Good morning, and welcome to the Franklin Street Properties Corp. Second Quarter 2017 Results Conference Call. [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 second quarter 2017 earnings call. With 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 with me this morning are Toby Daley, Senior Vice President and Regional Director of Atlanta and Houston; Will Friend, Senior Vice President and Regional Director of Denver and Minneapolis; and Patty McMullen, Senior Vice President and Regional Director of Dallas. Our first speaker his morning will be John Demeritt, but before I turn the call over to John, 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, 2016, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, August 2, 2017. 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.fspreit.com. I'll now turn the call over to John. John?

Thank you, Scott, and good morning, everyone. On today's call, I'll begin with a brief overview of our second quarter results, and afterwards, George will discuss our performance in more detail and provide some of his remarks. Then John Donahue, our President of the Asset Management team, will discuss recent leasing activities. And then Jeff, our President and CIO, will discuss our investment and disposition activities. Following that we will be happy to take questions. As a reminder, our comments today will refer to our earnings release, the supplemental package and the 10-Q, which were filed with the SEC last night, and, as Scott mentioned, can be found in our website. We reported funds from operations or FFO of $28.6 million or $0.27 per share for the second quarter of 2017. Compared to the second quarter of 2016, FFO was up $1.8 million, although it was flat on a per share basis due to the higher weighted shares this year. The FFO increase was primarily from the three acquisitions we made in June, August and December of 2016. As we look ahead to the balance of 2017 we will continue to have meaningful contributions from those acquisitions. Turning to our balance sheet and current financial position. At June 30, 2017, we had about $1.065 billion of unsecured debt outstanding and our total market cap was $2.3 billion. Our debt to total market cap ratio was 47.3% at quarter's end, and our debt-to-service coverage ratio for the quarter was about 4.6 times. The debt-to-adjusted EBITDA ratio was 7.5 times as of June 30 also. From a liquidity standpoint, we had a cash balance of $11.5 million and $205 million available on our $500 million unsecured line of credit, and as a result we had approximately $216.5 million of liquidity at quarter end. With respect to our debt, we have a great bank group consisting of 11 banks, and have ongoing active dialogue with them. We have talked to them about private placements, term loans and public debt transactions. These are options to consider with some of our upcoming majorities in lengthening out our debt stack. As we move forward with our bank group and execute transactions we will make announcements about that. That said, we remain comfortable with our leverage and have managed our unsecured debt as part of our strategy. We can opportunistically sell some non-core assets and repay short-term floating-rate debt, or depending on the magnitude of sales, could reinvest proceeds into properties as we have demonstrated. With that, I'll turn the call over to George. George?

Thank you, John, and welcome to Franklin Street Properties' second quarter 2017 earnings call. As John said, for the second quarter of 2017, FSP’s funds from operations or FFO totaled approximately $28.6 million or $0.27 per share. Our dividend was $0.19 per share for the second quarter and the FSP Board of Directors continues to feel comfortable with this level of dividend as we move through 2017. At this time, we are reaffirming our full year 2017 FFO guidance range to $1.04 to $1.08 per share. For the third quarter of 2017, we estimate FFO to be in the range of $0.25 to $0.26 per share. Our FFO growth forecast for 2017 and beyond continue to be fuelled primarily from our projected realization of increased rental income from select recent property investments, select new development or redevelopment efforts, such as the 801 Marquette Avenue in Minneapolis and additional leasing in our broader portfolio of urban properties, many of which contain meaningful value add square footage. We anticipate updating future FFO guidance quarterly in our earnings releases. I'll now turn the call over to John Donahue, President of our Property Management Company. John?

