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Franklin Street Properties (FSP)

Participants
Scott Carter General Counsel
George Carter CEO
John Demeritt CFO
John Donahue President, FSP Property Management LLC
Jeffrey Carter President and CIO
Dave Rodgers Baird
Frank Lee BMO
Rob Stevenson Janney
Dave Rodgers Baird
Call transcript
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Operator

Good day and welcome to the Franklin Street Properties Corp. Q4 2020 and Year-End Earnings Call. [Operator Instructions] I would now like to turn the conference over to Scott Carter, General Counsel. Please go ahead.

Scott Carter

Good morning and welcome to the Franklin Street Properties fourth quarter and full-year 2020 earnings call.

John are Chief our our Financial Chief Officer; morning John Executive President this FSP Investment our of Demeritt, Officer; and me George Chief Carter, Officer; and Property Joining Management. President Donahue, Jeff Carter, Daley this Vice both FSP Management. Toby of Will Friend, Also joining are and me Property morning Executive Presidents the statements plans for the under Company note remarks we Securities that Harbor prospects Please Private of may make Safe constitute Act and forward-looking for Reform that various about purposes the future of expectations, Litigation may provisions XXXX. ended from Actual differ factors, on is indicated may the statements for our results the December forward-looking with discussed on file year as those result materially Risk XX, important those various XXXX Report by of section XX-K Annual of which these SEC. Factors in a Form including the

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

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

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

John Demeritt

comments. to I'm results. his I'll of fourth year-end our morning for you, Afterward, Thank overview Scott, call the quarter good going to an everyone. give and pass and George

or ended of for $XX.X XX, operations be million the XXXX. share the package per Scott mentioned for and of is just which or We our XXXX reminder, December file $X.XX website our the a fourth comments As FFO our on from year quarter million $X.XX as funds $XX.X to reported will the refer with XX-K found on and earnings supplemental SEC. or release, and today can

were fourth impacted one the During bankruptcy revenue. that had and pandemic $X.X large tenants our significant in in of filed late resulted the a by against charge that million for tenant with quarter, we December that a worked write-off

decisions not. making is current paid rents, we not whether collectible, determine of determine any write they're a receivables report part lease write-offs, cash. collectible on and we in If As we off the or don't unless it's

So, the part revenue income These collect. the write-offs of current wrote-off didn't and statement. the loss part we of charge that from more on reduced we loss receivables, of is is one-time which are a rents

had noted primarily write-offs our were about about on During annual income. QX, million bankruptcy is $X.X $X.X we about and and that tenant a X.X% I the basis, total of year-to-date rental lost or a rent of write-offs million from which

the lost we from forward, Going be off would cash amount reduced wrote tenants rents by we any receive them. from of rents

We're about like $X.XX. made did and from about issues reached we'll we QX occur agreements with having whole the by that generally using or the part as the are of GAAP updates $XXX,XXX whole being repaid year tenants lease and this - us These FFO of $X.XX were modifications million have $XXX,XXX them on also in deferred with agreements other - here. year. about and provide tenants rent we totaled We periodically and with agreements. us rents of impact other working tenant amendments, The total during a for number result deferrals

$XX.X sold applied against the XX, North $XXX.X of 'XX, we December million unsecured proceeds Carolina of in a In $XX.X our including and million to had balance million sheet $X.X for debt, credit. of line we drawn debt. on Turning at our December, million property

later. be color will more that transaction providing on We

million $XXX from year-end, between line, matures loan remainder At our proceeds on the we by credit. that against one in $X.X of hand against cash December. term $XX million that our of and drawn supplemental in on incurred we line $XXX the With the balance and were million. total disclosed sale, the November our write-off We the we availability filing in million had liquidity impacted about late some ratios of applied

Our fourth to for net EBITDA because we EBITDA debt quarter measure. this then for that impacted reduces and was ratio the charge annualize the

XX this and ratio primarily result debt been X.X reduction. would to be times at would charge, debt-to-EBITDA have times our a of that net Excluding the compared X.X decrease September

been in and referring calculations case the debt to X interest We our looking our in XX you're Pages X.XX them. footnotes in and ratios supplemental ratios Our coverage disclose service filing in the impacted interested are have of at times. would and I'm and also were on calculations

