Feb 20, 2013
Executives
Scott H. Carter - Executive Vice President, Assistant Secretary and General Counsel John G.
Demeritt - Chief Financial Officer, Principal Accounting Officer and Executive Vice President George J. Carter - Chairman, Chief Executive Officer, President, and Director Janet Prier Notopoulos - Executive Vice President, Director and President of FSP Property Management LLC
Analysts
David B. Rodgers - Robert W.
Baird & Co. Incorporated, Research Division John W.
Guinee - Stifel, Nicolaus & Co., Inc., Research Division Joshua Patinkin Richard C. Anderson - BMO Capital Markets U.S.
Operator
Good morning, and welcome to the Franklin Street Properties Fourth Quarter 2012 Results Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Mr. Scott Carter, General Counsel.
Please go ahead.
Scott H. Carter
Good morning, everyone, and thank you for joining us on this call. With me this morning are George Carter, our Chief Executive Officer; and John Demeritt, our Chief Financial Officer.
Also, we have Janet Notopoulos, President of FSP Property Management; and Jeff Carter, our Chief Investment 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, 2012, which is on file with the SEC.
In addition, these forward-looking statements represent the company's expectations only as of today, February 20, 2013. 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. Now I'll turn the call over to John Demeritt.
John?
John G. Demeritt
Thank you, Scott. Welcome to our earnings call.
We're going to be talking with you about our fourth quarter results, and I'll start with a short overview. Afterward, George Carter, our CEO, will discuss the quarter and FSP.
I'm going to be brief and will be referring to our earnings release, the supplemental package in the 10-Q that we filed yesterday. I do want to point out, though, that we spent some time revising the supplemental report for year end, and there's some additional data in there that you might find helpful.
I just wanted to point that out up front. In the fourth quarter, we continued to strengthen and position our balance sheet through the use of our new credit facility and another acquisition.
We believe the balance sheet enhances our flexibility and will support continued growth. In late September, we expanded and extended our credit facility, increasing total capacity to $900 million, including our $400 million term loan component and a $500 million revolving line of credit, all of which is unsecured.
The interest rate and fees are stuck within ranges based on current credit metrics. As of December 31, the facility carries a rate of LIBOR plus 145 basis points, and there's an annual fee of 30 basis points on the entire facility.
On the term loan, we executed a forward swap, fixing the LIBOR component for the term loan at 0.75% for 5 years. I wanted to note that in our supplemental report on Page 12, there's more detail in there about the loans and the impact of further financing costs and the facility fess on our interest rate if you're interested in that.
As a result of the credit facility, we have the ample liquidity to take advantage of market opportunities as we see them. During the fourth quarter of '12, we acquired Westchase I & II, a 2-building office complex that George will talk more about.
We bought that for $154.8 million. With the benefit of these accomplishments, we were able to produce solid results for the quarter.
We reported FFO of $0.25 per share, a $0.03 increase compared to the fourth quarter of '11. And for the year, we reported $0.95 per share FFO or an $0.08 per share increase over '11.
The increase in FFO was primarily from increased property income from the acquisitions we made and improved occupancy in the portfolio, as well as interest -- increased interest income from our secured real estate loans and NOI. Our same-store NOI for the year was up 5% comparing 2012 to '11, primarily as a result of the leasing we achieved.
I'll now turn to our balance sheet and current financial position. As of December 31, 2012, we had approximately $617 million drawn on the credit facility, of which $217 million was drawn in the line and $400 million was on the term loan.
Our total market cap was approximately $1.63 billion, and our total debt -- our debt to total market cap ratio was approximately 37.7%, and we feel comfortable with the range of our current leverage. This concludes my overall overview of our financial performance.
The earnings release, supplemental information package and 10-K provide more details, as I said earlier, and we're happy to take your questions at the end of the call. I'll now turn the call over to George to provide further details on the results and the strategy for our portfolio as we look into '13.
Thank you for listening. George?
George J. Carter
Thank you, John. Welcome, everyone, to Franklin Street's Fourth Quarter Full Year 2012 Earnings Call.
As usual, my prepared remarks will follow my written comments in our earnings press release as of yesterday and then we will open the call for questions. For the fourth quarter of 2012, FSP's profits, as represented by FFO, totaled approximately $20.5 million or $0.25 per share, a sequential increase of approximately $600,000 or $0.01 per share compared to the third quarter of 2012.
