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Edited Transcript of FSP earnings conference call or presentation 2-Aug-17 3:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Franklin Street Properties Corp Earnings Call

WAKEFIELD Aug 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Franklin Street Properties Corp earnings conference call or presentation Wednesday, August 2, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George J. Carter

Franklin Street Properties Corp. - Chairman of the Board and CEO

* Jeffrey B. Carter

Franklin Street Properties Corp. - President and CIO

* John F. Donahue

Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC

* John G. Demeritt

Franklin Street Properties Corp. - CFO, EVP and Treasurer

* Scott H. Carter

Franklin Street Properties Corp. - EVP, General Counsel and Secretary

* William S. Friend

Franklin Street Properties Corp. - SVP

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Conference Call Participants

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* Craig Gerald Kucera

FBR Capital Markets & Co., Research Division - Analyst

* David Bryan Rodgers

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* John P. Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* John W. Guinee

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

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Presentation

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Operator [1]

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Good morning, and welcome to the Franklin Street Properties Corp. Second Quarter 2017 Results Conference 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.

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Scott H. Carter, Franklin Street Properties Corp. - EVP, General Counsel and Secretary [2]

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Good morning, and welcome to the Franklin Street Properties Second Quarter 2017 Earnings Call. With 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, with me this morning are Toby Daley, Senior Vice President and Regional Director of Atlanta and Houston; Will Friend, Senior Vice President and Regional Director of Denver and Minneapolis; and Patty McMullen, Senior Vice President and Regional Director of Dallas.

Our first speaker this morning will be John Demeritt. But before I turn the call over to John, 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, 2016, which is on file with the SEC.

In addition, these forward-looking statements represent the company's expectations only as of today, August 2, 2017. 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. A reconciliation of FFO to GAAP net income is contained in yesterday's press release, which is available in the Investor Relations section of our website at www.fspreit.com.

I'll now turn the call over to John. John?

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John G. Demeritt, Franklin Street Properties Corp. - CFO, EVP and Treasurer [3]

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

As a reminder, our comments today will refer to our earnings release, the supplemental package and the 10-Q, which were filed with the SEC last night, and as Scott mentioned, can be found on our website.

We reported funds from operations, or FFO, of $28.6 million or $0.27 per share for the second quarter of 2017. Compared to the second quarter of 2016, FFO is up $1.8 million, although it was flat on a per share basis due to higher weighted average shares this year.

The FFO increase was primarily from the 3 acquisitions we've made in June, August and December of 2016. As we look ahead to the balance of 2017, we will continue to have meaningful contribution from those acquisitions.

Turning to our balance sheet and current financial position. At June 30, 2017, we had about $1,065,000,000 of unsecured debt outstanding, and our total market cap was $2.3 billion. Our debt to total market cap ratio was 47.3% at quarter's end, and our debt service coverage ratio for the quarter was about 4.6x. The debt to adjusted EBITDA ratio was 7.5x as of June 30, also.

From a liquidity standpoint, we had a cash balance of $11.5 million and $205 million available on our $500 million unsecured line of credit. And as a result, we had approximately $216.5 million of liquidity at quarter-end.

With respect to our debt, we have a great bank group consisting of 11 banks and have ongoing active dialogue with them. We've talked to them about private placements, term loans and public debt transactions. These are options to consider with some of our upcoming maturities and lengthening out our debt stack.

As we move forward with our bank group and execute transactions, we'll make announcements about that.

That said, we remain comfortable with our leverage and have managed our unsecured debt as part of our strategy. We can opportunistically sell some noncore assets and repay short-term floating rate debt or, depending on the magnitude of sales, could reinvest proceeds into properties, as we have demonstrated.

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

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George J. Carter, Franklin Street Properties Corp. - Chairman of the Board and CEO [4]

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Thank you, John, and welcome to Franklin Street Properties Second Quarter 2017 Earnings Call. As John said, for the second quarter of 2017, FSP's funds from operations, or FFO, totaled approximately $28.6 million or $0.27 per share. Our dividend was $0.19 per share for the second quarter and the FSP Board of Directors continues to feel comfortable with this level of dividend, as we move through 2017. At this time, we are reaffirming our full year 2017 FFO guidance range of $1.04 to $1.08 per share. For the third quarter of 2017, we estimate FFO to be in the range of $0.25 to $0.26 per share.

Our FFO growth forecast for 2017 and beyond continued to be fueled primarily from our projected realization of increased rental income from select recent property investments, select new development or redevelopment efforts such as 801 Marquette Avenue in Minneapolis and additional leasing in our broader portfolio of urban properties, many of which contained meaningful value-add square footage. We anticipate updating future FFO guidance quarterly in our earnings releases.

