Good day, and welcome to the Franklin Street Properties Corp. Fourth Quarter 2014 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 fourth quarter 2014 earnings call. With me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeffrey Carter, our Chief Investment Officer, Janet Notopoulos, President of FSP Property Management and Toby Daley, Vice President and Regional Director. 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, 2014, which is on file with the SEC. In addition, these forward-looking statements represent the company’s expectations only as of today, February 18, 2015. 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’ll now turn the call over to John Demeritt. John?

Thank you, Scott, and good morning, everyone. Welcome to our fourth quarter 2014 earnings call. On today’s call, I’ll begin with a brief summary of our quarterly results, our financing updates and I’ll cover some other topics and then after my remarks, our CEO, George Carter, will discuss the quarter in more detail and provide an update on our operations and overall strategy as we look ahead to 2015. As a reminder, our comments today will refer to the earnings release, supplemental package and 10-K, all of which were filed yesterday and, as Scott just mentioned can be found on our website at www.franklinstreetproperties.com. For the fourth quarter, we reported a decrease in funds from operations or FFO of about $1.7 million year-over-year to $27.5 million for the fourth quarter. The decreases was primarily from lower property income as a result of a decrease in our average space lased during the fourth quarter of 2014 which was 93% compared to 94% in the fourth quarter of 2013. We also had higher personnel expenses and IT costs in the fourth quarter. These costs increased some as a result of the growth of our portfolio from acquisitions made in 2013 and to have this infrastructure in place for the future. The impact of these decreases was partially offset by a lower interest cost for Q4 and our FFO per share was $0.27 for the quarter compared to $0.29 for Q4 of 2013 as a result. For full year 2014, FFO was $1.12 representing an increase of about 4.7% of our results in 2013 and was primarily driven by higher property income from both acquisitions I mentioned that we had made during 2013 at different points during the year. We had those properties for the full year of 2014 so that was the…

Thank you, John. Good morning everyone and thank you for taking the time to listen to Franklin Street Properties’ fourth quarter and full year 2014 earnings call. My prepared remarks today will follow my written commentary in yesterday’s earning press release. After my comments and others from FSP executives present at this call, we will open the call for questions. As John said, for the fourth quarter of 2014, FSP's funds from operations, or FFO, totaled approximately $27.5 million or $0.27 per share. For the full year 2014, FSP's FFO totaled approximately $112.5 million or $1.12 per share, which a 4.7% increase per share over full year 2013. FSP has grown its per share FFO over 33% during the last four years. Our directly-owned real estate portfolio of 38 properties, totaling approximately 9.6 million square feet, was approximately 92.8% leased as of December 31, 2014, and our comparative same-store growth totaled approximately 2.2% for the full year 2014. During the fourth quarter of 2014, we completed the disposition of our Centennial property located in Colorado Springs, Colorado for approximately $15,500,000. Centennial is a 110,405 square foot single story flex suburban office property that has been owned by FSP or an FSP affiliate for over 14 years. It was our only property in Colorado Springs. Currently, we are considering disposition of several other of our suburban office assets that we believe are no longer core to our long-term strategy and Jeff will talk about those in a few minutes. Also, in the fourth quarter, a single asset REIT affiliate of FSP, FSP Highland Place I Corp. or Highland completed the sale of its suburban office property located in the greater Denver, Colorado area. We had an outstanding loan with Highland, this is one of our single-asset REITs totaling about $3,395,000, and…

