Good morning, and welcome to the Franklin Street Properties’ Fourth Quarter and Full-year 2023 Earnings Call. Joining me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our President and Chief Investment Officer; and John Donahue, President of FSP Property Management.

Also joining me this morning are Toby Daley and Will Friend, Executive Vice President of FSP Property Management. Please note that various remarks that we may make about future expectations, plans and prospects for the company may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2023, which is on file with the SEC. In addition, these forward-looking statements represent the Company’s expectations only as of today, February 27, 2024.

While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company’s estimates or views as of any date subsequent to today.

At times during this call, we may refer to funds from operations or FFO. A reconciliation of FFO and other non-GAAP financial measures to GAAP net income are contained in yesterday’s press release, which is available on the Investor Relations section of our website at www.fspreit.com.

Now I will turn the call over to John Demeritt. John?

Thank you, Scott, and good morning, everyone. I’m going to give a brief overview of our fourth quarter and full-year results.

Afterwards, and I will pass the call to George for his thoughts. As a reminder, our comments today will refer to our earnings release, supplemental package and 10-K, which, as Scott mentioned, can be found on our website and were filed last night.

We reported our funds from operations or FFO of about $6.9 million or $0.07 per share for the fourth quarter and about $30 million or $0.29 per share for the full-year of 2023.We reported GAAP net income of about $3.6 million or $0.03 per share for the fourth quarter and a GAAP net loss of about $48.1 million or $0.47 per share for the full-year of 2023. Our strategy has been and continues to be to make dispositions and to use the proceeds primarily to repay our lenders.

We are pleased to report that we have extended the maturities of our debt through April 1, 2026. This will enable us to have more time to continue dispositions and debt repayments.

We very much appreciate the support and got 100% participation on these extensions from our long-standing lender groups. We think the extensions align well with our current footprint and continued effort to reduce or eliminate debt.

Immediately following the closing of the extensions, we had $303 million of total debt that remains outstanding and about $39.2 million in cash and cash equivalents after having made $102 million worth of debt repayments and paying for related transaction closing costs, including accrued interest. We started the debt repayment program in the fourth quarter of 2020 when we had about $1 million in unsecured debt and have since repaid about $700 million of that debt in about the last three-years.

We finished 2023 at a net debt-to-EBITDA ratio of 5.3 times, and our debt service coverage ratio for the fourth quarter was 2.1 times. These calculations are disclosed in our supplemental filing.

With that, I will turn the call over to George. George?

Thank you, John. And again, welcome to Franklin Street Properties’ Fourth Quarter full-year 2023 Earnings Call.

During the fourth quarter of 2023, we sold two office properties for aggregate gross proceeds of $116 million. Subsequent to December 31, 2023, on January 26, 2024, we sold an additional office property for gross proceeds of $35 million.

Collectively, these dispositions resulted in aggregate gross proceeds of approximately 151 million. Since December 2020, our dispositions have resulted in aggregate gross proceeds of approximately one billion and reflect an average sales price per square foot of approximately $217.

As a result of our recent property dispositions and our ongoing operations, on February 21, 2024, we repaid approximately 102 million of our debt and entered into amendments with all of our lenders on all of our outstanding debt facilities, pursuant to which all of our debt now matures on April 1, 2026. Since the beginning of our property disposition program, a little over three-years ago, we have repaid approximately 70% of our total debt, down to a current outstanding balance of 303 million.

We believe this debt reduction has reduced risk to all FSP stakeholders in this currently challenged and uncertain office property, while increasing the quality and longer-term potential of their continued investment. We currently have approximately 5,265,000 square feet directly owned property in our portfolio, of which our total indebtedness of 303 million represents approximately $58 per square foot of that value.

With meaningful progress on deleveraging our balance sheet having been made and a strong value growth potential that we believe is embedded in our existing property portfolio, we will continue to search for the best opportunities and times to generate additional new sources and paths of shareholder value that could potentially enhance growth in FSP’s stock price. Now for more color on our leasing activity, I will turn the call over to John Donahue, President of FSP Property Management Corp.

John?

Thank you, George. Good morning, everyone.

The FSP directly owned portfolio was approximately 74.0% leased at the end of the fourth quarter compared to 74.8% leased at the end of the third quarter and 75.6% leased as of year-end 2022. The decreases in leased occupancy were attributable to 4 property dispositions during the year, and due to lease expirations in multiple markets, including Denver and Minneapolis among others.

Economic occupancy of the directly owned portfolio was approximately 70.1% at the end of the fourth quarter compared to 71.9% at the end of the third quarter. The decrease was primarily attributable to property dispositions and expiring leases.

FSP finalized approximately 706,000 square feet of total leasing during the full calendar year of 2023, which included approximately 478,000 square feet of renewals and expansions, along with 228,000 square feet of new tenant leases. As a comparison, FSP finalized approximately 435,000 square feet of total leasing during calendar 2022.

The 706,000 square feet for 2023 represents an increase of 62% in total leasing year-over-year. At the end of 2022, scheduled lease expirations for calendar 2023 were approximately 398,000 square feet.

The 706,000 square feet of total leasing was 77% greater than scheduled lease expirations. FSP is currently tracking over 600,000 square feet of prospective new tenants, including approximately 300,000 square feet of prospects that have identified FSP assets on their respective shortlists.

The positive trends in demand have continued in FSP suburban markets including Houston, Dallas and Richmond. Lease expirations for 2024 total approximately 412,000 square feet as of January after the sale of Collins Crossing.

