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Edited Transcript of FSP.A earnings conference call or presentation 17-Feb-21 4:00pm GMT

·31 min read

Q4 2020 Franklin Street Properties Corp Earnings Call WAKEFIELD Feb 17, 2021 (Thomson StreetEvents) -- Edited Transcript of Franklin Street Properties Corp earnings conference call or presentation Wednesday, February 17, 2021 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * George John Carter Franklin Street Properties Corp. - Chairman & CEO * Jeffrey B. Carter Franklin Street Properties Corp. - President & CIO * John F. Donahue Franklin Street Properties Corp. - Executive VP & President of FSP Property Management LLC * John G. Demeritt Franklin Street Properties Corp. - Executive VP, CFO & Treasurer * Scott H. Carter Franklin Street Properties Corp. - Executive VP, General Counsel & Secretary ================================================================================ Conference Call Participants ================================================================================ * David Bryan Rodgers Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Frank Lee BMO Capital Markets Equity Research - Senior Associate * Robert Chapman Stevenson Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the Franklin Street Properties Corp. Q4 2020 and Year-End Earnings Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Scott Carter, General Counsel. Please go ahead. -------------------------------------------------------------------------------- Scott H. Carter, Franklin Street Properties Corp. - Executive VP, General Counsel & Secretary [2] -------------------------------------------------------------------------------- Good morning, and welcome to the Franklin Street Properties Fourth Quarter and Full Year 2020 Earnings Call. Joining me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our President and Chief Investment Officer; and John Donahue, President of FSP Property Management. Also joining me this morning are Toby Daley and Will Friend, both Executive Vice Presidents of FSP Property Management. Please note that various remarks that we may make about future expectations, plans and prospects for the company may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2020, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, February 17, 2021. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. At times during this call, we may refer to funds from operations or FFO, reconciliations of FFO and other non-GAAP financial measures to GAAP net income are contained in yesterday's press release, which is available in the Investor Relations section of our website at www.fspreit.com. Now I'll turn the call over to John Demeritt. John? -------------------------------------------------------------------------------- John G. Demeritt, Franklin Street Properties Corp. - Executive VP, CFO & Treasurer [3] -------------------------------------------------------------------------------- Thank you, Scott, and good morning, everyone. I'm going to give an overview of our fourth quarter and year-end results. And afterward, I'll pass the call to George for his comments. As a reminder, our comments today will refer to our earnings release, supplemental package in the 10-K, which, as Scott just mentioned, can be found on our website and is on file with the SEC. We reported funds from operations or FFO of $17.5 million or $0.16 per share for the fourth quarter of 2020 and $79.4 million or $0.74 for the year ended December 31, 2020. During the fourth quarter, we worked with tenants that were impacted by the pandemic and had a significant write-off of one large tenant that filed for bankruptcy in late December that resulted in a $3.1 million charge against our revenue. As part of making decisions on write-offs, we determine whether a lease is collectible or not, if we determine it's not collectible, we write-off the receivables and don't report any current rents unless they're paid in cash. So part of the loss we wrote- off is from receivables, which is more of a onetime charge and part of the loss are current rents that we didn't collect. These write-offs reduced revenue on the income statement. During Q4, we had write-offs and loss rent of about $3.1 million, which is primarily from a tenant bankruptcy that I noted. And on a year-to-date basis, the total write-offs were about $3.8 million or about 1.5% of our annual rental income. Going forward, the amount of loss rents from tenants we wrote off would be reduced by any cash rents we receive from them. We also reached agreements with a number of tenants on rent deferrals using lease amendments, modifications and other tenant agreements. The total of rents deferred by us during Q4 were about $300,000 and for the year totaled above $1.75 million. These agreements generally result in us being repaid or made whole, although with the whole -- as part of the $1.75 million, we did occur about $200,000 of GAAP and FFO impact from them this year. We're working with other tenants that are having issues, and we'll provide updates periodically like we have here. Turning to our balance sheet at December 31, '20, we had $923.5 million of unsecured debt, including $3.5 million drawn on our line of credit. In December, we sold a property in North Carolina for $89.7 million, and applied $87.3 million of the proceeds against debt. We'll be providing more color on that transaction later. With the proceeds from the sale, we applied $50 million against our $150 million term loan that matures in November. And the remainder went against the drawn balance of our line of credit. At