Good day and welcome to the Franklin Street Properties Corp First Quarter 2018 Results Conference Call and Webcast. 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 Mr. Scott Carter, General Counsel. Please go ahead.

Good morning and welcome to the Franklin Street Properties First Quarter 2018 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, 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, 2017, which is on file with the SEC. In addition, these forward-looking statements represent the Company's expectations only as of today, May 2, 2018. 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 Demeritt. John?

Thank you, Scott, and good morning, everybody. On today's call, I'll begin with a brief overview of our first quarter results, and afterwards, our CEO, George Carter will discuss our performance in more detail and provide some of his remarks. John Donahue, our President of the Asset Management will then discuss recent leasing activities and Jeff Carter, our President and 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, supplemental package and 10-Q, which were filed with the SEC last night, and as Scott mentioned, can be found on our website. We reported funds from operations or FFO of $26.4 million or $0.25 per share for the first quarter of 2018. On our balance sheet at March 31, 2018 we had about $1.1 billon of unsecured debt outstanding and our debt service coverage ratio was about 3.7 times. From a liquidity standpoint, we had $502 million available on our revolver and $14.4 million in cash on our balance sheet for a total liquidity of $516.4 million at quarter end. In the fourth quarter last year, we completed debt transaction that termed out our debt and significantly increased the proportion of fixed rate debt to variable. At March 31, 2018, we have 77% of our debt at fixed rates. With our debt stack more termed out and our rates mostly fixed, we believe we have aligned our capital structure with a more long-term value add properties that we have in our five core markets. With that, I'll turn the call over to George. George?

Thank you, John. Good morning, everyone. As John said, for the first quarter of 2018, FSP's funds from operations or FFO totaled approximately $26.4 million or $0.25 per share. Adjusted funds from operations or AFFO for the same period totaled approximately $16.9 million or $0.16 per share. Dividends declared for the first quarter of 2018 were $9.7 million or $0.09 per share. I think there are three main meaningful takeaways from the first quarter of 2018 and moving into the second quarter, they may not be easily seen in the numbers. And the first one is that we are continuing to experience significant leasing activity within our property portfolio. That activity was very strong in quarters three and four of 2017 and it has continued in the first quarter of 2018. While executed leases in the first quarter of 2018 were modest, the potential activity from existing and new tenants has and continues to be very, very robust, absolutely significantly better than in 2017. And we anticipate higher leased percentages of the portfolio as 2018 continues. John Donahue, will give some more color to this in just a minute. Second point is that the energy markets of Houston and Denver have now not only stabilized, but are beginning to show real increases in potential tenant activity. The headwinds from these markets that we have experienced over the last several years appear to be in the early stages of becoming a tailwind. Key obviously will be oil prices continuing to stay stable, simply above the $50 per barrel mark as they have the last year and more recently above the $60 barrel mark. Toby Daley and Will Friend our asset managers in Houston and Denver are on this call and available to provide some perspective on the ground in those markets, if you are interested. And lastly, I would say that we have been getting many, many early lease renewal requests from our larger tenants. We are actively working on these opportunities and expect to be able to announce several of these larger deals or renewals – early renewals as the year progresses. And we believe this activity is happening because of the increased quality of our property portfolio, as more land-constraint urban infill environment. With that, let me now turn the call over to John Donahue, President of Property Management Company. John?

Thank you, George. Good morning, everyone. At the end of the first quarter, the FSP portfolio was 88.5% leased. We expect lease occupancy to increase over the next several quarters based on the healthy amount of current leasing activity across the entire portfolio. During the first quarter, we leased approximately 109,000 square feet. The modest total leased formalized during the first quarter were primarily due to decreased number of commitments from prospects through January and February, during which Corporate Americas appeared to hit the pause button on decisions. However, overall activity has been strong and now there are approximately 500,000 to 600,000 square feet of potential leases in amendments out for execution which borrowing any surprises or delays may bring our mid-year total to approximately 700,000 square feet. As a comparison, in the first half of calendar 2017, we had total leasing achieved of 476,000 square feet. At 801 Marquette, we are pleased to announce that we have executed a lease with an 18,000 square foot tenant for the first floor. The economic are in line with our pro- forma and the tenant anticipates taking occupancy in December. We also executed a lease with an operator for a full-service cafe located in the atrium with anticipated operations commencing this summer. Starting with building occupancy off the tenant locating on the first floor is an ideal situation that leaves us with a premium upper floors remaining for lease. We continue to have terrific touring activity and active discussions for prospects to lease the balance of the building and expect 801 Marquette to be substantially leased by year-end. There is ample upside remaining in our core portfolio, especially in Houston, Atlanta and Minneapolis. If the activity translates to leases in all five of our core markets, execute and are performing well in calendar 2018, then we believe the portfolio will reach 90% leased during the year. As we look out farther for next two years in calendar 2018 and 2019, we expect more net absorption from a higher percentage of new leasing which is expected to drive total portfolio occupancy to 92% and above. With that, I will turn over to Jeff Carter.

