Good morning, and thank you for attending today's Franklin Street Properties Corp. Q1 2022 Earnings Call. My name is Selena, and I will be your moderator. I would now like to pass the conference over to our host, Scott Carter, General Counsel. Please go ahead.

Good morning, and welcome to the Franklin Street Properties First Quarter 2022 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, 2021, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, May 4, 2022. 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 GAAP, 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.

Thank you, Scott, and good morning, everyone. I'm going to give a brief overview of our first 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 about $11.6 million or $0.11 per share for the first quarter of '22, and we reported a GAAP net loss of about $4.2 million or $0.04 per share for the first quarter. At March 31, '22, we had $550 million of debt outstanding. Our net debt-to-EBITDA ratio was 7.4x as of March 31, '22 compared to 8.9x at March 31, '21. The decrease in that ratio was primarily a result of the impact of asset sales and debt repayments made in the last year. Our debt service coverage ratio was 3.15x for the first quarter of '22 compared to 3.09x for the first quarter of '21. As of March 31, '22, we have liquidity of about $208 million between availability in our revolver and cash on hand. As a reminder, all of our debt remains unsecured. With that, I'll turn the call over to George.

Thank you, John. And again, welcome to Franklin Street Properties First Quarter 2022 Earnings Call. For those who have followed Franklin Street through 2021 and into the first quarter of 2022, you know that for full year 2022, we are focused on continuing to execute many of the same primary business objectives and goals we set last year in 2021. Major efforts this year will focus on continuing to lease vacant office space in our portfolio of properties, of which we have about 1.6 million square feet available to lease out of our total of about 6.9 million square feet, or about 23% as of the end of the first quarter. We are continuing our disposition efforts of specific office properties, where we believe that those properties' short to intermediate-term valuation potential has been reached. We also intend to continue to further pay down our debt with the bulk of any property disposition proceeds. All of our debt, as John just mentioned, is unsecured. So any property can be sold, and all available sale proceeds are able to be used for debt reduction without any asset-specific debt prepayment penalties being incurred. And we plan to continue to repurchase FSP common shares in the open market under our previously announced stock repurchase plan. At this time, we are maintaining our previously announced property disposition guidance for full year 2022 to be in the range of approximately $250 million to $350 million in aggregate gross proceeds. However, our disposition guidance is subject to change for a variety of reasons, including economic conditions, office market conditions, and geopolitical events. We will update our disposition guidance quarterly in our earnings releases. And now I'd like to turn the call over to John Donahue, President of FSP Property Management Company.

Thank you, George. Good morning, everyone. The FSP portfolio was approximately 77.3% leased at the end of the first quarter as compared to 78.4% leased at the end of the fourth quarter. The decrease is attributable to lease maturities primarily in Denver. FSP finalized approximately 131,000 square feet of total leasing during the first quarter of 2022, including 103,000 square feet of new leases. Demand for office space regarding the space requirements of active tenants across the majority of FSP's portfolio markets has improved slowly and modestly during this calendar year, particularly for small to midsized requirements. Subsequent to quarter end, we have executed approximately 63,000 square feet of new leases, the large majority of which are for FSP assets in Dallas and Houston. In addition, we are currently tracking in excess of 700,000 square feet of new prospective tenants, including approximately 500,000 square feet of prospects that have identified FSP assets on their respective shortlist. Lease expirations for the remainder of calendar 2022 total approximately 295,000 square feet, representing 4.3% of FSP's portfolio. The growing pipeline of prospective tenants, combined with minimal lease expirations, provides FSP with an ideal opportunity to increase occupancy in the second half of 2022. 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. For 2022, FSP is continuing to work to unlock value for our shareholders that we believe is not being accurately reflected within our current share price. As George referenced in his remarks, we are striving to capture embedded property value through the sale of select assets when we believe that their respective short to intermediate-term potential has been reached. For 2022, FSP has reaffirmed our expected disposition guidance of between $250 million and $350 million in aggregate gross sales proceeds with the majority of anticipated sales most likely to occur in the second half of the year. As a reminder, for the full year of 2021, FSP completed approximately $603 million in total property sales at an aggregate weighted average in-place cap rate of approximately 5.5%. For competitive reasons in the marketplace, we will not share specifics on any potential sale until appropriate. Our criteria for selecting property dispositions continues to be asset-specific versus market-centric, and we consider a variety of factors, including analyzing the potential for short to intermediate term value gains at respective properties. We also wanted to share some additional color regarding what we are seeing in the real estate investment sales marketplace in this recent environment of increased turbulence in the capital markets. Despite heightened uncertainties in the marketplace, which prospective investors are contemplating, FSP has continued to see interest in our property offerings specifically as well as ongoing demand for well-located and high-quality office properties generally, even within this environment. We will continue to monitor the marketplace for potential impacts. To date, buyers on our dispositions as well as on comparable sales that we attract continue by and large to come from investors who are underwriting a return to a more normalized economy and office use setting. Our disposition efforts remain subject to adjustment for a variety of reasons, including economic conditions, and we will continue to update our disposition guidance quarterly for the marketplace. And with that, I 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.

