Franklin Street Properties Corp (FSP) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth-Quarter 2009 Franklin Street Properties Earnings Conference Call. My name is Shanika, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Scott Carter, general counsel. Please, proceed.

Thank you, and good morning, everyone. I appreciate you joining us on this call. With me this morning are George Carter, our Chief Executive Officer, and John Demeritt, our Chief Financial Officer.

Before I turn the call over to John, I must read the following statement. 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, 2009, which is on file with the SEC.

In addition, these forward-looking statements represent the Company's expectations only as of today, February 24, 2010. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statement 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.franklinstreetproperties.com.

Now, I will turn the call over to John. John?

Thank you, Scott. Welcome to our earnings call. We're going to be talking with you about the fourth-quarter and year-end results, and we'll start with a short overview. Afterward, George Carter, our CEO, will further discuss 2009 and FSP.

I'm going to be brief and will be referring to our earnings release, the supplemental package and the 10-K that were filed last night. I'd like to start with our balance sheet, which continues to serve us well, and will enable growth as we move ahead. As of December 31, we had cash of $27.4 million and $141 million in availability in our line of credit. This totals about $168 million in liquidity to help operate FSP and fuel future growth.

Our property portfolio is well-diversified geographically and has no secured debt. Properties with secured debt can have property-specific issues that could cause a sale when the market is not right for it, similar to what we've seen in 2009. Since our debt is unsecured, it's viewed more like one property and can act to mitigate this risk.

Geographic diversification spreads out local economic risk across our portfolio, which we think benefits our shareholders over the long haul. At the same time, our low-leverage ratio provides a terrific loan to value for our lenders and our unsecured loans that we have with them. And, it also affords our shareholders a significant and more conservative equity investment in our real estate. Our interest rate coverage ratio was also very high compared to our peers at about 11 times for the year.

During September, we completed an equity offering, which helped us finish the year with our leverage ratio at about 13.6%. Had we not done this equity offering, our leverage ratio would have been about nine points higher, or at about 23% levered. We have $184 million in unsecured debt and shareholders' equity of $937 million. Our shareholders' equity is held by our common shares only. We don't have any preferred shares or any other type of equity instruments.

The $184 million in debt consists of our line-of-credit balance of about $109 million and unsecured term loan of $75 million. Our line of credit matures in August of 2011. And our term loan can be extended to October of 2013.

I think this balance sheet paints a solid picture of FSP at a time when there continues to be general concerns about the debt markets and short-term debt maturities of many companies. And, actually, on the way in this morning, I saw the headline in the Wall Street Journal that says lending is falling at an epic pace. So I think that jives with what I'm saying.

We may see some issues with leasing and investment banking as we move through the down part of the cycle. But we have strength in our balance sheet as ballast to see us through.

On the income statement, we measure our performance with three key drivers, which are our real estate operations, investment banking and gains on sales of assets, or what we call GOS. The real estate operations driver is rental revenues from our portfolio of properties, which is a recurring business. By contrast, the latter two -- GOS and investment banking -- are transactional in nature. And, even in normal markets, the quarter-to-quarter results from them can be very choppy.

First, with respect to GOS, during the fourth quarter and for the full year of 2009, actually, we recognized one small gain on a piece of land that was subject to a land-taking at one of our properties. Other than this, we did not achieve any GOS this past year. And that's really because the sale of properties in this market generally hasn't made any sense unless you have to sell.

Second, our investment banking profits performed very well during the fourth quarter as we completed one syndication and made significant progress on another. Investment banking profits come from the fees we earn on the value of the shares of securities we sell as private placements.

The sales of these private placements are what we call gross syndication proceeds, and the fees we earn are based on a percentage of those proceeds. The FFO derived from the investment banking is essentially syndication and transaction fee revenues on our income statement, less the impact of direct expenses, which are commissions, some G&A and related income taxes.

We achieved gross syndication proceeds in the fourth quarter of $39.8 million, compared to zero for the fourth quarter of 2008. For the year, however, this flips around, as our investment bank had a slow year, as we have talked about that in other calls this year. For the year, we achieved $40.4 million in gross syndication proceeds, compared to $57 million in 2008, or about $17 million lower this year than last. George will talk more about investment banking in this current environment.