For the full year 2012, FSP's profits, as represented by FFO, totaled approximately $79 million or $0.95 per share, an increase of approximately $7.8 million or $0.08 per share compared to full year 2011. Just reflecting back a bit on our operating profits.
For those of you who have been with us for a while, we said that we believed 2010 would be our trough year or as we called it, our hump year. As we went through the financial crisis in following the recession, we had in those years, lots of lease roll and obviously, higher vacancies.
Because of it, lower rents and our investment banking business, which we had then suffered as well. As we fought through that financial crisis and subsequent recession, we did believe that 2010 would probably be our trough and that 2011 would show our first year of operating profit growth that we believed would be a start to, in all likelihood, a longer-term cyclical profit growth trend.
So in 2011, our FFO did, in fact, rise about 3.8% over 2010 from $0.84 per share to $0.87 per fully diluted share. And then in 2012, that trend did continue and accelerate.
Our FFO rose in 2012 about 9.2% over 2011 level or maybe $0.07 per share to $0.95 per fully diluted share. We are currently very optimistic that 2013 and beyond we'll, in fact, see a continuation of our profit growth as part of the longer-term cyclical upturn in the U.S.
economy. Forecasting economies are always hard, but we see in all likelihood, a continued slow but uneven U.S.
GDP growth cycle ahead. And consequently, we see continuing slow and probably uneven growth in employment.
And that employment gain, which is again probably very slow and uneven, has the biggest impact on office. And it will, in turn, slowly but continuously improve basic supply/demand fundamentals for office properties.
On the supply side, we believe we are a long way away from substantial new spec office supply coming in the market. But on the demand side, we continue to believe that the likelihood is for continuing increasing demand albeit slow, from increasing employment gains in the economy.
As always, I'll caveat any forward-looking view of the economy by the 100 things that can go wrong with that view, but that is our basic view here and we believe that we are well positioned to continue to increase operating profits in that scenario. Our directly-owned real estate portfolio of 37 properties, totaling approximately 7.8 million square feet, is approximately 94% leased as of December 31, 2012, up from approximately 89.9% leased at the end of the third quarter and up from approximately 88.7% leased as of December 31, 2011.
The increase in the percentage of leased space for the fourth quarter and full year 2012 continues to make a meaningful contribution to our profit growth. Our property portfolio, primarily suburban office assets, has relatively modest lease expirations over the next 2 years, which we have continued to proactively reduce during the course of 2012.
As of year-end 2012, only about 3.6% of our commercial square footage is set to expire in 2013 and only about 5.3% in 2014. This increased occupancy and low expiration, along with a number of other things, really continued to allow our overall tenant improvement expenditures and leasing costs to moderate in relation to the level of rental revenues that's being achieved.
If you take a look at our portfolio for the fourth quarter, we had a number of leasing gains, the biggest leasing gains in the fourth quarter were Greenwood Plaza in Denver, East Baltimore in the CBD of Baltimore, Maryland. And our most -- one of our most recent acquisitions, One Ravinia Drive in Atlanta, which was purchased is a little bit of a last mile value add play.
We got some initial leasing down there, which is very exciting to us on that property to do that so quickly. And this new fourth quarter 2012 leasing activity should provide us with some meaningful, embedded organic rental growth during 2013 as these new leases become effective during the course of the year.
And we do expect continued leasing gains in our property portfolio during 2013. We are, right now, active on a number of important leasing opportunities, at both currently vacant space as well as upcoming renewals.
We like the markets we are in and the position of our properties in them. We believe they are good, diversified macro growth drivers in those markets, such as energy, housing, agriculture and technology, and we believe those areas are going to be very good places to be in the coming year to grow those local economies and employment levels, which we should benefit from.
There was one new real estate investment completed in the fourth quarter, as John mentioned, on November 1. We completed the acquisition of a Class A suburban office property in Houston, known as Westchase I & II for $154.8 million.
This property is a 2-building office complex, totaling approximately 629,000 rentable square feet and is located in Houston's Westchase District. Each building is 14 stories, and the entire property is approximately 96% leased to numerous tenants.
FSP, its affiliates and predecessor, have been investing in suburban Houston since 1993. And with the addition of this asset, we own 5 properties totaling approximately 1.5 million square feet in Houston as of year-end 2012.