As be debt will loans a maturities is unsecured we debt no $XXX reminder, and due. million of have our when November until of term all

a debt Our the will turn line to George. is call other that, the With is at which at floating the rate. $X.X George? rates than million fixed I over on

George Carter

you, portion seen and our to people John. the the contributed many helping of most efforts challenges in XXXX impacted business have I that I like by Thank It has been to one my that in this recognizing Street call pandemic. Franklin ever earnings start the different the challenging of COVID-XX by was collaborative business. would navigate so of successfully

the we customers, grappling responses them as challenges, and efforts Again, realities the with their are begin thank tenants, day, pandemic. you resulting one at towards valued ongoing our end of of and business All directed own are the of all. ultimately from each these FSP's XXXX

leasing reduction. office leasing our and due years. markets of course potential the users demand for in are we past progress growing XXXX, debt From densification both that two approximately of office situation now as the improved a result trends primary For access space therapeutics are office the focused to anticipate objectives; a perspective, we XX to vaccines. believe reconsidering on now increasing We the economic space of of and

slowing continuation could densification for planned bode of some potential flexibility, the for with of level reversal office work-from-home even well space remote that absorption. future believe also of We or office the

leasing more leasing increased color minute. give renewals John longer-term includes these Donahue thoughts economic both a will XXXX Our in occupancy just to of focus tenants. and existing

As position not its debt. embedded for several of from portfolio intends FSP met for gross guidance debt will proceeds. from further have approximately Donahue, turn we talk reduction John? and objectives million now, Property about me proceeds Management. be of $XXX let believe the may will common Carter believe financial been in Accordingly, then value in provide returns. Company XXXX, efforts shareholder accurately reflected where where full-year we valuation introduced $XXX of to call. pursue for debt the that apply John stock property President more reduction dispositions, primarily million We Jeff the in those this aggregate and the range call over flexibility to our greater in disposition of and dispositions FSP stronger XXXX repayment later the the in price have But to

John Donahue

Thank was you, of decrease the everyone. of is average existing disposition approximately The redevelopment tenants. quarter, FSP XXX,XXX approximately Emperor leases leased a expansions feet which morning, including calendar was XXX,XXX the XXXX, feet the the Good George. was feet occupancy with for leased square attributable XX.X% included Boulevard at decrease December. At of square of during approximately which the third square The and from portfolio the properties the XXXX million end end of to quarter. approximately XX.X%. calendar primarily leased fourth XX.X% X.XXX of in FSP leased portfolio new

over fourth the XXX,XXX renewals During of we finalized tenants. expansions feet and quarter, square with existing

Sunbelt been quarter, the had for in slowed fourth the in prospective momentum, during gaining Although holidays down February for office at FSP has tenant assets shortlisted and FSP and properties. There the prospects specifically demand XXX,XXX that feet tenant activity have space January square the FSP tracking new are potential new is renewals. XXX,XXX of approximately assets. of square approximately currently feet leases

absorption existing that, the we the Carter. square addition, Jeff approximately for renewals. are potential total of months Barring prospects, expansions. surprises, In next months feet With new is now to engaged and it includes This over potential for Thank will approximately turn net six with XXX,XXX square you. three XXX,XXX tenants I over feet. to any

Jeffrey Carter

We my morning, FSP today sharing hope everyone times. four Franklin Good XXXX. uncertain during for John. Street priorities key at you, safe is here in comments Thank these I by everyone. start to and healthy that Properties wanted

navigate and safety health The ongoing work partners our to as tenants tenants' together. with essential. to pandemic COVID-XX FSP our first the efforts will are be that appreciates and recognizes

second lease within to working is vacancies in expanding and The occupancy tenants existing to continue and grow renewing order our portfolio. or on value to

