Franklin Street Properties (US:FSP)2019-08-04 19:52Financial Data and Key Metrics Changes - The company reported funds from operations (FFO) of $23.8 million or $0.22 per share for Q2 2019 [8] - As of June 30, the company had approximately $970 million of unsecured debt outstanding with a debt service coverage ratio of about 3.5x [8][10] - Total liquidity at the end of June was $613.1 million, including $600 million available on the revolver and $13.1 million in cash [10] Business Line Data and Key Metrics Changes - The FSP operating portfolio was 88.1% leased as of June 2019, while the entire portfolio, including redevelopment assets, was 85% leased [15] - Approximately 375,000 square feet were leased during Q2 2019, with 123,000 square feet leased to new tenants [16] - For the first half of 2019, the company leased approximately 835,000 square feet, including 218,000 square feet to new tenants, setting a record for the company [16] Market Data and Key Metrics Changes - The weighted average GAAP gross rental rate achieved on leasing activity for the first six months of the year was $31.46 per square foot, with a net rent basis of approximately $19.50 per square foot, representing a new high for FSP [19] - The company expects to improve net absorption and increase leased occupancy during Q3 2019, with a strong pipeline of prospective tenants [18] Company Strategy and Development Direction - The company focuses on owning high-quality office properties primarily in the U.S. Sunbelt and Mountain West regions, anticipating long-term employment and population growth in these areas [21] - The company has reshaped its portfolio over the past five years, completing dispositions and/or mortgage repayments totaling over $351 million [26] - Investment demand for high-quality office properties remains competitive, with historically low cap rates nationally [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about leasing results, indicating that 2019 is likely to be the trough in the percentage of leased space [14] - The company is financially prepared for current leasing efforts by increasing liquidity and fixing rates on much of its debt [13] - Management noted that the leasing activity is crucial for net new absorption to take place, with expectations of meaningful absorption in 2019 and 2020 [12] Other Important Information - The company sold the Energy Tower I property for $83.3 million, fully repaying a secured loan of approximately $51 million at the time of closing [25] - The company has no debt maturities until November 30, 2021, and about 95% of its debt is at fixed rates [10] Q&A Session Summary Question: What are the drivers behind the FFO guidance increase? - The increase in guidance is based on internal forecasts considering recent leasing activity, rising rents, and capitalizing operating expenses at redevelopment properties [32] Question: What is the expected impact of the 200,000 square feet of new prospective tenants? - The majority of the impact from these leases is expected to start in the second half of next year, with some smaller tenants potentially impacting Q4 of this year [34] Question: Can you provide an update on the Jones Day lease? - Jones Day is relocating to a new building, and the company is preparing to convert the current building to multi-tenant space [37] Question: Is the 200,000 square feet of new prospective tenants inclusive of the T-Mobile lease? - No, the 200,000 square feet excludes the T-Mobile lease [41] Question: How are operating expenses trending? - Operating expenses saw a healthy drop, attributed to capitalizing some expenses at redevelopment properties and better expense management [43] Question: Is the Board comfortable with the current dividend given the AFFO levels? - The Board is comfortable with the dividend and anticipates volatility in AFFO due to ongoing leasing activities [46]