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Franklin Street Properties (FSP)

Participants
Scott Carter General Counsel
George Carter Chief Executive Officer
John Demeritt Chief Financial Officer
Jeff Carter President and Chief Investment Officer
John Donahue President, FSP Property Management
Will Friend Senior Vice President and Regional Director, Denver and Minneapolis
Patty McMullen Senior Vice President and Regional Director, Dallas
Dave Rodgers Baird
Rob Stevenson Janney
Craig Kucera B. Riley FBR
Alex Nelson BMO Capital Markets
Call transcript
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Operator

Good day and welcome to the Franklin Street Properties Corporation Third Quarter 2018 Results Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Mr. Scott Carter, General Counsel. Mr. yours, is floor the sir. Carter,

Scott Carter

on President Officer; welcome Good the plans our constitute third George of President Franklin Act Chief Executive Properties Risk and Chief and Securities the XXXX morning Carter, Officer; earnings Vice Actual of Property John and year Director is may Regional about of in purposes Litigation Carter, Please forward-looking Chief are and with of results Safe our for XXXX. we a those from these and materially quarter Minneapolis may FSP for Management. morning this as under various the call. on statements of Report the and with Street discussed this President XX-K the of by various including and remarks me forward-looking XXXX Director are our Factors SEC. future which those Officer; section President morning McMullen, to Private statements December With factors, XX, Jeff Form company important Demeritt, and for indicated the Senior note that Vice Patty Donahue, file result may Dallas. expectations, Also Reform John of Annual Will make Regional Investment our differ provisions ended prospects Financial Friend, Senior that me the Harbor Denver

as XX, of In addition, October these represent forward-looking today, statements only expectations company’s XXXX. the

reconciliation available or to refer from the operations, www.fspreit.com. of net is the or it Investor is as disclaims so. forward-looking be which section yesterday’s subsequent Any press While we date as relied not the to to call, do At company’s to income today. website views in company may any statements our obligation at forward-looking estimates elect FFO. any these representing this in during contained FFO Relations specifically of may of times to release, GAAP funds update A should statements, upon

over to call the turn will John John? I Now, Demeritt.

John Demeritt

provide of quarter Scott begin good and our third Carter, with, our more after today’s everyone. Carter I and detail discuss our brief morning and and disposition we George you, remarks discuss Donahue investment On call, leasing results will will in Jeff performance CEO, activities. and Thank to overview then his then with will a will discuss will our activities After take and recent happy of some your questions. be that, John

of XX-Q, found We As a comments reminder, will and which FFO, filed reported release website. refer our the last as with on from our and $XX.X had our million XX, or supplemental funds service for operations, ratio be $X.XX unsecured to our debt can mentioned today earnings balance $X night or SEC package sheet were September billion we Scott the about X.Xx. XXXX. was third our of to moving about coverage of at per outstanding and share quarter debt And XXXX,

that more years structure capital is aligned and the and debt our debt markets. rates long-term XX% with our core fixed of more fixed, have our believe stack our termed our the next During quarter, lowest XX, million. million we $XXX loans at which an cost X rate $X the third we no believe XXXX at totaling debt At maturities reduce have risk refinanced value-add With we rates. have we at interest will mostly term properties in five for out about we September we annual our of two spreads

cash And George. on our used and the as of these as over that, operating third interest in received the proceeds single result we net EBITDA sold of have we them. an to on $XXX our reduce of to line We distribution a a initial that and From million I sheet proceeds million X.Xx. turn balance With total in standpoint, liquidity has asset our hold September, the ratio million REITs call some our cash the to in from two adjusted will were or George? to During million. line available of cash quarter, end about balance we debt $XX.X and in of liquidity decreased $XXX.X $XX.X credit.