We measure performance of real estate operations and investment banking by FFO, which puts -- which, for the fourth quarter, was $19.1 million, or $0.24 per share, which is up -- was up $0.01 from the fourth quarter of 2008. Comparing the fourth quarter of 2009 to 2008, FFO was $2.9 million, or about $0.01 more per share, given the additional shares from our equity offering we completed in September at $0.24 compared to $0.23 in 2008. This increase was from performance in both segments of our business.

Our real estate portfolio FFO was up about $1.1 million, mostly from the benefit of recent acquisitions. And the investment bank for the quarter is $1.8 million higher in Q4 '09 compared to '08, as a result of the two syndications I was talking about and that fact we had no activity in fourth quarter of '08. These contributions combined for the $0.01 increase.

On a year-to-date basis, we were flat at $0.98 FFO for both 2009 and 2008, which is interesting because our investment bank had a real tough year. For the year-over-year comparison, our investment bank FFO was about $2.6 million lower in 2009 compared to 2008. We made this up through contribution from our real estate portfolio, where real estate FFO was up $4.8 million. The increase in shares from our equity offering effected this a bit on a per-share basis, leaving us flat comparing the two years.

The real estate performance was greater primarily from six properties that we acquired, and I'll just cover them quickly. These are part of our growth fund that we started in 2008. We bought one property in May of '08, two properties in December of '08; one in Virginia and another in St. Louis or near St. Louis.

And then, during 2009, we acquired two properties in late June; one in Minnesota and another in Virginia. And last was a property we acquired in Virginia in late September. Each of these acquisitions had fairly long-term leases for substantially 100% of the rentable square feet we purchased and will contribute to the Company for some time to come.

That covers our financial performance. The earnings release supplement and 10-K filing go into further detail about our results. I also wanted to add that, during 2009, we added FAD to the supplemental, which is for the fourth quarter $0.22 per share and $0.93 for the year, which is about $0.05 below FFO for the year. Our definition and quarterly calculations is in the filings if you're interested.

That concludes the financial highlights. And, at this point, our CEO, George Carter, will tell you more about FSP, the results and where we are. Thanks for listening. George?

Thank you, John. Good morning, everyone. Thank you for tuning into our Fourth-Quarter and Full-Year 2009 Earnings Call. I will, as I've done in the past, follow my comments in our earnings press release and try to flesh them out a bit.

I'll start with profits very quickly since John has gone through them a bit. As John said, we do measure our profits with FFO, plus GOS. A lot of companies don't use GOS. But GOS, or gain on sale, is something very important to us. We believe in the cycle. There are good times to buy and good times to sell. And we are always investing our capital for gain on sale as part of each property's total return strategy.

Fourth quarter -- sequentially, profits were about $19.5 million. And that was down $0.01 to $0.24 for the quarter from $0.25 in the third quarter. Fourth quarter year-over-year, as John said, was the opposite of that, up $0.01 per share from $0.23 per share in '08 to $0.24 per share in '09. Full-year 2009 total profits were up about $2.6 million from $69.2 million to $71.8 million, but flat on a per-share basis year-over-year at $0.98 a share.

Our balance sheet, as John said -- it continues to be very solid with all equity ownership represented by our common stock. We have no preferreds, no converts, no OP units. Our total debt is about 13.6% of market cap. All that debt is unsecured. We've never actually had a directly-owned property in our portfolio with secured debt on it. And it gives us tremendous flexibility in both good and tough markets on any individual property. And our liquidity between cash and the line is about $168 million.

Looking at property sales, GOS, gain on sale, for the fourth quarter, we did have a small gain of about $424,000. Again this was, as John said, a piece of land associated with one of our office buildings that was taken for a highway widening. It was our only GOS contribution for the full year 2009. And, as with 2008, we listed no properties for sale in '09.

However, we will watch with interest investment flows in 2010, as we did see some firming of office property pricing in the second half of 2009. Actually, there is something in the real estate section of the Journal today about that. But the number of transactions was still relatively few. And we are not -- underline -- not expecting 2010 to be a very good seller's market, but we're watching. Investment flows are important in this business. There is money around.

On a price-per-square-foot basis compared to replacement cost and on a cap-rate basis spread compared to ten-year Treasury yields, for example, from a historical perspective, there are a lot of properties out there that are attractively priced. So, we'll keep our eye on it.