The 412,000 square feet represents approximately 7.8% of FSP’s directly owned portfolio. FSP is currently engaged with existing tenants regarding potential renewals that total approximately 400,000 square feet.

Thank you. I will now turn it over to Jeff Carter.

Jeffrey Carter Thank you, John, and good morning, everyone. I will be discussing our disposition activities during the fourth quarter of 2023 as well as into the start of 2024, as FSP continues our work to selectively sell properties with the objective of using the majority of net proceeds to further reduce indebtedness.

I will also discuss current conditions within the investment sales marketplace for office properties, which influences the pace and scope of disposition activities. During the fourth quarter of 2023 and into the start of the first quarter of 2024, FSP sold three properties totaling approximately $151 million.

More specifically, during the fourth quarter, on October 26, FSP sold our property known as One legacy Circle in Greater Dallas for $48 million. Additionally, on December 5, FSP sold our property known as Blue Lagoon in Miami, Florida, for approximately $68 million.

And subsequent to the close of the fourth quarter, in January of 2024, FSP closed on the sale of our property known as Collins Crossing in Greater Dallas, Texas, for approximately $35 million. As we have reported over recent quarters, the market for office property sales and financings remains highly challenged and in particular, with respect to procuring the necessary capital to purchase larger office properties and to our bulk office portfolios, where national sales volumes have dropped materially.

There are certainly fewer buyers than in the past and not unexpectedly, there are also a number of buyers that are seeking deeply discounted pricing, but there are also buyers who have an eye towards the longer-term value and growth proposition of the office asset class. And we will continue to work diligently to find just such groups, which remains a key focus here at FSP.

The currently constricted environment for liquidity has resulted in very difficult conditions for buyers in their sourcing of both potential debt and equity capital, which when combined with the rise in interest rates and the post-COVID office environment are primarily responsible for the significant decline in national sales volume. Recent talk about interest rate stabilization or even potential rate decreases have yet to reflect in actual sales comparables or volumes and will bear watching over the course of 2024 and beyond.

Given the highly competitive and challenged investment sales environment, and the higher-than-normal number of buyers seeking distressed assets, we believe that the interests of our shareholders are currently best served by not highlighting prospective disposition information beyond what is contained in our current filings. To be clear, our objective is to maximize achieved values on all property sales for our shareholders, and we strongly believe that in this present investment climate that being cautious with details that have even the possibility of forming potential sales efforts is beneficial to that objective.

Importantly, FSP continues to see real interest from buyers as certain investors continue to seek high-quality and well-located office properties, and we are optimistic that we will continue to make progress on prospective select dispositions during 2024. We will look forward to keeping the market informed as and when appropriate.

And with that, we thank you for listening to our earnings conference call today. And now at this time, we would like to open up the call for any questions.

Ellie?

Regarding the $102 million debt repayment in February, why was it fairly evenly spread across the four tranches of debt instead of repaying the highest cost? Please bear with me; I think it was 8.5% at December 31st.

And regarding that, are there any prepayment penalties or limits on paying off any areas of tranches of debt given the recent amendments?

This is John Demeritt; I will try to answer your questions. The $102 million was spread suit against all tranches of debt because that is what we negotiated with the lenders as part of the process.

And that is just how the deal ended up being done, frankly. Prepayment penalties, we don’t really have those as long as we use disposition proceeds to repay debt and have a couple of other ways of doing that with equity offerings and what have you.

There may be some make-whole provisions with the private placement debt if we simply try to repay those. So our plan is to continue to dispose of the assets and pay down debt very pursuit.

I hope that is helpful.

It is helpful. Also, regarding the big known move-outs in 2024, I guess, what do we need to be aware of from a modeling perspective and are there any assets at this point where you plan to see a major occupancy boost in 2024 for leasing?

Steve, it is John Donahue. We don’t have any significant departures that are known for calendar 2024.

If you look at our largest tenants list, Page 18 of the supplemental, we do have one tenant that is at Innsbrook, GE that will, in fact, vacate. But we have already re-leased that space with another tenant to backfill it.

So we won’t incur a major expiration there. In regards to what we are expecting here over the next six to 12-months, we have seen steady improving demand in the suburbs of Houston.

We have seen terrific demand in Richmond, small incremental demand coming in Downtown Denver and in suburban Denver. And then we hope to see some improvement in the remaining assets in Dallas.

But over the last few months and into the first quarter here with activity, Houston has been very, very strong with leasing activity.

And just lastly, now pivoting to property taxes. Has your team actively engaged in conversations with different municipalities to appeal assessed tax valuations?

And if so, how has the process been?

Yes, of course. We have appealed nearly all assessed values over historically and currently with great success.

We have seen our overall operating expenses at the properties remain approximately $13 per square foot. Actually, they decreased about $0.05 here over the last calendar year compared to the previous year.

And taxes and insurance, which you can find in the supplemental on Page 5, have actually gone down from $5.17 per square foot in calendar 2022 to about $4.54 in calendar 2023. So we are doing very well on that front.

And then overall operating expenses have remained relatively flat despite inflation on salaries and so forth.

Just want to thank everyone for tuning in and listening to the call. We are looking forward to 2024, and we are certainly feeling very, very positive about our debt level now and opportunities that may present themselves in 2024 to us.

So look forward to talking to you next quarter. Thank you.