Thank you, George. Good morning, everyone. Leased occupancy decreased during the second quarter from 89.6% to 88.1% lease. As we had expected and communicated last quarter, the decrease was primarily due to the Murphy Oil lease expiration in Houston, and secondarily due to multiple expirations in Atlanta. Year-to-date there were approximately 476,000 square feet of leases executed, approximately 167,000 of the leases executed represent positive absorption, of which 112,000 square feet were with new tenants. There are approximately 364,000 square feet of renewals and expansions completed year-to-date. Within our core five markets during the second quarter, Minneapolis, Denver and Dallas had increases to leased occupancy. We expect that trend to continue for the balance of the year. Minneapolis improved for the third consecutive quarter from 76.5% in September to 87.4% leased as of June. Denver improved for the second consecutive quarter from 87.3% at year-end to 88.4% as of June. Third-quarter leasing activity has been very strong thus for, and we expect the surge of leases completed during the quarter. There are currently more than 400,000 square feet of probable leases that are either in letter of intent stage and/or up for execution. Approximately 120,000 square feet of those are new leases or expansions representing positive absorption. So barring any surprises, the third quarter appears to be the strongest performing quarter of the year to date much better than either the first two quarters. Additionally new prospect increase and tours have remained vibrant with no apparent summer slowdown. Throughout our portfolio there are more than 1 million square feet of outstanding proposals. As we anticipated, the construction at 801 Marquette Avenue was substantially completed at the end of June. The project has been well-received in the downtown market, and prospective tenant activity continues to ramp up. Although no leases have been executed as of yet, we believe the strong interest will translate to leasing in the near future. In fact, we are optimistic about our ongoing negotiations with a retail operator for the atrium, which we believe is a critical step for a vibrant mixed-use environment. The common areas will be furnished during the third quarter, and the roof deck and atrium will be open to the existing tenants of FSPs of joining tower 121 South Eighth Street. In summary, we are encouraged by the number of transactions that are expected to be executed in the third quarter. Along with the enhanced portfolio of leasing activity for the fourth quarter, we remain positive and optimistic about approved lease occupancy during the balance of calendar 2017. With that I'll turn it over to Jeff Carter.

Thank you John and good morning everyone. Our focus remains clear at Franklin Street Properties. Our objective is to continue to grow in our five core markets and to generate sustainable long-term FFO growth and value creation for our shareholders. The portfolio of transition at FSP has emphasized building a portfolio of high quality urban and infill oriented properties in the strongest submarkets within Atlanta, Dallas, Denver, Houston and Minneapolis. In order to further our portfolio of transition efforts, FSP will continue to selectively dispose of non-core assets on appropriate pricing and terms resolve. Today the property portfolio is approximately 75% located within our five core markets. As we look forward, our efforts will be led through number one, leasing efforts primarily within our five core markets; number two, through select disposition efforts with non-core assets that further our portfolio of transition into infill and urban properties within our core five markets; three, through select new development and redevelopment efforts within our five core markets such as our project at 801 Marquette in downtown Minneapolis; and four, through select new property investments within our five core markets. On the dispositions and asset recycling side, to date during calendar year 2017, FSP has disposed of two non-core assets totaling approximately $15.3 million. We are also presently bound by a purchase and sale agreement to sell another property for $32.8 million, which if successful will bring our total for the calendar year-to-date to $48.1 million. More specifically, on January 6 we sold our Hill View asset in Milpitas, California for about $6.2 million. On June 7, FSP had its mortgage on 1441 Main Street, Columbia South Carolina to be paid in full for approximately $9 million and most recently as reported in our current quarterly filings on July 21 we entered into…

[Operator Instructions] The first question comes from John Guinee of Stifel. Please go ahead.

Thank you. Just a clarification question first, 801 Marquette, do you have that included in your 10.1 million square foot portfolio, and if so what is the other listing, for example, Minneapolis you have 121 South Eighth Street and Plaza Seven, is 801 Marquette included in of those two or is it separate?

Hi, John. It is John Donahue. The answer is no. We have removed that from the $10.1 million while it is in redevelopment. And so that 128,000 square feet would be additional.

Okay, great. And then if I'm looking at your 20 largest tenants, can you refresh us on Northrop Grumman over in Chantilly, Virginia has got about 10 months left, Burger King has got about 15 months left, you have a big 180,000 square feet with the US government that expires in ’18 and then you have got Fannie Mae, can you talk about those tenants?

Absolutely John. There is no significant change or update on any of those existing tenants. As you know, expected departures include Burger King and Fannie Mae. And those are in the last quarter of 2018. We are in negotiations with the others. Nothing to announce yet, but we are engaged and hopefully will have some news next quarter.

Where is the US government in the 180,000 square feet if I can ask and then also we noticed that Northrop Grumman is paying $37, which seems like a very high rent for Chantilly?

Yes. The near-term expiration for the US government is the IRS in Denver, and again we have nothing to announce yet there, but we are engaged and then Northrop Grumman is a tenant that is engaged and nothing to announce yet. And yes, that rent is fairly high for Chantilly, but we will see what happens there.

Great. Thank you very much.

The next question is from Dave Rodgers of Baird. Please go ahead.

Good morning. John, I know you talked about the activity in leasing picking up a little bit in the third quarter here with the 120,000 of new and expansion space. I was wondering maybe if you can give us a breakdown of 2Q and 3Q leasing, the new leasing in particular, just kind of by market as you look particularly in the second and the third quarter?

