Good day and welcome to the Franklin Street Properties Corporation Third Quarter 2017 Earnings 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 third 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. 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 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, November 1, 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. Now, I will turn the call over to John. John?

Thank you, Scott and good morning everyone. On today’s call, I will begin with a brief overview of our third quarter results and talk a bit about our debt transactions. Afterwards, George Carter will discuss our performance in more detail and provide some of his remarks. John Donahue will also discuss recent leasing activities. Jeff Carter will discuss our investment and disposition activities. And following that, we will be happy to take your questions. As a reminder, our comments today will refer to our earnings release, supplemental package and 10-Q, which were all filed with the SEC last night and as Scott mentioned, can be found on our website. We have reported funds from operations or FFO of $28 million or $0.26 per share for the third quarter of 2017. Compared to the third quarter of 2016, FFO was up about $1.3 million, though it was flat on a per share basis from somewhat higher weighted average shares than we had last year. The FFO increase was primarily from the three acquisitions we made in June, August and December of 2016. Turning to our balance sheet, at September 30, 2017, we had about $1.1 billion of unsecured debt outstanding and our debt-to-service coverage ratio was about 4.3 times. From a liquidity standpoint, we have $200 million available on the revolver at the end of Q3, but more importantly, we recast our credit facility and entered into a private placement of debt last week. We issued a press release about that last Tuesday, which has a great pro forma year end debt schedule that fact I think really illustrates the impact of these transactions and I suggest you take a look at that. Some key points about this are first, we did not increase leverage from these transactions, so we did…

Thank you, John and welcome to Franklin Street Properties third quarter 2017 earnings call. Since this is the last earnings call we will have in 2017, I thought it might be worthwhile to look back to our first earnings call of 2017 and try to give some of our perspective as to what’s been happening at FSP and how we are doing. The number one objective that we believe we could achieve in 2017 was a transition back to FFO growth again that could be long-term and sustainable. And so we add real value to our longer life, more land constrained CBD and urban infill office properties located within our 5 core markets. We felt the long occurring transformation of our property portfolio from a geographically diverse eclectic set of suburban office assets to a more focused, more vertical set of urban office assets it finally reached the tipping point, with approximately 78% of our square footage now located within those 5 core markets. Our FFO per share had declined from a peak of $1.12 per share in 2014 when the property portfolio then was about 94% leased to $1.07 in 2015 and $1.03 per share last year 2016. This approximately 8% reduction in FFO per share over that 2-year period was primarily a result of timing differences between receiving suburban property disposition proceeds from sales and redeployment of those proceeds into targeted acquisitions as well as cap rate differentials that generally exist between suburban properties we were selling and the urban office properties we were buying. The vast majority of our urban office properties acquired during this transformation have meaningful 2 to 5-year value-add components to them, such as near-term larger tenant lease expirations, which inherently carry with them a level of risk which resulted in these properties being…