Thanks, George. I am going to walk through FSP’s current investment activities. I’ll start with dispositions, then move to acquisitions and conclude with development. As far as dispositions are occurring, FSP is actively engaged in disposition efforts at this time in several of our non-core assets. FSP had indicated the potential for dispositions of non-core assets of up to $150 million to $200 million and as reported in our fourth quarter filings and as George just mentioned, on December 3, 2014, FSP sold Centennial Technology Center in Colorado Springs for $15.5 million at an approximate 7.6 cap rate. Colorado Springs represents a non-core market in a non-core single-story flex product to FSP and it was originally acquired back in 2000. In addition to the $15.5 million Centennial Technology Center sale, FSP currently has three further properties under purchase and sale agreement at this time that reflect an aggregate purchase sales price of just about $80 million at an average cap rate of 6.75%. If successfully closed, these would then reflect total dispositions of approximately $95 million including Centennial Technology Center. More specifically, Willow Bend Office Center in Plano, Texas is one of these three further assets under contract and as referenced, as a subsequent event in our just released 10-K, FSP had entered into a purchase contract for this property in January of this year and on February 6 of this year, the deposit for this transaction of approximately $300,000 was non-refundable and we expect to close during the first quarter of this year subject and conditioned upon customary closing conditions. The sales price equals twenty million seven fifty and reelects an approximate 6.7 cap rate. Willow Bend is a non-core asset. It is a two storey Class A minus property originally acquired back in 2000, but it is in…

Thank you, Jeff. I know there may be some questions about leasing and about our oil and gas exposure. So I’ll try to add some color to the fourth quarter’s leasing numbers then I’ll address the leasing progress at the Timberlake and St. Louis which has the RGA tenant and then, I’ll turn it over to Toby Daley, our Vice President and Regional Director for Houston to talk about the Houston portfolio. As we reported our lease occupancy declined from 93.4% at the end of the third quarter to 92.8% at the end of the fourth quarter, due to scheduled lease expirations and the exercise of early termination options. Lease expirations in 2014 including early terminations were rated towards the back half of the year, so we collected most of those termination payments in front half and we suffered the vacancy in the latter half including the fourth quarter. We’ve not leasehold that space back up yet, but will be completed that back in the latter half of the year. Most of the space we got back is desirable space that we expect to be able to lease back relatively quickly assuming the market stays the same and in most cases we expect to lease the space at the same or higher rent reflecting the increase in the market rents in our various markets. The existing vacancies are spread fairly evenly across our markets and roughly corresponds in the market as a percentage of the square feet in our portfolio. The 2015 scheduled lease expiration of spread in a similar fashion across our portfolio with the obvious exception of the RGA’s lease at the Timberlake properties at St. Louis. RGA’s lease expired at December 31 and it’s included in the square feet expired in 2015 in our lease maturity schedule.…

Thanks, Janet. Fortunately this cycle isn’t quite like what we saw back in the 80s. I’ll give you a brief overview and update on our Houston properties, and I just want to add that despite the recent decline in oil and prices and delivery of new office product, leasing activity and demand for office space in well-located Class A projects remains strong in the energy corridor and Westchase districts where FSP’s properties are located. While employment growth during 2015 is not expected to be as strong as 2014, the forecasted growth if it’s realized to generate positive absorption, but simply not at the pace that we’ve seen in recent years. For as long as this period of depressed oil prices and increased availability of office space persists, I expect that we’ll see longer downtime for vacant space and flat or if maybe even decreasing rental rates even in Houston’s strongest sub-markets. FSP’s Houston portfolio is approximately 1.2 million square feet and comprised of three Class A office projects the towers at Westchase, the offices at Park Ten in Eldridge Green. The towers at Westchase is a 630,000 square foot two tower office complex located at the intersection of Beltway 8 and Richmond Avenue in the heart of Houston’s West Chase district. The offices at Park Ten is a 310,000 square foot two building complex located directly on the KD Freeway at Park Ten Boulevard in Houston’s energy corridor. Eldridge Green also in the energy corridor is a 250,000 square foot corporate headquarters facility. FSP has a total of 61 tenants in Houston, averaging 18,000 square foot each. Of these 61 tenants, 15 are oil and gas related businesses. Only three leases in FSP’s Houston portfolio are larger than 60,000 square feet. These three largest leases are oil and gas related…

And we’ll open the call for any questions.

[Operator Instructions] And our first question is from Dave Rodgers of Robert W. Baird. Please go ahead. Q –Stephen Dye: Thanks good morning. This is actually Stephen Dye here with Dave. I was just hoping to get a little more color on the acquisitions and particularly what gives you confidence that those in the pipeline will fit your criteria going forward and essentially the geographic dispersion of the properties? Thanks.

