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Franklin Street Properties Corp (FSP -0.53%)
Q4Â 2019 Earnings Conference Call
Feb. 13, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning and welcome to the Franklin Street Properties Corporation Fourth Quarter 2018 Year-End Results Conference Call. All participants will be in listen-only mode. (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.
Scott Carter -- General Counsel
Good morning and welcome to the Franklin Street Properties Fourth Quarter and Year End 2018 Earnings Call. With me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our President and Chief Investment Officer; and John Donahue, President of FSP Property Management. Also with me this morning are Toby Daley and Will Friend who are Senior Vice Presidents and Regional Directors.
Before I turn the call over to John Demeritt, I note the following. 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, 2018, which is on file with the SEC.
In addition, these forward-looking statements represent the Company's expectations only as of today, February 13, 2019. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the Company's estimates or views as of any date subsequent to today. At times during this call, we may refer to funds from operations or FFO. A reconciliation of FFO to GAAP net income is contained in yesterday's press release, which is available in the Investor Relations section of our website at www.fspreit.com.
Now, I'll turn the call over to John.
John Demeritt -- Chief Financial Officer
Thank you, Scott and good morning, everyone. On today's call, I'll begin with a brief overview of our fourth quarter and year-end results. Afterward our CEO, George Carter will discuss our performance in more detail and provide some of his remarks. John Donahue, our President of the Asset Management team will then discuss recent leasing activities and then Jeff Carter, our President and CIO, will discuss our investment and disposition activities. After that, we'll be happy to take your questions. As a reminder, our comments today will refer to our earnings release supplemental package and 10-K, which were filed with the SEC and as Scott mentioned, can be found on our website.
We reported funds from operation or FFO of $24.5 million or $0.23 per share for the fourth quarter of 2018. And for the full year, we reported $102.5 million in FFO or $0.96 per share. Turning to our balance sheet. At December 31, 2018, we had about $995 million of unsecured debt outstanding and our debt service coverage ratio was about 3.7 times. We have no debt maturities until November 30 of 2021, and 82% of our debt is at fixed rates. With our debt stack more termed out and our rates mostly fixed, we believe we have aligned our capital structure with the more long-term value add properties that we have in our markets. From a liquidity standpoint, we had $575 million available on our revolver at year-end and $11.2 million of cash on our balance sheet. So, we had total liquidity of $586.2 million at year end.
With that, I'll turn the call over to George. George?
George Carter -- Chief Executive Officer
Thank you, John. Good morning, everyone and again, welcome to Franklin Street Properties 2018 Fourth Quarter and Year-End Earnings Call. In my segment of this morning's call, I will try to provide a little more color to my written commentary in yesterday's earnings release. We've talked before on previous earnings calls about our value-add strategy for our office portfolio, and how the whole property portfolio, both our more urban vertical assets that we have transitioned into over the last five years as well as our remaining highly valued suburban assets, are going through about a three-year bulge of significant lease roll and potential significant value-add releasing.
The plan, the strategy was always to get to this time with the capability and financial resources to add this value in whatever way we believed would maximize the total value of our property portfolio at a stabilized leased occupancy of between 92% and 96%. Higher rent per square foot, longer leases, updated and amenitized buildings for today's office space users in the best locations with strong surrounding infrastructure and strong population growth are all part of the equation and goal.
The bulk of this approximately three-year value-add lease roll opportunity encompasses 2018, 2019 and 2020. We believe this year, 2019, will be the largest part of this effort. And we believe we are on track to achieve success. While there are many metrics to help measure success for FSP in this endeavor, none right now is more important than leasing.
Leasing activity within our property portfolio of 32 operating and 3 redevelopment properties continued to be solid during the fourth quarter of 2018 with approximately 398,000 square feet leased during the quarter. This leasing activity contributed to making 2018 a record year of leasing at FSP with approximately 1,681,000 square feet leased during the year. And that 2018 record comes off 2017, the previous year, which was also a record. In 2017, we leased 1,471,000 square feet, 2018 1,681,000 square feet. In the last two years, we have leased 32% of the total square footage in our portfolio. And as we go into 2019, we are continuing that momentum.