Thank you, John. Good morning, everyone. Our focus at FSP continues to be on Class A properties in urban and infill locations primarily within our core Sunbelt and Mountain West markets and on generating long-term property NOI growth and value creation. As we look forward, our primary efforts will continue to be focused on leasing and taping into potential upside in our vacancies and renewals. On the disposition and asset recycling front, FSP continues to monitor office property sales across the country and within our markets. FSP is committed to disposing off and recycling the proceeds of our non-core assets. And for that matter, any property in our portfolio whether advantages to do so, presently when we look across our non-core portfolio, we see the potential for enhancing value in a number of these properties for tenant, market and/or property specific reasons and so we do not anticipate significant dispositions from within this group at this moment. This will evolve and we will keep the market posted. We do however anticipate the potential for dispositions in our managed portfolio and we will keep the market informed. Additionally, in our view, we had made significant progress since 2014 in focusing our portfolio and have already accomplished much of our transition, with almost 80% of our square footage now located within our targeted four markets following dispositions and/or mortgage repayments of approximately $230 million during that time frame. Our expectation is to use any potential disposition proceeds received at this time to pay down debt. On the new investment front, at this time, FSP does not anticipate making new acquisition, but we continue to monitor and track opportunities within our markets. And with that, thank you for listening to our earnings conference call today. And at this time, we'd like to open up the call for any questions. Operator?

[Operator Instructions] The first question comes from Dick Schiller with Robert W. Baird.

Hey good morning guys. Couple of quick ones from me. The occupancy that you discussed John, heading up to 92% by year end, when do you think a lot of those leases will commence? Could you put it as back half weighted or mid-year weighted in?

Hey Dick, good morning. Just to clarify for everyone the comment was that we believe that we can get to 90% leased, looking out over the next two years, 92% above. But the things is, your question, the commencement dates of these leases, may which we had executed last year and going into here in the second quarter that we anticipate, those commencement dates are spread out over the coming 12 months. So, there won't be surge here over the next couple of quarters, but it will be fairly evenly spread out over the next 12 months.

Okay, that's helpful. Thank you. And then, you spoke about the delay in some of your capital recycling efforts, some of the – what's given you the motivation to hold back really on existing some of the markets. Appreciate that you are in 80% on a square footage basis in your five key markets, but you still have exposure in number of other cities. So, what gives you to pause to hitting the sale button on some of those?

Thank you Dick, it's not a pause. This is Jeff Carter. We're committed to disposing off and recycling the proceeds of our non-core assets. And as I said, really for that matter any property on our portfolio, once they just do so, but we do see the potential for upside and enhancing the value in a number of these properties, for both, tenant, market and even property specific reasons. And so, it's a pause, as you call it, but not in our mind, as we've always said to sell and dispose of the assets at the right time to do so. I'll give a couple of examples, for example our building in Miami and Burger King, we have a lot of interest in that property from potential buyers, but now it's not the time to sell it in our minds, we really the tenant enhance the value ourselves through the stabilization of that property following the tenant departure. Northern Virginia is another example. We've been in that market for many cycles since 2001 and we've seen many different cycles and we believe the potential exists in that market for improving conditions both in terms of investor demand and potentially tenant demand as the – at least the potential for increase end spending can change the dynamic on the ground with that market. We've got a property in Evanston, Illinois at 909 Davis. It's a terrific infill property in downtown Evanston, where we've got a lot of leasing momentum and a strong property and we think we can add value in that property. So, really the decision is not about anything, but the right time to transact when we feel like we've maximized value at the asset levels.

Okay, thank you, that's helpful. And last one from me, can you guys speak about co-working space at 801 Marquette and what other types of tenants are actively looking at this space?

Hey Dick, it's John again. Co-working certainly has come up as a perspective use at the property over the past 12 to 18 months. And for a myriad of reasons, it didn't work out for us. We continue to see activity across all sectors including co-working, technology, services, professional services and information services as well. You know. We think now the building is definitely going to multi-tenanted. We're just eager to build on the momentum and we don't have any predictions right now of which industry will occupy, but it's really broad based and it's such unique space and you know the unique opportunity with sort of edge city space, Brick and Timber if you will located in the heart of the city that's receiving a lot of interest.

The next question comes from Rob Stevenson with Janney.

Good morning, guys. What are you thinking that you will need to spend this year either in total or probably on a square foot basis in order to execute the leasing that you are currently seeing in front of you?