Investment banking for the fourth quarter really improved dramatically from the previous three quarters. We did about $39.8 million in equity raise during the quarter. But we did have, actually, much lower fees than our historical levels from this amount of equity raise. And just to, again, flesh that in a little bit, one of the deals we did in the fourth quarter, which was about a $20 million deal -- we actually raised that capital ahead of the acquisition of the property.

And so, in most cases, we acquire property first and then go syndicate it, truly bank it. And, to acquire that property, we make an acquisition loan. And, as part of the syndication, we get a loan fee for making that acquisition loan. In this case, we raised the capital ahead of the acquisition. So, consequently, there was no loan acquisition fee for us in that particular transaction, which is why the percentage fee was down against that amount of equity raise.

The fourth-quarter Investment Banking business did produce the segment's first and only quarterly profit for the year, totaling about $1.1 million, or about $0.01 a share. For the full year 2009, Banking business totaled only $40.4 million. So virtually all of our business was done in the fourth quarter. And that $40.4 million total for 2009 is down about $17.4 million from $57.4 million in 2008. And, even with the improvement in the fourth quarter Banking, that segment lost us about $600,000 for the full year.

I have said on other calls that we value our bank. And we have kept our bank totally up to speed and together during these last couple years as business there has gotten tough and actually done some technological improvement investing in that business segment. And for the first time, we are much more optimistic about our investment banking prospects in 2010.

I'm still very cautious that -- the markets move people's emotions around tremendously. There's still plenty of negative press on commercial real estate. But, for the first time, we are seeing real genuine interest and activity in investing in real estate again. And we are very optimistic about the potential of that group in 2010. It'll still be choppy quarter to quarter, but we are quite hopeful about the full year.

As I said earlier, pricing for properties is generally attractive, again, particularly on a historical basis. But investor confidence that a solid bottom in pricing has been reached probably is going to be necessary for significant investment flows to be sustained. And, again, in today's Journal there was an article hitting to that point as well.

Our property portfolio of 32 directly-owned properties and interest in three others that we did through our bank -- their rental revenue for the fourth quarter was actually down about $400,000 from the third quarter to $31.3 million from $31.7 million. But, for the full year 2009, rental revenue was up about $10.8 million, or about 9.8%, over 2008 to about $122 million from $111 million in '08.

During the fourth quarter, our occupancy dropped significantly to about 84% from 90% in the third quarter. And that drop, obviously, contributed to the decline in rental income for the quarter. Most of that drop was involved in two properties.

One is our property in Glen Allen, Virginia outside of Richmond in an office complex called Innsbrook. That's the Land America Financial Group property that we talked about a lot over the last few calls. That was a bankruptcy of the major tenant. And that large vacancy was anticipated. The other was a property in Chantilly, northern Virginia where CACI was our largest tenant. And they're -- we knew they were vacating in the fourth quarter. And that is really the balance.

Both of these properties are excellent properties in excellent locations. And both properties we have already done some leasing on. We've got about 20% of the Land America property -- formerly Land-America-Property-leased and about 50% of the Chantilly, northern Virginia property leased. And I can tell you at both properties there is very, very good activity. But we have nothing to specifically talk about at this moment on both of those properties.

We also have quite a bit of additional lease-roll in 2010. The three major properties that are involved in the majority of this lease-roll are Greenwood Plaza in Denver. New Era Networks/Sybase is the major tenant there. That lease expires May 1; that tenant will be leaving. Collins Crossing in Richardson, Texas, which is north Dallas. Tektronix is the major tenant there. That lease expires June 30; that tenant will be leaving.

And 380 Interlocken, which is in the Denver-Boulder corridor -- Cooley Godward. That tenant -- its lease expires December 31 right at the end of 2010. And we are still working with that tenant on a lease extension and at this point are optimistic.

Again, these three properties are excellent properties. And there is a lot of activity around all three of these properties right now, but nothing specific to report. I've said before, in Greenwood Plaza in Denver, New Era Networks, or Sybase, when we bought the property was not occupying much of it and had subleased most of it. It is actually two buildings that are connected by an atrium. There's a 65,000 square foot building and 135,000 square foot building.

Our effort right now is to see if we can get the subleased tenants to stay -- and we think we're having some success there -- and keep the larger building, the 135,000 square foot building, as a multi-tenant, vacating completely the 65,000 square foot building and looking for a -- hopefully, a large tenant to occupy the majority of that. We feel good about our leasing prospects on Greenwood Plaza.