year-end between cash on hand and availability on our line, we had total liquidity of about $601 million. We disclosed some ratios in our supplemental filing that were impacted by the $3.1 million write-off we incurred in late December. Our net debt-to-EBITDA ratio was impacted because the charge reduces EBITDA, and we then annualize that for the fourth quarter for this measure. Excluding this charge, our net debt-to-EBITDA ratio would have been 7.8 compared to 8.5 at September 30, and that decrease would be primarily a result of the debt reduction. Our interest and debt service coverage ratios were also impacted and it would have been 3.26x. We disclose our calculations of ratios in our supplemental filing and the calculations I'm referring to are in the footnotes on Pages 4 and 10, in case you're interested in looking at them. As a reminder, all of our debt is unsecured, and we have no debt maturities until November when $155 million of term loans will be due. Our debt is at fixed rates other than the $3.5 million on the line, which is at a floating rate. With that, I'll turn the call over to George. George? -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [4] -------------------------------------------------------------------------------- Thank you, John. I would like to start my portion of this earnings call by recognizing and thanking the many different people that contributed to helping Franklin Street successfully navigate the challenges of our business in 2020 that was so impacted by the COVID-19 pandemic. It has been one of the most challenging and collaborative efforts I have ever seen in business. All of these efforts are ongoing as we begin 2021. And at the end of the day, are ultimately directed towards FSP's customers, our valued tenants, each one of them grappling with their own challenges, responses, and business realities resulting from the pandemic. Again, thank you all. For 2021, we are focused on 2 primary objectives: leasing progress and debt reduction. From a leasing perspective, we anticipate the potential for growing office space demand in our markets as a result of improved economic situation due to increasing access to both therapeutics and, of course, now the vaccines. We believe that users of office space are now reconsidering the office densification trends of the past approximately 20 years. We also believe that even with the continuation of some planned 4 level of remote work-from-home flexibility, the potential reversal or slowing of office densification could bode well for future office space absorption. Our 2021 leasing focus includes both increased economic occupancy and longer-term renewals of existing tenants. John Donahue will give more color to these leasing thoughts in just a minute. As for debt reduction efforts in 2021, FSP intends to pursue several property dispositions from its portfolio, where valuation objectives have been met and where we believe embedded value may not be accurately reflected in the price of our common stock and then apply those proceeds from dispositions, primarily for the repayment of debt. We believe that further debt reduction will provide greater financial flexibility and position the company for stronger shareholder returns. Accordingly, we have introduced full year 2021 disposition guidance in the range of approximately $350 million to $450 million in aggregate gross proceeds. Jeff Carter will talk about this more later in the call. But now let me turn the call over to John Donahue, President of FSP property management. John? -------------------------------------------------------------------------------- John F. Donahue, Franklin Street Properties Corp. - Executive VP & President of FSP Property Management LLC [5] -------------------------------------------------------------------------------- Thank you, George. Good morning, everyone. At the end of the fourth quarter, the FSP portfolio, including redevelopment properties, was approximately 83.8% leased, which is a decrease from 84.3% leased at the end of the third quarter. The decrease was primarily attributable to the disposition of Emperor Boulevard in December. The average leased occupancy of the portfolio for calendar 2020 was approximately 83.6%. FSP leased approximately 1,130,000 square feet during calendar 2020, which included 368,000 square feet of new leases. And approximately 150,000 square feet of expansions with existing tenants. During the fourth quarter, we finalized over 500,000 square feet of renewals and expansions with existing tenants. Although demand for office space had slowed down during the holidays in the fourth quarter, the prospective tenant activity at FSP assets in January and February has been gaining momentum, specifically for the Sunbelt assets. FSP is currently tracking approximately 700,000 square feet of potential new leases and renewals. There are approximately 300,000 square feet of new tenant prospects that have shortlisted FSP properties. In addition, we are engaged with existing tenants for approximately 400,000 square feet of renewals. Barring any surprises, the potential for total net absorption over the next 3 to 6 months is approximately 200,000 square feet. This includes new prospects and potential expansions. Thank you. With that, I will now turn it over to Jeff Carter. -------------------------------------------------------------------------------- Jeffrey B. Carter, Franklin Street Properties Corp. - President & CIO [6] -------------------------------------------------------------------------------- Thank you, John. Good morning, everyone. We here at Franklin Street