The first question comes from Dave Rodgers with Baird.

It's Nick on for Dave. Maybe first question on the asset sales and the assets currently in price discovery. Have you seen any noticeable change in maybe the bidding pool into our pricing with the rise in interest rates? And then the second part of that, are there any assets further along in the prospects of the discovery? And if so, if you could comment on the geography of that?

So the first part of the question, having to do with interest rates and recent market conditions, we have seen the impact that higher interest rates have had as well as other factors, such as supply chain issues, COVID, and the situation in Ukraine. They've certainly increased uncertainty amongst prospective buyers in the marketplace. The recent turbulence that we've seen in the capital markets has been a topic for discussion within the investment sales marketplace. And we will continue to watch for any macro-level impacts and for impacts on our own micro-level objectives. But to your broader point, what we can say now though is at this time, we still believe that our goals for the year are appropriate and achievable at pricing levels that fall within our expected ranges, but we'll keep the market apprised quarterly on that. And secondly, your other question related to geography and timing. As I indicated in my remarks, we expect the majority of our sales, if successful, to close in the second half of this year. And so we'll keep you posted specifically as we have more to report there.

And then maybe the next one is for John, kind of commenting on the leasing and maybe the 500,000 square feet of shortlisted tenants. I guess what markets are most active there? And how much of that is current vacancy leasing?

Good morning, Nick, it's John. So the 500,000 square feet of new prospects is for all vacancy. None of that is for space that is currently leased. The large majority of number of prospects are in Texas, Dallas, and Houston, and then in other Sunbelt markets. The largest weighting of the square footage at this moment in time is in Virginia and in Texas. We have a large block of space at Innsbrook, and we have a number of prospects of a larger size that are moving along the process. So I would say by weighting in square feet, you would go Virginia to Dallas and then Houston.

Great. And then maybe the last one, just with the vacancy. How much additional capital is needed to lease up some of this vacancy in the portfolio?

Well, that varies asset by asset, of course, and we have been positioning our assets during COVID. So the majority of our portfolio is repositioned and ready for new tenants. The more recent departures, such as 1001 17th Street with the lease expiration event of Newfield. We've been working on upgrading the amenities, and we also have been finalizing some projects in Dallas with departures over the last year or so. But the lion's share of the portfolio is all ready to go. And despite the fact that tenants that are looking for 10 to 15 requirements are looking for larger TIs, we feel like we're in a very good position.

There are no additional questions registered at this time. So I will pass the call back over to George for closing remarks.

Thank you very much for tuning in to our earnings call, and we look forward to second quarter. Thank you very much. Have a great day, everybody.

That concludes the Franklin Street Properties Corp. Q1 2022 Earnings Call. Thank you for your participation. You may now disconnect your lines.