On Collins Crossing, it is a building which lends itself to -- and the contiguous space lends itself to a potentially large tenant. We have a lot of interest in Collins Crossing from tenants, any one of which have the potential of taking all of the Tektronix space. So activity there is very, very good.

Generally, what I would tell you is broadly across our markets activity is very much up. We're not seeing yet in our markets increased net absorption. And I don't think we will until we really get employment growth restarted. But this Armageddon financial scenario off the table and companies for the last two years being a little bit paralyzed has definitely ended. And there is a lot of activity. And this is good for us.

These are good properties. We can be competitive in leasing these properties. And better companies are looking. They're making decisions. They're moving. They're not locked up. They're thinking about the future and thinking about growth.

And, again, while we face this vacancy and lease-roll, it is in a much more active market in 2010 than it has been in the last couple of years. 2010 though is clearly our hump year. It's a big vacancy/lease-roll year for us. And the bad news is clear; we have lots of lease roll in a tough leasing market.

The good news is they are some of our best properties that have the lease-roll and vacancy. There is a lot of activity, as I mentioned. And, of course, we have a real strong balance sheet to be competitive relative to tenant improvements and leasing commissions.

If you look at our earnings press release -- on mine it's page nine -- yearly lease expirations, you will see that 2010 does really set up as a hump year. We have 13.4 % lease-roll in 2010. But, after that, our lease roll is much more modest in the next three years -- in 2011 about 6.8%, in 2012 about 7.3%, and 2013 about 6%.

For those of you that have been following this coming year lease-roll -- yearly lease expiration table, you notice that 2012 has dropped from about 11% down to the 7.3% you see there. We did extend CITGO in Houston 248,000 square feet for an additional ten years on top of the two years remaining on their existing lease. So, we have them for 12 more years.

If we get through 2010 successfully and execute on our leasing and our new property acquisition goals, once beyond 2010, we could see significant rental income growth in 2010, '12 and '13. Assuming just stability in the economy over the next few years, we believe 2010 should mark our leasing bottom, and we should be on our way up from there. If we can add any real economic growth or employment growth to the equation, things can get very exciting.

And, hopefully, this time the up part of the real estate economic cycle will have a good long run. And, when it ends, maybe end more traditionally with building oversupply instead of a credit crisis, which, obviously, really was the precipitant for this downturn.

Moving onto property acquisitions, one of the most important characteristics of FSP, besides our lower-leverage model, is our strong belief in a cyclical investment strategy as it relates to the asset class of commercial real estate, especially suburban office, which is our primary type of commercial real estate investment.

We believe a significant part of a competitive return on invested capital can be achieved by selling and/or repositioning properties at top parts of the commercial real estate cycle and buying better-valued properties at the bottom parts of the cycle. And, by successfully executing this strategy, you can get competitive overall rates of return on your commercial real estate investment without the need for significant leverage.

Just stepping back for some perspective a minute, between 2005 and 2007, FSP sold about half of its portfolio properties, many at meaningful gains. And by using 1031 tax-free exchanges, we upgraded that portfolio with properties that we thought would not only withstand a cyclical downturn better than the ones we sold, but, also, have a greater potential for appreciation and gains on sale in the next part of the cycle.

And just a note of special dividends versus reinvestment of gains -- I've talked about this, again, a little bit in the past. When we went public in 2005, we just listed our company. We never did an IPO or raised public equity. We did think the cycle was getting somewhat overheated. And new capital investing in an overheated market did not make as much sense to us as culling through our portfolio.

And that portfolio was really quite diverse with not only different locations, but different property types, including apartments, et cetera, a lot of them small and relatively inefficient as we had built the Company over the years prior to our listing. We thought spending time culling through that, selling properties into the top part of the cycle -- and we invested in more efficient properties and markets that we thought were better priced -- would make more sense than raising new capital at that point in time and more sense than paying out special dividends.

We, again, had never accessed the public capital markets. And we thought we would lose a lot of critical mass, unsure of whether we could tap the public markets if we'd have paid those gains out as specials at that point. Our vision of a future -- or the next cyclical upturn could -- underline -- could include less 1031 tax-free exchanges on properties we might sell for gains and more special dividends.