I will now turn the call over to John Donahue, President of our Property Management Company. John?

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [5]

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Thank you, George. Good morning, everyone. Leased occupancy decreased during the second quarter from 89.6% to 88.1% leased. As we had expected and communicated last quarter, the decrease was primarily due to the Murphy oil lease expiration in Houston and secondarily, due to multiple expirations in Atlanta.

Year-to-date, there were approximately 476,000 square feet of leases executed. Approximately 167,000 square feet of the leases executed represent positive absorption, of which 112,000 square feet are with new tenants. There were approximately 364,000 square feet of renewals and expansions completed year-to-date.

Within our core 5 markets during the second quarter, Minneapolis, Denver and Dallas had increases to leased occupancy. We expect that trend to continue for the balance of the year.

Minneapolis improved for the third consecutive quarter from 76.5% in September to 87.4% leased as of June. Denver improved for the second consecutive quarter from 87.3% at year-end to 88.4% as of June.

Third quarter leasing activity has been very strong thus far, and we expect a surge of leases completed during the quarter. There are currently more than 400,000 square feet of probable leases that are either in letter of intent stage and/or out for execution. Approximately 120,000 square feet of those are new leases or expansions representing positive absorption. So barring any surprises, the third quarter appears to be the strongest performing quarter of the year-to-date, much better than either of the first 2 quarters. Additionally, new prospect increase and tours have remained vibrant with no apparent summer slowdown. Throughout our portfolio, there are more than 1 million square feet of outstanding proposals.

As we anticipated, the construction at 801 Marquette Avenue was substantially completed at the end of June. The project has been well received in the downtown market and prospective tenant activity continues to ramp up. Although no leases have been executed as of yet, we believe the strong interest will translate to leasing in the near future. In fact, we are optimistic about ongoing negotiations with a retail operator for the atrium which, we believe, is a critical step for a vibrant mixed use environment. The common areas will be furnished during the third quarter and the roof deck and atrium will be opened to the existing tenants of FSP's adjoining tower 121 South Eighth Street.

In summary, we are encouraged by the number of transactions that are expected to be executed in the third quarter. Along with the enhanced portfolio leasing activity for the fourth quarter, we remain positive and optimistic about improved leased occupancy during the balance of calendar 2017.

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

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Jeffrey B. Carter, Franklin Street Properties Corp. - President and CIO [6]

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Thank you, John, and good morning, everyone. Our focus remains clear at Franklin Street Properties. Our objective is to continue to grow in our 5 core markets and to generate sustainable long-term FFO growth and value creation for our shareholders.

The portfolio transition at FSP has emphasized building a portfolio of high-quality urban and infill-oriented properties in the strongest submarkets within Atlanta, Dallas, Denver, Houston and Minneapolis. In order to further our portfolio of transition efforts, FSP will continue to selectively dispose of noncore assets when appropriate pricing and terms resolve.

Today, the property portfolio was approximately 75% located within our 5 core markets. As we look forward, our efforts will be through: number one, leasing efforts primarily within our 5 core markets; number two, through select disposition efforts of noncore assets that further our portfolio transition in the infill and urban properties within our core 5 markets; three, through select new development and redevelopment efforts within our 5 core markets, such as our project at 801 Marquette in Downtown Minneapolis; and four, through selective property investments within our 5 core markets.

On the disposition and asset recycling side, to date during calendar year 2017, FSP has disposed of 2 noncore assets totaling approximately $15.3 million. And we are also presently bound by a purchase and sale agreement to sell another property for $32.8 million, which, if successful, would bring our total for the calendar year-to-date to $48.1 million. More specifically, on January 6, we sold our Hillview asset in Milpitas, California, for about $6.2 million.

On June 7, FSP had its mortgage on 1441 Main Street in Columbia, South Carolina, repaid in full for approximately $9 million. And most recently, as reported in our currently quarterly filings, on July 21, we entered into a purchase and sale agreement to sell our noncore property located at 120 East Baltimore Street, Maryland, for $32.8 million. This disposition remains fully subject to the buyer's due diligence period and other customary closing conditions, but if satisfactory, we'll close during the third or fourth quarter of 2017. As a noncore property holding and as our only property in Baltimore, this potential disposition is consistent with our current portfolio transition strategy.

The sales market in Baltimore displays liquidity during the visible process and shows pricing that was competitive, both in terms of in-place cap rate and also relative to our own internal estimate of property NAV; which, when weighed against our expectations for future performance if we continue to own the property, we believe FSP can ultimately reinvest these proceeds into our 5 core markets at stronger returns.