Houston has been and will continue to be a core market for us. Additional potential real estate investment opportunities are very actively being explored, and we would anticipate significant further real estate investments during 2013.
There were 2 property dispositions completed in the fourth quarter of 2012. First, one of our single-asset REIT affiliates, FSP Phoenix Tower Corp., sold its 34-story, 623,000 square foot office building in Houston, Texas for $123,750,000.
FSP's first mortgage loan on that property, which was $50 million, was repaid in full and our equity investment realized a gain on the sale of our shares of 1.6 million. The second disposition was our Southfield, Michigan property on which we had taken an estimated provision for loss last quarter.
We are continuously reviewing and evaluating our directly-owned portfolio of 37 properties for potentially advantageous dispositions, and we would anticipate further potential disposition opportunities in this area during 2013. As 2013 begins, FSP will focus on continuing to grow its operating profits by continuing to increase occupancy and rents on our portfolio properties.
And we believe, again, 2013 will be very positive in that respect. In addition, we will continue to grow our operating profits by acquiring a new real estate assets that we believe have the potential to add to those profits.
And again, we are very active in that area as we speak. We are very optimistic about our prospects for continuing growth during 2013 and beyond.
With that, we'll open up the call to questions.
Operator
[Operator Instructions] And our first question is from Dave Rodgers of Robert W. Baird.
David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division
It looked like in the supplement, you provided some additional leasing information this quarter so we certainly do appreciate that. And to that extent, it looked like 4Q leasing activity, the returns, perhaps on the leasing that you achieved, weren't quite as strong as earlier in the year.
Can you maybe detail unique situations in there and how that compares to this leasing backlog, George, that you had talked about in your prepared comments?
George J. Carter
Janet, do you want to comment on that at all?
Janet Prier Notopoulos
I think that it's difficult. It's not exactly tied together with the leasing gains that make and actually signing leases don't tie directly to the quarter in which we make them, and so that maybe was what you're seeing as the difference that a lot of the leases that we do at the end of the quarter that report a leased space doesn't have economic occupancy at that point.
John G. Demeritt
And David, this is John. I'd just add that on the supplemental on Page 26, we recorded a number in there, we've got about 229,000 square feet of lease that we'll be leasing, that FFO producing in 2013 or beyond.
So that would be a metric for you to think about.
David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division
And the timing of those lease commences, John?
Janet Prier Notopoulos
They're varied. And that's -- one of the things that's out of our control is the by the time that space gets built out, it's usually the start point.
And if we're doing the build out, we can sort of control it. But each lease has a slightly different amount, so...
David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division
And I guess going back to the economics of leasing, I think your expirations this year although you don't have a lot relative to the portfolio are above the portfolio average in terms of the gross lease rate. Do you see any risk of roll down with that?
And within the subgroups of your tenants, what are you seeing in financial services?
Janet Prier Notopoulos
I'm sorry. But you have got a couple of questions.
I'm not sure that I'm seeing what you're seeing with the rent roll down. That's the first thing that I heard.
David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division
So for your exposure this year, your lease expiration schedule, the gross rents are above your portfolio average. Is there any risk of roll down within the leases that come due this year?
Janet Prier Notopoulos
Without going in lease by lease, there might be some. But a lot of the expirations that we have are short-term, smaller leases, which is why it's a small number.
So in those cases, I don't see much of a roll down, but there could be. I'm sorry, I don't know what exactly you're seeing that's driving that.
But it's very much market specific. It's not even building specific.
We're seeing rent increases in markets that are recovering and we're seeing some roll down on very old leases expiring. But I don't think that's what's in those in 2013.
David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division
I get it. I guess your largest subgroup of tenants as listed in the suffix is the financial services or banks and credit services.
What are you seeing among that group in terms of their utilization of space and demand for space, I guess, as you're out there leasing in the market?
Janet Prier Notopoulos
Well, since we're not in our -- if you look underneath the covers, I don't think our financials are -- they're not New York City banks and financial services per se. I mean, we've got tenants in there that -- I think we've got Citigroup, for example, that you can see in our major tenants and what they're using that space for is something very different than the usual thing.
So we don't see what everybody else sees, that every large company is trying to use their space more efficiently. But we're not -- we don't have anybody in particular there at this time that we're concerned about being a credit risk, per se.
Is that the question that you're asking?
David B. Rodgers - Robert W. Baird & Co. Incorporated, Research Division
Not exactly, but I think you answered it in the process.
