Good day, and welcome to the Franklin Street Properties Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Please note today's event is being recorded. I'd now like to turn the conference over to Scott Carter, General Counsel. Please go ahead, sir.

Good morning, and welcome to the Franklin Street Properties third quarter 2021 earnings conference 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. In addition, these forward-looking statements represent the company's expectations only as of today, November 09, 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 third quarter results. And afterwards, I'll pass the call to George for his comments. As a reminder, our comments today will refer to our earnings release supplemental package in 10-Q, which, as Scott mentioned, can be found on our website. We reported funds from operations or FFO of $14.8 million, or $0.14 per share for the third quarter of '21. During Q3, we completed the sale of three properties at a net gain of $8.6 million and used the proceeds to repay $90 million of our 2023 debt maturity. In October, we sold another property at a gain of about $86.8 million and used $215 million of the proceeds to repay $15 million against the drawn balance of our revolver and $200 million against our 2023 debt maturity. As of today, we have $475 million of debt outstanding, down from $1 billion outstanding a year ago. At quarter-end, between cash on hand and availability on our line, we had total liquidity of about $609.7 million. And as a reminder, all of our debt is unsecured. Although our revolver matures in 2022, we can extend that maturity for a year. And with that, I'll turn the call over to George. George?

Thank you, John. And again welcome to Franklin Street Properties third quarter 2021 earnings call. Significant activity at FSP occurring since the end of the second quarter 2021 includes the sale of 999 Peachtree on October 22, 2021 for $223.9 million and a new lease of approximately 100,000 square feet with a new tenant at our Midtown Atlanta Property, Pershing Park. This lease substantially backfills the vacancy left by the recent departure of Jones Day. As of October 22, 2021 we have sold a total of eight properties in 2021, for aggregate gross proceeds of approximately $563 million. Between September 30, 2020 and October 25, 2021 we have reduced our total indebtedness by approximately 53% from approximately $1 billion to approximately $475 million. Demand for our real estate assets has come from a diverse pool of potential buyers. Aggregate pricing on the property sold has reinforced our strong conviction that we are unlocking embedded value for our shareholders that is not currently reflected in the price of our stock. Consequently, we have increased the top end of our 2021 disposition guidance from a previous range of approximately $350 million to $450 million to a new range of approximately $563 million to $600 million. I think it is important to emphasize that our criteria for selecting potential properties for disposition is asset-specific. We consider a variety of factors, but primarily it's our view of a specific property's short to intermediate-term upside potential and value objectives weighted against a longer-term hold scenario of estimated future capital costs and a total potential net return analysis that could be achieved over that longer ownership period. We believe that the pricing achieved on our dispositions to date in 2021 is generally indicative of the pricing that could currently be achieved on our continuing portfolio of real estate assets. We continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets. And so long as that price to value disparity remains as wide as we see it, it is our intention to continue our strategy of seeking to increase shareholder value through the sale of select properties. We believe that the net value of our continuing real estate portfolio of assets, net of outstanding liabilities, would exceed $10 per share of FSP common stock based on our market valuation estimates and using pricing levels we have achieved to date on our dispositions as a benchmark applied across our continuing real estate portfolio. We intend to use the proceeds from any future dispositions for continued debt reduction, repurchases of our stock and special dividends required to meet REIT requirements and other general corporate purposes. With those comments, I will turn the call over to John Donahue, President of our Property Management. John?

