Thank you for joining us. My name is Danica, and I will be your conference operator today. I would like to welcome everyone to the Franklin Street Properties Corp. Q2 2024 Results Conference Call. I will now hand the call over to Scott Carter, General Counsel. Please proceed.

Good morning, and welcome to the Franklin Street Properties Second Quarter 2024 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, 2023, 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, July 31, 2024, 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 in 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 brief overview of our second quarter results. And afterward, 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 10-Q, which as Scott mentioned, can be found on our website. We reported Funds From Operations or FFO of about $3.7 million or $0.04 per share for the second quarter of '24. We also reported a GAAP net loss of $21 million or about $0.20 per share for the second quarter of '24. Earlier this month, we sold another property, which Jeff will discuss in more detail, and we used $25.3 million of the proceeds from that sale to repay a portion of our debt. With that, I'll turn the call over to George. George?

Thank you, John. And again, welcome to Franklin Street Properties' Second Quarter 2024 Earnings Call. I will let stand for readers my written comments on the first page of our earnings release and just to add a little color to them here in this earnings call. Many of the same office market dynamics that we witnessed in the first quarter of 2024 carried over into the second quarter. However, more recent activity on the ground at our properties suggests that we may be closer to a change in trajectory. Interest rate direction and employment back-to-office dynamics are moving in or are anticipated to move in a more favorable direction by many individuals and institutions we interact with, creating a more positive view of potential future momentum in the office property space. Continued office property disposition efforts for the quarter remained as challenged or more so than we have experienced over the past couple of years. We continue to see a significant lack of liquidity with many traditional sources of mortgage debt and investment equity still largely on the sidelines. This liquidity shortage for traditional office property investment is making it harder than ever to execute a legitimate transactionable bid regardless of price, which keeps us very focused on only working with interested potential investors who have the real ability to transact at prices we believe give FSP shareholders the true intrinsic value of the specific property in question. Our significant debt reduction over the last several years gives us important flexibility relative to our property disposition plan to better achieve these values in this low liquidity market. On the leasing front, the post-COVID remote-work, back-to-office employee attendance continues to generally make slow but positive progress. However, the numbers vary quite a bit from industry to industry, market to market, and property to property. Our office leasing markets are generally still not as active as pre-COVID, particularly for larger long-term corporate space users. Finally, I will comment on the obvious and say that increased investment liquidity and increased corporate office space requirements that directly affect property dispositions and leasing activity seem to be very focused on cost of capital metrics. More specifically, interest rates and the future actions of our Federal Reserve. Generally speaking, lower interest rates have almost always been a positive for all types of real estate. However, if interest rates are lowered because of a significant business/employment slowdown, the other maybe not so obvious side of that cost of capital claim may also need to be considered. Interest rate cycles and their real cause and effect are always interesting. It appears likely to us that we will get some insight into this dynamic over the next quarter or two. 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 72.3% leased at the end of the second quarter compared to 74% leased at the end of 2023. The decrease in leased occupancy was primarily attributable to one property disposition in the first quarter and multiple lease expirations during the first six months of 2024. Economic occupancy of the directly owned portfolio was approximately 70% at the end of the second quarter compared to 70.1% at the end of the fourth quarter. The decrease was primarily due to the property disposition earlier in the year. FSP finalized approximately 272,000 square feet of total leasing during the first half of 2024, which included approximately 75,000 square feet of total leasing during the second quarter. Approximately 180,000 square feet of renewals and expansions have been finalized during the first six months of 2024, along with 92,000 square feet of new tenant leases. The urban markets in FSP's portfolio appear to be incrementally healthier and more vibrant this summer compared to the past few years. In particular, the Denver CBD has shown signs of street-level activity not seen since the pandemic. FSP's assets in suburban Houston have witnessed a significant increase in overall new tenant activity and potential expansion of existing tenants during the last three quarters. Despite the typical summer slowdown, FSP continues to track approximately 550,000 square feet of prospective new tenants, including approximately 300,000 square feet of prospects that have identified FSP assets on their respective shortlist. Scheduled lease expirations for the remainder of 2024 total approximately 172,000 square feet, which represents approximately 3.3% of FSP's directly owned portfolio. The new tenant pipeline, combined with a relatively low total of potential expirations over the remainder of 2024, provides FSP with an opportunity to increase lease occupancy over the balance of the year, barring any surprises or the impact of potential dispositions. Thank you. I will now turn it over to Jeff Carter.

