Franklin Street Properties Corp (FSP) 2015 Q4 法說會逐字稿

Good morning, and welcome to the Franklin Street Properties Corporation fourth quarter 2015 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.

Good morning, and welcome to the Franklin Street Properties fourth quarter 2015 earnings call. With me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our Chief Investment Officer; and Janet Natopoulos, President of FSP Property Management. Also with me this morning are Toby Daley, Vice President and Regional Director of Houston; and Will Friend, Vice President and Regional Director of Denver.

Before I turn the call over to John Demeritt, I must note the following: 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 10K for the year ended December 31, 2015, which is now on file with the SEC.

In addition, these forward-looking statements represent the Company's expectations only as of today, February 17, 2016. 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.franklinstreetproperties.com. I will now turn the call over to John Demeritt. John?

Thank you, Scott. And good morning everyone. Welcome to our earnings call.

On today's call I will begin with a brief overview of our fourth-quarter and year-end results. And afterward our CEO, George Carter, will discuss our performance in more detail. And will provide an update on where we are and to give some guidance. Janet Natopoulos, the president of our asset management team, will then discuss some of our recent leasing activities, and then Jeff Carter, our CIO, will discuss our investment and disposition activities.

After that we will be happy to take your questions. As a reminder, our comments today will refer to our earnings release in our supplemental package in the 10K, all of which were filed yesterday, and as Scott mentioned, can be found on our website. We reported a decrease of funds from operations, or FFO, of about $450,000 to $27.1 million for the fourth quarter of 2015, compared to the fourth quarter of 2014.

For the year, we reported a decrease in FFO of $5.6 million compared to the full year of 2014. These decreases were primarily from lower property income as a result of the asset sales we made this year and also some loan repayments we received in the past year, and also lower occupancy during 2015. These decreases were partially offset by our acquisition of Two Ravinia in Atlanta this past April.

You can see the effect of all of this in our same-store comparisons. As a result of the asset sales, we had gains on four properties that we sold in 2015 of $23.7 million. Our FFO per share was $0.27 for the fourth quarter of 2015 and 2014, so it was flat quarter- over- quarter on a per-share basis, and our FFO for the full year of 2015 was $0.05 lower than 2014, and it was $1.07. These results are very much in line with our expectations.

Turning to our balance sheet and current financial position, at December 31, 2015 we had about $910 million of unsecured debt outstanding, and our total market cap was $1.9 billion. Our debt-to-total-market cap ratio was 46.7% at year-end, and our debt service coverage ratio was about five times for the fourth quarter-- annualized fourth quarter. Debt to adjusted EBITDA ratio was 7.1 times.

From a liquidity standpoint, we had a cash balance of about $18.2 million at year-end and $210 million available on our $500 million unsecured line of credit, so as a result we had approximately $228 million of liquidity at year-end. In January, we received $37.5 million in proceeds from the full repayment of a secured loan we have with the property of Colorado.

We remain comfortable with our leverage and our unsecured rated borrower. We believe our balance sheet position enhances our ability to opportunistically sell non-core assets from time to time and reinvest proceeds or use our availability to acquire assets in our core markets as we find the right opportunities. With that, I will turn the call over to George. George?

Thank you, John and welcome to Franklin Street Properties fourth quarter year-end 2015 earnings call. For the fourth quarter of 2015, FSP's funds from operations, or FFO, totaled approximately $27.1 million or $0.27 per share. For the full-year 2015, our FFO totaled approximately $106.9 million, or $1.07 per share. These results are within our initial full-year 2015 FFO guidance range of $1.03 to $1.08 per diluted share.

That original guidance of $1.03 to $1.08 FFO per share was given at this time last year and excluded the impact of any acquisitions, dispositions, debt financing or repayments or other capital market transactions. In fact many of these transactional events did occur in 2015, but their net impact, combined with FSP's regular ongoing operations, settled out at the $1.07 per share. FSP's full-year 2015 adjusted funds from operations, or AFFO, totaled approximately $79.8 million, or $0.80 per share.

Dividend distributions paid and declared for full-year 2015 totaled $76.1 million or $0.76 per share. And while the FSP Board of Directors determines the dividend level every quarter, and can maintain, raise, or lower the dividend at any time, based upon our forecast for 2016 and beyond, we feel very comfortable with the current level of dividend payout for full-year 2016, barring any significant unforeseen events.

We also recorded gains on the sale of four properties during 2015 of $23.7 million, or $0.24 per share. And our initial FFO guidance for full-year 2016 is estimated to be in the range of $1.01 to $1.07 per diluted share. And relative to this initial 2016 FFO guidance, we believe that 2016 will mark the bottom of the effects that our ongoing property portfolio transition is having on FFO, which contracted in 2015 for the first time in four years.

For the four years prior to 2015, FFO grew at an average of better than 8% per year. 2015 full-year FFO per share of $1.07 was down approximately 5% from 2014's FFO per share of $1.12. Our current forecast is for resumed FFO growth in 2017, propelled primarily from our projected realization of increased leasing in our more recently acquired urban office properties, particularly the value-added space component, which is heavily weighted to initially acquired vacant square footage.

This value-add square footage, we believe, will be leased at significantly higher net revs per square foot than the suburban office properties that were disposed of to recycle into those urban acquisitions. As just a final note on guidance, relative to first quarter 2016, it is anticipated that the first quarter of 2016 will be below the average carve-up of our full-year guidance, and we are estimating first quarter 2016 FFO per share at this point between $0.24 and $0.26 per share. This is primarily because of the late fourth quarter 2015 sale of Montague Business Center, and the early January sale of 385 Interlocken.

Both of those property sales gave us back significant capital, which have yet to be reinvested in a new property. In addition to those dispositions, we have at the beginning of January the TCF vacancy in Minneapolis. And again, that reflects on two properties, the bulk of the TCF rent that goes missing as of January is in the tower, and the tower is a property that we have worked on for several years, and is ready to lease.

We have a lot of leasing activity in the tower and are very optimistic about leasing the TCF space efficiently during 2016 in the tower. Jeff will talk a little bit later about the redevelopment of what we call [Banktum]. With that, I will turn over the call to Janet Natopoulos to talk about leasing. Janet?

Thank you, George, and good morning. Our leased occupancy at December 31 was 91.6%, which is up from the 90.5%, where we ended the third quarter. Included in that increase is the notable expansion of Centene at Timberlake East in St. Louis, which brought the occupancy there up to 96.2%. Let me just take a moment to remind you that at this time last year, RGA had just vacated approximately 197,000 square feet at the three-building complex at Timberlake and Timberlake East, and by the end of 2015, we had released all of that space.

The Timberlake buildings were 95% leased at year-end 2015, and Timberlake East was 96% leased. So that was 2015 in St. Louis.

Now, to go to 2016 in Minneapolis, we think we will be able to lease the TCF Bank space in Minneapolis, which was given back as of January 1 this year in a similar fashion. TCF leased approximately 98,000 square feet in the high-rise tower that contains approximately 306,000 square feet, or about a third of that building. In anticipation of the TCF vacancy, we did significant common area improvement, and now that the space is empty and available, there is a lot of leasing activity and interest in that tower.

TCF Bank also leased the older low-rise building located at 801 Marquette, containing approximately 165,000 square feet, where they paid only $4.75 per square foot net. And where we have been working on a proposed high-rise mixed-use redevelopment tower to replace the older building.

You will notice in this quarter's financial statements that we have broken out 801 Marquette as a separate project from the high-rise tower at 121 South Eighth St. in anticipation of the redevelopment of that low-rise building. Jeff Carter will talk more about that redevelopment project later in the call.

One other point regarding our occupancy statistics. Our occupancy numbers not only reflect our leasing efforts, but also our strategic transition of the portfolio from suburban buildings to urban infill and CBD buildings, and in some cases, by trading lower rent, but high-occupancy suburban buildings for higher-rent urban infill and CBD value-add buildings.

We maintained our leased occupancy through 2015 at around 90%, despite the fact that three of the four buildings we sold in 2015 contained approximately 380,000 square feet that were 100% occupied, and we bought a single value-add building containing about approximately 442,000 square feet that was under 80% leased.

While the TCF vacancy may be a drag on occupancy for the first part of the year, depending upon what we buy and what we sell, we aim to maintain a run rate of at least 90% with the expectation that that rate will be higher by the end of the year. In general, our cash rents are increasing on new leases and renewals. On a GAAP basis, new rents, compared to the average GAAP rents in those buildings for the prior year, increased 10.4% for the year.

Our lease expirations for 2016 are moderate. 9.4% of the square feet in the portfolio, including the TCF square feet, and 7.8% of annualized rent.

We share with others the concern about the impact that oil prices may have on tenants engaged in the oil and gas industry. But none of our tenants in that broad classification are in default on their rent payments as of today.

Approximately 12.6% of all of our rentable square feet are located in Houston, but only approximately 59,000 square feet of leases for all of our tenants in Houston in any industry expire in 2016. Or stated another way, less than 1% of our rent or square feet are located in Houston and expire in 2016, and not all of those are in the oil and gas industry.

FSP is active in renewal negotiations with most of these tenants that do renew or expire, and is encouraged by the potential lease activity from new prospective tenants for the vacant spaces. Toby Daley, our asset manager for Houston, is here with us if you have additional questions on Houston.

I will now turn the call over to Jeffrey Carter.

Thanks, Janet. Good morning, everyone. I will review our investment activities for the fourth quarter of 2015 and for the full year. On the disposition and asset recycling front, during the fourth quarter, FSP sold Montague Business Center in North San Jose, California for $30.250 million, and recognized a gain of approximately $12.9 million. Montague Business Center consisted of approximately 146,000 square feet in two single-story buildings that were originally acquired back in 2002.

For 2015 in total, FSP recycled out of four properties for $87.250 million. Those included Eden Bluff in Minnesota, Willow Bend in Dallas, Park Seneca in Charlotte, and Montague Business Center in North San Jose, and those resulted in gains of approximately $23.7 million in total.

Additionally, as we mentioned during our last conference call, that some transactions could spill over in 2016. This did indeed occur. Specifically, in January, FSP received the full repayment of our approximately $37.5 million first mortgage loan via property sale of 385 Interlocken.

Including the Interlocken loan repayment, we completed approximately $125 million in total recycling over approximately the past 12 months. FSP remains committed to recycling out of our non-core assets within the portfolio when appropriate pricing is achieved. Accordingly FSP expects to transact continued dispositions during 2016, and they are likely to be in excess of 2015.

We are not providing specific disposition guidance, as there are a number of moving pieces that make such guidance potentially less meaningful. Moving pieces include number one, that we are not sellers at any price. Two, that some properties are being prepared now by their respective selected brokers for actual price discovery, and we do not yet know if they will meet, exceed, or miss pricing expectations.

Three, one asset is actually currently under agreement now, and is in its due diligence period, but until we know the outcome of that process, we don't want to assume anything. And four, there are several properties that we believe would represent strong potential disposition candidates, but that we believe still have possible rent roll value-creating enhancement opportunities that we would like to try to make happen prior to their marketing, and this will gate the potential timing of their respective sales.

We will update our disposition efforts quarterly. On the acquisitions front, FSP continues to seek new investments and is underwriting both on- and off-market opportunities, primarily in our core markets.

We continue to focus on self-funding these new investments by working to utilize disposition and loan repayment proceeds, and we are looking at a number of opportunities and are seeking to be a net acquirer in 2016. We do recognize that this objective will be opportunity-driven, though, and be connected to our recycling and disposition efforts.

On the development front, we continue to work in earnest with our intended partners and our potential downtown development in Minneapolis at 801 Marquette. Our work is now focused on finalizing the actual costing and feasibility with our development partners. This consists of addressing the specific needs or programs of each piece of the development, office, hotel, and apartments.

We do anticipate that this work will be largely complete approximately the next month, and from the work we have seen so far on the office portion, which is still subject to change, the office piece of the tower is coming on in line with our preliminary estimated costs between approximately $80 million to $90 million, including the land. In the meantime, and as Janet mentioned, we are fully engaged on pre-leasing efforts in the new potential tower development. At this time, I would like to turn the call back over to George Carter to close. George?

Yes, so we will just open the call to questions at this point.

(Operator instructions)

Dave Rodgers, Robert W. Baird.

Yes, good morning. I guess I heard, Janet, your comments regarding no tenants behind on their rent payments in the energy space, but I guess I wanted to dive a little further, so for Janet, George or Toby, we will throw you all into the bucket. 17% of your tenancy obviously is energy exploration firms, 5 of your top 20 tenants appear to be energy and exploration firms.

So can you dive a little deeper for us on each of those tenants in terms of how they are using their space, what they are used for, and how you feel about the consistency of their ability to pay not only now but in the future?

Dave, this is Toby, I will take that. I am assuming you are focusing on tenants in Houston.

Yes. And I guess any bleed-over in Denver as well.

I will let Will address anything in Denver. But specifically in Houston, we are finding that all of our space occupied by oil and gas firms is fully utilized, fully engaged. With the exception of one space, and that's the Park Ten, Phase 2 building, where the entire building or most of the building is leased to Murphy Exploration and Production Company, and it has since been sublet to ConocoPhillips.

ConocoPhillips is there, but is most likely going to vacate that building around Memorial Day. At which point the space will be 100% vacant, and we're already marketing that space for a lease, which comes back to us in April 2017. Aside from that, all of our oil and gas tenants are making full use of their space.

We have no collection issues. And no cause to be alarmed at this point in time.

That's helpful, and then Will, anything in Denver that we are watching from an energy perspective?

I can say -- our energy tenants in Denver are -- we have several that have space in the market for sublet, for sublease and have had success in subleasing their space. They still have some -- there are some spaces left to sublease but, with all of our tenants, they are current on their rent. We have no reason to believe that they won't continue to be, to the extent than an opportunity arises where a current tenant wants term that goes beyond their term, we would consider discussing a direct lease or some sort of buyout with the prime lessee to make a direct deal with the subtenant.

Okay, that's helpful and maybe, Janet, the renewal activity looked really strong in the fourth quarter, were there any particularly large leases in there? Are you getting ahead of any expirations that really impacted what looked to be a pretty good renewal activity in the fourth quarter?

We're always working ahead on the renewals which goes to, if you look at our list of major tenants, we're always trying to be proactive on that. There was one large renewal that did work through, and you can see that in the change in expiration date at Quintiles. Where we've extended that term out and that was a large one -- a large portion of this quarter's activity.

Two more for me. I guess an update on Fannie Mae and what's happening with that space.

Well, again, going back to our major tenant in, I think it's page 19 of the supplemental, you will see that we extended Fannie Mae two years essentially. We would've -- let me just back up. Dallas is still a very strong market for us, and we would have been happy to take that space back and re-lease it.

Fannie Mae exercised their option to extend for two more years. So that has been pushed out to two years. That was built into their lease.

Okay, and then last question for Jeff, on the TCF redevelopment or ground of development that you are looking at -- is that something that, as you move forward, you would wait for a tenant or because of the other components of apartment and hotel, will you be forced to go through with that construction, with your partners, more quickly?

We have set this up to be, in our minds and our development partners' minds, as a pre-leasing scenario. But we are seeing good activity, and we will evaluate that as it goes along, but right now the intent has always been with some sort of pre-leasing requirement.

Okay, that's helpful. Thanks, guys.

Tom Lesnick, Capital One Securities.

Hey, good morning, everyone. First, just on guidance, I know you kind of talked a little bit about bridging the $0.25 midpoint for 1Q to the full year guide of $1.01 to $1.07, but I was wondering if you could talk more specifically about the timing of when we should expect some of those leases to commence on the back half?

Tom, it's George. I don't really have specific leases or specific timing for specific leases for you. It is a lot of activity at a lot of our value-add space, in it virtually all of our markets.

Not the least of which is, again, the Minneapolis tower -- that TCF has vacated, but it includes Atlanta, it includes Denver, and Houston for that matter. So I can't give you specifics on it, but the amount of activity -- just the sheer number of leases, some of these are medium-sized, some are small, just tells us that we are going to do real, real well.

And the key there is that the net rents are so much higher on that space than another. So most of these underwritings, Tom, if we disposed of [are suburban]. Even though you dispose of it at initially higher cap and buy at a lower cap, the underwriting to add the value really moves you significantly over the cap you are selling a suburban at, if you do this value-add activity.

Upfront, you are spending the money to get the space ready to lease. That space is ready to lease, and there is activity at that space, and that's why we believe that we will move the needle for the rest of the year.

Got it, appreciate that color. With regards to same-store NOI, obviously the Midwest has been impacted by RGA for the last few quarters.

I was just wondering how that full-year impact is rolling out. How should we expect Midwest same-store NOI to trend through 2016?

I think we have the TCF building is in the Midwest as well. So I think on an annualized basis, we will see the impact -- the impact of the first quarter is going to be a bit of a drag on that, but I think the rent loss from TCF was actually less than that of RGA just pure whole dollars, so we [will see].

Got it. And on leasing it looks like your average lease term has gotten a little bit shorter here over the last couple of years. I was just wondering if that is really a function of the leasing environment or the function of the buildings you own? Just wondering if you could talk about that a little bit?

I think it's primarily just -- how many renewals we are doing, since I believe that's a blended number. So if the renewals are disproportionately larger than the new leases, we are going to shorten that up. And so while Quintiles might have been a long renewal, [yet at] Fannie Mae that Dave Rodgers just asked about is a two-year, fairly large renewal, and that brings the average down.

Got it. And I guess finally -- congratulations, Janet, we will miss you, but just wondering what, if any, succession plan is in place, or what does that process look like for you guys?

It's George, Tom, we will miss Janet, too. Everyone will. We have a deep bench here at Franklin Street, and the Board and other parties here are busy at work, and we will make an announcement just as soon as we have a replacement.

All right, great. Thanks everyone.

John Kim, BMO Capital Markets.

Thank you. Your tenant improvement costs decreased noticeably in the fourth quarter. Is this purely reflective of the higher renewals, or are there specific markets where you are pushing back on TI?

I would think that in general it's probably more reflective of the proportion of renewals versus new leases. We haven't seen an increase in tenant improvements across our markets, but we haven't seen a significant decrease either.

And we are still in multiple markets. So that's a hard one to pin down.

Okay. And then on page 23 of your CapEx, there's a bit of a pickup on the deferred leasing costs. Can you just remind us what that's in relation to?

I'm sorry, you're saying that there's an increase in deferred leasing costs? The deferred leasing costs are essentially the brokerage commissions. One of my favorite discussion points internally is that since the GAAP- reported numbers are on, really what's more like a cash basis.

We often pay the brokerage commissions in front of-- as soon as we do the leasing, or at least half of it at the signing, half when commences, and the TI may follow later, there's a little bit of a disconnect on those. That's because we did do leasing.

And remind us again on the difference between page 23 and page 20? Page 23 is more of a cash outlay and page 20 is -- leases that you are signing during the period, so there might be a bit of a timing mismatch?

Yes. And so on page 20, since it's done of an accrual basis, and we do it as soon as we-- if we lease a space in the quarter. We estimate what the cost for leasing and brokerage commissions will be, and amortize that over the term of the lease.

So that condenses it all into the same time-frame, so that's going to be different than what we report. As you know, some tenants never come and collect their TIs.

Okay, question for George or Jeff, are there markets that you are seeing softness in demand -- or softness in cap rate potentially, either your non-core assets or some of your targeted markets?

Yes, this is Jeff here. In terms of the softness that I am seeing -- is really heavily in Houston, as you might imagine, given the oil condition of the marketplace. I am not seeing considerable softness in our other core markets.

Denver still has quite a bit of demand. Atlanta has a tremendous amount of demand, and Dallas has a tremendous amount of demand. And so Houston has been the one notable exception there.

And final question for me, your net debt to EBITDA, it looks like it's a little below 7 times at end of the year. Where is it today post-sale of 385 Interlocken?

385 Interlocken was a mortgage loan that was repaid. So I don't have that for you, but you can probably calculate that by the interest rate that is in the supplemental, John.

Okay, any thoughts on maintaining potentially a more conservative balance sheet during the year, or holding back on cash proceeds from asset sales as potentially you see more opportunities in your markets?

George, John. I think it's just opportunity-driven. Again, I think when you do debt as a percentage of total market cap -- one number when you do debt as a percentage of what we believe we're closer [MADM] it's another number -- when you do debt service coverage ratios, it's another number. We feel very comfortable with our debt right now, and we're going to be opportunity-driven, but we have to live within an organic growth scenario, and we will live there and be conservative but opportunistic on our balance sheet.

Okay, great. Thank you.

(Operator Instructions)

Craig Kucera, Wunderlich Securities.

Yes, thanks, I wanted to follow up on the sale of the Interlocken. How should we think about the use of the proceeds in the near-term? It sounds like you guys are thinking about being a net acquirer for the year, but should we think that you will invest that soon, or more likely do something else that would be excess capital?

Craig, it's George. Both Montague and 385 Interlocken, you put those proceeds together, coming up with close to $60 million. Again what we found -- I talked about it on the last call-- what we're finding in this transition to urban from our non-core suburban particularly, is the urban properties are much larger, and so many times there is this delay between selling your suburban properties and acquiring urban.

I know we will be opportunistic. We are looking at things now that if they lined up, we would buy forward, an urban property ahead of other dispositions. So long as we thought the further dispositions were a strong likelihood.

That capital does need to be redeployed, and we plan to do it. There are prospects for it, but that is one of the things that is hurting the first quarter a bit, on the FFO.

Got it, so it sounds like probably in the near-term, maybe some debt repayment on the short-term debt. What is the thought about any share repurchases, given where the stock is trading?

This is George again. The Board considers that along with all other opportunities. And if the Board decided to go that direction, we would let the market know immediately.

Okay. Can you give us some color on the mortgage loan investment made this quarter?

Yes. Sure. This is John Demeritt.

We made a loan to a property in Indianapolis, and we call it Monument Circle. It's currently -- the tenant that's in there currently is Anthem, and they are in the process of a merger with CIGNA, I believe.

They have announced that Indianapolis going to be their headquarters. The mortgage loan that was on the property -- it expired on December 7, and we financed it and are working -- we hope to work with them on a lease extension, after which there may be an opportunity to have that loan be repaid.

Right. I see that loan is yielding, I think, 4.9%. How does that size up with how you view your cost of capital? Relative to making acquisitions, or doing other things with capital?

Well, if you look at some of the asset acquisitions that we've looked at, the cap rates have been in the 5% to 5.5% range for the assets where interested in buying. You acquire an asset with that kind of cap rate, generally it comes with some capital expenditure that you need to make, and asset management expenses you need to incur.

When you compare that to yield on a loan, with no CapEx, it's a wash at best, and maybe even ahead of the game a little bit without having the CapEx to spend on it. So we view it as a good investment, a solid investment. I think that addresses the cost of capital question.

This is George. We view this particular loan as potentially quite short-term. Very little loan-to-value and it's a really good cash flower. And again, as John said, when you look at any other acquisition, and you go from the NOI line to the cash flow line, these short-term low loan-to-value like this is really competitive from the cash flow point of view.

And one other point, Craig, on that -- the 385 loan was repaid in January. So our balance sheet, if you pro-forma'ed it today, we've got $90 million outstanding on these loans, in the aggregate today.

Okay. Can you give us some color also on the cap rates that you guys were able to sell in the property at San Jose and Interlocken?

Sure, this is Jeff Carter. The Montague property was sold in an approximate 5.5% cap rate.

And what about the property in Denver?

That was sold for roughly a 5.75% cap rate.

Got it. Okay. And a couple more questions, and I will hop off.

I thought the quarter looked really very good from a leasing perspective and a nice pick-up. Can you give us some -- and I think this question came up earlier but I don't know that I heard the answer -- particularly as it relates to the Timberlake properties. When are those -- when is that tenant or tenants expected to take occupancy?

We basically leased -- it's three large leases, one to Energizer Edgewell that commenced. We did a big chunk to Centene that commenced, I believe, December 1, and the next tranche will be in April 2016, and that's disclosed in that footnote under major tenants.

So -- I guess my question is, are we're going to need about 90%, 95% occupancy then in the second quarter at those properties, given where the leasing is?

Okay, I am sorry. Physical occupancy. Yes, that's probably about right. It should close up to be the same as the statistics that I read off, as far as lease documents.

Okay. And the last one I have is the Denbury Onshore lease -- that I think is expiring, it looks like in July -- where is that located? Is that the Houston asset that is tied to the oil industry?

No -- it's definitely tied to the oil industry. It's located in Dallas in the Legacy/ Plano submarket, which is one of the really attractive market right now. We are in negotiations with subtenants, and we expect that we'll have significant leasing done at that building before, or by the time, that lease expires in July.

Okay, thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. George Carter for closing remarks.

Thank you, everyone, for attending the call, we appreciate it. We'll look forward to talking to you next quarter.

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