Hi, Dave. Sure, I will see if I can answer that. For the second quarter, which was similar to the first quarter we had a fairly large percentage of the leasing occur in Minneapolis, and Dallas. They are two of our buildings that have rents that are slightly below our weighted average gross, and so that is what is showing the lease economics. We expect the leasing that occurs in our urban properties and the rest of our portfolio to be slightly higher than that, in the 29, 30 gross range or above 30. But the leasing that we are seeing coming to fruition for the third quarter that we expect to be executed are spread out among our core markets, and we will see probably an fairly even weighted balance. It is in all five. We have no single market that jumps out as being much larger than the other. And again those weighted average gross rents should be above or in place and above what we have been incurring in our transactions year-to-date, probably in the 29, 30 range.

Any of those leases on the 801 Marquette space?

No they are not.

Maybe shifting a little bit, Jeff you can talk a little bit more dispositions and just the environment out there, particularly for the non-core, it is good to see that we are seeing a little bit of an accelerated pace here in 2017, but I guess, as you lay the groundwork for additional sales in 2018, what portion of those do you think you can start to kind of offload more quickly as you move into next year?

Dave, Jeff. We are focused on this remaining 25% in the portfolio, and I'm not going to give acquisition or disposition guidance or acquisition guidance. But you are going to see us continue to work on that 25% when we find situations that present such as 120 East Baltimore. Looking ahead over the coming years that we can do better with the proceeds in our five core markets, and when pricing on the assets we think need a full value of what we think value is of properties. So you are going to see us keep chipping away, and I'm not going to give you guidance, but we have got that last 25%. We are focused on it and you are going to see us just keep working it down as well as when appropriate for their respective investors, our single asset investment.

Given where you are today, and since it didn't appear that you will need to do any kind of 1031 on that for tax purposes do you kind of feel like it is better to use that money for acquisitions or for debt reduction as you kind to continue to offload some of these non-core opportunistic assets?

This is George. Initially for debt reduction. As John Demeritt mentioned, we are talking with our banking group and working on things all the time there, and between that work, which if and when it comes to fruition we will announce those things. And dispositions currently, we are likely to take our disposition process and apply it there.

Great, thanks for the George, and then maybe last question from me and I do apologize if that 30 or 45 seconds of your comments to Mr. Guinee’s question just cut out for me, I don't know if anyone else had that problem, but I will ask it maybe in a completely different way, so I will get a slightly different answer, in the sense of next year's expirations, I think it is your largest year of lease expirations on your schedule, with again the largest or the second-highest average rental rate, clearly Northrop explained some of that. But overall as you look at next year, can you start to give us the sense of kind of what retention looks like and John, you talked about – you are engaged in discussions, but can you give us a sense of that tenure of those discussions in terms of downsizing, full-on renewals, expansion etcetera, some of that will be helpful with regard to the overall ’18 lease expiration cycle?

Yes, sure Dave. So tackling the first question, in regards to the amount of square feet, roughly – well, approximately 40% of the expirations are in the back end of the year, and as we mentioned, the known expirations include Burger King and Fannie Mae. That is a large part of it. We are optimistic and feel good about our chances of renewing a large percentage of the balance of it, because such a high percentage of the expiration is in the latter half of ’18, not much to announce there yet. As we said last quarter, before this year is out, we would like to lock up at least 50% of those expirations before calendar ’17 this over. And hopefully we will do that and more. In terms of the tenure or size of the downsizing, what have you for the most part we are not seeing significant reductions. We are seeing slight reductions. The U.S. government as you know, is trying to shed space. So we would be surprised if they downsize a little bit. And then the other large significant tenants for the most part are not downsizing, or not downsizing much. Hopefully that helps you.

Got it. Thanks.

The next question comes from Craig Kucera of FBR Capital Markets. Please go ahead.

Hi, good morning guys. Would like to circle back to the guidance, just so I'm clear, that does not include any impact from the disposition of 120 East Baltimore any sort of debt pay down, correct?

The guidance that we have given in the quarter does consider since we have East Baltimore under purchase and sell agreement – does consider East Baltimore. It does not consider any other capital transaction.

Got it. I know that there has been discussion about 801 Marquette maybe being a single tenant or potentially multi-tenant building, but can you talk about when you're looking at all the action and what's going on at that asset, where you could kind of handicap, where – what the tenant mix might be at this point? Or is it too early?