Additional property acquisitions since the start of this cyclical downturn were made in '07, '08, '09. And, during that timeframe, we bought seven additional properties directly into FSP's portfolio and invested in an [EIF] that our bank had syndicated. This was the first time in our Company's history that we ever actually used our debt capacity for permanent acquisition. Heretofore, our debt capacity was used primarily for banking for acquisition loans to acquire property for our Banking business. Those loans have been repaid from the proceeds of the offering.

But it seemed to us to be the right part of the cycle to acquire. We had, basically, in the latter half of '07 -- the mid-'07 as an unleveraged balance sheet. We bought one property for the second half of '07 for about $63 million, three properties in '08 for about $74 million, four properties in '09, including this interest in the fourth, for about $140 million.

Also, during this timeframe, we made about $36.5 million of first mortgage loans. About $11.5 million of those went to several of our unleveraged single-asset REITs to help with TIs, leasing commissions, et cetera. And about $25 million as of year end was out on our construction loan at our property in the Denver-Boulder Corridor, 385 Interlocken. If you add all of those investments from the start of the downturn, you come up with about $313 million of new investment during this timeframe.

If you take a look on our balance sheet, you'll see about $184 million outstanding between the line of credit and the term loan. About $179 million of that $184 million really is what remains from the acquisitions and investments totaling $313 million that I talked about in '07, '08 and '09. About $5 million of that $184 million is actually the acquisition loan -- the remaining acquisition loan for our current syndication, which we anticipate will be paid back from the proceeds of that syndication.

The difference between that $179 million outstanding and the $313 million of investments really is our first ever public equity offering, which we completed in September, which brought in about $114 million. And, obviously, we invested from profits from operations after dividends over those -- over that period of time. Again, total indebtedness at the end of '09 was about 13.6%.

We expect more property acquisitions in 2010. We have some identified and we're working on them now. We have been, as you can see, very disciplined in acquiring since the downturn started. And, so long as value is there, we expect to continue to acquire.

We will fund our new acquisitions likely in the same pattern as we have over the last two and half years using our balance sheet and borrowing power to acquire and, when and if market conditions warrant doing a public equity raise, to pay that back down and keep that strategy going.

The whole objective here is to position FSP for the up part of the cycle. When we have issued equity, we have issued equity effectively to acquire. It is accretive. It is not dilutive. And, if you listen to John's numbers, you can see exactly how it's helped us offset vacancy, et cetera, in 2009, for example, in our portfolio. But the real objective is positioning a broader property platform for the up part of the cycle.

Really, instead of borrowing a lot of money at the top part of the cycle to buy more real estate and add more properties, we sold properties and tried to redeploy that capital into smarter, better properties. But now that we are in the down part of the cycle we are borrowing measured amounts -- we think at the low part of the cycle to buy and hold properties for, obviously, cash flow and GOS for the up part of the cycle.

Looking ahead at 2010, our profit numbers for 2010 will be affected heavily by the interplay of three transactional dynamics. First and most important is the leasing of our existing portfolio, leasing our existing vacancy, as well as our lease-roll. I anticipate us to be aggressive this year in that area. We have the capability to be. We have the properties to be. Each property stands on its own as to how far you're willing to go to do a lease. But, again, with the increased activity in the market, we are very optimistic.

The second factor will be new property acquisitions. When and what kind and how much will, obviously, have a big impact on profit numbers for 2010. And, lastly, we'll be, obviously, in our investment banking arena. And investor confidence in investing long term in an illiquid medium, commercial real estate, will be the key there. That investor confidence still is coming and going quarter to quarter, month to month. It somewhat seems to be tracking stock market feelings and headlines still.

All three of these areas will be quite variable quarter to quarter. And I would anticipate, unlike 2009 where our profit picture was fairly stable quarter to quarter, I would picture our profit situation to be more variable during 2010 than it was in 2009.

As with '08 and '09, '10 will be another challenging but exciting year for FSP. Our plan is to continue to execute our cyclical, opportunistic business strategy. If we can continue to successfully execute this strategy, as we believe as we have done in '08 and '09, not only will profits in 2010 be reasonable, but the future profit power of our expanded property platform, combined with our Investment Banking business, could be very, very meaningful. We look forward to it.

With that, I'd be happy to open it up to questions.

Thank you.

