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Franklin Street Properties (FSP)

Participants
Scott Carter General Counsel
George Carter CEO
John Demeritt CFO
Jeff Carter President and Chief Investment Officer
John Donahue President, FSP Property Management
Dave Rodgers Baird
Rob Stevenson Janney
John Kim BMO
Call transcript
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Operator

Good day, and welcome to the Franklin Street Properties Corp.

Third Quarter 2019 Results Conference Call and Webcast. All participants will be listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this call is being recorded.

to conference like to now would turn over the Mr. I General Counsel. Carter, Scott Please go ahead.

Scott Carter

and Franklin Chief Vice are Good Quarter to Carter, Demeritt, welcome morning, the Officer; Financial Call. Chief Officer; Jeff me our our Chief XXXX President Street With this Carter, morning and George our Executive John Earnings of Third Properties me are Toby Executive Daley, Investment Officer; of of President Friend, morning Donahue, President Management; FSP Property Will Vice Management. this President FSP Property and John Management. Property and Also with FSP Executive also

results plans remarks a prospects for forward-looking forward-looking our those December section may Various year Factors result the various these the the of discussed we make XX-K may that important of purposes XX, those Actual the Litigation which for by the on statements about safe Form factors, constitute the differ in on of future file including indicated with may materially Securities is expectations, provisions SEC. under Act Private and Risk XXXX, from ended company annual harbor of for report Reform statements XXXX. as

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

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

to John the turn call I'll Now John? Demeritt. over

John Demeritt

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

refer As our XX-Q, release, the website. our comments earnings reminder, as a last today Scott which our will mentioned, found package be night, to filed and can supplemental and SEC with on were

or of We third reported from $X.XX FFO, the funds of million share 'XX. operations, quarter or for $XX.X per

about million to outstanding, sheet. times. $XXX Turning balance our XX debt coverage is ratio of and our unsecured At debt we had service X.X 'XX, September about

During $XXX QX, have the our balance full we million and on no continued revolver, on drawn that's available. to

'XX, no debt maturities about XX of fixed XX% November and have until at rates. is debt We our of

rates aligned stack that million total had standpoint, liquidity a $XXX end, million end. quarter liquidity in we million mostly $XX sheet our out debt capital we at long-term balance of with our more the and quarter on our have at we the our cash From and in on revolver termed we've believe so more available our structure With fixed, value-add properties markets. $XXX

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

George Carter

important flow you, from Earnings XXXX XXXX earnings said leasing to Quarter recent Properties calls, And welcome in In the we that XXXX will Street Thank and John. Franklin Call. Third most have for again, our metrics results. FSP

large an of with, challenge are both lease is bulk is leasing approximately bulge results dealing X-year These that strong is activity the the opportunity. first in leasing in the in roll FSP continued quarter third half lease that year. the context It large, of and a the which XXXX. realized occurs XXXX, of the roll the XXXX, Importantly, a

infrastructure square footage and optimistic properties exceptional and with We growth strong the long-term and of portfolio targeted our continue positive of about dynamics. to be concentrations office markets very in

on prepared liquidity is our available out cost as fixing have well as rollover We rollover rates continues debt, leasing space take leasing or before space. backfilling financially terming all our and activity new of needs handling of current increasing absorption meaningful by be of be our Much this successfully lease most tenant the efforts to existing But and to a net renewing which is unsecured. current for place. of achieved can important

redevelopment of just to absorption be net new our in XXXX. operating expirations and net remaining as quarter-to-quarter, portfolio We in our large some through beginning as we as XX choppy new will lease absorption XXXX very X are properties, well properties move the realize although

we of headquarters. to builders, corporate to Specific to properties, redevelopment our of Homes, one home Miami Lagoon soon in as new be Blue welcome Lennar one America's leading their

continue also most to longer and we see leases We this rents period. rising through as of work generally our properties at

press fee guidance of As John bullet our earnings earnings year includes the certain our upward. many we noted in nonrecurring issued quarter Page us which press night, consists was release And often said, as per FFO income. on lease guidance point our of color on Demeritt revised termination FFO full REITs FFO items, X for The and $X.XX for share. last XXXX additional release office