Hey Rob, it's John Donahue. Wow, that's a tough question to answer. On a square foot basis, we've seen the numbers in inch up especially due to the urban increase in our portfolio, whereas in previous years, the costs were approximately $4 to $4.50 per square foot per year. We saw those trend up closer to $5 and now inching over $5. So, to the extent that the majority of our leasing is in our high-quality assets in urban locations, I would say those costs are going to be between $5 to $6 per square foot, and then in our suburban locations, in non-core portfolio, those numbers might be significantly lower. If we do 1 million square feet or 2 million square feet, you know you just do the simple math there. It's hard to say exactly how much of that will be spent this year. And then also, there is always a lag, commissions hit right away, and then to the extent that you do large deals, the tenants may not request those TIs for a year or more. So, really hard to pin down what that capital hit will be in 2018 or 2019, but we hope it happens sooner.

Okay. And what is the capital that you guys are going to need to do what you want to do with the Burger King building?

The Blue Lagoon building that currently houses Burger King was originally constructed to be multi-tenanted. So, we don't expect a large amount of money to be spent on the capital side, face building side to bring it up a speed to the multi-tenanted, which we do expect to be multi-tenanted, although, we have both multi-tenant prospects and single building tenant prospect. So, it's not a large number as we talked about in prior quarters, not a material number that would be worthy of mentioning.

Okay. Then last for me, you guys talked about using any disposition proceeds to reduce debt throughout the year. How are you guys thinking about the potential returns from stock repurchases with the stock under $8 these days?

This is John Demeritt, happy to answer that question. Right now we're looking at our net debt to EBITDA ratio and it's been above 7 and our goal is to get it below 7.0, and we are going to use our operating cash and application of proceeds from dispositions and loan repayments to do that. To repurchase stock at this point, with increased leverage and it doesn't make sense for us to do that with our leverage where it's today.

Okay. Thanks guys.

[Operator Instructions] The next question comes from Craig Kucera with B.Riley FBR.

Hi. Good morning guys. I saw recently that you've listed 303 East Wacker. What are your expected net proceeds from that sale?

Craig, this is George. We are not at this point, wanting to talk about that for mostly competitive reasons. It has just been listed in the market. And we are also are a partial equity owner there as you know along with other shareholders. And at this time to give that kind of information out, we think is not appropriate. We certainly will talk about it in the quarter if and when our property sale occurs.

Got it. And so, we should assume that any proceeds that do come from that sale once it eventually closes will be utilized to reduce debt, correct?

Correct.

Oaky. Do you have any plans this year to list other properties such as Grand Boulevard, I think you have a 27% interest?

I think there are number of the single-asset lease to managed properties, that could/would be listed and that we either have equity interest in or loan too, and again at this point if any of those properties are in fact listed and sold, we will anticipate applying any proceeds within the equity or loan proceeds to pay down our debt.

Okay, one more from me. You mentioned in your prepared comments that you've been having significant leasing activity and this has really been a theme, I think for probably the last year or so, but we've seen leasing kind of go backwards this quarter, it's down about 100 basis points year-over-year and I think the occupancy is now at a kind of new low. I guess what gives you the confidence that you're going to hit 90% when you look at sort of the renewal environment and kind of what's been happening over the past year or so? Is something changing in the marketplace? I guess I'd like some color there.

Sure. Hi Craig, it's John Donahue. So, I think I would start off by saying that we are really not that far of 90% at 88.5% leased. I think, yes, the activity has been strong. Negotiations have taken a long time and the progress has not been linear. It was slow in the first half of 2017 and furious in – lot of the progress in the second half of 2017, and a slight step backwards here in Q1 of 2018 and we expect a large step forward in Q2 of 2018, hopefully. We need all five core markets to be working in unison and that appears to be happening. Huston in particular appears to have troughed and stabilized, and we've had three quarters in a row that have been stable and a slight step forward here in Q1 and we have leases that are being negotiated right now that that could bring us to 80% in Huston in Q2 or slightly thereafter. So that's big for us. And then, collectively the core five markets, we have no reason to believe that they'll talk a step backwards here over the six months. So, we are bullish that we are going to get that 90% here over the next six months, borrowing any surprises in timing. Also as George touched on, we've talked about it at NAREIT a couple of times. As our portfolio has improved in quality over the last couple of years, we've been seeing a trend of renewals, the big anchor tenants at a higher percentage. With those percentages, we're in the 50% range a few years ago and into 2016. In 2017 and 2018, we expect those large anchor tenants to renew at a higher percentage, a better retention ratio. And so, that's what we are seeing, that's what we're hearing, we're in negotiations with a handful of them now. So we are bullish on getting to that 90% this year and see where it goes in 2019.

Okay. Thanks guys.

This concludes our question-and-answer session. I would like to turn the conference back over to George Carter for any closing remarks.

Just like to thank everyone for listening for our first quarter 2018 earnings call. Hope to see many of you at REITweek in New York soon. Thank you.

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