Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Franklin Street Properties Corp. Third Quarter Results Conference Call. Today's conference is being recorded. After the speakers’ remarks, there will be a question-and-answer session. At this, I'd like to turn the call over to Scott Carter, General Counsel. Please go ahead.

Good morning, and welcome to the Franklin Street Properties Third 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, October 30, 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 in 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 have a brief overview of our third quarter results. 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 $2.7 million or $0.03 per share for the third quarter. We also reported a GAAP net loss of about $15.6 million or $0.15 a share for the third quarter. Last Wednesday, we sold another property, which Jeff will discuss in more detail. We used $27.4 million of those proceeds from that sale to repay a portion of our debt last Friday, October 25. With that, I'll turn the call over to George. George?

Thank you, John. And again, welcome to Franklin Street Properties Third Quarter 2024 Earnings Call. We continue to work hard on our two businesses. Our first business is property dispositions, where over the last few years, we've been using the majority of proceeds from dispositions to continue to pay down debt. As reported on our current balance sheet, through the 9 months this year ending September 30, we have further reduced total liabilities by about $140 million from approximately $456 million as of December 31, 2023, to approximately $316 million. The recent sale of Pershing Park in Atlanta will further reduce our debt for the fourth quarter. Our second business, rental operations, is now concentrated in four markets: Denver, Minneapolis, Houston, and Dallas. We are very encouraged about recently increasing leasing prospects at our properties there. For more color on our rental operations and leasing, I will now turn the call over to John Donahue, President of our Property Management Company. John?

Thank you, George. Good morning, everyone. The FSP directly owned portfolio was approximately 70.4% leased at the end of the third quarter compared to 72.3% leased at the end of the second quarter and 74% leased at the end of calendar 2023. The decrease in lease during 2024 has been attributable to multiple property dispositions and lease expirations. Economic occupancy of the directly owned properties was approximately 68.7% at the end of the third quarter compared to 71.1% at the end of calendar 2023. The decrease was primarily due to multiple property dispositions during the year. FSP finalized approximately 364,000 square feet of total leasing during the first three quarters of 2024, which included approximately 92,000 square feet of total leasing during the third quarter. Approximately 240,000 square feet of renewals and expansions have been finalized during the first nine months of 2024, along with 122,000 square feet of new tenant leases. Leasing activity has been healthier since the summer slowdown, and our pipeline of leasing prospects has grown over the past several months across most of our markets. FSP is currently tracking approximately 700,000 square feet of prospective new tenants, including approximately 400,000 square feet of prospects that have identified FSP assets on their respective short lists. In addition, FSP has been working with approximately 500,000 square feet of potential renewals and expansion. During the month of October alone, FSP has already finalized approximately 120,000 square feet of total leasing. Scheduled lease expirations for the remainder of 2024 totaled approximately 77,000 square feet, which represents approximately 1.5% of FSP's directly owned portfolio. The new tenant pipeline, combined with a relatively low total of remaining lease expirations in the fourth quarter of 2024, provides FSP with an opportunity for positive net absorption over the next several months, 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 since the second quarter of 2024 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 further reducing indebtedness and unlocking value. During the quarter, and as previously disclosed, on July 8, FSP sold our low-rise office property known as Innsbrook Corporate Center in Greater Richmond, Virginia for gross proceeds of $31 million. Additionally, and subsequent to the end of the third quarter, on October 3, FSP sold our Pershing Park Plaza property in Atlanta, Georgia for gross proceeds of $34 million. The sales of Innsbrook and Pershing Park Plaza fund with our first quarter disposition on Collins Crossing Greater Dallas for $35 million bring our total gross property sales for the year-to-date to $100 million. Since late 2020, when our program of select dispositions began, FSP has completed the sale of approximately $1.77 billion in property sales. These dispositions reflect an average of approximately $211 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, liquidity conditions in terms of available debt and equity capital for potential buyers remain historically constrained within the office segment, which has made office transactions highly challenging to complete. To this point, current data for the past 12 months indicates an approximate 54% decline in office sales volume versus the historic average 12-month norm. As a potential positive, however, recent anecdotal information indicates a rise in optimism for improvements in 2025, given the recent 50-point rate cut and the potential for additional cuts of which the cadence and magnitude are yet to be known, if at all. Additionally, recent announcements regarding return to office from some large employers, including Amazon, have improved sentiment. As previously described, where deals are transacting within FSP's markets, they continue to highlight compelling factors that include strong locations, high-quality, stabilized occupancies with a strong weighted average lease term for smaller dollar-sized deals. Smaller dollar-sized office sales have dominated the majority of the already reduced office sales volume seen within most of FSP's markets over recent years and highlight the significant decline in buying from more traditional institutional money. Instead, larger, traditional institutional investors with access to greater amounts of potential debt and equity capital have largely remained on the sidelines in our markets, which has constrained the dollar size and volume of office sales. FSP will be watching carefully in the weeks and months ahead to see if such conditions evolve as some speculate for 2025. Given this highly challenged and competitive investment sales environment, we continue to believe that the interest of our shareholders remains best served by not highlighting prospective disposition information beyond what is in our current filings until appropriate. To be clear, once again, though, our objective is to maximize achieving disposition values for our shareholders. FSP continues to generate interest from buyers, but it remains challenging to find buyers with access to the necessary capital. We have been committed to continuing to work with our associated professionals to try and source such credible and capable buyers in order to make continued progress on 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. Audra?

