Good morning and welcome to the Franklin Street Properties Corp. First Quarter 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Scott Carter, General Counsel. Please go ahead.

Good morning and welcome to the Franklin Street Properties first quarter 2016 earnings call. With me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our Chief Investment Officer, and Janet Notopoulos, President of FSP Property Management. Also with me this morning are Toby Daley, Vice President and Regional Director of Houston; Will Friend, Vice President and Regional Director of Denver; and John Donahue, Vice President and Regional Director of Dallas. Before I turn the call over to John Demeritt, I must read the following statement. 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 the Form 10-K for the year ended December 31, 2015, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, April 27, 2016. 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. A reconciliation of FFO to GAAP net income is contained in yesterday's press release, which is available in the Investor Relations section of our website at www.franklinstreetproperties.com. I will now turn the call over to John Demeritt. John?

Thank you, Scott. Good morning, everyone. On today's call, I'll begin with a brief overview of our first-quarter results. Afterward, our CEO, George Carter, will discuss our performance in more detail and provide some guidance. Janet Notopoulos, the President of our Asset Management team, will then discuss some of our recent leasing activities, and then Jeff Carter, our CIO, will discuss our investment and disposition activities. After that, we'll be happy to take your questions. As a reminder, our comments today will refer to our earnings release and our supplemental package and our 10-Q, all of which were filed yesterday and, as Scott mentioned, can be found on our website. We reported an increase of funds from operations, or FFO, of about $365,000 to $26 million for the first quarter of '16 compared to the first quarter of 2015. The increase was primarily from higher property income as a result of leasing and the acquisition of a property that we acquired last April and was partially offset by some of the decreases in property income as a result of the asset sales we've made and loan repayments that we have received this past year. Our FFO per share was $0.26 in both the first quarter of 2016 and '15, and our results were in line with our expectations. Turning to our balance sheet and current financial position at March 31, 2016, we had about $885 million of unsecured debt outstanding, and our total market cap was $1.9 billion. Our debt to total market cap ratio was 45.4% at quarter's end, and our debt service coverage ratio was about above 4.9 times. Also, the debt to adjusted EBITDA ratio was 7 times as of March 31. From a liquidity standpoint, we had a cash balance of $14.3 million at the end of March and $235 million available on our $500 million unsecured line of credit. As a result, we had about $249 million of liquidity at quarter end. Earlier this month, on April 5, we received $20 million in proceeds from the sale of a property we held in Missouri, which was - which resulted in approximately a $4.1 million gain that will be reported in our second quarter of 2016. We remain comfortable with our leverage and our unsecured rate borrower. We believe our balance sheet position enhances our ability to opportunistically sell non-core assets from time to time and reinvest the proceeds or use our availability on the line to acquire assets in our core markets as we find the right opportunities. With that, I'll turn the call over to George. George?

Thank you, John. Welcome, everybody, to Franklin Street Properties first-quarter 2016 earnings call. As John just said, for the first quarter of 2016, FSP's funds from operations, or FFO, totaled approximately $26 million or $0.26 per share and these results are within our guidance range for the first quarter of 2016. Our dividend was $0.19 per share for the quarter, and the FSP Board of Directors continues to feel very comfortable with that level of dividend payout for full-year 2016, barring any significant unforeseen events. At this time, our initial FFO guidance for full-year 2016 is being maintained and the estimated range of $1.01 to $1.07 per diluted share. And more importantly, we continue to believe that 2016 will mark the bottom of the reductive effects that our ongoing effects property portfolio transition is having on FFO. Our current forecast is for resumed FFO growth in 2017, propelled primarily from our projected realization of increased leasing in our more recently acquired urban office properties, many of which contain meaningful value add square footage. We are estimating second-quarter 2016 FFO to be in the range of $0.24 to $0.26 per diluted share. Our directly owned real estate portfolio of 35 properties, totaling approximately 9.3 million square feet, was approximately 90.2% leased as of the end of the quarter. We continue to have a very active leasing environment within our portfolio and anticipate positive impactful results as we move through 2016. Janet will make some comments regarding leasing in a moment. On April 5, 2016, we sold our Maryland Heights, Missouri property, known as Lakeside Crossing I, for $20.2 million, and this leaves only our Timberlake office complex as the remaining asset in the St. Louis area. We currently are very active on property acquisition efforts, focused on CBD and urban infill office buildings located within our core markets and do anticipate new acquisitions this year. On the development front, we have after extensive costing analysis with our potential partners and outside professionals decided to redevelop the existing buildings at 801 Marquette Avenue in Minneapolis ourselves, rather than raze it and build a new mixed-use tower with the partners. Jeff will make some comments in a few minutes regarding our property disposition, acquisition and development activity. Now I will turn the call over to Janet Notopoulos. Janet?