Properties, hope that everyone is safe and healthy in these uncertain times. I wanted to start my comments today by sharing 4 key priorities for FSP during 2021. The first will be ongoing efforts to work as partners with our tenants to navigate the COVID-19 pandemic together. FSP recognizes and appreciates that our tenants health and safety are essential. The second is to continue working to lease vacancies and on renewing or expanding existing tenants in order to grow occupancy and value within our portfolio. The third will be to build upon our December 23 sale of Emperor Boulevard with additional but select dispositions estimated to be in the range of $350 million to $450 million for full year 2021 and then to utilize such proceeds primarily for the repayment of debt in order to gain greater financial flexibility and to position FSP for stronger shareholder returns. I will describe our thoughts on this subject further in my comments ahead. And fourth will be a continued commitment to our strategy of owning high-quality office properties within the U.S. Sunbelt and Mountain West, where we continue to see strong, long-term job and population growth potential. More specifically on the dispositions front. And following the sale of Emperor Boulevard in December, FSP will look to pursue additional dispositions of select properties, particularly where we believe that embedded value exists that may not be appropriately reflected within our current share price and then to utilize such proceeds, primarily for the repayment of debt under our revolving line of credit and term loan facilities as well as for any special distributions necessary to meet REIT requirements. The determining factor for FSP on potential dispositions in 2021 will be an assessment of whether our respective property has achieved its near-term valuation objective. We believe that further debt reduction will provide greater financial flexibility and position FSP for stronger shareholder returns. With this in mind, we are currently refining our target list of properties within our portfolio that we believe may have met their respective near-term valuation goals. We anticipate that these potential disposition assets are likely to include properties from our smaller opportunistic markets as well as some from our larger markets. And we wish to point out that regardless of where any specific properties are sold during 2021 that FSP remains committed to our Sunbelt and Mountain West strategic market emphasis, where we believe that long-term business and population growth has the potential to exceed the national average. At this time, the highest likelihood is that the majority of potential sales would occur in the second half of 2021. Proceeds from potential dispositions under review are currently estimated to be in the range of $350 million to $450 million for full year 2021, which again would be intended primarily to be used for the repayment of debt. We will update the market regularly on our efforts with this objective, which will be influenced by the COVID-19 pandemic and resulting investor appetite. And with that, we thank you for listening to our earnings conference call today. And at this time, we'd like to open up the call for any questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question comes from Dave Rodgers with Baird. -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- Jeff, I'd love to start with you and talk a little bit more about the asset sales, obviously, some big news today. Can you give us more of a sense of kind of what you want to sell? What's in the market today? How much that you're already marketing of the $350 million to $450 million? And what the cap rates do you think will be on even a wide range that you anticipate by the end of the year culminating these transactions at? -------------------------------------------------------------------------------- Jeffrey B. Carter, Franklin Street Properties Corp. - President & CIO [3] -------------------------------------------------------------------------------- Thanks, David. Important questions, and thank you. I'm unable today to identify specific assets or markets for both competitive reasons and since we're still refining that target list, as we've discussed, on our call just a moment ago. But I can provide some additional color that we anticipate, again, potential 2021 disposition assets will include properties from both our smaller opportunistic markets, as well as from some of our larger markets. And we'll judge potential sales based on an assessment of it, this is the biggest if they have met their near-term valuation goals. We are committed to our Sunbelt market and Mount West markets long term, and you'll see that emphasis continue over the long term. I do think from a disposition standpoint, as you look at the types of assets that we're looking at disposing of, you're going to see that primarily, they're more -- they're likely to be more -- generally more stabilized assets, but that they will likely -- some of them may have some value-add component that's associated with them. And so I think you're going to see cap rates that are very competitive in each respective market but until we refine and totally determined that list, I'm not going to be able to give you an exact estimate on cap rates. -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- So I guess given that comment and given that you did a number of renewals expansions, extensions in the quarter, when I think of Virginia or St. Louis, I mean, is this the type of asset that you're thinking of getting rid of? Or when you say