believe credit I some strong and strategy may strategic repayment requirements. provide near-term of be to with returns. whether potential December and We such mind, of that this achieved then are owning XXXX markets shareholder that include properties, particularly objective. our in We sale FSP have loan wish million stronger for XXXX following a More within are to of potential the may from term not would fourth XX to to our will REIT returns. comments our third potential. West their our Sunbelt currently Boulevard subject debt Emperor appropriately occur believe continue smaller At that to factor will committed Emperor believe estimated and greater business proceeds debt $XXX the FSP to share opportunistic believe its distributions second With estimated facilities on and but will well half for FSP these stronger to property the list debt million be that an for job on value FSP dispositions of where XXXX, order the full-year of position valuation population to goals. to describe sales the of in potential the well will repayment markets properties and December, and to time, further on we current line is US West XXXX to utilize flexibility and for Mountain specifically that would any and likely XXXX. range determining in potential of during select from in pursue of office exceed respective under dispositions to portfolio financial will assets look to average. for range long-term be further Boulevard thoughts valuation as has the primarily be refining greater price has The specific commitment for any my flexibility near-term properties for and to The of point where FSP select and continued as of shareholder gain majority where additional we revolving a of full-year larger meet our sold for our are to in our $XXX anticipate of the position to Sunbelt national additional $XXX then sale reduction see in of and regardless Mountain million likelihood in currently necessary growth that within we $XXX again our market as disposition the dispositions, our primarily we the Proceeds within repayment and properties are properties emphasis exists, special intended this upon respective growth where for highest review proceeds that population in embedded potential to to the that we be million build financial out be front utilize dispositions as debt. ahead we such remains reflected will be high-quality assessment long-term this of met of which from target used under primarily the our the that dispositions be

like up influenced and regularly with by our to We market today. efforts And at any will the for for listening conference call will call appetite. earnings the we And open pandemic with time, resulting on this we'd be objective, that, this COVID-XX you Operator? the update our questions. investor which thank to

Operator

ahead. [Operator Please Rodgers first Instructions] Dave Baird. The comes with question from go

Dave Rodgers

will a sense What's today, to already end million $XXX the the morning, Jeff, obviously, Can bit news sell? us you and I'd think in market a you're the on some Good what how give you culminating transactions sales, and anticipate about $XXX year today. that these love marketing of everybody. more even of what little big of to want wide more much there? the kind range the by the you you of asset cap talk you a million to with do of be rates start that

Jeffrey Carter

But markets our some Thanks, discussed today if, Dave. that on that or we're their thank identify again, and is properties moment as you. of to potential smaller met larger additional well both and anticipate, if competitive reasons based questions can color we've as from for specific markets assets potential a markets they on Important if, our opportunistic I'm big target list ago. judge call I just and XXXX our both and still unable have goals. some since refining sales provide will we'll as an this of from near-term include valuation disposition assessment assets the we

them. may to assets, that be they're but value will they - more and are and over to some see market emphasis types more that's committed of going from - they're you're term markets standpoint, more think that of, have long stabilized you'll term. of long We continue our likely the that assets Mountain primarily component Sunbelt disposing generally I to add at some West you look likely with them as we're looking the see at associated - a disposition do

And in determine respective market, to we refine on to able that until so, going see you're going very an list, to I'm each you think be totally and rates. cap rates I exact but competitive cap estimate give not are that

Dave Rodgers

I does mean, you're is you and of quarter, out? the in when that that you when I the St. West, getting type that Denvers's comment is expansions, I number of guess in Virginia Mountain and renewals, mean rid of this that did or of extensions Louis, Minneapolis or given say a think asset thinking of given

Jeffrey Carter

Important Great question. Thank you. question.

- mentioned, the type sorry, comment Timberlake and asset value at where Allen Timberlake, I full Crossing the or when Meadow think you have and our you Centene about that look for get and in maximize our your the asset you Booz that Point I'm River and hard with look at case portfolio to exactly shareholders. is and properties we properties, of worked

of our year. that So, mix the you I would this candidates are see think those types in

term, and markets at emphasized your important the for looking As and a is you us, look an as Sunbelt think market it's Minneapolis by like look question, dominated I long and West at - the assets. portfolio to going be to is quality question, you it Mountain our

valuation is And shareholders. part that for the the feet be a we square our in have will high-quality so to that going to mix, but we're at getting objectives our moment probably evaluate point, Minneapolis, there as look CBD realize of term, to continue long to what right XXX,XXX not you of and assets the

Dave Rodgers

and dividend quite Demeritt, assets, maybe if On about held on Okay. have weigh special and the assets then - the how George in Thank here while, thought you a for that. maybe move the can you you've you're going dividend to and this dividend recurring special you do for year John you a anticipate too, selling many dividend that these forward?

