Good morning and welcome to the Franklin Street Properties Second 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 Brad, both Executive Vice President 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. In addition, these forward-looking statements represent the company's expectations only as of today, August 4, 2021, 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. Reconciliations of FFO and other non-GAAP financial measures to GAAP net income are contained in yesterday's press release, which is available on the Investor Relations section of our website at www.fspreit.com. Now I'll turn the call over to John Demeritt. John?

Thank you, Scott, and good morning, everyone. I'm going to give a very brief overview of our second quarter results. Afterward, I'll pass the call to George for his comments. 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 $14.7 million or $0.14 per share for the second quarter of '21. During Q2 we completed the sale of four properties and used the proceeds to repay our 2021 debt maturities and the drawn balance on our revolver. We incurred about $2 million in costs to complete the debt repayment, which was primarily a payment to break interest rate swaps on the debt we repaid. The amount paid is roughly equal to what we would have paid on the swaps through their maturity on November 30, 2021. So these expenses were accelerated into Q2 and lowered our FFO per share by about $0.02 a share. Turning to our balance sheet; at June 30, 2021, we had a total of $765 million of unsecured debt outstanding and no amounts drawn on our revolver. At quarter end, between cash on hand and availability on our line, we had total liquidity of about $624.2 million. As a reminder, all our debt is unsecured, and we have no remaining debt maturities this year. Although our revolver matures in early '22, we can extend that maturity for a year. Our debt is at fixed rates other than the revolver, which is at a floating rate on amounts drawn. With that, I'll turn the call over to George. George?

Thank you, John and again, welcome to Franklin Street Properties Second Quarter 2021 Earnings Call. I would like to begin my comments today by thanking FSP investors, our tenant customers, associated professionals, property personnel, FSP employees and our directors for their continued support and extraordinary work effort during these turbulent times. As the U.S. and the entire world continue in the battle to overcome COVID-19 through vaccination efforts and public health measures, FSP continues to see hopeful signs of recovery within our markets and at our properties. We remain grateful to all individuals on the front lines of this critical healthcare work. While uncertainties such as the Delta Variant persist, there is legitimate reason to be optimistic about the normalizing of life and as a result, a measured return to office occupancy. To this end, our pipeline of potential new leases continues to strengthen. John Donahue will further discuss what we are seeing in his remarks ahead. We believe that 2021 has the potential to be a significant year for FSP as we work to materially reduce corporate indebtedness through select property dispositions. During this past quarter, FSP saw its total outstanding debt declined by approximately 19% from $947 million to $765 million. During the second quarter, we repaid approximately $155 million of term loan indebtedness and all of the approximately $47.5 million that had been drawn under our revolving line of credit. As of June 30, 2021, our full $600 million revolving line of credit was available for use, and we had approximately $24 million of cash on our balance sheet. This in-progress balance sheet reset is intended to reduce risk, while at the same time, increase our flexibility to consider well-suited opportunities to enhance value for our shareholders. During 2021, to-date FSP has sold four properties, reflecting total gross proceeds of approximately $237 million. These completed dispositions unlock embedded value for our shareholders that we believe may not be accurately reflected in our share price and planned for upcoming sales should do the same. We believe the four completed dispositions during 2021 have had a positive impact on the value of shareholder equity directly reducing indebtedness risk. Since September 30, 2020, we have repaid approximately $235 million of our debts or approximately 23.5% of what was approximately $1 billion in debt at that time. Currently, we believe that one of our best potential future investments is our own stock. And so we may use a portion of proceeds from asset sales for the repurchase of up to $50 million of our outstanding common shares as market conditions warrant pursuant to our previously announced stock repurchase plan. As 2021 progresses, we are continuing with our current suspension of net income and FFO guidance primarily due to uncertainties surrounding the timing and amount of proceeds from further property dispositions. We are reaffirming our 2021 disposition guidance range of between $350 million to $450 million, and we'll continue to keep the market informed as we move through the remainder of the year. Lastly, FSP remains committed to its Sunbelt and Mountain West office focus, which emphasizes markets and properties with compelling long-term population and employment growth potential. We continue to look forward to 2021 with anticipation and optimism. Now I will turn the call over to John Donahue, President of FSP Property Management Company, to discuss the portfolio and leasing prospects. John?

