Good morning, and welcome to the Franklin Street Properties First Quarter 2021 Earnings Call. Joining 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 joining me this morning are Toby Daley and Will Friend, both Executive Vice Presidents of FSP Property Management. 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, 2020, which is on file with the SEC.

Thank you, Scott, and good morning, everyone. I'm going to give a very brief overview of our first quarter results. Afterward, I'll pass the call to George for his comments. And as a reminder, our comments today will refer to our earnings release, supplemental package and 10-Q, which, as Scott mentioned, can be found on our website. We reported funds from operations or FFO of $18 million or $0.17 per share for the first quarter of 2021. Turning to our balance sheet at March 31, '21, we had a total of $947.5 million of unsecured debt outstanding, including $27.5 million drawn on our line of credit. At quarter end, between cash on hand and availability on our line, we had total liquidity of about $577 million. As a reminder, all of our debt is unsecured, and we have no debt maturities until November 30, '21, when $155 million of term loans will come due. Our debt is at fixed rates other than the $27.5 million that sits on our line of credit, which is on floating rate. With that, I'll turn the call over to George.

Thank you, John, and again, welcome to Franklin Street Properties First Quarter 2021 Earnings Call. As the vaccinations against COVID-19 continue to steadily rise in the U.S., so too are we seeing a slow but steady increase in existing office tenants' personnel returning to work at our properties and corporate decision-makers more actively considering their future locational office space needs. Trying to determine the ultimate strength, timing and longevity of the post-pandemic U.S. and global economic reopening is a significant challenge for companies trying to make intelligent new leasing decisions today. But real, on the ground, very early activity surrounding potential new leasing prospects at FSP's portfolio properties has not been this robust since before the start of the COVID-19 pandemic. As 2021 progresses, assuming continued successful vaccination efforts against the virus, FSP is optimistic that one of its two major objectives for 2021, that is leasing progress, will achieve positive results.

Thank you, George. Good morning, everyone. At the end of the first quarter, the FSP portfolio, including redevelopment, was approximately 81% leased. The average leased occupancy of the portfolio for calendar 2020 was approximately 83.6%. Rent collections were greater than 99.5% for the first quarter of 2021. The physical occupancy of the majority of office buildings continues to increase with suburban assets leading the way, particularly in the Sunbelt markets. The typical occupancy in FSP suburban office buildings now exceeds 20%, with some buildings approaching 40%.

Thank you, John. Good morning, everyone. We here at Franklin Street Properties hope that everyone remains safe and healthy. I wanted to discuss FSP's disposition goals for 2021 and our in-progress work to achieve these objectives and then shift gears to provide some insight as to what we are seeing on the ground at this early stage of our price discovery work in the marketplace. First, though, FSP is reaffirming our guidance of between $350 million and $450 million of select dispositions for calendar year 2021. The objective of our disposition plan once again is primarily to pay down debt in order to gain greater financial flexibility and to position for stronger value and returns for our shareholders. The key determinant for any dispositions will be an assessment of whether our property has met its respective near-term value objectives, which we also believe has the potential to capture embedded value for our shareholders that may not be accurately reflected within our current share price.

Appreciate the commentary on the asset sales. But can you talk a bit more about the composition of the buyer pool that are looking at your assets? Are these more local buyers or buyers looking to enter a specific market or even any foreign capital? And have you seen any recent pickup in competition there?

Important question. I appreciate it. We have seen a real mix of investors, prospective investors at the assets that are in price discovery. They range from both local and national investors, primarily private. I haven't seen a lot of international investors yet, but I'll keep the market posted on that as I update next quarter. The interest has been, though, primarily from private investors, and it's been a diverse mix of local and national.

Okay. Great. And then regarding the lease amendment with CITGO this quarter, are you able to disclose the impact to net effective rents? And are there any other tenants that you're currently working with on similar lease amendments with?

It's John Donahue. I'll turn it over to Toby Daley shortly to discuss what he can about CITGO, although we signed a confidentiality agreement, so the information is somewhat limited. We are currently dealing with about 250,000 square feet of existing tenants, which includes their potential expansion space. Very few of those tenants are among our top 20. In fact, most of them range from 5,000 to 20,000 square feet. Therefore, to your second question, the answer is no, not really, but we are quite encouraged by tenants reaching out 6 to 12 months in advance to discuss their renewals and whether they can plan their space early to evaluate their space utilization. It seems that density is not increasing; in fact, it looks like it’s decreasing. That's likely why we are hearing about so many possible expansions. Toby, if you are with us, please share what you can regarding CITGO.

Toby Daley here. There isn't a whole lot I can share because of the fact that we're under strict confidentiality on the terms and conditions of this lease extension with CITGO. I can tell you that the lease was extended out from February of '22 through March of 2033. So that's a 10-year 13-month extension. And CITGO shopped the market for about a year, and we were pleased we were able to keep them on as a tenant. Unfortunately, Frank, that's really all I can share. I can point to you on Page 16 of the supplemental where you can see the GAAP rent at Eldridge. And you can compare that to the supplemental from Q4 2020 to get a handle on how rents are impacted. But unfortunately, I can't discuss more than that with you.

Just a follow-up on that, I mean the 250,000 square feet for CITGO, that's in the 377,000 of leasing activity for the quarter?

That is correct, Rob.

Okay. And I guess put it differently, not to talk to the CITGO lease, but to the other, call it, 125,000 of space, was there any deals in that extra 125,000 square feet of space that had outsized tenant improvements, free rent or other costs to you?