(Operator Instructions)

Your first question comes from the line of Justin Webb of Baird. Please, proceed.

Good morning, guys. Nice job this quarter. I had a couple questions about the lease-roll in 2011 -- maybe some updates on what's going on in the various major rolls, particularly among the -- I know you went through a couple, the Sybase and the Tektronix. Maybe what kind of rent roll-downs you're expecting on these vacancies in 2010 for the resigning or the releasing there because it did look like in the sup that the rolling expiration rents were pretty high. It's sort of like $28 a square foot.

Hi, Justin. It's George. Yes, I -- expecting lease roll-down -- we are just seeing such a range. I have said in the past, if you wanted to plug into a model on average 10% to 15% lower -- it's about as good as I can give you. I mean, in some markets and with some tenants, depending upon the tenant quality, credit, length of lease, type of TI package, et cetera, I mean, we are seeing variability of no-lease roll-down to as much as 30% or 40%.

And so, to go through each one of these not knowing what kind of lease and with exactly whom we're going to be signing is just something that I can't give you an expectation of. I mean, a great example is the CITGO lease we just did. I mean, and CITGO, which was 2012 -- they had two years remaining on their lease with some rental increase during the last couple years of their lease.

We flattened out that rental increase, were able to hold their existing rent -- no free rent -- and have those last two years of rental increases and then some added to the longer-term lease so that our overall rate of return is terrific, in the high teens IRR, with a $25 TI. And so, there's a situation, which, if you'd have asked me and said, what might we be able to do there? I couldn't have begun to predict it.

So, again, modeling -- if you want to do modeling, all of our asset managers who deal on the ground all the time have told us to model 10% to 15%, but on any given lease it could be quite different.

Right, right. No, that sounds good. That is helpful. And you did mention in your comments there for 2010 lease-roll -- you talk about Sybase, Tektronix. You mentioned 380 Interlocken, that there was a big lease roll there. And I saw on the 10-K you list three major -- could you let us know which one that is and maybe how much of the square footage you expect to maybe go away there?

380 Interlocken is a law firm of the name of Cooley Godward. They're about 72,850 feet. They actually were one of the original tenants on the property -- about 30% of that building, top floors, built-in stairways, beautiful stuff. We think we'll keep them. They may contract by a floor. They have actually had a floor subleased for a while, but we think we can keep that sublease tenant as well. We're pretty optimistic on 380 Interlocken.

Sounds good. Can you let us know what the -- on the CACI space and the -- I guess the American Systems Corporation -- was there any rent roll-down on that?

There was. It was about 10% lower.

Okay. And then maybe, finally, before I jump off here, on the Banking, which came back pretty nicely here, you mentioned that the lower commissions were really because you raised the money first before actually buying the property. Is that something strategically you plan on doing going forward, or is that really just a quirk of the quarter? And do you still see that $50 million syndication proceeds as the breakeven level?

Yes, I do, Justin. We've done probably 95% of all of our Banking business where we have actually banked -- purchased the property first. We've done three or four transactions over the years where we have raised the money ahead of the acquisition. There was nothing peculiar to this. It just happened to be one of those. So, I think the $50 million number is still a good number.

And, again, when you talk about banking, you talk about two sets of fees. Commissions, which are really broker-dealer numbers, stay pretty much the same. This was really a loan acquisition fee, which is a little bit different animal. And, obviously, you don't make the loan if you don't buy the property ahead of time.

Sure, sure. And so, for the syndication proceeds in 2010, you think that's going to pretty choppy going forward, or do you see a nice, linear growth? Do you see it similar to the fourth quarter, or is it really going to depend on what you see out there in terms of acquisitions?

Banking in even the best of years is never very linear.

Right.

It can be very choppy. We -- it seems -- there's money. And there's investors that are -- I mean, we talk to them all the time and they're just great people. But they have all the fears that you hear out there of -- a double dip, has commercial real estate really bottomed. They keep hearing about all the maturing debt coming up. One group says, well, maybe they bought them, and it's time to buy. Another group says, no the best bargains are a year from now. They are deeply affected by that.

They're also deeply affected by their concern of inflation. And they are very concerned about the amount of debt the country has and what inflationary effects that might have. So you have this conflict of, obviously, wanting to buy, if they buy, at the bottom, but being very nervous about not acquiring something that has a hedge against inflation in pure debt paper, which is one alternative for a yield, as well as equity is -- just in their minds, it doesn't offer that.