Thank you, George. Good morning, everyone. At the end of the third quarter, the portfolio was 88.7% leased. As of year end 2016, the portfolio was 89.3% leased. We believe the portfolio leased occupancy will be higher as of year end 2017 approaching 90%. As expected, the third quarter was our strongest leasing quarter of the year-to-date with 460,000 square feet of total leases. Approximately, 124,000 square feet were new leases and expansions. That was the second best quarter of total leasing in the last 3 years. For the 9 months to-date, we have leased 936,000 square feet in total and 291,000 square feet were new leases and expansions. We believe the fourth quarter had the potential to be even better. There are currently more than 300,000 square feet of high probability deals with executed letters of intent and/or in leases. Roughly, half of that amount would be with new tenants. There is an additional 200,000 square feet of potential leases that are very close to the letter of intent phase, if successful with a very high batting average, barring any surprises and assuming that we closed the majority of these potential leases, the quarter may exceed 500,000 square feet of total leasing. So, the total year of leasing might finish in the range of 1.3 million square feet to 1.5 million square feet. We expect 3 of the 5 core markets to be in the range of 90% to 93% leased within the next 2 to 3 months. FSP’s Dallas portfolio has been very strong, now over 92% leased and likely to reach 93% or higher by year end. Minneapolis is now at a 2-year high, 89.7% leased and we had increased lease occupancy in four straight quarters and is expected to be over 90% leased by year end. Denver, our largest core market has improved this year with three straight quarters of increasing leased occupancy, which is now at a 2-year high at 89.1%. We believe Denver maybe 89% leased within the next 2 to 3 months. Our Atlanta portfolio dropped to 85.6% leased at quarter end. The suburban infill properties have been experiencing a healthy amount of churn during the past four quarters. We continue to work through it and leased occupancy for Overton Park and the 2 Ravinias are expected to rise during 2018. Our Midtown Atlanta buildings are currently 98% leased and we have made progress on renewing the anchor tenants. FSP’s Houston portfolio appears to have turned the corner. During the third quarter, leased occupancy improved from 73.9% to 76.4%. There has been great activity at Park 10 recently and we believe our Houston portfolio has a great chance to be in the range of 80% to 85% leased by year end. With that, I will turn it over to Jeff Carter.

Thank you, John. Good morning, everyone. Our focus at FSP is to generate long-term FFO growth and to create value for our shareholders. With this in mind, FSP saw positive third quarter. First, our recapitalization of our debt stack provides the company with greater flexibility and matches well with our portfolio composition of longer life, infill and urban real estate assets. Secondly, and of key importance to long-term FFO growth, the third quarter saw our strongest leasing velocity this year, including in vacant space. We are optimistic that leasing progress will continue in the quarters ahead. As we look forward, our efforts remain number one on leasing and tapping into potential upside in our vacancies, number two through select new property investments, number three through select new development and redevelopment efforts, and number four through select disposition efforts of non-core assets that further FSP’s portfolio transition into infill and urban properties. On the acquisition front, FSP is committed to growing in our core markets with high-quality urban and infill opportunities. We continue to look at a range of opportunities that include value-add core plus and potential development or redevelopment. Our focus in our core markets is leading to stronger local insights into potential opportunities that include off-market transactions. The majority of opportunities during 2017 to-date have been in Minneapolis, Denver and Atlanta and with fewer in Dallas, Houston at this time remains slow for investment sales. We will continue to keep the market posted with any updates. On the disposition and asset recycling front to-date, during calendar year ‘17, FSP is disclosed of 3 non-core assets totaling approximately $48 million in gross proceeds. To-date since 2014, FSP has sold properties or had mortgages repaid to us of approximately $230 million and we continue to work on and look into additional non-core assets for potential disposition should satisfactory pricing and values be achieved and we will continue to keep the market posted on that front. But with that, thank you for listening to our earnings conference call today. And at this time, I would like to open up the call for any questions. Thank you, operator.

Thank you. [Operator Instructions] Our first question will come from John Guinee of Stifel. Please go ahead.

Okay. John Guinee here. Thank you. Few quick questions. First, debt cost with the capital restack is going up roughly how many basis points for the whole – your whole debt stack? That’s one question. Second question, what’s the secret sauce to gaining so much occupancy, is it down on rental rate or up on TIs and leasing commission packages? And then three, it looks like you have about 13% rollovers, 1.3 million square feet in each of 2018 and 2019 and what do you think about your retention of that 2.6 million square feet?

Hi, John. This is John Demeritt. I will answer your debt question first and then John Donahue can pickup the real estate questions. I don’t have an actual basis point number to quote on that, but on Page 12 of the supplemental report we filed last night, I put in some information about the deferred financing costs and the facility fees on an annualized basis and you could look at those to model it. Some of that basis point calculation would be based on how much you think would be drawn in the revolver. Certainly, no doubt, that at least you will know the dollar amounts, okay. Okay. And I will pass it to John for the other questions.