We also continued to see increased leasing activity in our energy influenced markets of Houston and Denver. The price of oil was particularly volatile over the past quarter, and we believe that longer-term supply demand pricing characteristics of that commodity obviously will be an important factor, affecting future levels of office space absorption in those markets during 2019 and 2020.
The increased price of oil over the last couple of years from the sort of $30 per barrel range to the current $50 per barrel range has certainly had a big positive effect on the energy markets, but maybe as positive, both the drillers, producers and other participants in that energy have dramatically lowered their breakeven costs and consequently, activity in the energy field has picked up dramatically over the last couple of years. Also, the US has now increased its export market dramatically for various US energy products and the infrastructure, particularly at the Port of Houston and the Houston Ship Channel was providing for many new jobs in that market.
As anticipated, we did experience known and planned for tenant move-outs during the fourth quarter of 2018, including Burger King at Blue Lagoon in Miami, SunTrust at Innsbrook in Glen Allen, Virginia, and Red Cross at Forest Park in Charlotte, North Carolina, which reduced overall leased occupancy in our property portfolio.
As 2019 begins, we are continuing our lease-up efforts at our approximately 130,000 square foot redevelopment property known as 801 Marquette in Minneapolis, which was approximately 37% leased as of December 31, 2018. In addition, we are now redeveloping an approximately 213,000 square foot property, Blue Lagoon in Miami, Florida and an approximately 62,000 square foot property, Forest Park in Charlotte, North Carolina, for a total of approximately 400,000 square feet of redevelopment space in the aggregate.
Similar to 801 Marquette, prior to beginning our redevelopment efforts, both Blue Lagoon and Forest Park had been long-term leased to single-tenants. In addition, both assets have been owned by us or our affiliates for in excess of 15 years, and are anchored in excellent locations within their respective markets, and have generated consistently strong cash flows. We believe that current market rents for these assets are meaningfully higher than the expiring single-tenant rents.
We also believe that our redevelopment efforts will provide us the opportunity to capture significant increased value for our shareholders through higher ongoing rental cash flows, as we seek to achieve a strong, long-term rate of return on our costs of redevelopment. Currently, these three properties contribute no material rental income to the Company. We are very confident we can achieve strong returns on capital invested in these redevelopments.
These are properties that we know very well and have so much history and experience with. Over 4% of our total square footage is now being redeveloped and actively being marketed for lease. As 2019 begins, we are optimistic about our ability to lease significant portions of our vacancy in our 32 operating properties, and in our three redevelopment properties and believe that successful results will mark the beginning of a longer-term, more sustainable rise in operating performance and value creation within our property portfolio in 2020.
The reduction to our dividend in 2018 allows the company to retain more operating cash flow to fund these anticipated increased leasing costs and capital expenditures during 2019 and 2020. To be clear, this three-year lease roll bulge in the FSP Property portfolio was planned for. As of year-end 2018, we have available between line of credit and cash over $585 million of liquidity to help facilitate this leasing and property redevelopment.
Our plan, our strategy was always to get to this time with the capability and financial resources to add this value in whatever way we believe would maximize the total value of our property portfolio at a stabilized leased occupancy of between 92% and 96%. We are proud of our property portfolio and its potential and confident that 2019 can continue our accelerating pace of leasing of the last two years.
With those remarks, I will turn the call over to John Donahue, President of our Property Management Company. John?
John Donahue -- President of FSP Property Management
Thank you, George. Good morning, everyone. The FSP operating portfolio was 89% leased at the end of calendar 2018. This represents a decrease from 90.5% at the end of the third quarter. As expected, three significant tenants in Miami, Richmond and Dallas, representing 463,000 square feet, vacated during the fourth quarter. As a result, the total portfolio, including the three redevelopment properties, was 86.4% leased at year-end.
The total leasing achieved for 2018 set an annual record for the Company at 1.68 million square feet. As George mentioned, FSP had two consecutive years with annual leasing records and a total exceeding 3.1 million square feet for the two years. While there remains work to do, we continue to make progress in the Sunbelt and Mountain West markets with three consecutive quarters of increased occupancy during 2018 and finished the year at 88.2% leased.