Thank you, George. Good morning. As we reported, our leased occupancy as of March 31 was 90.2%, compared to 91.6% last quarter. The 90.2% excludes the redevelopment building at 801 Marquette in Minneapolis that became vacant on January 1, 2016, but it does include the adjoining building at 121 South 8th Street in Minneapolis, which also lost TCF Bank as a tenant and is now only at 56.2% leased. Most of our other buildings maintained occupancy or increased slightly, including our St. Louis buildings, the Timberlake buildings that lost RGA last year and are now 95.6% leased. Leasing for the quarter started slowly as it did last year, but lease renewals held occupancy fairly steady. We have seen more leases get signed and more serious interest since the quarter ended, particularly at the tower at 121 South 8th Street in Minneapolis. We are working on several leases that could potentially fill a sizable portion of the TCF vacancy in that building. And we have other prospects for the same space, particularly the top floors that TCF vacated. Jeff Carter will talk more about our current redevelopment plans for the low-rise building next door at 801 Marquette, later. In general, our cash rents are increasing on new leases and renewals. Rents for all leases done in the quarter increased 3.3% over the average GAAP rents in the same buildings for the prior year with an average GAAP rent - GAAP gross rent of $28.69 per square foot on approximately 178,000 square feet of new and renewing leases. Our average total portfolio rent should continue to grow as we increase our concentration of assets in higher rental markets. We've been busy working with our tenants who have 2016 lease expirations, as well as with our major tenants with lease expirations further out. Occupancy in Houston remains steady for the quarter at approximately 88%, and all of our oil and gas tenants throughout the portfolio were current on their rent. A little over 50,000 square feet of all of our space in Houston is scheduled to expire during the balance of the year and we expect to renew most of those leases. Thanks and I'll now turn the call over to Jeff Carter.

Thanks, Janet. Good morning, everyone. I will discuss an update on our current investment picture and strategy. FSP remains committed to building a focused portfolio of top quality office properties in the best infill and CBD locations within our five core markets. On the disposition and asset recycling front, we continue our efforts to shed non-core assets through the marketed price discovery process when appropriate pricing is achieved. On January 19, FSP received repayment in full of our approximately $37.6 million first mortgage loan on FSP 385 Interlocken upon its sale. Additionally, as George mentioned, subsequent to the quarter ending on April 5, FSP sold our Lakeside Crossing I property in suburban St. Louis for $20.2 million and we will recognize a gain of about $4.1 million in the second quarter. Lakeside Crossing I was an approximately 128,000 square foot four-story suburban office building that we had owned since December of 2008, and it is representative of the profile of the property that we will continue to sell, assuming appropriate pricing is achieved during a marketed process. In total, then for 2016 and the year to date, we sold about $60 million. FSP has other assets that are currently being marketed and others that may enter into the price discovery process during 2016, and we will keep the market updated as appropriate as to results. On the acquisitions front, as mentioned in our earnings release and by George, we expect to complete one or more acquisitions during 2016 that will redeploy funds from asset sales in to infill and CBD properties within our core markets. In fact, we've just signed a purchase and sale agreement for a roughly 320,000 square foot Class A office tower in one of our non-Houston core markets for about $82 million. With respect to certain…

Thank you, Jeff, and we will open the call for questions.

Thank you very much. [Operator Instructions] First question comes from Dave Rodgers with Baird. Please go ahead.

Yes, good morning. George, I'll start with you, but this question may go across several different people in the room. I guess, one of the questions I wanted to start with is obviously Houston, Denver, Minneapolis all have underlying tones related to the energy market. I am curious if you are seeing any tie-in between those three markets in terms of any change in demand for office space of late?

Sure. Let me give both Minneapolis and Denver to Will Friend, and then we will go over to Toby for Houston and they can give you the direct view there.

Sure. This is Will. Dave, I am not sure we're seeing any impact in Minneapolis on a - from the energy markets. But - effect. But, in Denver, there is - there has been some impact, but I think it has been offset largely by several other sectors in the market that have increased the leasing [indiscernible] that’s creative marketing professional services. It definitely has a bit of a drag, but not so much that we are not seeing good activity at our properties.

Toby?