Mountain West, does that mean Denver's in and Minneapolis is out? -------------------------------------------------------------------------------- Jeffrey B. Carter, Franklin Street Properties Corp. - President & CIO [5] -------------------------------------------------------------------------------- Great question. Thank you. Important question. The -- I think your comment about properties. When you look at our asset portfolio and you look at properties in the case that you mentioned, river crossing -- or I'm sorry, Timberlake and Meadow Point with Booz Allen and Centene and Timberlake. That is exactly the type of asset where we have worked hard to maximize and get to full value for our shareholders. So I think those are the types of candidates that you would see in our mix this year. As you look at market, and it's an important question, as you look at a market like Minneapolis to your question, I think it -- for us, looking long term, our portfolio is going to be dominated by the Sunbelt and the Mountain West and emphasize quality assets. And so Minneapolis, as you look at the long term, will probably not be a part of that mix. But getting to that point, we have 750,000 square feet of high-quality assets in the CBD there, and we're going to continue to evaluate what the right moment is to realize our valuation objectives for our shareholders. -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [6] -------------------------------------------------------------------------------- Okay. On maybe move to John Demeritt. On the dividend and the special dividend and maybe, George, you can weigh in here, too. If you're selling that many assets, you've held these assets for quite a while. Do you anticipate a special dividend this year? And then how have you thought about the recurring dividend going forward? -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [7] -------------------------------------------------------------------------------- Dave, it's George. So I always answer the dividend question in the same way, and I'm going to do it again, but I'll give you more color this time. And the answer for shareholders to always know about FSP on our dividend, is that our dividend is decided each quarter by our Board of Directors. It can go up, down, stay the same. And that's an unqualified statement. However, to give you more color, last year, our 2020, our dividends totaled $0.36 per share for the year, about $38.6 million. And after the sale of Emperor Boulevard, which was $89 million, approximately, we did record a gain on that. And in terms of return of capital on that dividend, there's only about $0.02 per share return of capital on that $0.36 per share yearly dividend. So we really paid out dividends that came real close to our taxable income for lead dividend purposes. And I think what's important to recognize is that the FSP is committed to maintaining lead status and paying out the appropriate dividend relative to the dividend taxable income calculation that you have to do. If we with our $0.36 or $0.09 per quarter dividend came real close on the $89 million Emperor Boulevard sale. And we are able to generate sales of $350 million to $450 million in 2021. You would certainly anticipate that you would have to look closely at what the dividend payout would have to be to meet the REIT requirements. And we will meet the REIT requirements for dividend payout in 2021. -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [8] -------------------------------------------------------------------------------- Okay. Fair enough. Last one, George, is probably for you. The plan, at least between the fourth quarter of '20 and 2021 is to sell just over 25% of your assets at book value on depreciated, how do you think about kind of sizing the company appropriately from a G&A perspective? Or do you feel like you're as lean as you can be? -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [9] -------------------------------------------------------------------------------- I'll let John Demeritt talk about G&A, but I would say this ahead of that that all office REITs, I mean, I know feel the way we do that, that their assets in this market have been discounted heavily to what they consider as their NAV, regardless of what book value says on balance sheets and so on. And we believe that, that is especially true for many of our assets. And that a lot of the CapEx and so on, an effort we put in, in the last few years have yielded assets that are so steeply discounted to their true market value today in the market, even though dispositions nationally are down because of COVID that as a percentage of the portfolio, we're going to sell that percentage may not be exactly the percentage that is represented by a bulk calculation. So that would be my first point, Dave. And the second point is that as we reduce debt with these proceeds, we are gaining a lot of flexibility for our business and plan to use that flexibility to create more long-term value for our shareholders. The G&A that surrounds that creation is going to be the question. And from my point of view, I think our G&A is is one of the lowest in the industry now. And I think we're pretty competitive there. And I think we're pretty competitive on our G&A going forward to use this new found flexibility with some debt repayment to create greater value for the shareholders. And John Demeritt, do you want to weigh in on any of that? -------------------------------------------------------------------------------- John G. Demeritt, Franklin Street Properties Corp. - Executive VP, CFO & Treasurer [10] -------------------------------------------------------------------------------- No, I think you've got a spot on on that. -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [11] -------------------------------------------------------------------------------- Okay. Does that help, Dave? -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12] -------------------------------------------------------------------------------- It does. George and team. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- The next question comes from Frank Lee with BMO. -------------------------------------------------------------------------------- Frank Lee, BMO Capital Markets Equity Research - Senior Associate [14] -------------------------------------------------------------------------------- You mentioned a couple of quarters ago that you were going to look to pull forward several TI projects and that we should expect some elevated CapEx. Can you provide an update on how far along are you with these projects and expectations for CapEx spending in '21? -------------------------------------------------------------------------------- John F. Donahue, Franklin Street Properties Corp. - Executive VP & President of FSP Property Management LLC [15] -------------------------------------------------------------------------------- Thanks, Frank. It's John Donahue. We continue to see some large tenants delay their occupancy, the largest of which is Lennar in Miami at Blue Lagoon that lease actually commenced in the first quarter as of February 1, but they don't intend to move to their new headquarters until later in the year. And so that is a substantial TI package that has been delayed yet again. And so we may not see that until the very end of the year, possibly even slip into next year. So there's quite a bit of unpredictable volatility, if you will, when the TIs are going to come in. Other than that, we have a handful of renewals. We're very pleased that some of our larger tenants have expanded recently and we're seeing the potential timing of that to be the back half of this year. So my best guess, of course, we don't really know when the tenants will submit their request for reimbursement on the TI packages. But my best guess at this time is that we'll see TIs heavily weighted to the back end of the year and possibly even slip into next year. I hope that helps a little bit. -------------------------------------------------------------------------------- Frank Lee, BMO Capital Markets Equity Research - Senior Associate [16] -------------------------------------------------------------------------------- Yes, that's helpful. And then just a follow-up on some of the asset sale commentary you provided. Just curious what your current thoughts on the investment market appetite for core versus value-add assets. And what gives you confidence today that this is the best time to put some assets for sale into the market? -------------------------------------------------------------------------------- Jeffrey B. Carter, Franklin Street Properties Corp. - President & CIO [17] -------------------------------------------------------------------------------- Thanks, Frank. This is Jeff Carter. The way we've been analyzing and assessing the market was -- amongst ourselves and with the professionals that we work with. Here till day during the pandemic, the most welcome an attractive property for investors has been stabilized, whether they're single-tenant or whether they're a couple of tenants that have term and certainty associated with them. Our disposition in December had a tenant in the life sciences that had kind of intermediate term remaining, but it was an interesting, compelling market, a compelling tenant and a compelling location. And so right now, there seems to be -- it's a little bit unpredictable still, but the market favors still stabilized assets in high-quality locations that have visibility in the future. We're seeing less action right now in the downtown markets than we are in suburban and suburban infill markets. And so -- and the second part of your question was, what gives us confidence right now? I think a couple of factors that I'd point out and the first is actually the COVID-19 pandemic itself and the unique sensitivities that it's brought relative to pricing, buyer demand and appropriate timing, as you mentioned. We've had -- we had the ability to do some of the prospective sales that we're contemplating now last year. And we -- because of the uncertainty of COVID and especially prior to the vaccine -- new vaccine rolls -- rollouts, we really deemed taking our patients being key and important. The second, as George and I both discussed, was the December 23 sale of Emperor Boulevard, that really affirmed to us that even in this pandemic, that we do have properties within our portfolio that possess embedded value that may not be appropriately reflected in our current share price and that potentially achieve the near-term valuation objectives. And that other direct real estate investors may well recognize. A third factor, I think, relates to the increased levels of leasing that we've had in the FSP portfolio in recent times that have yielded some new situations for us, where some goals at some of our properties have been achieved and valuation objectives are now plausible to potentially unlock. 