This is Will Friend, Craig. I think the level of activity we have right now in the project is currently about 400,000 square feet of deals. We have been looking at a couple that were actually trading proposals with, and it is trending right now towards a multi-tenant scenario. The building could accommodate easily a single tenant, but right now, just on all the proposals we are looking at, it looks more likely that it would be a multi-tenant scenario. So that is the direction that we are heading, which hopefully have the potential of some near-term occupancy, just because smaller deals take less time to get done than larger full building tenants.

Got it. And going back to the 120,000 of leases out for execution, when are those likely to take occupancy, and it is free rent on the order of three months, ballpark?

Craig, it is John, again. Those are spread out among the months of the rest of the year. I would say that the average number of free – the number of months of free rent has not changed dramatically over the last several quarters. So if the transactions are averaging – again, on average, 5 to 6 years, then, yes, we'll probably see 3 to 4 months of free rent. To the extent that they're longer transactions that may inch up a little bit. But I would say that the 120,000 square feet that we're talking about, it is spread out between quarter 3, quarter 4, quarter 1, with no large number hitting out of those – pretty spread out.

With the meaningful drop in rent at 909 Davis, can you tell us what the rent was previously for Houghton Mifflin and what it was renewed at?

Yes, there wasn't a significant reduction. The significant reduction there was in the square footage. I don't have the numbers on hand, but there was a slight roll down. I think the in-place rents were in the 18 to 19, triple net that range and now I think the straight line triple nets are in the 18 triple net range. Will does that sound right?

Right.

But I think what you might be seeing is the big reduction in square feet. We also – I am not sure if – you might be also looking at Citicorp in Northwest Point, where we were in a free rent period on a triple net lease, and that rent will pop next quarter, in the fourth quarter when the free rent burns off. Does that help you Craig, or did I not help you out there?

No. It does. I mean, when I look at that asset consistently being in the $34 to $35-plus range and average rent dropping to $26, I'm just trying to get some color on what is going on and when we might see that improve. And perhaps, it is the free rent you're referring to.

Yes. That's one of the pleasures of GAAP accounting. They won't let us straight line the recoveries on triple-net. So the free rent period really hurts, but you should see that pop up a little bit as the year goes on.

Got it, and one last one from me. You have had the Baltimore asset. I think you acquired about 10 years ago. Obviously a pretty significant impairment charge this quarter, I guess what drove the decision to sell that asset – clearly it is at such a discounts for which you are carrying it at and I guess rents have sort of slid from maybe the 24 to 22 range over the last several years, but I guess can you give us some color on maybe what drove that decision and just some color on that? Thanks.

Sure Craig. This is Jeff. We have owned 120 East Baltimore now for about 10 years. Baltimore never became a core market as the property and the market have faced their challenges over the 10 years. As we look at this property over the next 10 years continuing to own the property versus reinvesting proceeds into our five core markets over the next 10 years. The decision really came down to we believed that FSP can achieve stronger returns on this capital in our core markets over the coming years and that is what really guided us here.

Okay, thanks guys.

[Operator Instructions] The next question comes from John Kim of BMO Capital Markets. Please go ahead.

Thanks. Good morning. A couple of questions for John, I apologize if you already covered this, but on your BAML term loan, it looks like the base rate resets next month. Can you just walk us through the mechanics of what happens then?

We did a forward swap contract last year when we re-did the term loan, and so our spread – our LIBOR for the term loan will reset to 1.12% at the end of September of this year. It is currently at 75 days at this point. So we will see an increase of 35 basis points in our term loan interest rate really primarily in hitting the fourth quarter. And that forward swap will be in effect until September 27, 2021.

Okay. And then also on your revolver, it looks like you have a little over a couple of million dollars remaining, but I was wondering if there was any covenants on your other term loans that prevents you from borrowing at full capacity on your revolver?

It is really based on a calculation of unencumbered asset value and we don't have any hindrances there. And the other, the term loans that we do have, have all sort of the same covenants, all sort of [indiscernible] with one another, so that they work in lockstep together.

So based on that how much capacity do you have as of today – I'm just wondering how you fund your dividends going forward?

Well, I think we generate FFO-AFFO that covers a lot of it. In terms of the remaining availability on the line we have $205 million available there. We have an asset held for sale here that we will likely use that to pay down the debt and increase that liquidity to $230 million, $230 million. I think our AFFO is pretty close in the last few quarters. So hopefully I have answered your question.

Okay, great. Thank you.

There are no other questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to George Carter for any closing remarks.

I certainly want to thank everyone for tuning in to our second quarter earnings call. We are really looking forward to third and fourth quarter. We have got a lot of activity, lot of leasing activity going on and we are pretty pumped and optimistic about it. We look forward to talking to you next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.