Dave, in Houston, it was really last year where activity tailed off to virtually nothing. And, as we've started 2016, we've seen much more interest in available space and it hasn't yet translated into new leases. But there is a lot more activity this quarter than there was the last half of 2015. So we're encouraged by that, and we hope that it translates to increased occupancy.

Great. Thanks for that. I guess, transitioning to the 801 building, it doesn't sound like that was demand driven at all. It sounds purely on the cost side, and so that is what you have said so far. Talk a little bit about any potential demand you are seeing for that asset that gives you comfort to move forward with the redevelopment plan and ultimately, what the basis in that building will be before any GIs or LCs for a new tenant?

Dave, this is Jeff Carter. You're right. Our decision-making here was based on cost and not demand. The demand in the market and the performance of downtown Minneapolis has been strong and we see demand in the existing 121 tower that is strong for the TCF vacated space. As Janet mentioned, we've got significant interest in deals that we're working on there, and some of that interest was also as well in the possibility of the 801 Marquette building. And so, for us, the decision was based upon cost and not the demand for the market. We see the demand as strong and we see this as the best outcome to capture that demand efficiently and effectively.

Okay. And then, I don't know if you have an estimated basis in that building. Maybe I can even come back to that one as well. I guess maybe on the capital market side, Jeff, while we're talking, can you talk about what the acquisition pipeline does look like for you today, if that is thinned out, if it is getting deeper? And then, also, on the disposition side, the same question in terms of what you are looking to sell. Is that strengthening at all, and do you have greater confidence in executing the sales?

Sure. On the basis side, I believe that our basis is approximately 4 million.

Yes, 4.3 million.

4.3 million in 801 Marquette, just to finalize that one. On the capital market investment, the acquisition disposition side, it’s a competitive marketplace. It continues to be a competitive marketplace for the most part. We're seeing on the acquisition side very strong competition on the types of assets and profile assets that we continue to be interested in, which are the best of class assets in their respective markets, and they are still very competitive and plenty of interest in those assets. On the disposition side, we're still seeing - and still see strong and record pricing by any historical measure. I think that, in general, what we're seeing on the deals that are in the market is probably fewer participants than there had been and participants of a quality and track record that are a little bit unknown in some cases. And so there is probably some more execution risk on some of those deals in the past if you get to appropriate pricing. And so I think what you will see from us through 2016, we've got more non-core assets that we are looking at disposing of, and we've got some assets that I think are getting ready for that price discovery process. And what we'll do is, every quarter, like we are doing, give you an update on how that process is unfolding and more specifics as we get into the year a little further.

All right. Thanks for that, Jeff. Last question for me and maybe to George or to Jeff is, are you a buyer or a seller in Houston today?

We are not close to buying anything in Houston today, but we are always looking in Houston. We - our first properties in this company have been in Houston. I've been in Houston since early '70s. We really like Houston for the long haul. The kind of properties we want to buy and the locations we want to buy them are not yet for sale at the price we would buy them at.

Great. Thanks, guys.

[Operator Instructions] Question comes from Scott Freitag with Bank of America. Please go ahead.

Hello and good morning. As a follow-up to the previous question, I was wondering if it was possible if you could provide some additional color in terms of the pricing you are seeing investment sales market. I guess, generally, what kind of initial yields you are seeing across your markets?

For us, on the acquisition side, what we're seeing on deals we are underwriting in our core markets is pretty similar to what we've seen over the past quarters. For the deals we are looking at underwriting on the buy side, which are mostly CBD or best of class infill properties, are in the - anywhere, depending on how leased they are, from 5% to 6%, 6.5% cap rate range. And on the disposition side, the range is further than that, just based on what the product is we are selling. We've mostly disposed of fully leased products. So the cap rates, by any measure, have been historically very strong and we've been selling assets anywhere from 6 to 7.5, plus or minus, cap rates.

Okay. Great. Could you also provide an update on progress backfilling 16 lease expirations? And also, if there are any known move-outs in '16 and '17 at this point?

I don't know if the easiest way to do that is just look at some of the large expirations. I hesitate to say that we know anything about leases that haven't been done. We have had so much experience, especially in the throes of negotiation people saying that they are leaving and then they stay for another 10 years. So where we - the market is saying that some of these tenants will move out. We will believe them for the time being. We are making good progress on the '16, which I can talk about with a little bit more certainty. So I think, if you were to look at, for example, the - if you look at our major tenants, if you look at our nearest expiration, it would be the Danbury exposure at Legacy Tennyson, and we've got four months left on that building, which is approximately 100,000 square feet. We've already leased a third of that, approximately a third of that building. The first floor, which is usually the toughest space in a market like that. So we are moving along on that. I don't know if you have specific questions about other tenants. But we are working - basically, all of the ones that are in '16 we are in conversations with, and we are deep into '17 and '18 at this point. But I hazard to make a prognostication, especially with the larger tenants, but the longer we go, the better our leverage is.