George Carter

it's Dave, George.

stay our that is up, unqualified dividends answer It down, is it dividend statement. is answer same I'll question know this Directors. going the the our by same always of and but and more you go give FSP again, So, the way Board do can And to color time. dividend that the I I'm shareholders our an always each to decided about for quarter and

color, that million XXXX, our However, year, about $X.XX you the did capital more share was million about yearly return and Boulevard, of per Emperor we of that or the And to $X.XX dividends per dividend, sale return that. capital $X.XX dividend. a last totaled per on share of give which after year $XX for record terms only a approximately, gain $XX.X there's of on on share in

to you dividend out If to status to requirements requirements have purposes. you for is think Boulevard the $X.XX dividend payout - came FSP the the able we dividend out sale real million and REIT to we payout close appropriate REIT anticipate So, per our calculation be dividend committed meet sales income would is paying REIT dividend our recognize to to $XXX we close certainly you on in the maintaining what income quarter And would we I will the have to that really at Emperor came taxable to XXXX, the - relative to REIT what's million dividend $X.XX of that paid $XX have would do. with dividends million to important closely meet taxable are real $XXX for XXXX. in look that or and generate and

Dave Rodgers

Last probably as Company quarter think lean you be? enough. like least of fourth to fair value about the between sizing can assets this you. the for you a of The your George, one, XX% and from Okay, do you at is undepreciated. feel is XXXX you're or over just How do appropriately kind book as plan 'XX G&A perspective sell of at

George Carter

by lot CapEx even that few COVID effort though percentage in percentage but the of regardless John yielded I a - as that that all the assets to on. to Demeritt ahead says the that a been what value. our I be mean, true dispositions the that NAV way may we've their book in as market, the last assets discounted G&A, feel Today, say portfolio, that have exactly sell local so calculation. not of discounted assets do And consider let are true talk percentage for their market sheets put what REITs that that I on believe have balance on would heavily to and and now in value that we're down of this of office about of going are I'll so they their a market many so this we of that nationally and is years because is and the steeply especially we represented

a with debt from plan is to these and to of our view, going our John one G&A competitive flexibility will long-term that and going be The pretty And our of competitive for we proceeds, my you Dave. found our in to flexibility question. I shareholders. that second we And the any to on point, G&A greater more now Demeritt, the on shareholders. lowest industry there first that create forward my use we're is creation for of think, that debt And think pretty the the value that of be create and surrounds for gaining in to that? reduce flexibility are some to we're new So, G&A lot as want weigh is now, this business point and point I use I value with think repayment the

John Demeritt

you've that. No, it on got spot I think

George Carter

help, Does Dave? that

Dave Rodgers

George thanks this the It team, and time does. for morning.

George Carter

Thank you.

Operator

question The Lee go with Please ahead. next comes Frank BMO. from

Frank Lee

You mentioned projects a couple should of forward CapEx. 'XX? pull and in look several expect and CapEx some for Can you that with quarters along ago update to on these going you elevated are you provide an that far are we spending how expectations TI to projects

John Donahue

morning, Donahue. Good It's John Frank.

Blue to in Lagoon. some continue occupancy. Miami until in as is We in lease large later first headquarters of tenants February X, of intend actually That see which largest to new the quarter their at to their they but move delay The year. Lennar commenced the don't

substantial yet delayed is been again. that so, And TI has package that a

see so, that the not possibly And until year. into may the even we very next slip end of year,

we're year. of are very a timing volatility, we when pleased of quite that to some than unpredictable expanded there's potential the larger recently of our We're TIs be on to seeing if in. come have a the of going Other back bit renewals. of half have the and tenants this So, that handful will, you that,

course, on my I heavily the into that guess helps the we'll that little year a - even for guess their this don't when TIs reimbursement But hope time to see bit. best best is tenants will back weighted slip the submit next at year. TI we packages. of know possibly and of really my the So, end request

Frank Lee

some the And Yes, you then asset provided. that's follow-up just helpful. on a sale commentary of

you put Just sale market the time this curious that some what investment appetite your for current give the best core is into value-add are to assets for thoughts versus and the on today what market? assets confidence