Denver reached a five-year high at 90.7% leased occupancy and Houston also improved to 86% leased occupancy from 76.4% as of December 2017. We expect our properties in Denver, FSP's largest market, to improve leased occupancy again during 2019 and anchor the portfolio.
Atlanta, FSP's second largest market, has made consistent progress in leased occupancy during 2018 and we expect that to continue. Dallas has been our strongest and most consistent market and we expect the Dallas properties to continue performing well. Our properties in Houston and Minneapolis have minimal lease expirations over the next few quarters and therefore, we have an excellent opportunity to make leasing progress in both of those markets during 2019.
As we mentioned last quarter, for the first time in multiple years, the fundamentals at FSP's Sunbelt and Mountain West markets in our portfolio appear to be lining up to move forward in the same direction simultaneously. Leasing activity has typically been slower in the first quarter every year. But we are pleased to report that leasing has been relatively strong during the first six weeks of 2019. There remains work to do, however, barring any surprises, we may finish Q1 with FSP's best first quarter total leasing results in the past seven years.
With that, I will turn it over to Jeff Carter.
Jeff Carter -- President and Chief Investment Officer
Thank you, John. Good morning, everyone. At FSP, our strategy is to own high-quality office properties within the Sunbelt and Mountain West, as well as select opportunistic markets and to manage them to build long-term value for our shareholders. Our primary focus continues to be on enhancing value within our portfolio. Our value-add efforts will be led through leasing by addressing both current and newly available vacancies and through renewals of our existing tenant relationships. With US employment and economic data continuing to display aggregate strength, investment sales demand for high-quality office properties remains highly competitive in terms of pricing.
We believe that the relatively low supply of available high quality office properties for sale in strong locations combined with available sales comp data from our markets illustrate that value is embedded within our portfolio. On the disposition and asset recycling front and as a recap of 2018, FSP received approximately $75 million in total proceeds from the sale of two managed properties, known as 303 East Wacker and Grand Boulevard. The proceeds were utilized for debt reduction.
As we begin 2019, we anticipate the potential for dispositions within our managed property portfolio versus our directly owned portfolio and in some cases FSP may possess an economic interest in such managed properties and we will continue to keep the market posted as appropriate. Any disposition proceeds received will be evaluated at such time for the highest and best return for our shareholders. FSP has worked to recast our office portfolio into one characterized by higher quality with significantly more of an infill and urban orientation located within targeted higher growth potential Sunbelt and Mountain West markets.
FSP broadly views our directly owned portfolio as possessing upside potential for our shareholders through the achievement of leasing success. Our current properties under redevelopment serve as three examples in the Sunbelt markets of Miami, at our Blue Lagoon property and in Charlotte at our Forest Park property, as well as finalizing the lease up of our redevelopment at Downtown Minneapolis of 801 Marquette.
On the acquisition front, FSP continues to monitor and track opportunities within our markets. We continue to favor high quality infill in urban properties within these markets that possess the ability to credibly add value over the short intermediate term.
And with that, I thank you for listening to our earnings conference call today. And at this time, we'd like to open up the call for any questions. Thank you.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Dave Rodgers with Baird. Please go ahead.
Dave Rodgers -- Robert W. Baird -- Analyst
Yeah. Good morning, everybody. Maybe first question, I'll start with George. On the redevelopment side, given these higher-quality assets like Blue Lagoon that you have now going into redevelopment, a couple of questions around that. One is kind of how much do you expect to spend on redevelopment? Is it more kind of deeper leasing costs or do you feel like you've got some bigger work to do to the assets.
Maybe second question is, what were you seeing on the leasing front and made you take them in to redevelopment versus kind of just taking them out to market and then the last question, maybe for John Demeritt, just on the redevelopment side would be, are you capitalizing OpEx and interest cost against these or will you just continue to expense as they're in redevelopment?
George Carter -- Chief Executive Officer
So I'll start here, Dave. I am going to turn over to John Donahue to answer some of your questions about -- specific questions about the properties, but in both the Blue Lagoon case and the Forest Park case, we are seeing rent levels surrounding properties, I mean, properties right next door much higher than the expiring single tenant rents. And the areas are only getting better. Blue Lagoon particularly is well suited, the office park there, the location is particularly well-suited to airport access to -- for office space to Latin America. So the vision of redeveloping those properties is very strong to try to capture that upside.