When they think about real estate, because the asset class is so out of favor right now, you can get some better yields with credit tenants on fairly long-term leases where the yields from those credit tenants are significantly -- 10%, 20%, 30%, 40% above the comparable tenant's debt rate of equal maturity -- the debt out in the marketplace, simply by attaching the credit to the asset class because the asset class is so out of favor and, obviously, illiquid, which has always commanded some premium. But their -- that's what's going on in their heads and it ebbs and flows a lot.

So, it's a long-winded answer. But I would expect Banking to be very, very erratic over the year. But I think for the first year in a while we have a real chance of having a meaningful increase in business in that area.

All right, sounds good. That was all I have right now.

Your next question comes from the line of Louis Feldman of Wells Capital Management. Please, proceed.

Good morning, gentlemen.

Good morning, Louis.

Good morning, Louis.

A couple of questions for you -- looking through your vacancy rates, it looks as though you have the building in Federal Way, Washington with a fairly low occupancy rate. Geographically, is there an area that's weaker than any others that you're finding in terms of opportunities for filling vacant space or greater demand for rent roll-downs?

Well, most -- actually, it's really property by property. I mean, if you take a look, for example, at Federal Way and -- that's a very narrow market dominated by Weyerhaeuser. And that market went real bad at precisely the time we -- or shortly after we acquired that property. That property continues to struggle.

But the broader dynamics of the Federal Way market we believe in. And we're sticking with that property. And we believe that we'll lease that property up and do very well on it long term. The other property is obviously the one in our Detroit area in Southfield. And that market needs no explanation. The rest of the vacancy and upcoming vacancy in the portfolio is really fairly property-specific and not so much geographic-specific.

And, Louis, this is John. Just one addendum on the Federal Way property -- that's in -- near a flood zone, and it's up at a very high elevation. And I believe it's the Green River Dam in that area that's put some lower properties at risk. So, although it's a tough environment -- and we may see some positive news for people who want to move to a higher elevation with the space that we have.

Okay. You were -- and then you were talking about one of the Colorado properties where you had -- it was two buildings attached by an atrium. And you were hoping to keep some of the subleases. Could you expand on that a little bit? Would you move people from one building to the other depending on where they were in an effort to consolidate space?

Yes, that's Greenwood Plaza, Louis. And that's exactly what we do. The buildings are connected by an atrium. The one building -- let's make sure I get my statistics right here. One building is about 135,000 square feet, and that's -- and the other one is about 65,000. There are six to ten different tenants that we potentially can pretty much fill the 135,000 square foot building if we can extend them and get them resigned.

And, again, we're making progress in that area. We would be moving at least one of those tenants from the smaller building. And our objective is to -- the smaller building is a perfect single-tenant type of building and has been pretty much that since we acquired the property. And that particular amount of space in that submarket for a single tenant would be very competitive. So that is the game plan.

Any indications of what kind of TIs you might need?

Well, again, it has -- it's almost like the question of what lease rate will you get. One of our objectives in this building is to push the ball down the street just a little bit. A lot of these tenants that effectively Sybase subleased this property to -- so, Sybase had vacated a lot of it prior to our acquisition of it -- are smaller tenants that wouldn't be called credit tenants.

They had -- they have a great interest in staying in their existing space and having rent as low as possible and not a big TI package, which would require them to pay -- obviously, to make the deal work for us -- a larger rent. So, you might see with the smaller tenants very small TI packages. If you talk about new space like the 65,000 square foot building, I mean, depending on, again, who the tenant is and what TI package they want, you can see anywhere between $25 and $50 TIs.

Okay. And then on my original question -- I will turn around and essentially repeat it. But, on the syndication investment banking side, is there an area that you're seeing more interest -- geographically an area that you're seeing more interest from the private investors than other areas?

No, I wouldn't say that. I mean, geographically, historically, the -- our investors have always been interested in big, primary markets, until, of course, they see the yield that comes from those big, primary markets. Everything is yield versus appreciation.

A number of our investors are concerned more today with credit of the tenancy, length of lease, whether or not it's an operating lease, gross lease or a net lease. And, today, that's trumping geography probably more than ever before. Historically, the coasts have been more popular with our investor group than the center of the country.