Jeffrey Carter

and welcome that attractive professionals - they're Thanks, most and certainty the investors has Frank. way been market amongst stabilized, a the with they're them. with, have we've with work that the whether couple here till we for seen the assessing associated or pandemic, whether Carter. The the we've ourselves property analyzing and during This tenants is way Jeff term with date of single-tenant and been

remaining, and December in had of a in Our location. tenant that compelling was intermediate had disposition in market it an but a life sciences tenant the interesting an compelling compelling term kind

still have so right that suburban high-quality now there than action it's to but now, in we in right future. and the less We're And markets in downtown a bit markets. unpredictable little still, stabilized in are seems favors - the assets visibility market seeing the infill suburban locations

what second of And so gives question your - part right now. confidence us was and the

pandemic couple and we do to uncertainty to of first the - is vaccine point ability now taking timing and We I the some demand, we're relative to think unique had new our of you contemplating buyer it's of appropriate the brought the sensitivities sales and a because factors key out prior pricing, important. itself I'd that rollouts, that being and we that as the and deemed the COVID-XX year actually especially of patience and last the really prospective COVID mentioned.

our as we in Boulevard. value objectives price embedded reflected do this have near-term affirm may George the us estate recognize. and even that and achieved that sale investors that current in real our valuation pandemic The that XX not appropriately of may and portfolio well possess share is, Emperor to have potentially their that that properties That be both discussed December direct really I other was within second

and and potential potential in necessarily some are think properties objectives FSP, Timberlake Northern to fourth been valuation FSP again just achieved and increased us likely unlock. I we relates factor are now Point are we've levels Centene which situations that intended And in mentioned, as to is helps. through portfolio stronger of Virginia, shareholder should times the say dispositions, debt recent both returns. examples leasing really goals Two extension of is reduction Company extension Booz that plausible that to the that and position George that yielded where candidates. are have that have hope our for in gain some Third at as interested not some Meadow of as desires had new for potentially a mentioned I Allen flexibility, to financial primarily well but expansion, I factor the

Frank Lee

helpful. And last That's then some Yes. dispositions client just mentioned ratio me, that targeting? a for one down of Is you're debt. pay to there leverage from you proceeds

John Demeritt

have have This is We Demeritt. John a been that a leverage has ratio ratio targeting, we're - don't running necessarily high. but the debt-to-EBITDA net little a

And so, down on get looking some that ratio covenants had. to write-offs of and that got with rent little our tight we're a the we've

So, that down we're bit. a little get just to looking

Operator

Stevenson [Operator Please Rob Instructions] with question from next ahead. The Janney. go comes

Rob Stevenson

George, months sometime past, to XX the help asset now in or sales the or us year the drove ago a color as decisions can understand why now? versus level the at what to you ago some do Board

George Carter

certainly, XXXX, and here, him in the at lot activity very Jeff a Sure. jump during the have I'll to it of level, Rob. to pandemic. relative market but were we Hi, Board talked about concerned

off of that most $X. thought the one lot the research then year the we'd considered of to conclusion this XXXX closed, the of at that professionals some though have last the properties considered that Raleigh-Durham. the achieved And help of year the in So, closed last various the their of the sort outside very have and that the was share had property of over pricing professionals market properties, and think, we've objectives, these believe year, stock analyzed sale for at over even of and with obviously look that's end that's which did between did year out, a We last properties at markets of a come sort that of the pandemic year. and is - property disposition, sort test some year, held the we a doing the - half, looking we of some we then in we I our Rob, valuation the of who process because which - a but they're achieve precipitously about had down action with us $X.XX that, in particular XXXX over market of in we objective, that would our took XXXX in

flexibility number when So, and valuation a far - and really so of our were could look after at below like NAV felt we you looking that our the investors buying, regions. strictly that to private this interested and could are focus gain to of what estate wanted investors, we estate we do long-term the to professionals the seeing to which on debt we markets felt we Sunbelt in Mountain the working achieve reduction real Board value at other real the more properties more with stock, for business just again, and continue of and West