Operator
And our next question is from John Guinee of Stifel, Nicolaus.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
Just a couple of a clean-up questions. What's the status on 385 Interlocken?
I think that's been a construction loan for a while. And what's the leasing and when does that come into service?
George J. Carter
John, this is George. 385 Interlocken is a property that is completed, is more than 60% leased than occupied.
The last 35% to 40% is what is remaining to be leased, It's the top floors of that property. That property is paying all operating expenses and debt service, and it's current on everything and it's positively cash flowing.
We hope to finish the leasing on that property in 2013. And when we do, whether it's 2013 or later, the objective of that particular single-asset REIT that owns that property is to sell.
That was a spec built property to build, lease and then sell in to the marketplace. So we would anticipate once that property is leased, assuming the markets are reasonable to sell it and at that point, we believe our loan would be repaid in full if markets were not acceptable, for a dull [ph] we will certainly look to a third party to put permanent financing on that property and take us out of our construction loan.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
Okay, great. I forgot that was a single-asset REIT, thank you.
Then second is, and this is more of a curiosity question. You told everyone that the Southfield, Michigan deal was going to sell, and it looks to us like it's sold for essentially $1 per square foot.
Was that a dysfunctional building in a very weak market or a perfectly functional building in a very bad market? And what was the occupancy at the time of sale?
Janet Prier Notopoulos
I think you would say that it was a functional building in a very bad market. We had a well-known tenant who had been in there for years and the occupancy went down partly because they've done what their industry has done, which is kept on contracting.
But it did not make economic sense to keep on doing additional leasing that we could see in that market and looking down the -- out into the horizon that, that was -- those economic circumstances for that location were going to change. The building is located on 9th mile in Southfield, 1 mile from 8 mile.
I mean, it was a tough location to see Detroit and then that area picking up in a reasonable amount of time.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
When you sold it, what was the occupancy level?
Janet Prier Notopoulos
I think we're about 40%. But there was an early termination coming.
We sold it to somebody who is an active player, manager, owner in that market. We think that they may be able to do some things that we were unable to do with the institutional investor.
George J. Carter
John, this is George. We tried for a long time on that property a lot of different angles and just could not succeed.
And that property was costing us -- we're operating at a loss every year on that property turning to get it to the end zone, just couldn't do it. So sold it to some local people who hopefully, can do something with it.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
Okay. There's nothing to be ashamed of, there are a lot of assets and people's portfolio in the same situation.
Last question. George, when we started covering you a few years ago, you were trading at about the same share price, but you were only 13% levered.
And since that time, you've levered up to about 37% of total enterprise value. And right now, I think you're trading in the low 6s on an implied cap rate basis, which to us means it's a very opportunistic time to raise equity and get down to a leveraged level, at which I think you might be more comfortable.
Is that on the horizon?
George J. Carter
I think the whole balance for FSP of debt to equity is going to be maintained as a conservative one long haul. I think that is our MO, and I think that's the way people should think about us.
We are, however, almost by nature of the asset class we invest in, cyclical in our opportunistic view of that asset class. And compared to the vast majority of other REITs, particularly when you take into account not only indebtedness but preferreds, et cetera, we think we're fairly low on the scale of debt to equity.
And we're fairly high on the coverage ratios. One of the things that we, again, try to do to moderate the overall risk profile is to keep all of our leverage unsecured.
We do not have any property secured debt, so we have a lot of flexibility to sell specific properties if we needed to reduce debt. And the balance of debt to equity, I think, will be dependent on 2 things.
One, the cycle and the opportunities that present itself. There are times to use your balance sheet to borrow to take advantage of our opportunities, and we've been trying to do that over the last few years when we thought the opportunities were good, and I think we've done a reasonable job with that.
And the other thing is obviously, your stock price and at what price do you feel that you can balance the accretion dilution factor or the opportunistic cyclical factors. So absolutely, we will always look at equity raises as a possibility.
We -- again, we haven't done much in the last couple of years, as you know. Even on our ATM, we haven't done anything.
But we will continue to look at that and try to balance the whole picture of risk and reward of debt to equity.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then, I guess, John, one question is, you guys have had pretty healthy FFO growth.
Have you ever done an analysis to try to figure out how much of that is from interest income and occupancy gains, same store and the like growth versus this levering up of short-term financing strategy?