FSP is currently working on several additional noncore assets for a potential disposition, should satisfactory pricing and values be achieved, and we'll continue to the keep the market posted. Since 2014, we've sold properties or had mortgages repaid to us of approximately $194 million.

On the acquisition side, FSP is always looking, and we'll continue to look for, opportunities of all types within our core markets that present themselves and we'll continue to do so. We continue to look at a range of opportunities from value-add to core-plus, and we will continue to keep the market posted with any news or updates.

And with that, I will thank you for listening to our earnings conference call today. And at this time, we open up the call for any questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from John Guinee of Stifel.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [2]

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Just a clarification question first. 801 Marquette, do you have that included in your 10.1 million square foot portfolio? And if so, what's the other listing? For example, Minneapolis, you have 121 South Eighth Street and Plaza Seven. Is 801 Marquette included in one of those 2 or is that separate?

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [3]

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John, it's John Donahue. The answer is no. We have removed that from the 10.1 million while it's in redevelopment. And so that 128,000 square feet would be additional.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [4]

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Okay. So -- okay. Perfect. And then if I'm looking at your 20 largest tenants, can you refresh us on Northrop Grumman over in Chantilly, Virginia? It's got about 10 months left. Burger King's got about 15 months left. You have a big 180,000 square feet with the U.S. government that expires in '18 and then, you've got Fannie Mae. Can you talk about those tenants?

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [5]

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Absolutely, John. There is no significant change or update on any of those existing tenants. As you know, the expected departures include Burger King and Fannie Mae. And those are in the last quarter of 2018. We are in negotiations with the others. Nothing to announce yet, but we are engaged. And hopefully, we'll have some news next quarter.

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John W. Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [6]

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Where is the U.S. government in 180,000 square feet, if I can ask? And then also, we noticed that Northrop Grumman is paying $37, which seems like a very high rent for Chantilly.

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [7]

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Yes. The near-term expiration for the U.S. government is the IRS in Denver. And again, we're -- nothing to announce yet there, but we're engaged. And then Northrop Grumman is a tenant that is engaged and nothing to announce yet. And yes, that rent is fairly high for Chantilly but we'll see on what happens there.

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Operator [8]

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The next question is from Dave Rodgers of Baird.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

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John, I know you talked about the activity in leasing picking up a little bit in the third quarter here, with 120,000 of new and expansion space. I was wondering maybe if you can give us a breakdown of 2Q and 3Q leasing, the new leasing, in particular, just kind of by market as you look, particularly in the second and the third quarter.

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [10]

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Hi, Dave. Sure, I'll see if I can answer that. For the second quarter, which was similar to the first quarter, we had a fairly large percentage of the leasing occur in Minneapolis and Dallas at 2 of our buildings that have rents that are slightly below our weighted average gross. So that is what's showing the lease economics.

We expect the leasing that occurs in our urban properties and the rest of our portfolio to be slightly higher than that in the $29, $30 gross range or above $30. But the leasing that we're seeing coming to fruition for the third quarter that we expect to be executed are spread out among our core markets. And we'll see probably a fairly even weighted balance. It's in all 5. We have no single market that jumps out as being much larger than the other. And again, those weighted average gross rents should be above our in-place and above what we've been incurring in our transactions year-to-date, probably in the $29, $30 range.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [11]

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Any of those leases on the 801 Marquette space?

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [12]

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No, they're not.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [13]

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Okay. Maybe shifting a little bit, Jeff, you can talk a little bit more about dispositions and just the environment out there, particularly for the noncore. It's good to see that we're seeing a little bit of an accelerated pace here in 2017. But I guess, as you lay the groundwork for additional sales in 2018, what portion of those do you think you can start to offload more quickly as you move into next year?

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Jeffrey B. Carter, Franklin Street Properties Corp. - President and CIO [14]

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Yes. Dave, Jeff. We are focused, as you know, on this remaining 25% in the portfolio. And I'm not going to give acquisition -- disposition guidance or acquisition guidance. But you are going to see us continue to work on that 25% when we find situations that present, such as 120 East Baltimore, where we think looking ahead over the coming years, that we can do better with the proceeds in our 5 core markets and when pricing on the assets we think meets a full value of what we think value is at property. So you're going to see us keep chipping away. I'm not going to give you guidance but we've got that last 25%. We're focused on it and you can see us just keep working it down, as well as, when appropriate, for the respective investors our single-asset investments.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [15]

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Given where you are today, and since you didn't appear that you'll need to do any kind of 1031 on that for tax purposes, do you feel like it's better to use that money for acquisitions or for debt reduction, as you continue to offload some of these noncore and opportunistic assets?