Rob, the short answer is no. I would direct you to Page 21 of the supplemental materials where you can see that concessions have varied significantly in Q1 '21 compared to the previous two years. In fact, the differences extend beyond just the last three years, as tenant improvements and commissions on all deals, including CITGO, averaged about $3.11 per square foot per year in Q1, which is a substantial decrease. In 2019 and 2018, those averages were around $5.50 per square foot per year, representing a drop of about 40%. Moreover, when you factor in free rent along with other concessions, the first quarter of 2021 shows an average of approximately $5.37 per square foot per year, compared to about $6.92 last year. Overall, concessions have decreased, even though the average lease term length has increased. This aligns with the fact that we primarily had renewals during the quarter. We will monitor this trend in the upcoming months as we anticipate more activity in new leasing.

Okay. Great. That's exactly what I was looking for. And then my other question is on the potential disposition properties that you guys listed and talked about earlier in the call. Is your intention to sell all of these assets if pricing meets your expectations? Is this a pool that you're basically putting out there, and then you'll pick which ones price the best out of this and pull back the others? How are you guys sort of thinking about that?

Rob, this is Jeff. Thanks for the question, important question. All these properties that are in the prospective disposition list that we put out, if we hit our target pricing and value objectives, would likely be sold.

Okay. And then I guess concurrently, I mean you've talked about in detail in the past that the proceeds will be used for debt reduction. But are you concurrently also exploring selective acquisition opportunities should you guys wind up selling all of these properties and having the full level of proceeds available to you? Are you evaluating that at this point in time? Or are you basically going to wait on that?

Rob, this is Jeff again. Our primary objective, as we've indicated, is debt reduction. And that's where you'll see our greatest efforts and focus on the primary use of these proceeds. Ultimately, we're continuing to look at investments in our Sunbelt and Mountain West markets, and those investments could also be in existing properties, and we're continuing to watch the market. But our primary objective at this stage is debt reduction.

George, I wanted to start with you from a high-level perspective. The reason for selling the assets is to pay off the debt. However, from a strategic perspective, I'm curious about the decision to sell, especially considering the lack of commitment to Minneapolis, which is a core market, and the significant sales happening in Atlanta. How do you balance selling assets that have reached fair value while also considering the strategic assets outlined in your 5-market strategy? How do you plan to address any gaps over time?

There isn't a straightforward answer to that question. It varies from property to property and market to market. It largely depends on our assessment of how we can enhance value in the short term for any property compared to the level of interest that property has in its specific market. For instance, our Greater St. Louis property with Centene as a major tenant is highly desirable in its market due to a long-term net lease and full occupancy. External experts we engage to assess our entire portfolio, not just the properties we are listing, indicate that this particular property would attract a lot of interest from potential buyers. In contrast, our Innsbrook property has some vacancies in Richmond, but we're seeing an increase in interest within that market, especially from value-add investors. We evaluate each property individually to determine its current sale value based on market conditions versus what we believe we can achieve with it in the near future. The properties highlighted in our earnings release for pricing exploration meet these criteria rather than strictly fitting into our strategic or non-strategic market categorization. That really isn’t the framework we're using for our analysis.

Jeff, I wanted to talk about the asset sales a little bit further, and I realize you don't want to talk about too many specific assets. Noticed in the 10-Q, though, you didn't have any assets as held for sale in the bucket, but you had a March 5 8-K out there about the asset sales in Atlanta for the Overton and the Two Ravinia assets. Those were set to close, I think, this week. Can you give us a little color on that? Did that fall through? Is that still happening? It just didn't kind of line up. And I guess since you'd already put out some public information, can you update us on that?

Yes, absolutely. For purposes of confidentiality, there are specifics to the Atlanta transaction that we are under confidentiality regarding that deal. So I can't discuss too much about it, but we did file an updated 8-K on April 20. If you haven't seen it, I would encourage you to look at it. It's still accurate today. And in that updated 8-K from April 20, amongst other things, we contemplated a good closing on or about May 17 for that transaction, which is also subject to a mutual 30-day extension right for either party. But that filing is still up-to-date from April 20, and I'd encourage you to take a look at it if you haven't seen it.

Yes. Just looked at it now. So thank you for the update. I think I missed that one. I have seen the earlier ones, so thanks for the update. So I guess about halfway there. Maybe wanted to shift on the leasing front, you added the 500,000 square feet or so of prospective tenants, John Donahue. Can you give us a little bit of a better sense of where that's coming from and maybe what vacancies that would look to fill? I think about Midtown Atlanta. You think about Blue Lagoon and Minneapolis and some of the work that you've done recently and some of the larger vacancies. Can you provide us an update on that?

So yes, we're seeing activity in our largest markets. So the larger percentage of prospects by square foot would certainly be consistent with our markets as you go down the list from largest to smallest. The prospects that have narrowed their search to several buildings and shortlisted our assets are in the largest markets, as I said, with the highest rents. So Denver has been the one market that has surged recently with the most significant improvement in demand between year-end and today, representing maybe 40% to 50% of our high-probability prospects. That is followed by Atlanta and Dallas. And those have been active but increasingly more active as time goes by and then followed by Virginia, Houston and Miami. So most of the prospects that we've been tracking for quite a while have fully negotiated leases, and we're just waiting on them to execute those. So we're very optimistic. Hopefully, we'll get some of these tenants to execute soon.

Thank you, everyone, for taking the time to listen to our earnings call and participate with questions. We appreciate it, and we look forward to talking to you next quarter. Thanks again.

The conference has now concluded. Thank you for attending today's presentation, and you will now disconnect.