Liquidity in the marketplace has been constricted with both debt and equity capital, having been difficult to secure for prospective buyers and existing owners.

Jeff Carter: This has been compounded by what has been soft tenant demand elevated vacancies and uncertainty.

Jeff Carter: Despite such headwinds there are emerging signs that 2024 may have represented a bottoming in the market with anecdotal optimism anticipating potential incremental progress in 2025 and beyond.

Jeff Carter: Factors, such as potential interest rate stabilization, improving liquidity conditions employer led initiatives to bring workers back to the office and improving leasing conditions could drive improvements and sentiment for stronger sales conditions and will bear watching.

Jeff Carter: Where non distressed transactions are occurring in our markets. They still tend to be smaller dollar sized deals involving high quality well leased properties in strong locations.

Larger traditional institutional buyers in our markets, who favor core core plus property.

Jeff Carter: Or high quality value add properties have been largely absent thus far and we are closely monitoring these trends as conditions evolve.

Jeff Carter: Proceeds from any property sales will continue to be primarily used to reduce debt further enhancing our financial flexibility and positioning of the company to pursue any path that maximizes value for our shareholders.

Jeff Carter: As previously discussed for competitive reasons, we will not be discussing potential disposition information beyond what is included in our filings as our primary goal is to maximize the value achieved on each sale to our shareholders and in the current environment. We have found this to be in the best interest of our.

Jeff Carter: We remain.

Jeff Carter: Committed to working with our teams in market professionals to identify and engage credible buyers capable of closing transactions.

Jeff Carter: 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 Karen.

Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question comes from the line of Stephen Domanski from Janney. Please go ahead. Your line is open.

Speaker Change: Thank you there was a significant uptick in leasing for the fourth quarter, a true Testament to your team's diligent efforts here can you. Please expand on the robust leasing velocity for the quarter like any information regarding which geographies in tonnage contributed to the strike.

Speaker Change: Greatly appreciate it.

Speaker Change: Good morning, Steve This is John Donahue.

Speaker Change: Sure I can give you a little bit of color on what happened as we closed out the year.

Speaker Change: We have been witnessing a pretty steady.

Speaker Change: New tenant activity and Houston, all year throughout calendar 2004.

Speaker Change: Able to finalize some new deals we also had.

Speaker Change: Several new deals in Minneapolis that we'd been working on for quite a while that finally were able to get over the goal line.

Speaker Change: For the year I would say that the two strongest markets were Houston and Denver for the fourth quarter, Houston and Minneapolis.

Speaker Change: We were able to.

Speaker Change: Engage subtenant skin Dallas for some renewals and we're hoping to do more of that in the coming year.

Speaker Change: As far as the industries.

Speaker Change: It was pretty diverse we had government healthcare business services energy.

Speaker Change: All construction and agricultural so pretty pretty diverse.

Speaker Change: One industry, that's been sort of lacking as tack and we'd like to see tech come back as well. So we're very encouraged by the trend we are hopeful that far north Dallas will also.

Speaker Change: Gain from the current increase in activity, we are seeing an uptick there and thats well needed.

Speaker Change: So yes.

Speaker Change: Downtown markets have done better over the last six months to 12 months.

And.

Speaker Change: The suburban markets will continue.

Speaker Change: Thank you <unk> you.

Speaker Change: Express that government.

Speaker Change: As it was.

Speaker Change: A contributor to this growth.

Speaker Change: Be interested to see.

Speaker Change: With George would that be effective of any of your properties in terms of termination of leases or move outs or is that just more.

Speaker Change: Not not applicable.

Speaker Change: Okay.

Speaker Change: So the short answer would be that we don't expect any impact from our existing tenants whether they be the national government the fed or local government, we don't have any.

Speaker Change: Option.

Speaker Change: Early options to terminate so we're not expecting any impact at all.

Speaker Change: If you look at our tenant roster of the top 20 tenants on page 17 of the supplemental Youll see that we do have one U S government lease rolling in 13 months and we are engaged with them for a potential renewal.

Speaker Change: Which was good indicators, so hopefully that will come to fruition, but the short answer is we don't expect any impact.

Thank you that's all for me.

Speaker Change: Thank you.

Speaker Change: That concludes our Q&A session I will now turn the call over to George Carter for closing remarks.

Speaker Change: Thank you everyone for listening to our earnings call and we look forward to updating you between now and our next earnings call and talking to you on our next earnings call. Thank you and have a great day.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.

Speaker Change: [music].

Speaker Change: Sure.