During a conference call, CEO Harold Pote acknowledges "this is a wider range than a business-as-usual, going concern" would provide, but says, "it's deliberately wide" because of the difficulty of pinpointing the timing of various components of the repositioning plan. "By the end of 2007, we'll be in substantially better shape," he tells analysts. Pote took the CEO post on Aug. 17 and immediately initiated a repositioning.
The disposition of non-core and off-strategy properties – those that produce income, but do not represent long-term relationships – is key to the plan. By the end of this year, the locally based financial REIT will have closed on the sale of $920 million in assets. They include the $889-million sale of State Street Financial Center in Boston and another 26 properties.
AFR plans to sell another $600 million in assets in 2007. Among them are a Fireman's Fund building, Bank of Oklahoma, an HSBC card operation in South Dakota, and a Bank of America building in Spokane, WA, which has low bank occupancy. The disposition of 3.8 million sf includes 1.6 million sf of vacant space, or 36% of the company's overall vacancy. Consequently, it expects to lift the portfolio's current 86% occupancy to 90% or more by year-end 2007.
During this period of rapid disposition, Pote says, "We will put new business on the books." The targets are "bread and butter, triple-net deals," and he says, "The pipeline is building." He cites the sale/leaseback of Sterling Bank properties in Texas, reported by GlobeSt.com, as an example.
Belt-tightening is also critical to the plan, which calls for investing about $280 million of net proceeds to reduce debt along with the repayment of $917 million of disposition property-level debt. AFR also expects to reduce expenses from a current $39 million to $30 million and take its debt-to-asset ratio down from a current 70% to between 60% and 65%. At the same time, it plans to improve its average cost of debt from 5.8% to 5.5%.
Following the Dec. 21 conference call, AFR common stock ended trading on the NYSE at $11.55 a share, up slightly for the day. The 52-week high of $12.81 a share was reached on May 3, and the 52-week low of $9.52 a share occurred this Jan. 25.
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