Thank you, John, and good morning, everyone. I will be discussing our disposition activity completed since the close of the first quarter of '24 and provide our observations about current market conditions for office dispositions as FSP continues with our work to selectively sell properties when it makes sense to do so with the goal of maximizing value for our shareholders and further reducing indebtedness. On July 8, FSP sold our last remaining low-rise value-oriented office property known as Innsbrook Corporate Center in Greater Richmond, Virginia, for $31 million. The sale of Innsbrook, combined with our January 26 disposition of Collins Crossing in Greater Dallas for $35 million, brings our total gross property sales for the year-to-date to $66 million. Since late 2020, when our program of select dispositions began, FSP has completed the sale of approximately $1,042,975,000 in property sales. These dispositions reflect an average of $210 per square foot as compared with an implied value in our publicly traded shares of less than $100 per square foot. While every property sold will result in different pricing metrics based on their specific attributes of quality, location, tenancy, and rental rates, we believe that aggregated sales data is useful for illustrative purposes. With respect to the market for office dispositions, recent information, both through our own efforts and via recent office sales volume data, shows a weak national sales market for office. However, this situation has the potential to turn more positive should a rate cut cycle soon begin. More specifically, the historical average 12-month national office property sales volume of approximately $70.4 billion is down over the past 12 months by approximately 60% nationally to just $30.1 billion. This weakness in office sales has been due in large part to the severe lack of liquidity currently impacting the office sector with respect to both debt and equity capital, which is essential for most potential purchasers. Additionally, the impacts of significantly higher interest rates and continuously evolving work patterns are also contributing factors. However, FSP will be watching carefully in the weeks and months ahead to see if such conditions begin to improve as the case for potential rate cuts by the Federal Reserve has recently become stronger. As previously described, where office deals are transacting, they continue to highlight compelling factors that often include strong locations, high quality, smaller dollar amount sizes, and stabilized occupancies with strong in-place weighted average lease term that generates established in-place cash flows to ride through the currently challenged conditions. Given this highly challenged and competitive investment sales environment, we continue to believe that the interests of our shareholders remain best served by not highlighting prospective disposition information beyond what is in our current filings until appropriate. To be clear, our objective is to maximize achieved disposition values for our shareholders. FSP continues to generate interest from buyers, but certainly less and more competitive than in the past, and we will continue to work with our associated professionals to try and source credible and capable buyers, and importantly, buyers who truly have the required capital to transact in order to make continued progress on value maximization and further debt reduction. 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, we'd like to open up the call for any questions. Danica?

Our first question comes from Steven Dumanski with Janney.

I would just like to inquire more about the Innsbrook disposition. Did you originally formulate a strategy and make a conscious decision to exit the Virginia market? Or is this more of a trend of opportunistic sales?

Steven, this is Jeff Carter. There was no specific plan to exit Virginia. Our decisions regarding select dispositions have been driven by the goal of value creation and maximization in the current environment. That property was part of this process, especially considering the recent leasing successes we've experienced there, the weighted average lease term, and the lease terms that were established as a result. The response in the marketplace to its marketing was positive based on those terms.

And just to add to what you just expressed that I believe, and please correct me if I'm wrong here, I think Innsbrook was around 90% leased at the time of sale, one of your properties leading in that specific metric. So just wanted to perhaps just ask, when you communicate with potential buyers, have you discovered a certain leasing percentage baseline that they will require in order to transact? Or are there any potential buyers out there who perhaps employ a more opportunistic or value-add approach and will be willing to underwrite properties that are less than your portfolio average of around 70% or so leased?

This is Jeff again. I appreciate the question. What we've observed varies slightly, but generally, the consistent themes are a stabilized in-place occupancy with a strong in-place weighted average lease term. It's important for buyers to see a weighted average lease term, as well as quality locations and smaller purchase prices. Larger transactions are not typically happening very often, at least based on our experiences so far.

That's very helpful. And just one last one. Can you please provide some greater information on your geographical markets? Or dominantly, which cities do you see strengthening and vice versa?

Steve, it's John Donahue. I'm not sure if I understood the last part of your question. Are you asking about activity? Or can you repeat the question?

So where cities that you have exposure to are having a more stronger strengthening real estate market in terms of leasing and vice versa? Like which ones or perhaps could you see future challenges ahead?

Thank you. Yes. So there's been a very steady trend of incrementally better news and activity in the Sunbelt markets. And broad brush statement is that the Midwest has suffered, in particular, Minneapolis, Indianapolis, and Chicago. So we're seeing that trend continue for the Minneapolis market. We are sure to target to come back in full, and that will bring the supporting businesses back to that market. And that would be a big shot in the arm for Minneapolis. We do see more target folks in the Skyway and on the street this summer, so an encouraging sign. But generally speaking, Houston has been our strongest market, Midtown Atlanta a little bit better than others, and Dallas has had a bit of a summer slowdown, but we're hearing good things about our North Dallas markets. Then Denver has been very slow to come back, and we are very encouraged about what we've seen here over the last three to six months.

Great. I will now turn the call back over to George Carter for closing remarks.

Thank you, Danica, and thank you, everyone, for tuning into our earnings call. We look forward to talking with you next quarter. Thank you.

Ladies and gentlemen, that concludes today's call. You may now disconnect.