Q1 2025 Franklin Street Properties Corp Earnings Call

Thank you for standing by my name is Kayla and I will be your conference operator today.

At this time I'd like to welcome everyone to the Franklin Street properties Corp, first quarter 'twenty twenty-five results.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

Wanted to ask a question during this time simply press star followed by the number one on your telephone keypad.

If you'd like to withdraw your question again press the star and one.

Scott Carter: I would now like to turn the call over to Scott Carter General Counsel you may begin.

Speaker Change: Good morning, and welcome to the Franklin Street properties first quarter 2025 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.

Speaker Change: Is that S P property management.

So joining me. This morning are Toby Daley and will friend, both 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 prior.

Speaker Change: But 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 our annual report on Form 10-K for the year ended December 30.

Speaker Change: 31 2024.

Speaker Change: As amended by our quarterly reports on Form 10-Q, all of which are on file with the C. Suite. In addition, these forward looking statements represent the company's expectations only as of today April 30th 2025, while the company may elect to update these forward looking statements at specific.

Speaker Change: <unk> 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 wrap up all reconciliations of F. F O.

Speaker Change: 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 F. S. P. R E I T dot com.

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

John DeMeritt: 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 thoughts.

Speaker Change: 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 $2 $7 million or <unk> <unk> per share for the first quarter of 2025.

John DeMeritt: We also reported a GAAP net loss of about $21 4 million or 21 per share for the first quarter.

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

John DeMeritt: Okay.

George Carter: Thank you John and again welcome to Franklin Street properties first quarter 2025 earnings call.

George Carter: Just to highlight my written comments in our earnings press release of last evening I will say.

Speaker Change: S. P remained focused during the first quarter of 2025 on the same two primary objectives as last year.

Speaker Change: That is too advanced leasing of space in our existing property portfolio and to continue to pursue property dispositions.

Speaker Change: We intend to use net proceeds for many property dispositions primarily for the continued repayment of our debt.

Speaker Change: More recently, however over the last approximately six weeks.

Speaker Change: <unk> economic environment has displayed several macro uncertainties that bear watching for their potential longer term impact on deal, making within the office asset class.

Speaker Change: The recent tariff headlines for example have introduced increased volatility and uncertainty into the marketplace.

Speaker Change: Potentially affecting both corporate leasing decisions and.

Speaker Change: And investment and slash acquisition of office properties.

Speaker Change: We can't control such external factors, we are monitoring the situations closely and.

Speaker Change: And are endeavoring to remain flexible and agile.

Speaker Change: Continue to engage with tenants both existing tenants and new prospective tenants are associated professionals, our existing capital partners and new potential sources of capital. So we can enhance our potential to move more quickly to a specific action when approach.

Speaker Change: Preet.

Speaker Change: And we continue to explore a broad spectrum of alternatives to try to ensure we unlock the full value of our property portfolio for shareholders.

Speaker Change: We are actively considering all options from operational adjustments, the two strategic transactions and our consulting with several third party professionals in that regard.

Speaker Change: We remain confident in our direction.

Speaker Change: But are also open minded as to the best way to move forward successfully to our ultimate goal.

Speaker Change: Okay.

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

Speaker Change: Thank you George good morning, everyone.

Speaker Change: The FSP directly owned portfolio was approximately 69, 2% leased at the end of the first quarter compared to 73% leased at the end of the fourth quarter economic.

Speaker Change: Occupancy of the directly owned portfolio was approximately 67, 7% at the end of the first quarter compared to 68, 6% at the end of calendar 2024.

Speaker Change: Decreases were attributable to multiple lease explorations and departures in Dallas and Denver.

Speaker Change: The strong and encouraging leasing results to close out calendar 2024 were followed by a weakened somewhat disappointing first quarter.

Speaker Change: FSP finalized approximately 60000 square feet of total leasing during the first quarter, which was comprised entirely by renewals and expansions.

Speaker Change: As previously communicated we anticipate a choppy quarter by quarter right for aggregate lease executions for calendar 2025.

Speaker Change: However, we remain optimistic that the full year results will show progress.

Speaker Change: During the first quarter final corporate leasing decisions regarding relocations to our assets have stalled in multiple cases.

Speaker Change: Dozens of small and mid sized prospects appear to be in a wait and watch position due to recent market volatility and macroeconomic circumstances.

Speaker Change: The upward trend of tenants in the market witnessed during the second half of 2024 has continued into the first quarter of 2025.

Speaker Change: The pipeline of mid sized new tenant prospects and those seeking at least one full floor, particularly in the suburbs continued to grow over the last few months.

Speaker Change: <unk> is currently tracking approximately 800000 square feet of prospective new tenants, including approximately 300000 square feet of prospects identified FSP assets on their respective shortlist. In addition, FSP continues to work with more than 400000 square feet of potential.

Speaker Change: Renewals, which includes expansions and downsizings.

Speaker Change: Scheduled lease expirations for the rest of calendar 2025, total approximately 246000 square feet, which represents approximately five 1% of fsp's directly owned portfolio.

Speaker Change: Barring any significant surprises or the impact of potential dispositions.

Speaker Change: SP portfolio is well positioned to enhance leased occupancy with positive net absorption during calendar 2025.

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

Jeff Carter: Thank you John and good morning, everyone I will provide an update on our disposition activity as well as some perspective on current market conditions.

Jeff Carter: As a reminder, since initiating our current disposition strategy in late 2020, we have completed approximately $1 1 billion in property sales, which has contributed to a nearly 75% reduction in our corporate indebtedness, reflecting our ongoing focus.

On balance sheet strength and financial flexibility.

Jeff Carter: Each potential disposition effort considers unique factors, including tenancy.

Jeff Carter: Occupancy and local market dynamics.

Jeff Carter: But across our disposition program. The sales we've completed to date have averaged approximately $211 per square foot.

Jeff Carter: We continue to believe our share price does not reflect the longer term intrinsic value of our underlying portfolio and we remain committed to selectively selling assets. When we believe their valuation potential in the short to intermediate term has been achieved.

Jeff Carter: To this end we are currently marketing several properties totaling approximately 1 million square feet for a potential disposition as.

Jeff Carter: As a reminder for competitive reasons, we will not be discussing potential disposition activity year candidates beyond what has been publicly disclosed. We believed this discretion is in the best interest of our shareholders, particularly in today's environment and we will continue working closely with.

Jeff Carter: Our brokerage partners to identify and pursue the highest value outcomes on a deal by deal basis.

Jeff Carter: Turning to market conditions, while the office investment landscape remains challenged we are beginning to see signs of stabilization.

Jeff Carter: National Office transaction volumes rose by 22% in 2024 from the cyclical lows of 2023 and accelerated in the first quarter of 2025, finishing 31% higher year over year.

Jeff Carter: That said within our markets and at our property types investment and lending liquidity remains constrained.

Jeff Carter: Especially for larger institutional buyers with both debt and equity capital is still difficult to access.

Jeff Carter: Cap rates remain elevated and office asset values are generally below 2021 levels.

Jeff Carter: Where transactions are happening in our markets. They continue to skew towards smaller higher quality well leased assets.

Jeff Carter: Traditional institutional capital has remained largely on the sidelines.

Jeff Carter: We are actively tracking these trends as we engage with credible buyers and market professionals across our disposition targets.

Jeff Carter: Consistent with our stated strategy proceeds from any asset sales will continue to be used primarily for debt reduction enhancing our optionality and positioning the company to pursue any path that maximizes shareholder value.

Jeff Carter: And with that we thank you for joining us today.

Jeff Carter: Kayla.

Jeff Carter: At this time I would like to remind everyone in order to ask a question press. The Star then one on your telephone keypad.

Jeff Carter: And our first question comes from the line of Steve demand Ski your line is open.

Steve DeMensky: Good morning, gentlemen, can you. Please provide more insight on why leasing was shortly executed for renewals during the first quarter.

John Donahue: Sure Steve This is John Donahue.

Steve DeMensky: We were.

Steve DeMensky: Okay.

Steve DeMensky: Working.

Steve DeMensky: A handful.

Steve DeMensky: New leases that just.

Steve DeMensky: Has stalled out.

Steve DeMensky: Maybe about a month ago.

Steve DeMensky: We are still pursuing those renewal transaction I mean, those new lease.

Steve DeMensky: Tenants.

Steve DeMensky: And.

Steve DeMensky: We're having some success post quarter. So I believe that will have some encouraging news here for Q2 and by Q3 certainly.

Steve DeMensky: With the renewals.

Steve DeMensky: It has been.

Steve DeMensky: Also slowly.

Steve DeMensky: To materialize, but we were able to finalize 60000 square feet and we have a very large pipeline.

Steve DeMensky: We are engaged with.

Steve DeMensky: Over 400000 square feet of tenants.

Steve DeMensky: Likewise, we believe we'll have some good news there, but yes. It was a disappointing first quarter for new leasing.

Steve DeMensky: We had folks that were going to expect a choppy ride there, but we do believe that.

Steve DeMensky: X two quarters materialize, we will have some good numbers.

Steve DeMensky: Thank you also another question in terms of leasing more from a top down macro basis, which geographies currently to pay greater strength in your portfolio.

Steve DeMensky: So I think the best way to answer that question would be to say that the tenants in the market as far as total volume and demand.

Steve DeMensky: We're seeing strong consistent activity.

Steve DeMensky: In Texas, particularly in Houston.

Steve DeMensky: So for our building types in the energy corridor of Houston, We're seeing solid strong demand has continued to get stronger over the last year.

Steve DeMensky: Year or so.

Steve DeMensky: Dallas is not quite as strong as as Houston, but we are seeing a pickup of tenants in the market, particularly with larger users.

Steve DeMensky: Denver and Minneapolis, the downtown CBD markets are certainly better than they were six to 12 months ago, and certainly better than they were multiple few years ago, but they are not quite as robust as the suburbs.

Steve DeMensky: Texas.

Speaker Change: Thank you that was very helpful. I appreciate it.

Steve DeMensky: Youre welcome.

Steve DeMensky: And there are no further questions at this time, George Carter I'll turn the call back over to you.

Steve DeMensky: Thank you everyone for listening to our earnings call and we look forward to talking to you next quarter or with any information that occurs before that thank you again have a great day.

Steve DeMensky: And this concludes today's conference call you may now disconnect.

Steve DeMensky: [music].

Steve DeMensky: Okay.

Steve DeMensky: [music].

Steve DeMensky: Yeah.

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