2 examples are Centene and Timberlake that we mentioned that extension and expansion as well as Booz Allen extension at Meadow Point, Northern Virginia, both of which I should say are not necessarily intended dispositions but are likely potential candidates. And a fourth factor, again, is just that FSP, as George mentioned, really, is interested and desires to gain financial flexibility, primarily through debt reduction to position the company for stronger potential shareholder returns. I hope that helps. -------------------------------------------------------------------------------- Frank Lee, BMO Capital Markets Equity Research - Senior Associate [18] -------------------------------------------------------------------------------- Yes, that's helpful. And then just last one for me. You mentioned applying proceeds from dispositions to pay down some debt. Is there a leverage ratio that you're targeting? -------------------------------------------------------------------------------- John G. Demeritt, Franklin Street Properties Corp. - Executive VP, CFO & Treasurer [19] -------------------------------------------------------------------------------- This is John Demeritt. We don't have a -- necessarily of a leverage ratio that we're targeting, but the net debt-to-EBITDA ratio has been running a little high. And so we're looking to get that ratio down and got a little tight on our covenants with some of the rent write-offs that we've had. So we're just looking to get that down a little bit. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- (Operator Instructions) The next question comes from Rob Stevenson with Janney. -------------------------------------------------------------------------------- Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [21] -------------------------------------------------------------------------------- George, can you help us understand why now versus a year ago or 18 months ago or sometime in the past, some color as to what drove the decisions at the Board level to do the asset sales now? -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [22] -------------------------------------------------------------------------------- Rob, sure. Jeff talked to a lot of it, and I'll have him jump in here. But at the Board level, we certainly, during 2020, we're very concerned about market activity relative to the pandemic. So that sort of took most of 2020 out, even though we had considered looking at some properties for disposition. The one property that we thought we'd test the market with at the very sort of end of the 2020 year, was the property in Raleigh-Durham. And in the process of doing that, that particular sale, which did achieve our valuation objectives. We did a lot of research with various professionals that would help us look at some of the properties that we had considered over the last year, 1.5 years, but held off because of the pandemic. And we've come to a conclusion that between the outside professionals who have analyzed some of these properties that we believe have achieved their objective markets that they're in. And then the action of then pricing of our stock in the market over the last year, Rob, which obviously is precipitously down over the last year. We closed, I think, 2019 at about $8.50 a share and closed this year in the [$4s]. So when you look at the value of the stock, the Board really felt like we were just so far below the NAV valuation of a number of our properties and that we could, after working with professionals and looking at the markets and seen what other real estate investors are interested in buying, particularly private real estate investors. We felt that we could achieve this debt reduction, which we wanted to do to gain more flexibility for our business. And again, to continue to focus more long-term on the Sunbelt and Mountain West regions. -------------------------------------------------------------------------------- Jeffrey B. Carter, Franklin Street Properties Corp. - President & CIO [23] -------------------------------------------------------------------------------- And just Rob, this is Jeff. Just to build on that. I think that when you look at the last several years, last year, in particular, with COVID, until the vaccine breakthroughs came through, really, there was a few assets that we could have considered at the end of the year, we did disclose Emperor boulevard, as George and I both mentioned. But I think that the vaccine breakthroughs of COVID give some better visibility to prospective buyers in the marketplace that there is hope again in the market versus the year last year where there wasn't. And second, I think that one of the things that makes a difference for us is that the increased levels of leasing that we have seen in FSP in recent times have added opportunities. And we've always indicated that we would sell assets when we think that they met their valuation objectives. We have had some successes even last year during such a hard year of doing just that, that have created opportunities that put the ability to realize value in front of us that, again, as George said, may not be reflected in our current share price. And so when you look at those factors, combined with our desire to gain greater financial flexibility, through debt reduction, we think there's a number of assets that may have reached that tipping point where we can recognize their valuation objective. I hope that helps. -------------------------------------------------------------------------------- Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [24] -------------------------------------------------------------------------------- Okay. Yes. And then, I mean, given those debt reduction -- given the debt reduction focus, I mean, is it safe to assume that whatever special dividend that you guys need to pay to be compliant that you