Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Franklin Street Properties Corp reported funds from operations (FFO) of about $4.2 million, or $0.04 per share for the first quarter of 2024.
- Economic occupancy of the directly owned portfolio increased to approximately 71.3% at the end of the first quarter, up from 70.1% at the end of the fourth quarter.
- FSP finalized approximately 197,000 square feet of total leasing during the first quarter of 2024, showing active leasing efforts.
- FSP's assets in suburban Houston and downtown Denver have witnessed an increase in overall new tenant activity over the past five to six months.
- FSP is engaged with existing tenants regarding potential renewals totaling approximately 450,000 square feet, indicating a strong pipeline for future leasing activities.
Negative Points
- Franklin Street Properties Corp reported a GAAP net loss of about $7.6 million, or $0.07 per share for the first quarter of 2024.
- The directly owned portfolio's leased occupancy decreased to 73.3% at the end of the first quarter from 74.0% at the end of 2023.
- Challenges in property dispositions due to competitive pressure and limited investment capital availability in the market.
- The office leasing market is still recovering from pre-COVID occupancy levels, indicating ongoing challenges in the real estate sector.
- Current market conditions for office property sales remain challenged with a significant decline in completed office property sales activity year over year.
Q & A Highlights
Q: I noticed that there has been a pickup in renewal leasing this quarter. Do you expect this leasing velocity to go forward?
A: John Donahue, Executive Vice President of Franklin Street Properties Corp, responded positively, noting active engagement with tenants facing near-term expirations over the next 18 to 24 months. He highlighted an increase in engagement from both smaller tenants potentially growing and larger tenants considering downsizing in exchange for extended lease terms.
Q: Is there a certain range in square feet for your properties that receives greater demand or interest?
A: John Donahue explained that demand has predominantly been for smaller spaces, around 5,000 to 10,000 square feet, over the past four years. However, he noted a recent increase in serious inquiries from larger tenants, indicating a shift towards larger space needs.
Q: In terms of tenant improvements, has there been more of a paradigm shift where tenants can now demand a higher amount on a per square foot basis when leasing space?
A: John Donahue stated that tenant improvement allowances have remained similar to past years, with most tenants expecting a turnkey solution. He acknowledged that costs have risen due to inflation and supply chain issues but emphasized that the overall trend in tenant improvements has not significantly changed.
Q: Are there certain geographical markets, whether it's in terms of leasing or potential disposition opportunities, that are perhaps not as strong as others?
A: John Donahue and Jeffrey Carter, Vice President and Director, discussed geographic trends, noting stronger demand and disposition activity in the Sunbelt compared to the Midwest. They emphasized that the specific story and appeal of each asset play a crucial role in its market performance.
Q: When you speak to potential buyers, are there any parties that are potentially looking to redevelop or convert office to multifamily?
A: Jeffrey Carter addressed this question by stating that they have not encountered buyers looking to redevelop properties for conversion purposes in their disposition program, although he acknowledged that such trends are more prominent in downtown central business districts.
Q: How are you addressing the challenges posed by the current competitive investment sales environment?
A: Jeffrey Carter explained that Franklin Street Properties Corp is focusing on maximizing value for shareholders by being cautious with details that could potentially harm sales efforts. He highlighted the importance of selecting the right buyers who see the long-term value in office assets, despite the current challenges in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