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George J. Carter, Franklin Street Properties Corp. - Chairman of the Board and CEO [16]

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This is George. Initially for debt reduction. As John Demeritt mentioned, we were talking with our banking group and working on things all the time there. And between that work which -- if and when it comes to fruition, we'll announce those things. And dispositions currently, we are likely to take all dispositions proceeds currently and apply it to the bank.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]

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Great. Thanks for that George. And then maybe last question for me, and I do apologize but about 30 or 45 seconds of your comments to Mr. Guinee's question just cut out for me. I don't know if anyone else had that problem. But I'll ask it maybe in a slightly different way, so I'll get a slightly different answer.

In the sense of next year's expirations, I think it's your largest year of lease expirations on your schedule with, again, the largest or highest -- second highest average rental rate, clearly Northrop explained some of that. But overall, as you look at next year, can you start to give us a sense of what retention looks like?

And John, you talked about -- you're engaged in discussions, but can you give us a sense of the tenor of those discussions in terms of downsizing, full-on renewals, expansion, et cetera? Some of that would be helpful, with regard to the overall '18 lease expiration pipeline.

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [18]

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Yes, sure, Dave. So tackling the first question in regards to the amount of square feet, roughly -- well, approximately 40% of the expirations are in the back end of the year. And as we mentioned, the known expirations include Burger King and Fannie Mae, that's a large part of it. We are optimistic and feel good about our chances of renewing a large percentage of the balance of it. But because so much -- such a high percentage of the expiration is in the latter half of '18, not much to announce there yet. As we said last quarter, before this year is out, we'd like to lock up at least 50% of those expirations before calendar '17 is over. And hopefully, we'll do that and more.

In terms of the tenor or size -- downsizing, what have you, for the most part, we're not seeing significant reductions. We are seeing slight reductions. The U.S. government, as you know, is trying to shed space. So we won't be surprised if they downsize a little bit. And then the other large tenants -- significant tenants for the most part are not downsizing or not downsizing much. Hopefully that helps you.

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Operator [19]

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The next question comes from Craig Kucera of FBR Capital Markets.

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Craig Gerald Kucera, FBR Capital Markets & Co., Research Division - Analyst [20]

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Would like to circle back to the guidance. Just so I'm clear, that does not include any impact from the disposition of 120 East Baltimore or any sort of debt pay down, correct?

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George J. Carter, Franklin Street Properties Corp. - Chairman of the Board and CEO [21]

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The guidance that we are -- that we have given in the quarter does consider, since we have East Baltimore under purchase and sale agreement, does consider East Baltimore. It does not consider any other capital transactions.

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Craig Gerald Kucera, FBR Capital Markets & Co., Research Division - Analyst [22]

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Got it. I know that there has been discussion about 801 Marquette maybe being a single tenant or potentially multi-tenant building, but can you talk about when you're looking at all the action and what's going on at that asset, where you could kind of handicap, where -- what the tenant mix might be at this point? Or is it too early?

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William S. Friend, Franklin Street Properties Corp. - SVP [23]

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This is Will Friend, Craig. I think the level of activity we have right now at the project, we've got about 400,000 square feet of deals we've been looking at. A couple that we're actually trading proposals with and it's trending right now towards a multi-tenant scenario. The building could -- you could accommodate easily a single tenant. But right now, just on the -- on all the proposals we're looking at, it looks more likely that it would be a multi-tenant scenario. So that is the direction we're heading, which would hopefully have the potential of some nearer-term occupancy just because smaller deals take less time to get done than larger full tenants -- I'm sorry, full building tenants.

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Craig Gerald Kucera, FBR Capital Markets & Co., Research Division - Analyst [24]

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Got it. And going back to the 120,000 of leases out for execution, when do those likely take occupancy? And is free rent on the order of 3 months, ballpark?

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [25]

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Craig, it's John, again. Those are spread out among the months of the rest of the year. I would say that the average number of free -- the number of months of free rent has not changed dramatically over the last several quarters. So if the transactions are averaging -- again, on average, 5 to 6 years, then, yes, we'll probably see 3 to 4 months of free rent. To the extent that they're longer transactions that may inch up a little bit. But I would say that the 120,000 square feet that we're talking about, it's spread out between quarter 3, quarter 4, quarter 1 with, no large number hitting out of those -- pretty spread out.

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Craig Gerald Kucera, FBR Capital Markets & Co., Research Division - Analyst [26]

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Got it. With the meaningful drop in rent at 909 Davis, can you tell us what the rent was previously for Houghton Mifflin and what it was renewed at?

