Good morning and welcome to the Franklin Street Properties Corp. Third Quarter 2023 Earnings Call. I would now like to turn the call over to Mr. Scott Carter, General Counsel. Please go ahead, sir.

Good morning and welcome to the Franklin Street Properties Corp. third-quarter 2023 earnings call. Joining me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our President, Chief Investment Officer, and John Donahue, President of FSP Property Management. Also, joining me this morning are Toby Daley and Will Friend, Co-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, 2022, as amended by our quarterly reports on Form 10-Q, all of which are on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, November 8, 2023. 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, reconciliation of FFO, and other non-GAAP financial measures to GAAP net income are contained in yesterday's press release, which is available in the Investor Relations section of our website at www.fsprdit.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 brief overview of our third-quarter results. And afterwards, I'll pass the call to George for his thoughts. As a reminder, our comments today will refer to our earnings release, supplemental package, and the 10-Q, which, as Scott mentioned, can be found on our website. We reported funds from operations or FFO of about $7.5 million or $0.07 per share for the third quarter of '23, and a GAAP net loss of about $45.7 million or $0.44 per share for the third quarter of '23. On a year-to-date basis, we reported FFO of $23 million or $0.22 per share for the nine months ended September 30, '23, and a GAAP net loss of about $51.7 million or $0.50 per share for the nine months ended September of '23. As of September 30, '23, we had $395 million of total debt outstanding, including $80 million drawn on our revolver, which had about $70 million available at the time. We had about $10.6 million in cash on hand at 9/30. So there was total liquidity of about $80.6 million at the end of September. With that, I'll turn the call over to George. George?

Thank you, John, and again, welcome to Franklin Street Properties third-quarter 2023 earnings call. As the fourth quarter of 2023 begins, we continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets. We will seek to increase shareholder value by continuing to pursue the sale of select properties where we believe that shorter-term valuation potential has been reached and strive to increase occupancy through the leasing of vacant space. We intend to use proceeds from property dispositions primarily for continued debt reduction. On last quarter's earnings call, I talked about, among other things, the metric of price per square foot in considering the potential value proposition of an investment in Franklin Street Properties. And while there are a number of other valid metrics that can be used to try to determine value at FSP, price per square foot is one that we believe is particularly relevant to our specific property portfolio. Last quarter, we said that as of December of 2020, we were willing to start our current property disposition plan. We had sold approximately $852 million of property, representing about 3.85 million square feet, which equated to an approximately $220 per square foot average price. To update those metrics to today with the completed sales of Forest Park and post third quarter One Legacy, we have now sold approximately $909 million of property, representing about 4.1 million square feet, which still equates to an approximately $220 per square foot average price, and anticipated future property dispositions that we believe are likely to occur during the balance of this year. We actually have a slightly higher average price per square foot than $220. My point is that this average price per square foot metric for FSP's properties is one which has been tested and has been fairly consistent in a generally very challenged commercial office property market. And while we can't give assurances as to what any individual property will sell for in the future, we continue to believe that price per square foot is one interesting and valid metric to help measure value at FSP. Taking this average price per square foot metric and relating it to our remaining debt is interesting as one view and only one view of a loan to value calculation and potential leverage risk. We have our end of third quarter approximate debt level of about $400 million against approximately 6.2 million square feet of property portfolio, which equates to about $65 of debt per square foot. If you believe that the 6.2 million remaining square feet of property in the FSP portfolio would continue to reflect an average of $220 per square foot of value, then total FSP debt at the end of the third quarter would reflect about a 30% loan to value relationship. If you consider the post third quarter completed sale of One Legacy for $48 million gross proceeds and anticipated additional disposition proceeds from further potential property sales during the balance of this year, with the majority of those proceeds primarily used for further debt reduction, then the percentage loan to value metric is likely to fall significantly lower than 30%. Again, we intend to continue to use proceeds from further property dispositions primarily for continued debt reduction. Since the beginning of our recent disposition program through the third quarter of 2023, we have repaid approximately 60% of our debt, which we believe has reduced risk to all FSP's stakeholders in this currently challenged office property market while increasing the quality and longer-term potential of their continued investment. With the recent sale of One Legacy and anticipated future dispositions this year, we believe we are likely to continue repayment of our total debt down further to between $300 million and $220 million, down 70% to 78% from its former maximum amount of approximately $1 billion. Now for more color on our leasing activity, I will turn the call over to John Donahue, President of FSP Property Management Corp. John?