Hi, good morning, John. I will tackle the secret to leasing first, why do we have the progress and the short answer is demand and able to finalize deals that have been in the works for quite a bit of times, 6 to 12 months or longer in some cases. And then we believe that the energy markets have turned the corner a bit, especially for our properties in Denver, in Houston in particular and so we have been able to finalize and have a better average, if you will, over the last few months. So, has there been a tick up in TI costs and concessions, yes, but not dramatically so. We are still in the same track where we are in between $4 and $5 per square foot per year and have we needed to cave on rental rates, not necessarily so, some of our smaller markets in Minneapolis, where we did a lot of leasing in the first two quarters, the rental rates for the portfolio appeared to be down, but that’s because we did leasing in smaller markets. Rental rates are little bit higher for this quarter and we expect them to be higher in the fourth quarter, because we are doing more leasing in our other core markets where we have the highest rental rates. So, I don’t think there is any secret sauce, it’s just the combination of demand in the energy markets and we are making progress. In regards to the rollover, it’s sort of a long answer, but bear with me, if we say that we have roughly 13% of the total portfolio with expirations in calendar 2018, there are 4 significant tenants expiring that makeup almost a roughly half of that total. Both Northrop Grumman and the IRS are engaged and…

Great. Thank you.

Our next question will come from Dave Rodgers of Baird. Please go ahead.

Yes, good morning, guys. Maybe just following up on the leasing comments. Can you talk a little bit about the activity that you are seeing in Minneapolis with the TCF vacancies and the product that you have there?

Sure. Good morning, Dave. Minneapolis has been a great performer over the last 4, 5 quarters And we have backfilled a huge percentage of the TCF space that was in 121 South Eighth and we are excited about 801 Marquette. Will Friend is here. So, I will turn it over to him to give you a little bit more color, but we are very excited about what’s happening in Minneapolis. Go ahead, Will.

Dave, Will Friend here. During the third quarter of activity for 801 for the vacancy there remained very strong. We have approximately 300,000 square feet of activity from a good and diverse cross-section of user types, architectural and engineering, TAC insurance, hospitality and healthcare to name a few. So we are encouraged by the diversity of the type of users that are looking at the space. Of that 300,000 square feet we are actually trading proposals with several prospects representing about 25% of the space or 35,000 square feet. So, it’s nice to be engaged with prospects there and touring about 250,000 square feet of prospects at the same time for scheduling meetings and towards with others. So, again, the activity remains strong. It’s a little too early to speculate on any specific deals, those that were in discussions with, but based on the current activity and feedback we are getting, we believe we will have signed leases for 20% to 30% of projects sometime over the next 3 to 6 months with the FFO related to those leases following sometime in the second half of next year. We do expect more leasing to follow in 2018. So, the timing of the lease-up and more meaningful FFO will depend in part on whether we multi-tenant the project or lease it to a single user. Right now, it’s looks like – I think it is trending towards multi-tenanting, which means it’s a little bit – it’s smaller deals, but those tend to move a little more quickly, where the larger deals have a longer horizon out there. So, timing is a little hard to track, but we feel really good based on the activity we have got right now and are confident that we will convert some on these prospects in the next 3 to 6 months and get the momentum going or keep the momentum going I should say.

Okay, thanks for the color on that. John Demeritt, did you guys have any one-time cost, you took your FFO guidance to the low end of the prior range in the quarter, were there any one-time refi cost in there increasing amortization related to the refi that you did?

Yes, there was an estimate of some of that – some of the legal fees and other things we need to write off for the amendments that we did. Good part of it’s been capitalized as well, but there was an opportunity in there for it, yes.

I mean, is that a recurring impact as we think about 2018?

No. I think if you look at the supplemental we did last night on Page 12, I laid out what I think the deferred financing cost will be annually and what the new facility costs will be annually. So, I think that will cover it. And then a couple of the other key points are on the revolver, we decreased the spread on that 5 basis points, so we have some savings there. And on the term loan, we decreased the spread 10 basis points on that. So, we will have some savings there that will offset some of those are recurring deferred financing costs and facility fees. So, I think that will give you the information for the model. And then the other thing is on the press release that we did last week, I put a pro forma debt chart there and that gives the rates and the spreads for all the debt, so that’s – I think that will be helpful for you guys to model it.