Thank you, George. Good morning, everyone. The FSP portfolio was approximately 78.8% leased at the end of the third quarter, as compared to 78.5% leased at the end of the second quarter. The increase is attributable to 172,000 square feet of new leasing, achieved primarily in Atlanta and secondarily in Dallas and Houston. During the third quarter, FSP finalized a lease for an anchor tenant of Pershing Park, which will occupy approximately 100,000 square feet, backfilling the majority of the space vacated by Jones Day in the second quarter. FSP is currently tracking over 600,000 square feet of potential new tenant prospects and approximately 100,000 square feet of renewals. Approximately 400,000 square feet of the new tenant prospects have shortlisted FSP assets identified as their top choice or have signed a letter of intent. We continue to be encouraged by meaningful growth in leasing activity and FSP's healthy pipeline of prospective tenants. During the first nine months of calendar 2021, FSP has finalized over 890,000 square feet of total leasing, including new deals and renewals. For the final quarter of 2021, FSP has approximately 72,000 square feet of tenants expiring, which is less than 1% of the portfolio. Due to the limited rollover exposure, coupled with improving demand for space in FSP's assets, we believe that our portfolio is well positioned to make meaningful progress regarding that absorption over the next three to four months. 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 remains safe and healthy. Building on our comments from last quarter, FSP is continuing to see strong demand for well-located and high-quality office properties from a diverse group of buyers. Importantly, we are achieving pricing that is exceeding our expectations. More specifically, and since our last quarterly call, we sold properties totaling approximately $326 million, including River Crossing in Indianapolis for $35,050,000, Timberlake Corporate Center in Greater St. Louis for $67 million, and at 999 Peachtree in Atlanta for approximately $224 million. In aggregate, our property sales for the year now total approximately $563 million, and have exceeded our original disposition guidance. FSP also has two additional properties, Meadow Point and Stonecroft both in Northern Virginia under the purchase and sale agreement, and subject to normal closing conditions, we expect to complete their respective sales during the fourth quarter. Given the compelling demand and pricing being experienced, FSP increased the top end of our disposition guidance range to approximately $600 million. As mentioned, our closed and pending sales have achieved pricing in excess of our own market valuations and have affirmed to us our belief that such dispositions are indeed capturing embedded value for FSP shareholders. To-date during '21, our dispositions have sold at an aggregate weighted average in-place cap rate of approximately 5.8%. With the pending sales of Meadow Point and Stonecroft included, the weighted average in-place cap rate will adjust to approximately 5.4% at a weighted average occupancy of about 84%. The primary objective of our disposition work has been to materially reduce corporate indebtedness at FSP and position the company for stronger future returns and opportunities for our shareholders. Over the long-term, FSP remains committed to high-quality properties located in dynamic markets, including the U.S. Sunbelt and Mountain West, where we have owned and invested for many years. Accordingly, property sales made during 2021 that occur within the U.S. Sunbelt should not be viewed as a statement about our commitment to such market, but instead is an asset-specific decision intended to capture embedded value for our shareholders. 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, Rocco?

Yes, sir. Thank you. Today's first question comes from Craig Kucera with B. Riley Securities. Please go ahead.

Yes. Hi, good morning, guys. John, do you have a sense of what the special dividend might be at this point based on the sales completed year-to-date and what it might be if those other sales that are scheduled to occur? Would they…

Yes, this is John. We don't have an amount that we can divulge right now or there is a lot of calculations involved with coming up with that and the board will make that decision once we have more information.

Okay. George, just a more question for you. Just given where the stock is trading on an implied cap rate basis, we would agree that your assets are undervalued from a NAV perspective, but is the Board considering strategic alternatives at this point?

Hi, Craig. The short answer to your question is yes, the Board is considering all avenues to create the best value for shareholders, including strategic alternatives. I want to clarify that our strategy focuses on creating the best value for our shareholders and is based on our belief in the great properties we have in prime locations, many of which hold significant potential for leasing appreciation once the COVID pandemic truly ends and markets reopen. When the pandemic hit, we recognized that the best way to position the company for whatever path would benefit our shareholders was to harness what we believe is undervalued in the market. This involves disposing of assets that we think do not have much near-term or intermediate-term potential to benefit our shareholders, while retaining the properties that we believe can create value after COVID. As we sell these properties this year, our main goal is to reduce debt. Lowering our debt to the levels we have achieved and may continue to achieve with further sales will give us maximum flexibility as we emerge from the pandemic, focusing on our best properties in our most promising markets. This has been our objective. As we move forward out of COVID, we are excited about the opportunities we see ahead, all while maintaining a strong balance sheet built through these dispositions. We continuously evaluate all options, including strategic ones, to determine the best path for our shareholders.

Yes, so it doesn't sound like you have engaged with a third party in that sense. I guess, what would it take if you guys are looking at your portfolio and saying, we think our portfolio is worth more than $10 and I am quite frankly, apparently you guys have traded at a fairly steep discount to your net asset value. I guess what would it take for you guys to maybe think it made sense to accelerate that process given the amount of success that a lot of other small-cap REITs have had in entering into strategic alternatives and really getting their shareholders in much better value relative to their NAV?

Craig, we are constantly, currently along with all the other paths, looking down strategic paths. We are, as we speak, looking down strategic paths, as well as all the other paths. And so what it takes is getting a value for our shareholders that we believe is the best value for them, that can be gotten versus all the other paths, and that is currently going on as we speak again, all paths.

Okay, thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to George Carter for any final remarks.

Thank you everyone for tuning into the call, and we'll be speaking to some of you on NAREIT Virtual. Thank you again. We'll look forward to talking to you next quarter.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.