On Blue Lagoon, we have a much larger CapEx project prior to leasing than on Forest Park. But I'll let John Donahue tell you a little bit about that.
John Donahue -- President of FSP Property Management
Sure. Good morning, Dave. For the redevelopment properties, you probably haven't seen it yet, but in our supplemental, we have added a page, you'll find on page 23 that will give you some guidance on our expectations of what we're anticipating the investment will be and the timing and such. We're seeing very good interest, solid interest in Forest Park and Blue Lagoon, as George mentioned. At Forest Park, that property has been a single tenant with the Red Cross for many years and needs to be refurbished. Although it's ideally a single-tenant building, it can be multi-tenanted. We believe that the cash rents could be in the 10% to 20% range higher and that will most likely be repositioned in the first six to nine months of 2019.
And Blue Lagoon, that property, we have a very wide range of prospects in regards to size. And so depending on what route we go, we may or may not need to add a level to the garage. If we multi-tenant that property with 10 to 15 tenants, for example, we don't believe that we will need additional parking, but if we lease that building to an anchor tenant or a single tenant, with the way the world has gone with densification, we may need to add a level to the garage. So we've been going through that process. We did have a settlement with Burger King to pay for the restoration, which we're going through now.
We've been actively making progress on that over the last couple of months, and we expect to complete that here over the next quarter or two. And then depending on the garage situation and which way we go with tenancy, that could take a little bit longer. But the activity is great, we've got anywhere from a single tenant down to half in the floor, we're trying to decide how to stack the building. But we're really encouraged with where the market rents are and look forward to sharing more of that over the coming quarters.
John Demeritt -- Chief Financial Officer
Dave, this is John Demeritt. I just want to respond to your other question. We'll follow the accounting literature on capitalizing expenses and redevelopment costs and interest, when we go through the project, but more significant of them is obviously Blue Lagoon.
Dave Rodgers -- Robert W. Baird -- Analyst
Great, that's helpful. And then maybe one follow-up for Jeff on the asset sales side. It sounds like you are anticipating or maybe asking a different way, what does the guidance assume, regarding Monument and Energy Tower in terms of kind of the interest income for the year and for the potential sale of those two assets?
Jeff Carter -- President and Chief Investment Officer
Hi, Dave. Our guidance specifically excludes disposition plans and so on that front, that's on that part and for dispositions, we are in our price discovery process on Energy Tower. And so I'm not going to comment just for competitive reasons on that process that we're in the midst of it. But we will keep the market posted as we go.
Dave Rodgers -- Robert W. Baird -- Analyst
Okay, great. Thank you.
John Demeritt -- Chief Financial Officer
You're welcome.
Operator
Okay. (Operator Instructions) The next question comes from John Guinee with Stifel. Please go ahead.
John Guinee -- Stifel Nicolaus -- Analyst
Great, thank you very much. First question, I guess, John Demeritt, 4Q cash FFO was $24.5 million and at $0.20, the midpoint of 1Q '19 guidance, you dropped down to $21.5 million. So there is a $3 million quarter-to-quarter drop off. Can you touch base as to what the major components of that might be?
John Demeritt -- Chief Financial Officer
Sure, John. I think the most significant is the move-outs we had in Q4. We -- you had a good amount of restoration fee income from Blue Lagoon, which obviously we won't have in the first quarter of next year.
John Guinee -- Stifel Nicolaus -- Analyst
How much?
John Demeritt -- Chief Financial Officer
I don't have the number off the top of my head, John. It was probably $2 million or so would be I guess. So, I think that's -- those would be the primary factors, the three move-outs, SunTrust is out, we had a move-out in, that was Innsbrook, right, SunTrust is Innsbrook and Blue Lagoon and also Forest Park and Fannie Mae moved out. So those move-outs would hit Q1.
John Guinee -- Stifel Nicolaus -- Analyst
Okay. And then it looks like you've got this year, Petrobras and Northrop Grumman, expiring at the end of this year. Any thoughts on what's going to happen to Petrobras and Northrop Grumman.