Jeffrey Carter

is this Jeff. just Rob, - And

COVID we last particular the the we through, I George have assets a that there give hope the in of to a think and last the makes of Just buyers did disclose second, breakthroughs in versus marketplace that year us is one for last the And difference wasn't. that that the that they market we met leasing added opportunities when in indicated assets that and have some but that in considered. several that was their there of think could really, of with COVID, end both always the years, you we seen have sell that when times, levels things at we've until vaccine is that again at would mentioned, there objectives. think I of where visibility At recent year few to as year, vaccine increased valuation build prospective the the think on look came that, better a I FSP we breakthroughs Emperor year Boulevard the I

some that again in that opportunities, value be as year realize put last had may price. even doing George year just front of a to in that us created have successes not such have hard of during share said ability the that We current reflected our

assets through there And we may tipping that that so, valuation number when their our financial greater recognize can with that helps. factors flexibility at I of combined gain reduction, desire is think debt where look reached objective. hope point to those you we have a

Rob Stevenson

Yes. given - is you assume whatever cash focus, pay is Okay. to then, compliant guys stock, just just need pay in reduction mean, safe I earmarked debt be mean, given to be for it repayment. I And that going to debt the those debt reduction all that will that the dividend is to you guys special

on pay a going sheet not cash the dividend hoard cash? You're to balance special to in

George Carter

That by dividend good be of decided is not in the assumption. Rob. not will type. good Payment is George, This and Board, the amount a That is both a assumption.

Rob Stevenson

against And one price close mean stock those I ready to that mean, guess to comes proceeds use but don't about are have - some is weak, or last today. X% mean same you would sales off lines, I offset the of remains you Okay. if the obviously, the is that I down down. stock well it, basically use shares then to me. - for would the I you leverage table until asset repurchase along as

George Carter

that the debt our in And repurchasing with concert of price stock the absolutely at amount of of time. the minds our reduction course debt the reduction, of would timing amount debt the moment any timing consider would in in be stock. that of and We appropriate reduction, of

Operator

Rodgers question with next Dave ahead. go from follow-up is Please The a Baird.

Dave Rodgers

much mentioned give there, to a on Yes, Just how you tenants been anything on rents, be GAAP John little many a you those have would might along kind cash on that? Can watchlist. more Demeritt, how of lines converted color in comments from helpful. be your tenant

John Demeritt

big $X.X rest total most were talked and may - write-offs and smaller our were be about an we of WorldVentures from Most to that was that of a get aggregate the our numerous X.XX% very of the like significant about ones, write-off the them, to but tenants there really million X.X% of were was rents the the rents.

really it So, that significant. wasn't

We that the that we're have magnitude tenants right with was. of WorldVentures now working nothing

is look the WorldVentures. as one then is the think I other is co-working at significant some a properties, things of other nothing few at we and space but

Dave Rodgers

CITGO Ovintiv, Okay, Randstad, the big you Donahue, mentioned I and thanks if apologize. coming John expirations for that. year. in these,

but pipeline, and it can renewals on you comment sounds few, expansions got specifically? the You've those quite like three in a

John Donahue

that exercised. Randstad. bound with Dave, already I has believe We're you discussion. That quite engaged for with CITGO confidentiality a is tenant while. been been just that renewal we've by a listed

details, are that with that but don't specific So, name provide we tenant name now. Did you early want any handful and are mid-sized I to renewals of a they engaged right can't engaged tenants I have I missed? that another

Dave Rodgers

remember Ovintiv, was that can't one sub-leased them? I or if was not. that out of

John Donahue

Yes.

subleased. We're you they the working their tenants of might So, Newfield needs now on imagine, the subleased now. that formally right with majority are That their few downtown be, on Denver have is was space tenant but can large of has known and sparse the space. what and population a their as of properties pretty space most sub been tenant in as CBD

worked future are through. so, being needs And

Operator

our like concludes conference session. to This closing remarks. George would Q&A I to turn any back Carter over the for

George Carter

I one year everybody hope taking be pandemic thank the time earnings on the the to from view you, sure. of than a it's forward Thank and - want We better to XXXX look We everyone. next point for XXXX for to lot our call.

Operator

Thank you attending presentation. for has now concluded. today’s This conference

disconnect. now may You