Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reported funds from operations (FFO) of $3.7 million or $0.04 per share for Q2 2024.
- Successfully sold two properties in 2024, generating $66 million in gross property sales.
- Significant debt reduction over the last several years, providing flexibility in property disposition plans.
- Urban markets in FSP's portfolio, such as Denver CBD and suburban Houston, show signs of increased activity.
- Tracking approximately 550,000 square feet of prospective new tenants, with 300,000 square feet identified on FSP assets' shortlist.
Negative Points
- Reported a GAAP net loss of $21 million or $0.20 per share for Q2 2024.
- Leased occupancy decreased to 72.3% at the end of Q2 2024 from 74% at the end of 2023.
- Continued challenges in office property disposition efforts due to a significant lack of liquidity.
- Office leasing markets are generally still not as active as pre-COVID, particularly for larger, long-term corporate space users.
- Weak national sales market for office properties, with a 60% decline in sales volume over the past 12 months.
Q & A Highlights
Q: I would just like to inquire more about the Innsbrook disposition. Did you originally formulate a strategy and make a conscious decision to exit the Virginia market? Or is this more of a trend of opportunistic sales?
A: Hi, Steven, this is Jeff Carter. This was not a specific plan to exit Virginia. This was really a selected decision based upon value creation and maximization in this environment that we see. And that property was a part of that process in terms of some recent leasing successes that we've had there, the amount of WALT and lease term that was in place as a result of that and the reception in the marketplace to its marketing was favorable based on those terms.
Q: I believe Innsbrook was around 90% leased upon the time of sale, one of your properties leading in that specific metric. When you communicate with potential buyers, have you discovered a certain leasing percentage of baseline that they require in order to transact? Or are there any potential buyers out there who employ a more opportunistic or value-add approach and will be willing to underwrite properties that are less than your portfolio average of around 70% or so leased?
A: This is Jeff again. What we've really seen varies a little bit, but in general, the themes that are consistent are a stabilized in-place occupancy with strong in-place WALT that's got to have weighted average lease term for buyers to get interested as well as quality, location, and smaller dollar-size purchase prices. Larger transactions are not typically occurring very often in our experiences to date.
Q: Can you please provide some greater information on your geographical markets? Predominantly, which cities do you see strengthening and vice versa?
A: Hi, Steve, it's John Donahue. There's been a very steady trend of incrementally better news in activity in the Sun Belt markets. The Midwest has suffered, particularly Minneapolis, Indianapolis, and Chicago. Houston has been our strongest market, Midtown Atlanta is a little bit better than others, and Dallas has had a bit of a summer slowdown, but we're hearing good things about the north Dallas markets. Denver has been very slow to come back, but we are very encouraged about what we've seen here over the last three to six months.
Q: What are your observations about current market conditions for office dispositions?
A: Recent information shows a weak national sales market for office, but this situation has the potential to turn more positive should a rate cut cycle soon begin. The historical average 12-month national office property sales volume is down over the past 12 months by approximately 60% nationally. This weakness in office sales has been due in large part to the severe lack of liquidity currently impacting the office sector with respect to both debt and equity capital. However, FSP will be watching carefully in the weeks and months ahead to see if such conditions begin to improve.
Q: How has the post-COVID remote work back-to-office employee attendance affected your leasing front?
A: The post-COVID remote work back-to-office employee attendance continues to generally make slow but positive progress. However, the numbers vary quite a bit from industry to industry, market to market, and property to property. Our office leasing markets are generally still not as active as pre-COVID, particularly for larger, long-term corporate space users.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