John Donahue -- President of FSP Property Management
Hey, good morning, John. It's John Donahue. We, -- yes, in calendar 2019, at the end of the year in November, Petrobras is expiring, they have publicly announced that they're repositioning with the new merger and we expect them to downsize perhaps significantly. So we're still engaged and looking to secure them for a portion of their space, but it will be a downsize.
Northrop Grumman is at the first of the year, so that won't hit in calendar 2019, but it would be the first quarter of next year. And they're a government contractor, it's highly specialized space and space and whatnot and they have tended to get last minute contract extensions, if you will. So we don't really know if they will renew or vacate. We're planning on them vacating and working on a repositioning of that property if that's the case. But we don't have any news yet.
John Guinee -- Stifel Nicolaus -- Analyst
Okay. And then looking at your redevelopment budget here, it looks to me like you spent or will spend 220,000 -- $220 a square foot on Marquette in Minneapolis, about $105 a square foot in Blue Lagoon and about $56 in Forest Park. Does that include TIs and leasing commissions? What's included in that number and what's excluded?
John Donahue -- President of FSP Property Management
It's John Donahue, again, John. Yes. That number is all inclusive of all costs. That is our anticipated total investment in the repositioning, including all leasing costs to stabilization.
John Guinee -- Stifel Nicolaus -- Analyst
Are you capitalizing operating expenses also?
John Demeritt -- Chief Financial Officer
Yeah, this is John Demeritt. We will do that -- we'll follow the accounting literature on that, John. But we would.
John Guinee -- Stifel Nicolaus -- Analyst
You will. Okay. Okay. Got you. Got you. Got you. Okay, thanks a lot.
Operator
Okay. The next question comes from Rob Stevenson with Janney. Please go ahead.
Rob Stevenson -- Janney -- Analyst
Good morning, guys. As a follow-up to John's question, with the redevelopments being all-in cost, does that sort of put you back on the combined tenant improvements, leasing commissions and non-investment CapEx in '18 were $53 million, $54 million hit to AFFO where it was $43 million, $44 million in '17. Does that pull you back down to sort of -- that sort of low to mid-40s number or are you expect that other stuff and other leasing with Petrobras and Northrop and all this other stuff is going to keep you at these sort of elevated hit to AFFO from those line items.
John Demeritt -- Chief Financial Officer
This is (inaudible) Rob. We don't really give AFFO guidance. So I can't really quote a number of the CapEx next year, but we would expect it to be higher, where we expect to do a lot of leasing.
Rob Stevenson -- Janney -- Analyst
Okay. Higher than '18?
John Demeritt -- Chief Financial Officer
Yes.
Rob Stevenson -- Janney -- Analyst
Okay. And then...
John Donahue -- President of FSP Property Management
Rob, it's John Donahue. I would add that we would be -- we will be very pleased if it was higher because that means we're doing a lot of leasing. So I echo what John said and we're poised to do just that. So...
Rob Stevenson -- Janney -- Analyst
Okay. I just didn't know whether or not enough of that was wrapped up in the redevelopment cost that it was going to pull the -- even though the number would be high on a apples-to-apples basis has accounted for differently, because it's in the redevelopment bucket rather than just straight out leasing bucket. And so that it wouldn't hit AFFO in the same manner. I just wanted to clarify that.
Jeff Carter -- President and Chief Investment Officer
Well, some of that Rob is true, it wouldn't -- we have -- what we call first-generation or investment capital doesn't run through the AFFO number, but I don't have a distinction between that and second generation stuff that does. And so that's why I say I can't really forecast where we don't forecast what AFFO is going to be.
Rob Stevenson -- Janney -- Analyst
Okay. And then also, other than the Petrobras and the Northrop, any additional known or likely move-out for the portfolio over the next couple of years at this point.
John Donahue -- President of FSP Property Management
Rod, it's John Donahue. If you look at, I believe, it's page 19 for our major tenants. If you look at page 19 of our supplemental for major tenants, we don't have any other tenants on that list that are definitive announced move-outs. I would say that there are some downsizings expected over the next year or two. The IRS expires in 2020 at Broadway and we are very close to extending them further out for another 10 years, and that would be a slight downsizing. So that is likely to happen.