George Carter

and quarter to welcome Franklin Thank you, Street again XXXX John call. earnings third Properties

As John $XX.X or share. said, quarter million $X.XX for our FFO third per totaled the approximately

over Importantly, for and believe storage growth. with fourth leads term cyclical sustainable refining leasing and A and traditionally in in of the continued the strong and build The consultants our infrastructure several capabilities. needed transportation Denver requirements their have strength opportunity remains the energy continues growing quarter. reset. recent of this and to the have executives new activity role to real exports associated that company energy markets into along as head the many seasoned is property marketplace in that has with years now markets such Talking Houston us industry those of influence energy within portfolio to to multiyear element U.S. caused to the quarter we longer increases energy the headwinds expanding sustained occupancy opinion office finally its global recovery last up possibility the

property portfolio which in and the had quarter XXXX into XXXX. has continue Our in fourth far significant will leasehold so

purchased and/or peer we us to attractive and the years office set. geographically However, much years suburban when and portfolio more XX% of market-focused the Minneapolis on X properties a diverse space to to opportunity the to and Dallas, now urban the properties five at infill were of transition term, their X over that footage orientation. Denver, of property rolling our and properties so prices allowed them that a much square Virtually square purchase set over intermediate from mostly footage markets, rolling is the Houston the have after very all vacating last Atlanta, We of had focused the purchased is properties major our very approximately are these transitioning CBD of that space we value-add amounts were there. meaningful several leases compared

we years. was to at and the next add we we ongoing will through are lower should leasing of that through that gauge believe the Franklin of at Properties advantage property this leasehold portfolio be current risk At higher value and we opportunity quality, the core the of strategy. it will take of complete. CapEx. and relative We the moves this value-add of could that the ongoing occurring pipe, and NOIs advantage at transition acquisition continue Assuming truly stabilize X.X opportunity today that now and advantage Once over leasing value of is better right believing of taking intermediate-term take the time, creation the Street clear

results. comments, I a over to those John will condition on John? Property been financial value the Donahue, call help Company. turn never have We better creation of to our achieve President these With Management

John Donahue

portfolio first Thank Good the XX.X% leased which new million fourth expect pace a combined back-to-back occupancy to increase in record results, was leased square the at calendar represent the you, At third with leases of departures. XXXX exceed the FSP. quarters primarily the to the XX.X% After quarter, in XXX,XXX of leased, favorably leased X.X X,XXX,XXX end square compares which the end end of expansions quarter at thus were feet. everyone. follows approximately and the morning, FSP feet quarter. no XX.X% occupancy due year-to-date George. the and the was second If The leasing, QX far, leasing will of square year approximately quarter we significant in of total totals to for feet strong leasing

progress continue in rollover the We markets exposure. vacancy make to reducing and in the core addressing our future

Burger progress such anchor of In last tenants thus for to have made XX% to XXXX, X December do addition There There to QX, million the square are and our for X.X more total significant expected the the King. Mae, target and work renewals SunTrust, QX, approximately during XXXX have the from been feet months including more Vail XXX,XXX by extended potential and reduced lease we as as hitting is three departures leased and executed Demonstrating far, feet of early Fannie IRS. during XXXX. expirations square upside. T-Mobile possibly

However, Lagoon in exceptionally for in single activity Mae space Burger Circle the Dallas prospects. and Miami the King Addison for one-third multi-tenant space of at Fannie mitigated we have Blue at and already is strong tenant approximately

to million manageable five be the encouraged continue expirations. We and leasing to next activity X.X of appear very strong optimistic feet and by be square with the quarters

mentioned, energy in sector general and contributed oil downtown in secondarily George in improved in the the to primarily volume prices the Denver. rebound in Houston leasing and have As corridor energy

Houston portfolio from Our leased to in XX.X% QX XX.X% improved in QX.

in Our from Denver XX.X% XX.X% to QX in portfolio improved leased QX.

and We expect to continue that into trend QX beyond.

Jeff years, lining With up it five multiple look that, into over to appear to direction XXXX, in all in Carter. same I the our be move core first for the in forward to the we in fundamentals simultaneously. turn As portfolio time will forward markets

Jeff Carter

value potential. estate A creating drive the and that Mountain everyone. Thank real that in our Land continues FSP opportunistic you, as and trends end, markets Good rated as XXXX. non-core to and overall Fort watch core West Sunbelt portfolio within core Mountain our expansion can which both morning, properties our rich on West and of FSP well to and owns focus our to help operates are business many Class population experiencing locations, within efforts properties. XXXX Urban are top We long-term Dallas Sunbelt their long-term survey that for market and as property growth. amenity emerging in To NOI prospects estate believe Institute, well-positioned real growth recently Worth their PricewaterhouseCoopers John. for

and X the numbers as area metropolitan outlook. basis metropolitan for Minneapolis the top area Worth survey a for local in rated outlook with region and local at metropolitan on of the area respectively as Midwest the being X in local same the was top was mountain outlook. region, rated in Houston St. as In rated Additionally, Paul the south rated terms Dallas top Fort the and regional region Denver Atlanta