Thank you, George. Good morning, everyone. The FSP directly owned portfolio was approximately 74.8% leased at the end of the third quarter compared to 75.7% leased at the end of the second quarter and 75.6% leased as of year-end 2022. The decrease was primarily attributable to lease expirations in Denver and Minneapolis, and secondarily, due to property dispositions during the first nine months of the year. Economic occupancy of the directly owned portfolio was approximately 71.9% at the end of the third quarter compared to 72.1% at the end of the second quarter. The decrease was primarily attributable to multiple tenant departures during the third quarter. FSP finalized approximately 571,000 square feet of total leasing during the first nine months of 2023, which included approximately 365,000 square feet of renewals and expansions, along with 206,000 square feet of new tenant leases. The leasing results for calendar 2023 have already surpassed that total leasing figures from calendar 2022. New tenant demand has been picking up momentum as the pipeline of prospects has grown steadily during the last several months to approximately 900,000 square feet of prospective new tenants, including more than 500,000 square feet of prospects that have identified FSP assets on their respective shortlist. The positive trend has been most significant in FSP's suburban markets, including Houston, Dallas, and Richmond. We are also encouraged by recent activity in Downtown Denver, which has witnessed an increase in tours and scheduled tours as well. Lease expirations for the remainder of calendar 2023 total approximately 90,000 square feet, which represents approximately 1.5% of FSP's directly owned portfolio. FSP continues to work with existing tenants that are engaged for potential renewals that totaled over 250,000 square feet and also includes approximately 50,000 to 70,000 square feet expansions. Thank you. I will now turn it over to Jeff Carter.

Thank you, John, and good morning, everyone. I will be discussing FSP's continued focus on selectively selling properties in order to further reduce indebtedness at FSP, as well as to unlock value for our shareholders that we believe is not being accurately reflected in our current share price. During the third quarter, on August 9, FSP sold our last remaining single-story flex office building known as Forest Park in Charlotte, North Carolina for approximately $9.2 million. Additionally, after the close of the third quarter, on October 26, FSP completed the sale of One Legacy Circle, Greater Dallas for approximately $48 million gross. Looking ahead, FSP has three pending dispositions under respective purchase and sale agreements, representing a combined approximately $153 million in gross sales proceeds, and that reflect an average price per square foot of approximately $227. Two of the pending dispositions currently have hard, non-refundable deposits with one still being in its respective due diligence period. At this time, FSP anticipates closing on these properties prior to year-end and we'll keep the market informed as appropriate. Assuming successful closings on the pending dispositions described, there are approximately $153 million in gross proceeds that will be added to the just received gross proceeds of $48 million from the sale of One Legacy Circle for a total of approximately $201 million that we intend to primarily direct towards further reducing indebtedness at FSP. As we have reported over recent quarters, the market for office property sales and financing remains challenging, and in particular, with respect to large office properties and to our bulk office portfolios. There are indeed fewer buyers than in the past. And not unexpectedly, deep value buyers are also looking for distressed opportunities, but so are buyers who have an eye towards the longer-term value and growth proposition of the office asset class. And we have been successful to date in finding such groups. This will remain a key focus here at FSP. The current reduction in liquidity and constrained lending environment when combined with rising interest rates in the post-COVID environment are primarily responsible for the currently and historically difficult conditions, and have reduced the ability of real estate investors to reliably procure both the needed debt and equity capital to facilitate the closing of property purchases. FSP continues, however, to see real interest from prospective buyers as investors continue to seek high-quality and well-located office properties. For competitive reasons that we believe to be in the interest of all of our stakeholders in this currently challenging market environment, we will not be sharing specific information on individual pending dispositions, and we look forward to keeping the market informed as and when appropriate. And with that, we thank you for listening to our earnings conference call today. And now, at this time, I would like to open up the call to any questions. Brianna?

Your first question comes from Steven Dumanski with Janney.

Good morning, gentlemen. Do you plan on distributing a special dividend as a result of the dispositions during 2023? And if so, what would be the potential amount?

There isn't any plan to make a special distribution at this point. So I hope that answers your question.

Yeah. Steven, this is George. This legal requirement for distribution, we will not, we believe, trigger that this year. And so we will not be required under the rules to maintain to reach status to distribute the dividend. And we want to allocate those proceeds towards debt repayment.

Thank you. I appreciate it. Can you also please provide more insight on the three potential dispositions? And I guess, just perhaps, is it within the projected price per square foot range that you previously mentioned in the call?

Yes. This is Jeff Carter. I appreciate the question. As I mentioned in my remarks, the currently pending dispositions, which there's three, total approximately $153 million in gross sales proceeds, and they reflect an average of approximately $227 per square foot.

Thank you for the information. I have one final question. Regarding the lease with EMC Corporation, am I correct that there is about a year remaining on its term? How are discussions going regarding a potential renewal?

Hi. It's John Donahue here. There is a subtenant occupying a portion of that space. And we haven't been telling the public anything really about the conversations. But we are engaged, and we'll keep the market posted on how that progresses.

Thank you. It's very beneficial to hear that. All right. I appreciate it.

You're welcome.

Seeing no further questions at this time, I will turn the call back over to George Carter for any closing remarks.

Thank you, Brianna, and thank you, everyone, for tuning into Franklin Street's earnings call. We look forward to finishing the year, and we look forward to next quarter's earnings call. Thank you very much and have a great day.

This concludes today's conference call. You may now disconnect.