Okay, great. Thank you very much.

Thanks, Louis.

Your next question comes from the line of John Guinee of Stifel Nicolaus. Please, proceed.

Oh, hi. Thank you. A few quick questions, George or John -- first, were there any lease termination fees in the 4Q '09 numbers?

No, there weren't, John.

Okay. Second, George, you guys can very easily, as I think you articulated very well, generate a lot of earnings growth just by borrowing short and buying. How far will you push the envelope in terms of levering up? For example, (inaudible) million on the revolver will you lever up that far?

John, can you just repeat that again? You just cut out a little bit when you were asking that question -- just the last part of that question.

How far will you push the envelope in terms of leveraging up? You've got $140 million on your revolver. Will you lever up in its entirety?

No. John had given where we had gotten to before we did our equity raise, before we'd gotten to about 23% leverage. If you wanted to use that as a benchmark, it's good. We could go over it a little bit or under it a little bit. But you're never going to see this Company with a lot of leverage.

We are very aware of our short-term nature of our borrowing. We are not going to let that get of any significant size before it is either replaced with equity or longer-term permanent debt.

Okay.

And some of that has to do with how the stock price performs too, John, given the cyclicality of the REIT stock prices over the last couple of years. It's somewhat dependent on that too.

Okay. I think you have 30 tenants that are month to month. Roughly how many square feet is that?

I can't quote you a number on that. We have a few buildings that are significantly multi-tenant that are month to month that I think have been probably 95% to 98% occupied for the last five years. But I couldn't quote you a number on it.

You could look in Item 2, Properties in the 10-K filing. We do list the number of tenants in there. And you could probably get an idea from which one has the highest number of tenants from that. But I couldn't quote you a number off the top of my head, John.

Okay. And then for the rollover on -- in the New Era Networks, I guess, what you're telegraphing is that you can probably keep maybe 120,000 to 130,000 square feet. So you maybe have an effective rollout of 70,000 to 80,000 square feet. Is that a fair number?

I wouldn't give you a number. And I -- all I'm telegraphing is that there are tenants in place there. It shows up as a single-tenant building because it's a -- it's obviously a single-tenant lease. But it's not what's physically going on with the property. And we are optimistic that we will keep a number of those, but I'd hate to give you a specific number at this point. Hopefully, next quarter we can have a good, hard number for you.

Should we assume that's a low- to mid-20s gross rent for that kind of building in suburban Denver?

Again, I don't want to quote you a number. Those numbers would be very good rent numbers for that market. But, again, these tenants are -- some of them are small, non-credit. Some of them we may just want to extend a year or two just to kick the can down the road a little bit to try to get into a better market to see if we can improve credit and get a longer-term lease. So, I'd just hate to put a number on it -- it's so variable.

On your Tektronix, will that go 100% vacant, or is there any subtenants in place for Tektronix and --?

Now, Tektronix, that building is -- Tektronix is going to vacate about 215,000 square feet, or about 70% of that building. So we will have -- we did a lease of one of the floors. We have another tenant in there. So, that building, when -- if we do not sign a lease before Tektronix leaves, we'll be about 70% vacant.

Okay. What's the status on your development deal? I think that's in Denver.

We are anticipating substantial completion of lobbies and everything so that the building really shows well somewhere around June 1 or late June of this year. It's doing very well in terms of construction, and we have a lot of interest in the property. We have RFPs and proposals out for tenancy.

There is interest in the area for that property. That property is 11 stories, about 285,000 square feet. There's about 450,000 square feet of interest in that submarket right now. We've received our pre-certification -- Gold LEED pre-certification. And we're real optimistic we're going to get some tenants signed there real quick.

What's the total development budget on that as of today?

Hold on a minute. Let me make sure I don't give you a wrong number here. Between $70 million and $75 million.

And it's 285,000 net rentable square feet?

Right.

Got you. Okay. Thank you very much.

You're welcome.

You have a follow-up question from the line of Justin Webb of Baird. Please, proceed.

It's okay, guys. It's been answered. Thanks.

This concludes the Q&A portion of today's call. And I would like to turn the call back over to Mr. George Carter, CEO. Please, proceed.

Thank you very much, everybody. I know it was a little bit longer of a call. But year end -- hopefully, we can put some perspective just to the quarter's numbers. I look forward very much to talking to you next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.