Okay, thanks. Lastly on Jeff, can you talk more about the cap rate on Baltimore, was that stabilized or in-place if you can give kind of the details around that number? And then just more broadly how active you are in the disposition market right now and how quickly we might expect you to kind of cycle through the remaining non-core assets?

Sure. The in-place cap rate on Baltimore was just about 5.8 cap rate and that was completed October 20. As we look at, we are actively exploring potential dispositions and looking at other potential sales, we are committed to growing in our markets and dispositions is a key part of that. We expect to continue to chip away over time that the remaining roughly 22% of properties that are in our non-core markets when appropriate pricing and value as a result and importantly, our expectation there as you know is to continue to reinvest those proceeds into more infill and urban properties in our markets. So I think you are just going to see us keep chipping away at it. We are working on other dispositions now and I will keep you guys posted if pricing meets expectations.

Okay, thank you.

Our next question will come from Rob Stevenson of Janney. Please go ahead.

Good morning, guys. With Marquette now done, I mean, when you take a look over the next 9 to 12 months, any sort of major capital improvement plans that you are expecting to undertake throughout the portfolio?

For 801 Marquette, there is no significant cost remaining other than the tenanting of it obviously. As far as other properties that need to be repositioned with significant capital, we don’t have anything right now that is large. Next year into ‘19 we will be re-tenanting the Blue Lagoon property that we just talked about with Burger King and we expect that to be multi-tenanted, we don’t know if it will be 2 tenants or 10 tenants, but that will have some cost, but on the scale size of 801 Marquette there is nothing on the horizon.

No, but I mean just in terms of sort of normal sort of repositioning sort of more normal lobbies and mechanicals and common space and things like that mean anything of size maybe not to Marquette’s level, but anything of size going on in sort of typical 5 to 10-year refreshes that we should be expecting in 2018 at this point besides Blue Lagoon?

The short answer Rob is no. We haven’t had any acquisitions since the Dominion Towers property. So, there are no large numbers. Park 10 has a big block of space, but the property show well and we don’t expect anything significant there. If you multi-tenant the floor at any particular building, obviously you have corridors and lobbies and things, but I believe to answer your question, are there big numbers and the answer is no.

Okay. And then lastly on Houston in terms of the activity there, was that well underway and far down the road before the hurricanes or have you guys gotten any benefit from the fact that even though your properties are all on the West side and less exposure and sort of damage over there bringing you potential new clients?

Thanks, Rob. I am actually going to let Toby Daley answer that question. Go ahead Toby.

Yes, Rob. We had virtually no damage. Actually, we had no damage as a result of the aftermath of Harvey. And in fact most of the damage that did result was in the West side of Houston, near the Addicks and Barker reservoirs along Buffalo Bayou, but we were very fortunate and there is very little impact on office buildings, there were a few. So as a result there weren’t just many tenant seeking temporary or permanent homes as result of the flooding damage. So we did not see a great uptick of tenants looking for new space as a result of the flooding. And so the activity that we did achieve during Q3 which is normal course of business and we are very much back to business during this Q4, because I think I have about 150,000 square feet of leases out already for Q4 in Houston.

Do you think that some of that is benefiting from the fact that you didn’t have any damage where people can see implanting for the next one to make sure that they are not in an area where you are going go to go end up getting massive flooding and things of that nature?

Yes.

Or somehow its underway?

That’s actually good point, Rob. We are working with one large tenant and that was very much a factor for them, they went out to reassess their buildings during the research and our building kind of a boost from surviving that storm well. So, yes then that was helpful.

Okay. Alright. Thanks, guys.

Our next question will come from Craig Kucera with FBR Capital Markets. Please go ahead.