Thank you, George. Good morning, everyone. The FSP portfolio, including redevelopment, was approximately 78.5% leased at the end of the second quarter as compared to 81% leased at the end of the first quarter. The decrease is primarily due to multiple dispositions and secondarily due to lease expirations and known departures. Rent collections were greater than 99.5% for the first half of 2021. We continue to witness the return of additional tenants, employees and higher office space utilization across the FSP portfolio, particularly in the Sunbelt markets and in suburban assets. More companies have announced plans for inviting employees back to their respective offices, including those in urban and infill locations. Many of our tenants have made similar announcements, with the prevalent expectation being that offices will be back to a post-pandemic normal as the new school year arrives in the fall. The new normal might include some form of full time in the office, part time in the office and/or a hybrid approach. These are all positive signs, and we expect this trend to continue. The list of potential tenant prospects continues to grow with increasing anticipation and optimism in regards to improving leased occupancies in the months ahead. We continue to be encouraged by meaningful growth in FSP's pipeline of prospective tenants. Although the typical summer season prior to the pandemic brought with its slower demand, FSP has witnessed more activity this summer, including property tours, submitted RFPs and counter proposals. FSP is currently tracking approximately 850,000 square feet of new prospective tenants that have shortlisted FSP assets. Barring any surprises, the potential for portfolio net absorption over the next nine months is approximately 500,000 square feet. During the first half of calendar 2021, FSP has finalized over 560,000 square feet of total leasing, including new deals and renewals. For the second half of 2021, FSP has approximately 139,000 square feet of tenants expiring or 1.7% of the portfolio. Due to the limited rollover exposure coupled with improving demand for space and FSP's assets, we believe that our portfolio is well positioned to make meaningful progress regarding net absorption and higher lease occupancy by the end of the year. Thank you. I will now turn it over to Jeff Carter.

Thank you, John. Good morning, everyone. We here at Franklin Street Properties hope that everyone is continuing to remain safe and healthy. This morning, I will discuss FSP's efforts to achieve our disposition goals for 2021, and then I will endeavor to provide some color as to what we are seeing on the ground with our price discovery work in the marketplace. With that in mind, FSP is reaffirming our existing disposition guidance of between $350 million and $450 million in select dispositions for calendar year 2021. The objective of our disposition plan is primarily to pay down debt in order to gain greater financial flexibility, reduce risk and to position the company for stronger returns to our shareholders. Importantly, we believe that our completed dispositions to date, as well as the sales that we are currently working on, are capturing embedded value for our shareholders that may not be accurately reflected within our share price. Assuming success at the conclusion of our disposition process, FSP will have fundamentally reset our balance sheet and be positioned to pivot toward the best-suited opportunities to enhance value and returns to our shareholders. Specific to the just completed second quarter, FSP sold properties for gross proceeds of approximately $237 million, which reflects about 68% of the bottom end of our $350 million target range and about 53% of the top end of our $450 million target range. Our dispositions for the quarter were comprised of Loudoun Tech Center in Northern Virginia, which sold on June 29 for gross proceeds of approximately $17.25 million, and as previously announced One and Two Ravinia Drive as well as One Overton Park, which sold on May 27 to a single purchaser for a combined purchase price of $219.5 million. Due to confidentiality, we are unable to discuss specific transaction metrics. However, with regard to the sales completed thus far, we believe with conviction that the pricing achieved has captured embedded value for our shareholders. In terms of what is in our pipeline currently, we are working with specific buyers or are in price discovery on the following properties, River Crossing in Indianapolis, Timberlake Corporate Center in Greater St. Louis, both Meadow Point and Stonecroft in Northern Virginia, and Innsbrook Corporate Center in Richmond, Virginia. We will keep the market apprised as we move forward. Lastly, we wanted to share once again what we are seeing at least in an aggregate sense within the investment marketplace. We continue to experience generally positive interest in the properties that we have sought a price discovery on. The majority of interest we have seen has come from private investors and operators who are bullish on the long-term reopening narrative within the U.S. Pricing has been largely in line with our own internal expectations, such that we are seeing values that if closed, would realize value for our shareholders that may not be accurately reflected within our share price. Interest has been in both single tenant and multi-tenant properties, and we are witnessing demand for both stabilized as well as value-add assets. In sum, we continue to see that there is indeed a market to be made for price discovery and over the coming months, we will continue to keep the market posted and with that, we thank you for listening to our earnings conference call today. And now at this time, we'd like to open up the call for any questions.