We also know that the last on that list Danbury is a known vacate, but that space has been 100% released to world ventures and then there's a couple of others that we've been working with that will downsized by our (inaudible) but extended leases out. So that's what we know now, we'll keep you apprised.
Rob Stevenson -- Janney -- Analyst
Okay. And then given that the Petrobras and Northrop are at the end of the year. How are you guys thinking about same-store cash NOI growth in '19 for the operational properties because now you've moved the properties that had the biggest hit probably in '18 into the redevelopment bucket. And so, I mean at this point, are you anticipating the same-store NOI growth for the 32 operating properties in '19 is going to wind up being positive, sort of negative -- slightly negative, how should we think about that?
John Donahue -- President of FSP Property Management
Well, I think that it will be likely that we make progress incrementally quarter-to-quarter. So we've been viewing Q1 2019 as the likely low point of physical occupancy and so that compared to the prior year's first quarter may not look great, but as a whole, I think your estimate is probably accurate. We believe that that will improve as the year goes on.
Rob Stevenson -- Janney -- Analyst
Okay. And then from -- just to clarify that for the occupancy low point, is that just the 32 operating properties or is that including the 3 redevelopments as well because obviously is that three redevelopment properties are going to take you some time to do that, is that for the 32 operating assets that are not -- roughly 90% leased now as well? First quarter occupancy?
John Donahue -- President of FSP Property Management
Yes. I believe so. Yes.
Rob Stevenson -- Janney -- Analyst
Okay, thanks guys. Appreciate it.
Operator
Okay. The next question comes from Craig Kucera with B. Riley FBR. Please go ahead.
Craig Kucera -- B. Riley FBR -- Analyst
Hey, good morning, guys. I want to step back and talk about 801 South Marquette, kind of in the context to move forward with redeveloping these new properties. I think you began talking about it in 2015 and you finished it in 2017. And I think the expectation was it would stabilize in 2018. And that seems to have slipped now to 2019 last year. Now, we're talking 2020, is there anything different about these new projects you're doing that gives you the confidence that they're going to stabilize at some point in 2020 or...?
John Donahue -- President of FSP Property Management
Good morning, Craig. It's John Donahue. I think each redevelopment stands on its own and is a much different story. As you know, the 801 Marquette property is very unique. It's a 4-storey building, unique experience, brick and timber in the middle of the city. We are very bullish on that property and think it's terrific, and there has been terrific activity. The delay in leasing the signature space in the building, which is the top two floors, which ideally would be one tenant, has been a bit elusive in finding the perfect fit. And so we want to find the right tenant that's going to be able to live there for a long time and have some room to grow.
We do have the sister building at 121 South Eight, but it just hasn't happened quite as fast as we had liked -- would have liked. But we're still very bullish on the property. Transitioning to Forest Park, in Charlotte, that is a much different suburban market. That is a market that is heavy parked and dense and our property is ideally positioned. Rents are moving up and we've got activity for either multi-tenant or single-tenant for that building. So we wouldn't expect that to take very long. We'll see, but it's just not, it's apples and oranges compared to Marquette and then Blue Lagoon is a class A building in Waterford office park, exceptionally strong market, great building and we're seeing, as I said, all different kinds of size prospects with rents that we believe will be higher than what we just had. How long it takes really is a fundamental of demand, the size of the tenants at the time. And so we think that we'll make progress on Blue Lagoon in 2019 and look to stabilize it in 2020. Again, I know you guys probably haven't seen it yet, but page 23 of the supplemental will give you a lot of help and guidance on those redevelopment properties.
Craig Kucera -- B. Riley FBR -- Analyst
Right. And just circling back to that, I think Blue Lagoon was most recently paying about $23.50 and Forest Park was paying $15.50, you mentioned that market rents are a lot higher. Can you give us a sense of what the expected rental increase is? Or if you want to think of it differently, what's your expected incremental return on investment is going to be for what you're putting into those properties?