Hi, this is Jeff. I appreciate the question. What gives us confidence, we are working on a number of deals both on and off market where we feel like we are in a good position, but you never know until you know and especially on the marketed deals and so, we are actively working on a couple of deals right now that we feel like we have a reasonable chance of success on. The deals that we are looking at most actively are in the Atlanta and Dallas markets and we have a really good pipeline wide and large right now that would fit our criteria well. It’s within our parameters of underwriting and we’ll keep the market appraised of any success of the depending weeks and months and we do feel like we have a very reasonable chance of success on making some of these happen. Q –Stephen Dye: Great, thanks, and then moving over to the RGA Insurance space, can you just talk a little bit about maybe the seven prospects that you have for the empty building and your hopes of either expanding that or cut-off tenants they represent?

They represent a broad spectrum of tenants and the St. Louis market is – as I said it’s strong right now, but it’s a small, I mean, it’s not like Houston with 30 tenants that would be looking. These are all pretty real prospects most of it’s organic growth where they maybe looking to consolidate operations. They just since going out of this space not unlike with what happened to RGA at our building, but, towards the space, they’ve been engaged in conversations with us over the past not necessarily a year but they’ve been waiting to deal with the RGA, would actually move out. So, as Jeff was saying about acquisitions, I mean, they all look real right now, but we never know. But we - they are now coming towards or coming back for a second towards, so we think there is either prospects there. And I think the St. Maryville sale may help us a little bit on that.

Steve, this is Jeff Carter again. Just as a follow-up on the acquisitions front, I just want to mention to you another reason although again as Janet mentioned no guarantee, some of the deals we are working on prior in existing relationships with some of the players that involve and that gives us some reasonable comfort that we have a solid shot of success, but again, until we know, we don’t know and so, I just want to add that component. Q –Stephen Dye: Thanks and I guess, essentially that question is really trying to get out the difference between these opportunities versus any of that were too elevated to conform to your underwriting criteria in 2014, but I appreciate the color and anything else you can give would be great.

Sure, well I appreciate that. To give you a little bit more color, two of the deals that we are working on – out of the number of deals we are working on are in reasonable proximity to other properties we own. We understand the dynamics on the ground very well where these properties are located in addition to knowing ownership involved that have been blended this with ownership in the past. We have a very good hopes on market dynamics on the ground that are helping our underwriting. Q –Stephen Dye: Great. That’s really helpful. I appreciate it.

Sure thing.

Our next question is from Tom Lesnick of Capital One Securities. Please go ahead.

Hi, good morning guys. I appreciate the commentary on guidance one, I just had a couple of clarification questions. One, when you are talking guidance is being really kind of a static run rate, and I know RGA expired right at the end of the year, is that included in the guidance or is guidance really reflective of the full 4Q run rate?

That’s included, everything that is happened to-date is included in that guidance.

Okay, thank you. And then, I guess, expanding on guidance for a little bit, again, maybe I misheard you earlier, but George, I think you said that, 2015 would be a stronger disposition year than acquisition year, but when talking in ranges, Jeff, I think you mentioned dispositions of between $150 million to $200 million and acquisitions of $150 million to 300 million. So I am just trying to kind of make sense to the comments, maybe I misheard it earlier, but could you talk a little bit about kind of your net acquisition expectations for 2015?

Yes, this is George, Thomas. I may have misspoke, not may be misheard, but, no, we don’t think one side will be dramatically higher and then another side necessary. So we have disposition activity as Jeff has given you numbers on and properties that are in the market that are above those numbers is given. Again, unknown as to what will ultimately close but if you took all of those numbers that we are working on dispositions, you get to the $200 million mark that does not include any potential loan repayments on single-asset REITs that may get sold. So, that’s one unknown at this point, but just on property dispositions, sort of a high watermark there of about $200 million and on property acquisition opportunity a target of between $150 million and $300 million. So, the delta if we hit the high side of our target acquisition efforts between dispose of propertied, again not loan repayments and acquisitions will be about $100 million.