We'll take our first question from Steven Dumanski at Janney.

Thank you. If you could please provide some background on the decision process for the Pershing Park Plaza disposition, I would greatly appreciate it. In terms of if you were gentlemen, we're actively planning to exit the event or market? Or did the opportunity just present itself?

Thank you for the question. This is Jeff Carter. We had been working on that transaction. We continuously look at the portfolio for opportunities where we think we can maximize value given the short and intermediate-term outlooks. This was an asset that we've worked on previously, and with the right conditions, strong demand, and a smaller dollar-sized deal that seems to attract more potential buyers, conditions warranted that we were able to source a credible buyer for this property. In terms of exiting Atlanta, while it was our last property in Atlanta, we are very much strongly supportive and long-term bullish on the Sunbelt markets in general, including Atlanta. It will remain to be seen in the future if we will reinvest as opportunities in the future present themselves.

Right. That's very helpful. Also, can you provide a general update on Monument Circle? Any information on your plans for the property going forward would just be very beneficial.

Steven, it's John Donahue. So we continue to look at all opportunities with Monument Circle, including a lease as well as a potential disposition. We have been working with both city and state officials to increase interest. Developers are active, and there are multiple properties along the circle that are available. Nothing new to report this quarter, although we do continue to have a handful of groups that have expressed interest, and hopefully, we can move that along.

Thank you, John. Lastly, in terms of renewing leases, how have talks with your tenants progressed? Any insight on where you see tenant improvements (TIs) trending going forward at this part of the cycle? That would be greatly appreciated.

Hey Steven, John Donahue again. We have been generally seeing an uptick in early renewal dialogues with tenants getting out in front of the renewals, which is encouraging. Instead of waiting to the last 6 to 12 months, we've been working with tenants 12 to 24 months early. The average size of renewals has started to increase a little bit, which is different than the pandemic era. In terms of TIs and overall cost, they have ticked up a little bit, but our average cost per square foot per year continues to be about $4 to $5 per square foot per year on renewals, and new deals have trended up a little bit to between $7 and $8 per square foot per year. The total overall cost depending on the percentage of renewals versus the percentage of new deals, our total costs are in the vicinity of $6 per square foot per year right now. That really hasn't moved dramatically over the last 2 to 3 years. If we see a higher percentage of new deals, you will see that creep up a little bit.

Got it. Thank you, John. And thanks, again.

You’re welcome.

And that concludes our Q&A session. I will now turn the conference back over to George Carter for closing remarks.

Thank you all for tuning into the earnings call. In closing, we're finally seeing office dynamics generally around the country starting to improve and certainly in our markets. I think the interest rate drop and hope for continued reductions are making some difference. There is a stronger back to office trend by employers for their employees, and I think that is making a difference. We are optimistic about the coming quarters and look forward to speaking to you next quarter. Thank you.

And that concludes today's conference call. Thank you for joining. You may all disconnect.