guys will just pay in stock, as all the cash is just going to be earmarked for debt repayment. You're not going to hoard cash on the balance sheet to pay a special dividend in cash? -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [25] -------------------------------------------------------------------------------- That is not a good assumption. This is George, Rob. That is not a good assumption. Payment of the dividend will be decided by the Board, both in amount and type. -------------------------------------------------------------------------------- Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [26] -------------------------------------------------------------------------------- Okay. And then last one for me. I mean, I guess, along those same lines, stock prices down about 3% today. I mean, it's -- obviously, you don't have asset sales that are ready to close to offset against it. But I mean, would you use -- if the stock remains weak, would you use some of the proceeds to repurchase shares as well? Or is that basically off the table until the leverage comes down? -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [27] -------------------------------------------------------------------------------- We would absolutely consider repurchasing stock and the timing of that would be in concert with the appropriate amount in our minds of debt reduction, the timing of that debt reduction, the amount of the debt reduction and of course, the price of our stock at any moment in time. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- The next question is a follow-up from Dave Rodgers with Baird. -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [29] -------------------------------------------------------------------------------- Yes. John Demeritt, in your comments, you mentioned a tenant watch list. Can you give a little more color on that? How many tenants might be on there? How much have been converted from GAAP to kind of cash rents, anything along those lines would be helpful. -------------------------------------------------------------------------------- John G. Demeritt, Franklin Street Properties Corp. - Executive VP, CFO & Treasurer [30] -------------------------------------------------------------------------------- Most of the write-offs were smaller tenants. And there were numerous ones, but they didn't aggregate to a very big write-off. Really, the most significant was the $3.1 million from WorldVentures that we talked about. That was like 1.25% of our rents. And the rest of them, maybe the total, we're about 1.5% of our rents. So it really wasn't that significant. We have tenants that we're working with right now, nothing of the magnitude that WorldVentures was. I think the co-working space is one of the things we look at. And then a few others and some other properties, but nothing as significant as WorldVentures. -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [31] -------------------------------------------------------------------------------- Okay. John Donahue, if you mentioned these, I apologize, Randstad, CITGO, Ovintiv, big expirations in the coming year. You've got quite a few -- it sounds like renewals and expansions in the pipeline, but can you comment on those 3 specifically? -------------------------------------------------------------------------------- John F. Donahue, Franklin Street Properties Corp. - Executive VP & President of FSP Property Management LLC [32] -------------------------------------------------------------------------------- Dave, I believe you just listed Randstad, that renewal has already been exercised. CITGO is a tenant that we've been engaged with for quite a while. We're bound by confidentiality with that discussion, so I can't provide any details. But they are engaged and we have a handful of mid-sized tenants that are engaged with early renewals that I don't want to name right now. Did you name another specific tenant that I missed? -------------------------------------------------------------------------------- David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [33] -------------------------------------------------------------------------------- Oh, that Ovintiv, was that one of them? I can't remember if that was subleased out or not. -------------------------------------------------------------------------------- John G. Demeritt, Franklin Street Properties Corp. - Executive VP, CFO & Treasurer [34] -------------------------------------------------------------------------------- Yes. So that tenant is in Denver, and they have subleased most of their space. That tenant was formerly known as Newfield. And the large majority of their space has been subleased. We're working with a few of the sub tenants now on what their space needs might be. But as you can imagine, the CBD downtown properties are pretty sparse population right now. And so future needs are being worked through. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- This concludes the Q&A session. I would like to turn the conference back over to George Carter for any closing remarks. -------------------------------------------------------------------------------- George John Carter, Franklin Street Properties Corp. - Chairman & CEO [36] -------------------------------------------------------------------------------- I want to thank everybody for taking the time to be on our earnings call. We look forward to the next one in 2021. Hope it's -- I hope it's a lot better year than 2020 from the pandemic point of view for sure. Thank you, everyone. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.