John Donahue -- President of FSP Property Management
Again, it's John Donahue. I'm not sure if I can answer your question exactly, but in regards to the cash rents that were being paid by Burger King, I think they're being skewed by some termination payments and settlements over the last quarter or two. The rents that I have that we ended with Blue Lagoon were in the $20 range and we believe that we can improve upon that. Certainly, asking rents are 10% to 20% higher than that, in some cases, even higher than that in some of the newer buildings. We believe that on a net GAAP basis, we'll do better as well. Forest Park, I believe those cash rents were in the $11 range, speaking from memory. Not sure if that's exactly right and we are looking at $13 to $14 for Forest Park.
Did that answer all your questions, Craig? Or do you have something else?
Craig Kucera -- B. Riley FBR -- Analyst
Yeah, I have one more. I guess you've known that a couple of these buildings, single-tenant buildings were likely to vacate, and I guess, what was the process of -- did you consider selling the assets, so there wouldn't be such a significant impact to your projected FFO for next year? Or did you just think there was too much value in them to hang on to them?
Jeff Carter -- President and Chief Investment Officer
Hi, Craig. This is Jeff Carter. We considered all avenues on these buildings and as John has alluded to and as we look across our portfolio, we look at tenant demand and we look at the locations of these properties and the rents that we think we can achieve and the value that we think is embedded in these assets through our redevelopment and leasing efforts that we think can accrue to the shareholders. We thought that the investment into these properties in getting that upside that we see was the right track to take for the company and for the shareholders.
Craig Kucera -- B. Riley FBR -- Analyst
Okay, thanks.
Jeff Carter -- President and Chief Investment Officer
And additionally, I was just going to add Craig, if you're still there that the -- on the acquisition front, when you look at the total returns, and you compare investments in these existing assets versus what's available for acquisition, it would be very difficult to replicate the returns we see as possible at these redevelopment assets.
Craig Kucera -- B. Riley FBR -- Analyst
Thank you.
Operator
Okay. (Operator Instructions) The next question comes from John Kim with BMO Capital Markets. Please go ahead.
John Kim -- BMO Capital Markets -- Analyst
Thank you. George, you mentioned in your prepared remarks, achieving stabilized occupancy of 92% to 96%. I think you gave a similar range last year at this time. But with near term move-outs and 25% of leases expiring over the next couple of years, when do you think you'll be able to achieve this 92% to 96% target?
George Carter -- Chief Executive Officer
Well, the honest answer is, we don't know, because it depends on a lot. We believe this year will be, as John Donahue said, a trough of our leased percentage and then we will rise from here. I think from a view of occupancy versus leased occupancy, actually physical occupancy versus leased occupancy, I think you are lagging easily 6 to 12 months between leased occupancy and physical occupancy and the physical occupancy is obviously what generates the FFO return.
So, we see occupancy rising steadily and we think the trough actually in our occupancy will be first quarter. So, we hope to be in that -- we were in the 90s as you know at the end of 2018. We certainly hope to be in the 90s at the end of 2019. How we deal with some vacancy that will happen at the end of '19 and at the start of '20, well I think did paid how quickly we can move up from that 90% up. So we'll just have to see.
John Kim -- BMO Capital Markets -- Analyst
So offsetting rising occupancy, you have leasing costs and then redevelopment costs that you have going forward. How excited are you to the current dividend levels and what's your appetite for another cut to retain more capital.
John Donahue -- President of FSP Property Management
I have to say this because it's correct and that is that dividend level is decided every quarter by our Board of Directors and can be raised or lowered or maintained by the Board of Directors at any quarter. However, I can tell you a lot of thought and work was put in, from other people for our Board to set the current dividend level where it is for this 3-year lease roll situation that we're in and we think opportunity.
So I can tell you that the Board is very comfortable that at our current dividend level and our current capital structure that we are very comfortable with the current dividend level to achieve what we need to achieve over the next three years and I can also tell you that as we get through 2020 and achieve what we believe we can achieve, we should be moving the needle on all the metrics, much higher and start to have room for consideration up increased dividends in the coming years after we achieved its leasing, but the current level I think has been well thought out and the Board of Directors is fine.
John Kim -- BMO Capital Markets -- Analyst
Okay. And then I just had a couple of follow-ups on 801 Marquette, it's 37% leased as of fourth quarter, what was that number in the third quarter.