Hi, good morning, guys. Just want to continue the discussion on Houston, I feel like in the past you mentioned that earlier on so it was some of the larger users that we’re looking for larger space, larger companies. Is that still the case as far as what’s driving the driving the demand or have you seen any sort of recovery for people that we’re looking for smaller – smaller space that’s out there?

Rob right, Craig sorry right now we are seeing a pretty much 50-50 mix of small and large tenants in Houston. So everybody seems to be back out and looking for lobby space. So, there is the 150,000 square feet that I have out right now are a combination of large and small tenants.

Okay, great. And based on your earlier commentary you anticipate that you will be able to achieve something on the order of maybe 8% to 10% spreads on a GAAP basis from where you have been as leasing activity moves forward?

I think the answer there, Craig is yes. We continue to increase the weighted average rents, because the largest percentage of vacancies in our core portfolio and so I believe that will be the case going into 2018.

Okay. And one more for me, circling back to 801 Marquette, I guess at this point when do you guys think you are likely to have an FFO impact from that asset kind of based on what you are seeing in the market today?

Well, the answer there is very similar to what we have been saying, we are holding and expecting that we will have some meaningful FFO contribution in 2018 likely in the back half of 2018. And I wish I had a crystal ball to tell you if it was going to be single tenanted, two tenanted or if we are going to have 10 tenants and the timing of FFO was largely dependent upon the size or sizes of the tenants. So right now, we believe it will be multi-tenanted, let’s just say, it’s about 5 or 6 tenants and so we should have some meaningful FFO contribution in the second half of the year just don’t know what the exact timing is.

Okay, thanks.

[Operator Instructions] Our next question will come from John Kim of BMO Capital Markets. Please go ahead.

Thanks. Good morning. George, in your prepared remarks, you discussed in optimistic view FFO growth in 2018, I know you are not giving official guidance, but can you discuss the work order of magnitude of the growth you expect to achieve?

Hi, John. No, I can’t if I could I will give the guidance right now. And so we have so much in the Q right now as John Donahue has said that I think will become very evident by year end and that will really help us give guidance that is meaningful. The only thing I’d say right now would be very dependent upon what’s going to happen really over the next 2 months, but standing back from it and looking at possibilities, we are very confident that we will continue our FFO growth. So, we turned the corner in ‘17, like to have turned it harder, definitely had slower leasing velocity in the first half of the year than we have hoped for, but that leasing velocity has picked up a lot in the third quarter and looks very strong in the fourth quarter, we should be able to continue our FFO growth into ‘18. We will give you that range – guidance range as soon as we put the numbers together.

I am trying to tie that into non-core asset sales, because imagine it’s going to be dilutive, but do you expect to be a net seller next year or net acquirer or sort of even?

I think from my pure disposition and acquisition proceeds allocation I think will be fairly neutral little acquire with disposition proceeds as much as we dispose of accretive or dilutive in that process will remain to be seen, most of our remaining assets will be considered for disposition of the loss of five early selling at cap rates and it depends only on the acquisition of both how much value add opportunities there is there how quickly that value add opportunities shows itself versus more stabilized as what’s kind of cap rate differential we will experience we generally go to experience a CAPREIT different than our suburban development of between 100 to 300 basis points.

Okay. And then just circling back on your prior comments, so the amount of leasing activity in the third quarter you expect based on your discussions in your, I guess, leasing pipeline that, that activity is going to rollover to this quarter in 2018?

Yes. That’s correct.

And then John Donahue I think you went through the four major expirations in 2018 which included Burger King, Fannie Mae and a couple of others, but can you just remind us what markets those tenants are in?

Yes, absolutely. Northrop Grumman is in Northern Virginia market, IRS is in the Denver market, Burger King is in Miami and Fannie Mae is in Dallas.

Got it. Okay, thank you.

You’re welcome.

[Operator Instructions] Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. George Carter for any closing remarks.

Thank you very much for joining into the earnings call. We appreciate it. Hope to see many of you at REIT World in Dallas in mid-November. Thank you.

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