Okay, appreciate that color. And then, Janet, I just wanted to talk about leasing a little bit. As you are leasing up the portfolio this year, obviously there is capital expenditure required with that. What are your expectations in terms of TIs per square foot and maybe perhaps talking about on a per year lease term basis, how do you expect that to really trend through 2015?

I wish that were simple questions to answer, I mean, we are in so many different markets that our costs are different around those markets, but I can tell you that we rarely have ever paid above markets for TI. And so a lot of it – if you look at our numbers that are shown in the supplemental and it’s a variance from approximate three years I was looking at and you can see that pretty much corresponds to some of the – now that the markets that were and with the type of leased. So, obviously, to the extent that we do a big space, a ten year term, this is going to be higher leasing commissions and perhaps higher TI. But the TI still vary from market-to-market. Toby could help me on you a little bit in Houston, but in Texas, I can say that the average – we wouldn’t want to go much above a $25 a square foot TI in a five to ten year lease. But in other markets it maybe more expensive we have a law firm that’s more expensive. So it’s going to vary around that, but maybe, Toby can give some color where exactly.

Yes, Tom, right now in Houston for Class A space, if it’s second generation, you are looking at roughly $20 TI per square foot on a five year deal and maybe circa $35 a square foot on a 10 year deal. And of course for new space, the TIs are much higher. But that should give you a rough idea if you are modeling Houston.

No, I appreciate that color. And Toby, I guess, one follow-up on Houston. Obviously, there is a lot of concern with the oil fell off and what not, but are you seeing any specific interest in tenant expansion or demand from say, the legal services side and in anticipation of perhaps a wave of M&A or something like that?

I can’t say that I have, yes; there has been very little activity, at least in our portfolio from legal. So, not a whole lot of law firms in our energy corridor buildings and the Westchase buildings.

Okay, I am sorry.

This is Janet, just to jump back in, if your question on TI leasing commissions is obviously going to be directed somewhat to the RGA, that vacancy, the market there is about $20 to $25 per square foot depending on the term and the space.

Okay, great. Appreciate the color; I’ll hop back in the queue. Thanks.

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

Yes, hi, good morning. Wanted to follow-up again on the guidance not to beat the dead horse but you’ve had a pretty significant drop in occupancy, you are at 94.5 in first quarter of last year now for your comments and what happened with RGA, we are somewhere in the 90s, what is baked into your guidance as far as occupancy on the store portfolio?

I think, it’s pretty much what I was saying before that if we drop into 90% in the first quarter, we would hope to get back up, we are obviously optimistic and will be back at 94% late year end, but we would certainly be moving towards that 92% to 94% at the back-end of the year.

So you are – and you are expecting some level of occupancy pick up this year in your guidance?

Yes, because as Toby and I was saying earlier, a lot of the space that we got back in this last quarter, or that we now have it’s some of our best space and that en we got caught forward, we expect to refill it.

Got it.

Well, that completely offsets whether it come to add us, I can’t tell you that, but we are pretty optimistic about doing some additional leasing.

Okay. And the assets that you sold in Colorado Springs, I have missed this, but did you guys put out what you – what cap rate that fall at?

Hi, Craig, Jeff Carter here. Yes, we mentioned on the color I mentioned in my report that that cap rate was an approximate 7.6.

Okay. And when you look – I think in the last call, you mentioned that your acquisition pipeline had a cap rate range, I think of 5.5 to 6.5 kind of first year going in, is that still, you got a larger pipeline today, but are those metrics still relatively the same on the pipeline as it is today?

In general, yes, but we are looking at a number of more value-add properties in addition to more stabilized, we are still looking at that range of both value-add that has real vacancy, 50%, 60% leased assets as well as more stabilized assets and so, I would say the floor on that range is lower. It’s probably more like 5% to 6.5%.

Okay, thanks. I’ll get back in queue. I appreciate it.

Thanks.

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

Well, thank you everyone for tuning into the call. This is a little longer one than we normally do and again a year-end call I think it makes a lot of sense. We are really excited about 2015 and look forward to talking to you next quarter. Thank you.

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