You find these financial and of can our data. items supplemental nonrecurring quarterly X Page on operating

points. to X want I make brief related

FSP. annual fee at lease an of level is some termination recurring income item First, effectively

the estimated compared Our million approximately lease of $X.X approximately termination FFO XXXX. ended to for million includes guidance fee full year year during $X.X XXXX income

as We Second, one the income from FFO our XXXX attributable view that remaining year feet square the event this traditional early approximately primarily space lease effectively for million agreed estimated comes in our X.X lease under space. lease. were years Dallas at buy full obligations of a do tenant of rent guidance its termination. remaining approximately fee not of lease that to Approximately XX,XXX properties to a XXX% of for termination included $X.X out

strongest Beginning will re-lease is amount of X, square and XXXX, one able to relatively markets. January XX,XXX small of space, we in a it the be space, feet, our

rates and than the our every interest have of new In to and rent. more significantly dollar, already that we at space higher from the in experience, and now over to tenant approximately it tenants fact, renting due get all opportunity been get X.X re-lease effectively upfront years have are would prospective to that the or next another space. same the to expired all that is tenants unusual space In again have the rental double rent, rent it space same on

turn our some President portfolio for commentary Now Company. to John about John? Property the activity, will I Donahue, property call the of over Management

John Donahue

June. FSP of an September, leased The George. the portfolio Good from represents an XX% of increase leased everyone. XXXX, as from redevelopment of was assets, you, entire portfolio, which June. which as increase Thank morning, September including as in XX.X% leased XX.X% The was leased XX.X% represents operating

quarter, Blue XX-year collectively During the Lagoon, Lennar as June. in XXX,XXX third as approximately leased properties feet our is and as X at of Homes increase George of one redevelopment an signed from redevelopment for Blue The is were Miami. September, square Lagoon which properties, now of XX.X% mentioned, leased. a FSP leased XX% lease XX.X%

rents entire an Denver, the approximately to which portfolio, end in XX% Leased the of at were of portfolio. anchor foot September is improvement CBD in leased foot XX% per of of and points. at square to as in X now to The of as as the per our Denver compared occupancy in XXX square market, continues the XX.X% XXXX. That average FSP $XX of aggregate Denver largest compared assets September. of leased end improved $XX.XX approximately XXXX in to above than represents occupancy GAAP exceeds basis XX.X% XX.X% as XXXX. Denver more Weighted December

of surprises, absorption feet feet. year. the X,XXX,XXX X prospects for square are to the we to of a expect intent prior first leasing tenants. There or end square record of approximately in and year-to-date the new redevelopment portfolio, in new percentage with expect the was was calendar to leases in the prospects in those FSP months are properties and the operating both in stage. year. Barring any Total of of execute net the new XXX,XXX probability the potential Approximately set upon we shortlisted high XXXX high leasing tenants, calendar an that letter new new square feet achieved XXX,XXX for pipeline, Based

In occupied the end to rental square per foot per footprint, portfolio terms quarter $XX.XX at rate, the $XX.XX weighted-average of of XXXX. the at third in-place or square finished compared

gross rate X achieved square basis, compared months on $XX.XX average weighted the the total leasing to per activity exceeded average as per net was the first for year rental for GAAP activity XXXX. $XX.XX $XX.XX of weighted leasing foot. rent The On footprint, in square a

it With Carter. that, I to turn will over Jeff

Jeff Carter

morning. you, John. Thank Good

within the national to is excellent our several Our believe high-quality strategy West primarily service for activated employment potential positively U.S. Mountain creates growth demonstrate The Street regions ratings U.S. own well and properties average. well that life as and West Properties exceed conditions regions time. that Sunbelt properties, customers these and that to rental delivering Sunbelt as conditions We to of as opportunistic over We and the creation. markets. the well-located have continue Franklin at Mountain the appreciation office believe at rate as value quality influence population

show U.S. signs the relative has encouraging focus regional market. continued office to to FSP's national

among Census the This the 'XX the indicated In the numeric United XX between fastest-growing the in West. West and fact, South that towns U.S. South Bureau States. cities in reported that on with were cities largest May the and continue and report the gains XX, have that XX or XXXX to

upside views potential. our time, directly recycling asset and disposition value-add owned FSP portfolio the On this possessing front, as broadly at

its the we With conclude XXXX. repayments value ahead, past $XXX Mountain the million reshape by be efforts X our candidates should our on over West disposition maximization worked and/or for Sunbelt the respective believe could coming has and dispositions remaining respect over over to that U.S. since XXXX, properties X portfolio Looking of market areas, focus strategic managed their to years during months. FSP mortgage completing

On purchases. the value-add though, opportunities our investment are within on our acquisition through Generally we our stronger suitable IRR front, than externally potential track to within markets. existing all efforts portfolio new organically FSP seeing continues

possess seek We urban properties that value infill high-quality in term. continue and intermediate to our the over markets to ability credibly short add the to

open earnings And thank for Lexi? like any I call to you this that, questions. listening the conference call for With at we'd time, today. our to up

Operator

you. Thank

question-and-answer will with Dave question Please begin Baird. Your We from Instructions] session. the go Rodgers [Operator now first comes ahead.