John Donahue -- President of FSP Property Management
John, it's John Donahue. Speaking from memory, I don't have my third quarter report at my fingertips, but I believe that was in the teens, was it 17% or so, 19% maybe.
George Carter -- Chief Executive Officer
There was one big lease signed in late November I think. Right?
John Donahue -- President of FSP Property Management
14%. It was about 14%.
John Kim -- BMO Capital Markets -- Analyst
And do based on your new disclosure on page 23, you expect that to be at or above 90% leased by the third quarter this year.
John Donahue -- President of FSP Property Management
Yes. That's what we're targeting.
John Kim -- BMO Capital Markets -- Analyst
And then for John Demeritt, just on your answers to few of the other questions on capitalized interest, is capitalized interest part of your current guidance for '19.
John Demeritt -- Chief Financial Officer
Yeah, we will factor that in.
John Kim -- BMO Capital Markets -- Analyst
Okay. Great, thank you.
John Demeritt -- Chief Financial Officer
Okay.
Operator
The next question is a follow-up from John Guinee with Stifel. Please go ahead.
John Guinee -- Stifel Nicolaus -- Analyst
Great. Thank you. First, it looks like your debt on Energy Tower is about $48,000,147 (ph) a square foot. Are you in a first debt position on that and is there any principal risks to not getting fully repaid at 48 million.
George Carter -- Chief Executive Officer
Hi, John. It's George. We are in a first and only mortgage position on that and we believe that the value of that building is substantially higher than the mortgage.
John Guinee -- Stifel Nicolaus -- Analyst
Great. Okay. And then second, Jones Day is 140,000 square feet in a couple of years, where are they, which building are they in and I'm assuming you expect the downsize there as is the case with our law firms.
Toby Daley -- Senior Vice President
Hey, John. It's Toby Daley here. There is Pershing Park Plaza in Midtown, Atlanta and it's been in the press there, they're doing what they should be doing is shopping the market and they are looking at mostly, it appears new construction offerings in the Midtown market. And right now, there -- it is possible that they could go to a new development, but the timing would be extremely tight and the talks that we've had with them today would not involve any downsizing, so the question is what are they going to decide to do.
John Guinee -- Stifel Nicolaus -- Analyst
Okay. And then I guess.
Toby Daley -- Senior Vice President
We'll know -- we'll probably know by this time next quarter.
John Guinee -- Stifel Nicolaus -- Analyst
And it looks to us back of the envelope that your net debt to EBITDA for '19 will be over 7 times and that your leverage at the current share price is well above 50% relative to total enterprise value, any willingness to term out or leverage up any further.
John Demeritt -- Chief Financial Officer
This is John Demeritt, John. I think it's unlikely we would lever up further. We may look at fixing rates when some of the pieces of debt we have mature or doing a swap on some of our variable debt that we have right now. I think on the net debt to EBITDA ratio that you mentioned, it is -- it popped over 7 at year-end, because the EBITDA was down in Q4. I think you're probably right in Q1 or Q2. But we'll see how the leasing does in the back half of the year and I think we'll see some improvement on that when we get into the back half of next year. That's dependent on leasing and if Energy Tower does get repaid, that would be a change too.
John Guinee -- Stifel Nicolaus -- Analyst
Great. Thank you.
John Donahue -- President of FSP Property Management
Sure.
Operator
Okay. This concludes our question-and-answer session. I would like to turn the conference back over to George Carter for any closing remarks.
George Carter -- Chief Executive Officer
Thank you all for participating in the earnings call. We look forward to speaking with all of you next quarter. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Duration: 50 minutes
Call participants:
Scott Carter -- General Counsel
John Demeritt -- Chief Financial Officer
George Carter -- Chief Executive Officer
John Donahue -- President of FSP Property Management
Jeff Carter -- President and Chief Investment Officer
Dave Rodgers -- Robert W. Baird -- Analyst
John Guinee -- Stifel Nicolaus -- Analyst
Rob Stevenson -- Janney -- Analyst
Craig Kucera -- B. Riley FBR -- Analyst
John Kim -- BMO Capital Markets -- Analyst
Toby Daley -- Senior Vice President
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