will tenants. our efforts and/or within portfolio we expansions look with and continue our leasing through vacancies centered forward, existing be value the our of As unlocking to on primary upon renewals

of the two our into interest. which half in some REIT of the during in proceeds approximately properties were the potential further FSP during single-asset first third managed remainder likely of XXXX some of front, On anticipate where may resulted properties, FSP of economic have million. including and/or sold, disposition dispositions the more initial the We our for of $XX XXXX quarter,

property-specific the of market the XXXX, $XXX million. reasons. repayments non-core will believe We completed the number almost we approximately over in this risk opportunistic at markets for over Sunbelt at our years and/or current mortgage made value enhancing at markets portfolio and posted this balance for market Since a keep time. our We and/or core allocation XX% of as The a had FSP tenant upside XX% dispositions properties and appropriate. fair Mountain potential FSP that coming see has West and between presently our on and is provides

add questions. generate and a number institutional that five high term of possess to plus continues core properties you ability for quality properties to up front, Sunbelt track West include seeing within for value-add in monitor conference to our to very terms Operator? investment time, properties markets. properties our remained of this and Pricing to the investments their has this earnings over markets any With generally now credibly sale respective within market of FSP development completed new Mountain many and and in the our and a opportunities short core thank call for had diminished and off-market intermediate XXXX the today. perspective competitive call and sales our stabilized potential markets. like and achieved as to to And open during value within across focus available historically on-market is of evaluate that FSP that On as core urban the continued markets core that, on favor our would well we country at infill high-quality scenarios. our We listening of pricing. volume

Operator

from The Please you, [Operator Baird. first sir. come ahead. of will we Thank go Dave have Rodgers Instructions] question

Dave Rodgers

you, morning kind and Yes, leasing about Marquette complex you’re leasing of there, timing quick of I will John I and everyone. feeling couple CCF and a update Maybe operational maybe for questions Donahue on of just whole XXX and you, that? and with a start good how movement had any

John Donahue

prospect point has significant expecting to of well, X as that hoping continue in top progress a timing the months, with further slower make we’re make and the floor there would that a months we’re space vacated Marquette tower, to question morning. buttoned and had the and lease groups for bit buildings do we Dave. with which floor did did so stacking to first X it’s next a do another couple working and here second floor, of on finalize the we originally it’s the portion over so In Good be prime TCF than that we progress to the we and regards and we with the couple a been get but Hi, stabilize at here floors with up second that tower Marquette, be to had expect two little so project, XXX do over both this us expected shortly, recall, leaves up to happier you along certainly, to have now have you the so about if leasing? first, and so next significant good the to we’re we we’re of interest well other the hoping

Dave Rodgers

Thank appreciate color the on did. and I I Yes, you that.

something on you then maybe but back an you Mae update on you’ve came the hold on Burger maybe in over, in new when an for comment commences? fourth the think the in comments the your quarter guess, of just on back a I wanted you timing to so and get SunTrust while, King, that Fannie that to I timing in when back SunTrust and Fannie’s Fannie’s there I little come lease had quarter over second just made just, back update and hold could I will signed

John Donahue

Sure.

that activity past, that Burger we moving certain there near so then King, but a have the is and early and so tenants getting the So, space on for the interest, property has I released news that in expand to were and is the we have strong Fannie moment a and open space [indiscernible] the at SunTrust date, think I’ve that very has available their in said, of date it’s they next both mitigated it the will property in but quickly specific working space and Innsbrook some SunTrust at in of about the quarter haven’t good of well at committed past, possibilities as we’re end not departure of we’re future in we mentioned been Dallas vacant we’ve departure have Innsbrook point forecast, imminent be we as stabilized but we a Circle Addison and a Mae replacement at scenarios in space, do fairly tenants so very quarter them expect to some existing organically single existing timing year interest SunTrust the year lot Fannie and the a to the some up of it’s the very building it’s have nothing little and do expirations vacate Addison Mae again, the fully shaping organic in now also we attracting interest premature Circle both been the third around for fourth the of at significant multi-tenant to the end have well. by tenants, tenant in do we