Dave Rodgers

everybody. could, the side. leasing good John, on wanted John I to if with Donahue, Yeah, you, morning I start

you LOIs, pipeline said late-stage negotiation. good a You had of

square at you kind feet And about? are assets particular missed into is so the looking redevelopment of Lennar? you how that, talking amount detail If can assets, the maybe ask notwithstanding demand said I dovetail to then X it. about And I and those had that wanted you of obviously,

John Donahue

Sure. Good morning, Dave.

have XXX,XXX amount that square high those feet, the prospects space that's we new and probability with of leases. is So approximately

feet potential additional of an XXX,XXX We renewals. have approximate square

So we're but be out. think we'll another that we And barring how we expecting a surprises, record, any quarter. to very strong that see might fourth close turns

across out one spread country. are they are, There's lease. leases no those the where to regards In predominant

have Minneapolis. have and a couple prospect of prospect Dallas, prospects a We in We we in have Denver. Charlotte, in prospects in do X another

favorable the of spreads. the All working leasing we're year. those of at of majority deals the And towards are end finalizing prior those to prospects

we'll So hope on average you to have high those, let a batting know. and

Dave Rodgers

wanted as WorldVentures ask then just to wanted square remember in XXX,XXX about commencement. February GAAP That's I a It's I feet And that February the tenant. I a have a think. you is commencement helpful. for if that about footnoted that or cash to

John Donahue

tenant is with sublease from going a that Denver. So direct

If a few tenant a ours you wear recall ago. they of them, major years

-- believe back gone be have I on to in that have be free I cash And front get that I QX you QX. there's of will they don't months have or rent. direct. that. a think me. that to I'll But few of will in So

Dave Rodgers

year. on George, termination for and be that maybe lease the is income. or go complete I -- It John John full the That's of appreciate, amortization sounds appreciate your will of Wanted the end the back to Denver. Okay. comments the it. about this helpful by I that. on like

from And Is leading that particular XXXX. into correct? so we don't tenant really one see that that

John Demeritt

Yes.

John it's Demeritt. year. fully It in So end this amortized the will by be of

Dave Rodgers

tenant? from That's helpful. How Okay. that much income was term XXXX of lease total the

John Demeritt

reduced termination lease X.X lease that term, there straight-line I income write-downs was rent some. that some think receivable that don't -- hit was were fee total the but it

Dave Rodgers

Okay. number. a That's gross

Okay. Fair.

John Demeritt

$X close Dave. million, to Probably Yes.

Dave Rodgers

there. right. million. quickly really deal $X Lennar All net Maybe great at see Blue Lagoon, And it on the cost then was increase to the

think how cost obviously added headquarter parking. adding that $XX about cost? in the things? I some of cost maybe getting It's you're detail paid were of so the was good I can you project. for rent you the But you million terms in and the then know a And added all there. some those up deal, think overall much

John Donahue

increasing increase to for thousand the X.X of of There parking up as lease is the are Lennar is attributable It's Homes in X.X few Sure, Dave. the a per other share and parking. Donahue. lease. spreads John long-term HVAC into seeing the specific that But Homes We're ratio and price/cost The we items such see The The significant. the were about not thousand to amount items elevators the increase majority not from lease. and IRRs. Lennar that the is lion's a planned, number. into also on not of strong the amortized deal, still that that's rental garage increase, asset baked as double-digit

Operator

question next with Your from comes Janney. Rob Stevenson

Rob Stevenson

that John, where bigger next up feet incremental X or likely million known year? are expirations? outside the on square almost you that lease of XXXX the What's for known comes move renewal

John Donahue

new information. there isn't really Rob, any so

As you a refresher, I'll largest few. give rundown of the the

lion's over next the will delayed And fourth we they year. for little share QX. government about next course We of those over year. few a bit. We as that in few calls, Grumman so they there of likely expiring least is Again, But of expiring a the the with do at Northrop will the then year. that, leases in are of that month, expiring the expiring don't have U.S. on is be quarter. be a a end of exactly talked a portion do have we the will long, holdover but Petrobras at there and but some expiring holding small be So how portions of know

their we're in company They at with use will. other So that of haven't the and about anything, of re-lease we certain that finalized we beginning have might to have subsidiaries not been but the we'll that space us the year. space, touch

that early a marketing already be from we'll got interest we've couple prospects. So space and building XXX%, some the for of entire

next see And Jones So will then expect goes. park Day not that believe slip we'll XXXX. year. vacate that the to least, We We last, but don't Day. into how Jones

Rob Stevenson

the you sub $XX, what's leased guess you're lowest the XX% I move-out then us out ago. for current still the rent update sort And can is give status operating The at on at Okay. Richmond? in there the Innsbrook year a the portfolio. of in

is in you may are still that tenants, Is guys didn't good guys hear current What that at thinking or this new up list potential occupancy wind I your of prospects? there? something levels? Richmond selling you