Good morning, guys. Can you talk about where tenant utilization is in the portfolio today and where that is versus the end of the first quarter and year-end 2020?

Good morning, Rob. It's John Donahue. So the utilization across the portfolio varies. We're in 12 broader markets or metropolitan strategic areas and approximately 20 submarkets. So it varies pretty widely. We're hearing and witnessing that Texas, Dallas and Houston are above 50%. So that is trending even higher versus the first quarter and we're hearing that Dallas is approaching that 60% range. We're hearing that Atlanta is trailing that just slightly. We're hearing that Miami is trailing slightly. The urban markets with public transportation are behind, but we're hearing that people are starting to get back somewhere in that 20% to 30% range. Denver, Chicago, Minneapolis, in particular, are probably a little bit behind the Sunbelt markets and then Virginia is probably somewhere in between in that 30% to 40% range depending on the submarket. So hopefully, that gives you a sense of it.

Okay, and while I have you, how should we be thinking about new leasing and the impact on 2021 earnings? In other words, if you sign a new lease for vacant space today, when you do the build-out and factor in the free rent, is it really just going to be a 2022 FFO impact or is there enough time to actually start getting, you know, sort of effective rents after all the sort of free stuff in 2021?

I would answer that question, Rob, by saying that the larger the deal, we certainly believe that the majority of those will be in the first quarter and second quarter of '22. We have been working on a large number of smaller deals between 5,000 square feet and 15,000 square feet or so that we are very close to and we do have a chance of those having more impact on earnings in the fourth quarter of this year in 2021. So as we've explained on the prior calls, many of these tenants that are making decisions now have urgent needs and they have to make a decision. They're up against it. They've kicked the can down the road and now it's time to move, renew and get it done, and they don't have much time left. So we'll see some of the net absorption that we're expecting occur in the fourth quarter and then I would say weighted average on square feet will see a larger amount of square feet in Q1 and Q2 of next year.

Okay. And then sitting here, Jeff, sitting here halfway through the third quarter, are any acquisitions likely to close over the next seven weeks in the third quarter or is this more likely if you guys do execute on these additional deals that the timing is more likely to be sometime in the fourth quarter or drifting into 2022?

You said acquisitions, I think you meant dispositions?

Yes, please.

Okay. On the disposition side, you can see in our disclosures in the 10-Q on page 19 that the purchase and sale agreement for the Northern Virginia property, if things move the way that they are expected to move, that the closing would be expected to take place on that at around September 9th and the Timberlake would be around September 16th.

Okay, very helpful. Just one last question for me. I understand that you are not discussing pricing on the deals you have announced or that are under contract. However, when you look at what you have sold year-to-date and what you are marketing, is there anything fundamentally different about the operating expenses of those assets compared to the overall portfolio? In other words, is there anything significantly different regarding the NOI margin for the existing portfolio that might affect the figures positively or negatively on the dispositions?

I will start with that and maybe John wants to add. But just although we are bound by confidentiality, as I mentioned, on the disposition side, just from a sort of straight look. If you look at all four property sales that we've completed so far in aggregate, the average in-place cap rate on NOI is roughly about 5% on those transactions and John, I'm not sure if you had anything on the expense side.