Dave Rodgers

Tower, is particularly particularly in million being in anticipate capital at to wanted Maybe back for investments helpful. months asset Houston or to outstanding, single a monetized Jeff I that that’s the Energy see you the ask given loans way? I next have REITs, you Great, some that put those have and George Monument about $XX the in of particular you work of assets some think and starting XX that resurgence do the to like being sounds loans

George Carter

of loan Satellite it off need loan also with consider Atlanta some that’s as so growth the so that Place X big are its potential, literally property outstanding I we Minneapolis we properties It’s should Place those own energy really those there prime work of max. will a Circle then asset at in Dave. the we the the will certainly are have very is Satellite single being that on a for the market paid marketable circle hold first are X property little will activity corridor is Houston small George. next definitely in disposition year X, once property, right REIT an poorly putting to putting kinds on two have Hi, in managed properties, so which terms which that finish underlying now the before really years interest or of We the those up we group all but in think of leasing market consider well on very, assets a do so bit Monument in hope that to properties potential on

Dave Rodgers

you, Okay, great. Thank guys.

Operator

Stevenson Janney. Rob have we Next, of

Rob Stevenson

Hi good morning guys.

quarter positive back should about go portfolio Given leasing this you quarters thinking mean continues and come that? How the then expected leasing, move next few occupancy evolve? the couple and it mean, factory the we of over peaks all but the what’s got likely the and I over down net-net we the bump as the thinking terms to back here next of and does valleys be the quarters? should outs I be the in up? how of

John Donahue

Hi Rob, it’s John Donahue.

occupancy we our we over as little dip any are here the term occupancy well lease be road, see to in and expect progress, term lease near to a QX next in progress in barring you make expect a said, next linear bit leasing yes, expected as not more surprises, the do the X Houston quarters, months and the in the we bump and and short but may So a several expected contribute do stated between so progresses, that make and dip do XX XXXX quarter-by-quarter may Minneapolis to to we’ve December progress will Atlanta expect are as in finalize to Denver February. also and

Rob Stevenson

once it the dip move months to that flat back outs to up? in so, Okay again? X and causes down ‘XX or is Or be through we expected should next there any it significant get

John Donahue

so significant we we’ll middle thought XXXX optimistic it’s we any but encouraged premature in XXXX have in say move and positive, It’s little are we to known as in expecting time so expectations but what we’re we’re to at of our forecast do did very by departures this year, XXXX don’t to largest that discussions upward. of the a hard tenants my in remaining the it

Rob Stevenson

Okay of that cash the and these terms when actually off of are quarters and should in flowing working then the fourth burning about on just of similarly, couple quarter and through ability thinking over the the the we stuff do cash how concessions start rents about you’ve impacting flow leases to thinking the positive here done into be last flow? in

John Donahue

markets, the the the talk think portfolio dip that to at the think in question, way and physical half make as the Donahue all so again and start be December that February really XXXX and answer core leasing probably look the we and more way expected to the the progress the physical about March we I of the April QX. core to I over of occupancy this to the John is trend It’s portfolio in quarters good more is and between back X for throughout operations occupancy see as mentioned, that occupancy, the several will we think in the in impact past simultaneously Rob, the that well into physical to get should will and the markets beginning of we in perform occur news trough year we’ve an games made that will upward the

Rob Stevenson

perfect guys. Okay thank appreciate you

John Donahue

Thank you.

Operator

Kucera we have go question Riley come from B. next ahead. The of Please will FBR. Craig

Craig Kucera

was and a really reimbursements? didn’t Hi it’s did income or in be and been was morning your tenant about in guys termination that color your quarters appreciated. rental million any there lease three than your top maybe $X last budge Any good the occupancy would higher rent bump perhaps number line revenue neither

John Donahue

it’s Donahue. Craig, John Hi

onetime settlement flowing to their former So seeing Burger had, a for the also that that is us number we of preparing is bankruptcy number it items there And is King what homebuilder primarily significantly. so the that’s I nonrecurring paid impacting due and you well. are believe, the as a tenant settlement through with that

Craig Kucera

this of in in sense a cumulative quarter? amounts onetime are have items you do And those revenue the what

John Demeritt

that for X Demeritt, page where that QX million on if we $X.X out. was on our John see the you number want can carved supplemental that Craig is you of to This see

Craig Kucera

the on sold, fund exciting until I’ll are where it guys to and/or the you recycling we that balance maybe you’re I it and acquisitions that sounds and capital based CapEx you’re the to assets or you a your utilize and that keep you Great of comments delevered is the that guess, seeing, really kind items? like, sheet say regarding see revisit what to Jeff, in are other little that something likely capital fair