John Donahue

casting medium-sized, do has We do a small-sized and tenants. not this have in for time. a deal there, leases mixture nothing potentially a been have and We Richmond large at of We're finalized. wide net

the mid-sized those We tenants and are occupancy. might XX,XXX in square the feet that XX,XXX interested between seeing be second year half of

have in it And again, So we'll news we in for when multi-tenanted. will nothing likely time. at this you February hopefully, leases be talk some but

Rob Stevenson

it? didn't do you pay with on And if they lease that was buyout, I or severe Okay. space on the allow the sublease something the to them restrictions else? alluded something even then seems as there XXX% It could mean, there for Dallas lease that what guys in will wasn't owner strange, to some yourselves you

George Carter

wanted off represented is Rob. early that nothing spinning allow further was the is clean footage feet obligations would was the was want structurally And after termination. sheet. spinoff. whose is lease absolute This the that spinoff. It a in them XX,XXX that an on XX,XXX -- on They company company lease there an their square square unusual, the didn't sheet balance George. balance any This And simply

negotiated year-end lease truly of the rent, and as again, it a And of negotiated them full rent. so XXX% leaving -- at we part the wasn't paying

I've seen unusual. And going in probably this that sort only but exceptional really it this, on an is minimum things was couple or was you on not experience the situations get some at like So Usually, a quite deal. my case. of it is career. these subleasing in my like something,

Rob Stevenson

Appreciate guys. thanks Alright Okay. it

Operator

[Operator you. from Your Instructions] ahead. with comes next Thank question Kim Please go John BMO.

John Kim

Thank you.

on in expectations did question rents to And on does that Blue impact projecting? Lagoon. come First yields the that how Where the Lennar your you're relative underwriting? redevelopment

John Donahue

are we is that, there. very suffice very Page all And that going Donahue. with the pleased John a the spreads is details plan time say rental The really in supplemental for leasing strong according and to activity. imagine got as are we're John. that to would This we've redevelopment that transaction. located at we're on lease. The prepared everything you But XX the say XX-year is that have to morning, rates Good from strong this

John Kim

Can an for you provide you update the expect on program? redevelopment yield the entire

John Donahue

Not that double-digit provide time. leases this the themselves the IRRs, value return the at you. will conclusion. investment don't property a We the be to at have We believe of and on the that investment will exceed to

John Kim

that CapEx as that upcoming assets other go expirations may far into the redevelopment additional could result any there lease Are in repositioning? as

John Donahue

At John. that don't We categorized believe be will have so, we as redevelopment. think any time, don't we to this buildings need

we expect update But we will and time significant As approach at year-end Northrop to at asset. the repositioning Stonecroft a building, you Grumman on look this that. that of we don't we have

John Kim

clarify. to lease include just assuming total quarter? On the XX.X%, termination percentage does of leased that operating And expected am in Okay. I the not portfolio your fourth

John Donahue

correct. is That

John Kim

Okay.

last mentioned think the that to termination year. recurring the occur happen next that you a fair think amount closer George million your $X this, every to do I few is likely Is more XXXX? it fees over Or of got for figure, there's year? that is years? you good run What a rate

George Carter

them, some don't not, these expected John, I comprises what as put represents some terminations. some of are relative to an an items was to or allocation exit terminated full, original termination year upfront fee, sometimes adjusting you on the quarter of our quarter always our for with in the because planned for out lease. that sometimes it's this structural CapEx portion preestablished is And spent every as partially most is to sort again, tell them of usually you, are George always of amortized and do lease But again. the know, terminations, you guidance. know of and We can guidance in early Most which guidance, there to line there's lease. Most allow them terminated.

with kind just vary and it It from a target of of so happens can year-to-year year for our moving recurring. a quite quarter-to-quarter. bit our it is every It's us. And But ongoing, just from buildings, kinds tenants.

was this be XXXX This termination this we between be -- unusual part negotiated we will Street actually tenant. deal a February, of structural and our termination. some when that was negotiated a income. will as lease which estimated guidance that not guidance, there This We Franklin So give in really particular this buyout. is fee and

having signed, sealed we and so And in to bullet enough it, thought point. putting our delivered negotiated, want was it unusual guidance

Operator

our concludes like over turn Mr. This question-and-answer Carter I you. any to Thank closing session. conference would George for back the to remarks.

George Carter

period I'd like and I thank how to to locations their strategy. and support. portfolio, the for tuning you your our bullish And everyone into for reiterate property we our in thank all like are getting on to everybody confident is call. would this how X-year through FSP And just

Operator

This for attending Thank for presentation. today. you conference today's concludes our

You disconnect. may now