I would consider the dispositions as a whole to have slightly lower net rents or NOI compared to the remaining portfolio at this time. In the supplemental materials, you'll find the in-place gross rents as well as the leasing activity related to gross GAAP rents. As these have increased for most of the portfolio, I would say that the net rents have also improved. Therefore, the assets that remain in the portfolio should be experiencing a slightly higher NOI or net rent on a weighted per square foot basis.

Yes. Good morning, everybody. Jeff, I was wondering if you could talk a little bit more about the asset sales that you discussed, not necessarily the ones that you've completed, but you talked about good demand for both single-tenant, multi-tenant buildings as well as both core and value add. I guess from a value-add perspective, how actively have you shopped those assets and what's your thought process around taking more vacancy to market as opposed to some of the more occupied buildings you've been selling?

Good morning, Dave. We are observing strong interest in both value-add and stabilized assets. The specific approach depends on the asset and the market, so our focus remains on identifying assets where we can achieve valuations and pricing that make sense in the near to short term, reflecting the full value we anticipate for those assets and the returns we require. For instance, we were marketing our Meadow Point property in Northern Virginia, specifically in Chantilly, while also having the Stonecroft property in the same submarket. We chose not to market that property directly because our goal is to release and stabilize it. It is an excellent property, and we have received interest from the group we are under contract with, as well as from other parties who are looking at both the stabilized asset and the value-add opportunity. We are evaluating these opportunities as they arise, but our main priority is to ensure we capture the full and best value for us in the short to near term.

So most likely anticipate that you'd continue to sell some of the higher occupied assets where you've achieved most of the value except on these kinds of one-off situations. I mean, is that a fair way to think about it as we look forward?

I believe that's generally reasonable. Looking at what we've accomplished so far, about 83% of our sold assets are leased overall. I expect that trend will continue, though not every asset is fully leased; there’s a mix. For instance, when comparing Stonecroft to Meadow Point, their lease occupancy rates differ. Up to this point, we’ve sold around 83%, and we have more deals in progress that are in that similar range.

Sure, in terms of expirations, we have only 1.7% of the portfolio left for this year. We expect a few tenants to leave and possibly some renewals as well, so the situation may vary. Currently, there are no major tenants over 50,000 square feet that we know of planning to depart in the next six months, which gives us a good sense of confidence about our success in this area. Regarding Ovintiv, our supplemental information shows that we still have 234,000 square feet expiring next year. We have finalized one direct deal with a subtenant for about 68,000 square feet, reducing that to roughly 170,000 square feet. We're also in talks with a couple of other subtenants who may occupy additional floors, and those discussions are moving forward. Additionally, our pipeline for new opportunities is expanding. Overall, things are looking very promising in Denver right now, with momentum in our favor.

Thanks John. I appreciate that. George, maybe finish with you, bigger picture question and take it how you will. But I guess, have you and the Board had any strategic alternative discussions about kind of how to go forward. Clearly, there's a strategy that we're going to lease and sell, and that's going to be part of the near-term strategy. But as you look forward, stocks down 80%, you're facing a second dividend cut. You've kind of abandoned the strategy. You're talking about stock buyback, EBITDA run rate is down 30% or so. I guess as you look at all of that, at what point do you guys have to say, hey, this isn't working the stock is below $5. We need to do something a little bit better here. Are we getting to that point or we needed to kind of either rubber hitting the road or move the road in a different direction?

We are constantly evaluating all strategic options. Recently, we have been focusing on the sale of certain properties, starting with Amber ballpark, to better reflect the net asset values of our holdings, which we feel are not represented in our current share price. While many office REITs are trading at a discount to NAV, we believe our situation is quite different, and we see a significant opportunity with this property sale and a balance sheet reset. Analyzing our remaining portfolio reveals a strong chance to lease vacant spaces, which would enhance our rental income alongside this reset. This is our strategy moving forward and we are communicating it to the market. We are always considering various strategic options and will continue to seek out the best opportunities that come our way, regardless of the direction we take.

Thank you all for listening to our earnings call. And I look forward to talking with you all next quarter. Thank you.

This concludes our conference call. Thank you for attending today's presentation. You may now disconnect.