John Demeritt

of I we’re proceeds of to be be best as such the proceeds we time, Craig, would fully look to at down, that we’re whatever you types carefully to but available use debt open that and think of opportunities. look said continue cash potentially all use going this as on any deploy may at pay at

Craig Kucera

circle on commence? Okay. the leasing Park maybe there you making us the there And tenant rent about move tell up to I big congrats wanted and and will back when can to XX

John Donahue

Sure, Toby a up Donahue. long-term we is market XX detail he and and is tenant and It’s waved free all a so follow tenant they Daley extra square-foot QX get I we’re us Houston, believe believe John quick you’d of package, in them can today QX. starting Craig. next in, for that you’re and lease years have that their that’s them impact like moves commences it lease, in rent that a the to actually but with and all if for XX,XXX is through not fairly year, with our up, leasing flow in timing thrilled year I but and of to rent, some seeing economics it’s more TI,

Craig Kucera

Thank Alright. you much. very

Operator

Nelson will Capital we Alex Instructions] next BMO The Markets. [Operator have of question come from

Alex Nelson

Hi good morning everybody.

also was exit plans of looking need of JVs? entities, was sales particular future was are quarter anything there manage a partially that to assets? coincidence just the there any the On it a owned the this sell trends just out out or a asset owned this to portfolio, to to And strictly or sales,

Jeff Carter

creation primary consider our at that scenarios number to believe value non-core asset with objective Jeff potential opportunistic Alex, of this value dispositions this value, asset time, at basis level opportunities We we maximize to to this properties Carter. a where our spending, on possess potential being the over is an to asset Northern maximize by is potential and so a that things including upside both term the etcetera. defense perspective we’re announcement, Apple’s we market Amazon, near Virginia the from variety see of intermediate in carefully explore more inclined upside example of one

believe so, on dispositions look basis. by at we’ll an asset we And asset

Alex Nelson

Okay. building And been a XXX,XXX leasing just or percentage this that, you it gap is rents signed front, have on that leases the occupancy feet the leasing of off increased do if you And a the cash the in have spreads I’m cap the of to as the have of wondering this guys leasing for factor initial quarter? square guys this increasing do gains year you of looks year. the activity offered like and achieve TI improvements

John Donahue

John Donahue. it’s Alex,

I think not sure I about am the I second one. tackle can the and first question

to question that the So, rising in those the faced the addition regarding weighted second are owners the lease with. rising are environment average costs, office due leasing term to directly

XX rolled large long-terms. per we have has up portfolio vertical quality the year. And continue supplemental, our at foot to now year $X, see square and up As to and them of we per been has leased square think and and our that with that that’s mid-Xs, you XX term look tenants gone Page up. with as And if per of we occurred, the range to as from have creeping average our tenants mentioned probably been has as in weighted some lease and will the improved $X.XX foot the you tenants We the near-term $X.XX per have trend with years has we quality calls, credit last other XX George vacancy that, replacing years want that that $X.XX over will gone role cost term. those today bought of X

it’s that value surprising, not with think credits long-term tenants. expected are it’s we these and we So, adding

Alex Nelson

spreads for the third the Great. quarter? And on leasing

John Donahue

Can you question? repeat that

Alex Nelson

Yes.

just you Page the Going for activity but X back to the gap that third leasing, have increasing months for do is in the the quarter? of there rents XX

John Donahue

quarter-by-quarter. it We have the fingertips not do somewhere, our report year-to-date, here. at We

back I So get if be the believe would and third the slightly go you higher, quarter to here. that at first like. do quarter can and were the I might We if that quarters have report lower I so slightly two second offline recall look correctly.

Alex Nelson

you. thank Well, Okay.

John Donahue

My pleasure.

Operator

am I this questions showing no further Well, at time.

turn and would We Carter remarks. conclude session. Sir? conference to call question-and-answer for our Mr. like the ahead will go George any back to over I now closing

George Carter

Thank Thank for to we grow some hope of week you the Thank as Francisco. you, Mike. tuning you everyone we you. into San see in call and next

Operator

you day. And conference Again, Take your for Thank time, of the also you and wonderful management thank the rest team sir has disconnect and your have today. we to everyone. a the time lines. ended. call may now care At this you