John G. Demeritt
Well, I think if you look at the year, as a little bit chunky for 2012 because we had a fairly significant loan outstanding, so we generated pretty significant interest income through the first 9 months of 2012, and those loans were repaid and were redeployed into the assets we acquired. So I think the components of FFO that we, that you mentioned, are changing within the total.
And I think we have a greater amount coming from property related revenue now than where we were for the first 9 months of the year. Clearly, the leverage has helped us bring assets into the portfolio when we make a great spread of the assets that we've acquired.
And we did fix our term loan to mitigate floating rate risk with a 4 to 5 year rate. So that's certainly going to be a component of what we have as we move ahead.
Operator
And the next question is from Josh Patinkin of BMO Capital Markets.
Joshua Patinkin
I'm here with Rich, too, and I appreciate the additional disclosures that you guys have. It's very helpful in looking at the company.
On the leasing side, you guys increased lease percentage to 94% about 350 basis points during the quarter. Where is the additional upside going to come from through the balance of 2013?
Do you think you can move it beyond where it is today?
George J. Carter
This is George, Josh. Absolutely, we do.
We are very active within the portfolio. We are optimistic that by year end, our occupancy will be higher than it is today and maybe significantly so.
So, yes. And remember, what Janet said, too.
This is something that's important that we have, this embedded organic growth. The leasing we've done, those leases don’t become effective.
We don't start recognizing that rental income, that FFO, until probably space is built out and lease actually commences. So if we continue our leasing this year as we anticipate, we should have continued organic growth in the 2014.
And we think we can move the needle meaningfully just within the portfolio. However, we -- looking back on John's question, we really think that to move the needle big time, acquisitions are going to be a key part of the equation.
And we think we are very, very well positioned from a capital point of view and cyclical point of view to take advantage of the acquisition markets, so you should expect to see us acquiring. We have been steadily moving in many of our acquisitions to more urban infill properties with generally larger sizes, and I think you'll continue to see that happen and you'll continue to see those acquisitions primarily in markets that we are already in because that's where our opportunities are coming to us.
And more obviously, we now have a presence in those markets.
Joshua Patinkin
Okay. Great.
Is there a specific asset or lease that drove the occupancy or the lease percentage increase?
Janet Prier Notopoulos
I think George hit on the 3 major ones. The one at Greenwood, if you look at that, that's about 120,000 square feet that we added.
One in Baltimore, that's about 65,000 square feet, and then the other one in our new Ravinia one was a full-floor extension, so those were the big ones.
Joshua Patinkin
Okay. Okay.
And then looking at your lease roll, it looks like lease expirations in 2015 went from 11% to 15% of the portfolio. I assume that's a function of Houston.
And are you guys talking with the tenants that are rolling there already? And do you think you can decrease that 15% before year end?
Janet Prier Notopoulos
That would be our goal. I mean, we are talking to any number of the larger tenants who are obviously starting the discussions now to rule out or consider, if they want to do anything for it.
And I think they obviously really need to be there. So we're talking to some people that are coming to us early and some that we're proactively going to them early.
But it is early in those discussions to know where they're going to shakeout. And the only thing I've learned is that I'll probably guess wrong, as to which ones we're successful on, and which ones we aren't.
But that's the beauty of the occupancies that we have right now, sort of the standing behind us.
Joshua Patinkin
Okay. And then finally -- excuse me, on the SARs, it looks like most of the loan book is now 2 wholly-owned subsidiaries.
Would you explain the reasoning for doing -- restructuring it that way?
John G. Demeritt
Well, the wholly-owned subsidiaries of the single asset REITs, is really all that refers to -- it belongs to the single-asset REITs that we've made. Sometimes we'll set up in LLC or in a corp for various legal reasons.
Joshua Patinkin
So why not just contribute equity if they're not wholly owned?
John G. Demeritt
They're not wholly owned by Franklin Street. They're wholly owned by the sponsored REIT.
Yes?
Richard C. Anderson - BMO Capital Markets U.S.
Yes. George, you mentioned dispositions.
When you look at the 37 wholly-owned assets for 2013, we should expect something out there. What about of the 15 remaining single-asset REITs?
I mean, in light of the Phoenix Tower sale the Parkway, would you expect to be a seller in that portfolio as well? Or not you, but have those sell candidates, I should say.