That was helpful. And I have one more question. I noticed that the non-investment CapEx, TIs and LCs, were low in the quarter. How should we think about a normalized level for CapEx going forward?

That is a tough one. As you know, we've bought several value-added buildings in the last two years. And so to the extent that we are completing those projects, you are going to see those coming through in lumps and then I would expect it to taper off. So, as far as the building investments and then obviously the rest of it is TI and leasing related to leasing costs. But that is really what is pushing up the building investments, is those value adds. The Two Ravinia that we bought last year, we were doing elevator modernizations and projects of that sort at some of the other buildings. And I think we went through a full disclosure on how much we were estimating we would spend at Two Ravinia. When we bought the acquisition, we said we were going to purchase for X and we were going to spend Y. Does that help?

Yes, it does.

It is going to be lumpy and then it should taper off, is what I am saying.

Okay. That is it for me. Thank you guys very much.

The next question is from Craig Kucera with Wunderlich. Please go ahead.

Hey guys, appreciate the color on the dispositions. But can you sort of bracket either the dollar amounts, the number of buildings that you would be looking to potentially sell over the next 12 to 18 months?

Yes, this is Jeff. We are not giving specific disposition guidance as there is just a number of moving pieces that make that guidance less meaningful, including the fact that we're not sellers at any price. We think our assets have significant value associated with them, and we aim to capture that value in dispositions. Some properties are also being prepared now for price discovery, some have some things that we are working on to get them into the price discovery process. So giving a meaningful estimate of disposition volume is just something that we're not looking to do right now, but we will give quarterly updates on that.

Okay. I know you mentioned that you were kind of currently selling in the 6% to 7.5% range. Was that - the property you sold earlier you this quarter in St. Louis, where within that range was that building?

That was a blended range. That cap rate, we haven't provided, but that would be at the taller end of that range.

Okay. And I wanted to revisit the Timberlake East leasing. Are those tenants expected to take occupancy is it this quarter or next quarter?

Second quarter.

Okay.

If you look at the footnote on the major tenants, we have when those leases fall in.

Got it. Okay. That’s it from me. Thank you.

The next question is a follow up from Dave Rodgers with Baird. Please go ahead.

Yes. Just two quick follow-ups from me. I guess when talking about Ravinia, the assets that you acquired last year, can you talk about the leasing activity at that building and the success you have had following the investments you made?

Yes, Dave, it is Toby Daley. I'll take that. Last year, I think we were - we acquired the building in April. I think that we dropped to about 77% occupancy and started doing some improvements, and we've gotten that up to, I think we are at 84% at the end of the quarter and we've got really good activity there. So…

Yes. And, Toby, we've had a ton of renewals. But, I mean, there are a lot of tenants in that building. So that has been part…

Yes. We have had a good success rate with the renewals there, too. And the adjacent building, One Ravinia, is at 95%. And so some of those tenants that are trying to expand in that building, were able to carry over next door, so it works out rather well.

Okay. Good. Thanks for the update. And then maybe last question for John Demeritt. Your guidance for 2Q FFO, I think, is flat to down $0.02. Can you kind of walk through your math that gets you down $0.01 to $0.02, maybe in that guidance range at all?

Yes. When we look at the range, we consider a lot of factors, but the main driver to hit the higher end of the range is both the success we have in leasing and we have over 900,000 feet square feet of vacancies that we're working on leasing up. And so how well we do on that is what is going to be the driver of FFO as we look over the balance of the year is the way that we provide guidance. But it’s a quarter-to-quarter evaluation, Dave, and we thought this range made sense. When we update guidance in July, we'll certainly know a lot more about leasing. A lot of this leasing is sort of staggered as it comes in. And so we'll have a better idea on the back half of the year where we are going to land and we should be able to tighten the range then.

Okay. Great, thanks.

Yes.

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

Thank you, everyone, for joining into the call. We will hope to see some of you down in New York at REIT Week. But we will talk to you next quarter. Thanks, again.

Thank you, sir. The conference is now concluded. Thank you for attending. You may now disconnect.