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [27]

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Yes, there wasn't a significant reduction. The significant reduction there was in the square footage. I don't have the numbers on hand but there was a slight roll down. I think the in-place rents were in the $18 to $19 triple-net range. And now the -- I think straight line triple nets are in that $18 triple-net range.

Will, does that sound right?

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William S. Friend, Franklin Street Properties Corp. - SVP [28]

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Sounds about right, yes.

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [29]

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But I think what you might be seeing is the big reduction in square feet. We also -- I'm not sure if -- you might be also looking at Citicorp in Northwest Point where we're in a free rent period on triple-net lease. And that rent will pop next quarter, in the fourth quarter, when the free rent burns off. Does that help you, Craig? Or did I not help you out there?

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Craig Gerald Kucera, FBR Capital Markets & Co., Research Division - Analyst [30]

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No. It does. I mean, when I look at that asset consistently being in the $34 to $35-plus range and average rent dropping to $26, I'm just trying to get some color on what's going on and when we might see that improve. And perhaps, it is the free rent you're referring to.

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John F. Donahue, Franklin Street Properties Corp. - Executive VP, CEO of FSP Property Management LLC and President of FSP Property Management LLC [31]

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Yes. That's one of the pleasures of GAAP accounting that they won't let us straight line -- the recoveries on triple-net. So the free rent period really hurts, but you should see that pop up a little bit as the year goes on.

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Craig Gerald Kucera, FBR Capital Markets & Co., Research Division - Analyst [32]

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Got it. And one last one for me. You've had the Baltimore asset, I think you acquired it about 10 years ago. Obviously, a pretty significant impairment charge this quarter. What -- I guess, what drove the decision to sell that asset at clearly to such a discount to what you're carrying it at, and I guess, rents are sort of slid from maybe the $24 to $22 range over the last several years. But I guess, can you give us some color on maybe what drove that decision and just some color on that?

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Jeffrey B. Carter, Franklin Street Properties Corp. - President and CIO [33]

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Sure, Craig, this is Jeff. We've owned 120 East Baltimore now for about 10 years. Baltimore never became a core market. And the property and the market have faced their challenges over the 10 years. As we look at this property over the next 10 years of continuing to own the property versus reinvesting proceeds into our 5 core markets over the next 10 years, the decision really came down to, we believe that FSP can achieve stronger returns on its capital in our core markets over the coming years, and that's what really guided us here.

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Operator [34]

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(Operator Instructions) The next question comes from John Kim of BMO Capital Markets.

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John P. Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [35]

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Couple of questions for John. I apologize if you already covered this. But on your BAML term loan, it looks like the base rates resets next month. Can you just walk us through the mechanics of what happens then?

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John G. Demeritt, Franklin Street Properties Corp. - CFO, EVP and Treasurer [36]

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We signed -- we did a forward swap contract last year when we redid the term loan. And so our spread -- sorry, LIBOR for the term loan will reset to 1.12% at the end of September of this year. It's currently at 75 basis points. So we'll see an increase of -- what's about 35 basis points in our term loan interest rate in -- really primarily hitting in the fourth quarter. And that forward swap will be in effect until September 27, 2021.

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John P. Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [37]

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Got it. Okay. And then also on your revolver, it looks like you have a little bit over a couple hundred million dollars remaining, but I was wondering if there were any covenants on your other term loans that prevents you from borrowing at full capacity on your revolver?

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John G. Demeritt, Franklin Street Properties Corp. - CFO, EVP and Treasurer [38]

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It's really based on a calculation of unencumbered asset value and we don't have any hindrances there. And the other loans -- those term loans that we do have, have all sort of -- the same covenants all sort of pari passu with one another, so that they work in lock step together.

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John P. Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [39]

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So based on that, how much capacity do you have as of today? And I'm just wondering how you fund your dividends going forward?

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John G. Demeritt, Franklin Street Properties Corp. - CFO, EVP and Treasurer [40]

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Well, I think we've generated FFO, AFFO that covers a lot of it. In terms of the remaining availability on the line, we have $205 million available there. We've got one asset held for sale here that we -- we'll likely use that to pay down the debt and increase that liquidity to $230 million, $240 million. And I think our AFFO was pretty close in the last few quarters. So -- and hopefully, I've answered your questions.

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Operator [41]

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There are no other questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to George Carter for any closing remarks.

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George J. Carter, Franklin Street Properties Corp. - Chairman of the Board and CEO [42]

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I certainly want to thank everyone for tuning into our second quarter earnings call. We're really looking forward to third and fourth quarter. We've got a lot of activity, a lot of leasing activity going on and we're pretty pumped and optimistic about it. Look forward to talking to you next quarter. Thank you.

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Operator [43]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.