George J. Carter
Yes. Each one of those REITs and the board of directors for those REITs makes those decisions, and those decisions require a majority vote of the shareholders.
We have some equity interest in some of those, as you know. But in many of them, we have no equity interest, so the ultimate decision based upon recommendations by the board of those single-asset REITs comes from the shareholders of them.
But I think in general, Rich, the answer is, more and more of the single-asset REITs are likely to be sold in 2013, '14 and '15 if the vision that we have, have continued even very slow economic growth becomes a reality. Most of the single-asset REITs, as our internal portfolio at FSP got caught in the financial crisis and subsequent downturn, they suffered like every other suburban office asset suffered in most cases.
But they're all very, very viable. They all had, in most cases, very, very low leverage.
And they all are, in most cases, improving substantially, in terms of their occupancy and potentials and markets that they are in starting to improve. The objective on those at the start and continue to be to do so when we can create the best value in the most reasonable period of time, so it's value versus time.
The trajectory that we are on right now, I would anticipate more of those being sold in '13, '14 and '15.
Richard C. Anderson - BMO Capital Markets U.S.
Do you think the Chicago assets, the one which you do have a preferred ownership stake in, could go the way maybe the Michigan sale went in the sense that it's underoccupied and a tougher asset? Or is that not -- do you want to see some upside than value creation for that asset would be sold?
George J. Carter
303 East Wacker, is not 9 miles, Southfield, Michigan. You are talking not just apples and oranges, you were talking fruits and vegetables.
Richard C. Anderson - BMO Capital Markets U.S.
Chicago. The Chicago market depending on where you are can be quite tough for different reasons, though.
George J. Carter
Absolutely. So 303 East Wacker has had a very, very high level of occupancy over the last 5 years and a very high NOI, which of course we don't report.
We report dividend income. We, the management and Board of Directors of 303 East Wacker, kept dividends down to a minimum over the last few years to build up reserves in that property for a big tenant lease roll that we knew was coming.
And that tenant lease roll has happened. So that property was, in most years, way over the market in terms of occupied and producing pounds of NOI and cash flow, which again, we saved within the single-asset REIT, sort of paying the minimum required, or almost the minimum required to REIT tax.
That property is in process of releasing that space that was vacated by the major tenant of that property. We have no doubt that, that property will release fully within the next year or 2.
And when it does, that asset, like all of the single-asset REITs will be looked at for a possible sale and voted on by all the shareholders. We think that property will ultimately do quite well.
Janet Prier Notopoulos
And one of the differences is that, that lease expiration just happened in the middle of 2012 and religiously.
George J. Carter
Yes. And the one thing that's hard to understand is there's a large investment by FSP in 303 East Wacker, which is a wonderful piece of real estate.
And the equivalent return you're seeing on that is a dividend return. Not an NOI return.
A dividend return that has been kept to a minimum because it is a single asset REIT, and we're trying to maintain reserves. That is one of, in our opinion, one of the great hidden values for FSP.
Richard C. Anderson - BMO Capital Markets U.S.
Okay. And then last for me, it's more of a bigger picture question, but anyway, it gets back into the concept of dispositions for 2013.
But most REITs, as you know, have kind of a clustered approach or more defined geographic footprint. Yours is different.
You're a little bit more scattered across the country, 37 assets. Do you have a plan through dispositions and future investments to create a more clustered approach in your portfolio over the next couple of years?
George J. Carter
No. You would call it scattered, we would call it targeted.
We truly, truly believe in the diversification approach to invest in real estate. In markets that we are in, our markets, the key executives in our firm have past and current expertise and our markets that are driven by macro growth factors that are diversified, such as energy, technology, agriculture, et cetera.
So this is a definitive game plan. The markets that we have exited completely that still holds some allure for us would be the New England market, which we pretty much sold at the high but have not yet gotten back into.
Obviously, we're here in the Boston area. And the Southern California market, which we pretty much sold out at the high, we were in the greater San Diego area.
Whether we'll get back into those markets or not, I don't know. But you will see, as I think, continuing to acquire in most of our existing markets, there may be a market or 2 we will exit completely.
But that diversified approach is approach we want to stay with.
Operator
And this will conclude our question-and-answer session. I would like to turn the conference back over to George Carter for any closing remarks.
George J. Carter
I just want to thank everybody for listening to the call and very much look forward to talking to you next quarter.
Operator
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect.