Good morning, and welcome to the Franklin Street Properties Corp. Fourth Quarter 2015 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 Fourth Quarter 2015 Earnings Call. With me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our Chief Investment Officer; and Janet Notopoulos, President of FSP Property Management. Also with me this morning are Toby Daley, Vice President and Regional Director of Houston; and Will Friend, Vice President and Regional Director of Denver. Before I turn the call over to John Demeritt, I must note the following. 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, 2015, which is now on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, February 17, 2016. 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 Earnings Call. On today's call, I'll begin with a brief overview of our fourth quarter and year-end results. And afterward, our CEO, George Carter, will discuss our performance in more detail and provide an update on where we are and to give some guidance. Janet Notopoulos, the President of our asset management team, will then discuss some of our recent leasing activities; and then Jeff Carter, our 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 and our supplemental package and the 10-K, all of which were filed yesterday and, as Scott mentioned, can be found on our website. We reported a decrease of funds from operations or FFO of about $450,000 to $27.1 million for the fourth quarter of 2015 compared to the fourth quarter of 2014. For the year, we reported a decrease in FFO of $5.6 million compared to the full year of 2014. These decreases were primarily from lower property income as a result of the asset sales we've made this year and also some loan repayments we received in the past year and also lower occupancy during 2015. These decreases were partially offset by our acquisition of Two Ravinia in Atlanta this past April. You can see the effect of all of this in our same-store comparisons. As a result of the asset sales, we had gains on 4 properties that we sold in 2015 of $23.7 million. Our FFO per share was $0.27 for the fourth quarter of '15 and '14, so it was flat quarter-over-quarter on a per-share basis. And our FFO for the full year of 2015 was $0.05 lower than 2014, and it was $1.07. These results were very much in line with our expectations. Turning to our balance sheet and current financial position. At December 31, 2015, we had about $910 million of unsecured debt outstanding, and our total market cap was $1.9 billion. Our debt-to-total-market-cap ratio was 46.7% at year-end, and our debt service coverage ratio was about 5x for the fourth quarter -- annualized fourth quarter. Debt-to-adjusted-EBITDA ratio was 7.1x. From a liquidity standpoint, we had cash balance of about $18.2 million at year-end and $210 million available on our $500 million unsecured line of credit. So as a result, we had approximately $228 million of liquidity at year-end. In January, we received $37.5 million in proceeds from the full repayment of the secured loan we have for the property in Colorado. We remain comfortable with our leverage and are an unsecured rated borrower. We believe our balance sheet position enhances our ability to opportunistically sell noncore assets from time to time and reinvest proceeds or use our availability to acquire assets in our core markets as we find the right opportunities. With that, I'll turn the call over to George. George?

Thank you, John, and welcome to Franklin Street Properties Fourth Quarter/Year-end 2015 Earnings Call. For the fourth quarter of 2015, FSP's funds from operations or FFO totaled approximately $27.1 million or $0.27 per share. For the full year 2015, our FFO totaled approximately $106.9 million or $1.07 per share. These results are within our initial full year 2015 FFO guidance range of $1.03 to $1.08 per diluted share. That original guidance of $1.03 to $1.08 FFO per share was given at this time last year and excluded the impact of any acquisitions, dispositions, debt financings or repayments or other capital market transactions. In fact, many of these transactional events did occur in 2015, but their net impact, combined with FSP's regular ongoing operations, settle out at $1.07 per share. FSP's full year 2015 adjusted funds from operations or AFFO totaled approximately $79.8 million or $0.80 per share. Dividend distributions paid and declared for full year 2015 totaled $76.1 million or $0.76 per share. And while the FSP Board of Directors determines the dividend level every quarter and can maintain, raise or lower the dividend at any time, based upon our forecast for 2016 and beyond, we feel very comfortable with the current level of dividend payout for full year 2016, barring any significant unforeseen events. We also recorded gains on the sale of 4 properties during 2015 of $23.7 million or $0.24 per share. And our initial FFO guidance for full year 2016 is estimated to be in the range of $1.01 to $1.07 per diluted share. And relative to this initial 2016 FFO guidance, we believe that 2016 will mark the bottom of the effects that our ongoing property portfolio transition is having on FFO, which contracted in 2015 for the first time in 4 years. For the 4…

Thank you, George, and good morning. Our leased occupancy at December 31 was 91.6%, which is up from the 90.5% where we ended the third quarter. Included in that increase is the notable expansion of Centene at Timberlake East in St. Louis, which brought the occupancy there up to 96.2%. Let me just take a moment to remind you that at this time last year, RGA had just vacated approximately 197,000 square feet at the 3-building complex at Timberlake and Timberlake East, and by the end of 2015, we had re-leased all of that space. The Timberlake buildings were 95% leased at year-end 2015, and Timberlake East was 96% leased. So that was 2015 in St. Louis. Now to go to 2016 in Minneapolis. We think we'll be able to lease the TCF Bank space in Minneapolis, which was given back as of January 1 this year, in a similar fashion. TCF leased approximately 98,000 square feet in the high-rise tower that contains approximately 306,000 square feet or about 1/3 of that building. In anticipation of the TCF vacancy, we did significant common-area improvements. And now that the space is empty and available, there's a lot of leasing activity and interest in that tower. TCF Bank also leased the older low-rise building located at 801 Marquette, containing approximately 165,000 square feet, where they paid only $4.75 per square foot net and where we have been working on a proposed high-rise mixed-use redevelopment tower to replace the older building. You'll notice in this quarter's financial statements that we've broken out 801 Marquette as a separate project from the high-rise tower at 121 South Eighth Street in anticipation of the redevelopment of that low-rise building. Jeff Carter will talk more about that redevelopment project later on the call. One other point regarding…

Thanks, Janet. Good morning, everyone. I will review our investment activities for the fourth quarter of 2015 and for the full year. On the disposition and asset recycling front, during the fourth quarter, FSP sold Montague Business Center in north San Jose, California for $30,250,000 and recognized a gain of approximately $12.9 million. Montague Business Center consisted of approximately 146,000 square feet in 2 single-story buildings that were originally acquired back in 2002. For 2015 in total, FSP recycled out of 4 properties for $87,250,000. Those included Eden Bluff in Minnesota, Willow Bend in Dallas, Park Seneca in Charlotte and Montague Business Center in north San Jose, and those resulted in gains of approximately $23.7 million in total. Additionally, and as we mentioned during our last conference call that some transactions could spill over into 2016, this did, indeed, occur. Specifically in January, FSP received the full repayment of our approximately $37.5 million first mortgage loan via property sale of 385 Interlocken. Including the Interlocken loan repayment, we completed roughly $125 million in total recycling over approximately the past 12 months. FSP remains committed to recycling out of our noncore assets within the portfolio when appropriate pricing is achieved. Accordingly, FSP expects to transact continued dispositions during 2016, and they are likely to be in excess of 2015. We are not providing specific disposition guidance as there are a number of moving pieces that make such guidance potentially less meaningful. Moving pieces include: number one, that we're not sellers at any price; two, that some properties are being prepared now by their respective selected brokers for actual price discovery, and we do not yet know if they will meet, exceed or miss pricing expectations; three, one asset is actually currently under agreement now and is in its due diligence period.…

Yes. So we'll just open the call for questions at this point.

[Operator Instructions] The first question comes from Dave Rodgers of Robert W. Baird.

I guess I heard, Janet, your comments regarding no tenants behind on their rent payments in the energy space, but I guess I wanted to dive a little further. So for Janet, George or Toby, we'll throw you all into the bucket, 17% of your tenancy, obviously, is energy exploration firms, 5 of your top 20 tenants appear to be energy and exploration firms. So can you kind of dive a little bit deeper for us on each of those tenants in terms of how they're using their space, what it's used for and how you feel about the consistency of their ability to pay not only now but in the future?

Dave, this is Toby. I'll take that. And I'm assuming you're focusing on tenants in Houston.

Yes. And I guess, any bleed over in Denver as well?

I'll let Will address anything in Denver. But specifically in Houston, we're finding that all of our space occupied by oil and gas firms is fully utilized, fully engaged, with the exception of one space, and that's at the Park 10 Phase 2 building, where the entire building or most of the building is leased to Murphy Exploration & Production Co. And it's since been sublet to ConocoPhillips. ConocoPhillips is there but is most likely going to vacate that building around Memorial Day, and -- at which point the space will become 100% vacant. And we are already marketing that space for lease, which comes back to us in April of 2017. Aside from that, all of our oil and gas tenants are making full use of their space. We have no collection issues and no cause to be alarmed at this point in time.

That's helpful. And then Will, anything in Denver that we're watching from an energy perspective?

I can say that our energy tenants in Denver are -- we have several that have space in the market for sublet -- for sublease and have had success in subleasing their space. They still have some -- there are some spaces left to sublease. But with all of our tenants, they're current on their rent, and historically have been and we have no reason to believe that they won't continue to be. To the extent that an opportunity arises, where a certain tenant wants term that goes beyond their term, we would consider discussing directly sort of -- some sort of buyout with the prime lessee to make it a direct deal with the subtenant. But...

Okay, that's helpful. And maybe, Janet, the renewal activity looked really strong in the fourth quarter. Were there any particularly large leases in there? Are you getting ahead of any expirations that really impacted, I think, what looked to be a pretty good renewal activity in the fourth quarter?

Well, we're always working ahead on the renewal, which goes to -- if you look at our list of major tenants. We're always trying to be proactive on that. There was one large renewal that did work through, and you can see that in the change in expiration dates at Quintiles, where we extended that term out. And that was a large one -- large portion of this quarter's activity.

Okay. Two more for me. Janet, I guess, update on Fannie Mae and what's happening with that space.

Well, again, going back to our major tenants. In, I think, Page 19 of the supplemental, you'll see that we extended Fannie Mae 2 years essentially. They haven't -- we would've -- Dallas -- let me just back up. Dallas is still a very strong market for us, and we would have been happy to take that space back and re-lease it. Fannie Mae exercised their option to extend for 2 more years. So that's been pushed out for 2 years, and that was their -- that was built into their lease.

Okay. And last question for Jeff on the TCF redevelopment or ground-up development that you're looking at. Is that something that, as you move forward, you would wait for a tenant? Or because of the other components of apartment and hotel, will you kind of be forced to go through with that construction with your partners more quickly?

We have set this up to be a -- in our minds and our development partners' minds, as a pre-leasing scenario. But we are seeing good activity, and we'll evaluate that as it goes along. But right now, the intent has always been with some sort of pre-leasing requirement.

The next question comes from Tom Lesnick of Capital One Securities.

First, just on guidance. I know you kind of talked a little bit about bridging the $0.25 midpoint for 1Q to the full year guide of $1.01 to $1.07. But I was just wondering if you could talk maybe a little bit more specifically about the timing of when we should expect some of those leases to commence on the back half.

Tom, it's George. I don't really have specific leases or specific timing for specific leases for you. It is a lot of activity at a lot of our value-add space in virtually all of our markets, and not the least of which is, again, the Minneapolis tower that TCF has vacated. But it includes Atlanta, it includes Denver and Houston for that matter. So I can't give you specifics on it, but the amount of activity -- just the sheer number of leases, some of these are medium size, some are small, just tells us that we're going to do really, really well. And the key there is that the net rents are so much higher on that space than on others. So most of these underwritings -- Tom, when we disposed of suburban, even though you dispose of it at an initially higher cap and buy at a lower cap, the underwriting to add the value really moves you significantly over the cap you're selling those suburban at if you do this value-add activity. And upfront, you're spending the money to get the space ready to lease. That space is ready to lease, and there's activity at that space. And that's why we believe that we'll move the needle for the rest of the year.

Got it. Appreciate that color. With regards to same-store NOI, obviously, the Midwest has been impacted by RGA for the last 2 quarters. I was just wondering how that's tying now that full year impact is rolling out. How should we expect Midwest same-store NOI to trend through 2016?

Well, I think we have -- the TCF building is in the Midwest as well. So I think that on an annualized basis, you'll see the impact of -- the impact of the first quarter is going to be a bit of a drag on that. But I think that the rent loss from TCF was actually less than that of RGA on just pure whole dollars. So we'll see.

Got it. And on leasing, it looks like your average lease term has gotten a little bit shorter here over the last couple of years. I was just wondering if that's really a function of the leasing environment or the function of the buildings you own. Just wondering if you could talk about that a little bit.

I think it's primarily just the -- whether or not -- how many renewals we're doing since I believe that's a blended number. So if the renewals are disproportionately larger than the new leases, we're going to shorten that up. And so while Quintiles might have been a long renewal, Fannie Mae that Dave Rodgers just asked about is a 2-year fairly large renewal, and that brings the average down.

Got it. And I guess, finally, congratulations, Janet. We'll miss you. But just wondering, what, if any, succession plan is in place? Or what does that process look like for you guys?

It's George, Tom. We'll miss Janet, too. We have a deep bench here at Franklin street, and the Board and other parties here are busy at work. And we will make an announcement just as soon as we have a replacement.

The next question comes from John Kim of BMO Capital Markets.

Your tenant improvement costs decreased noticeably in the fourth quarter. Is this purely reflective of the higher renewals? Or are there specific markets where you're pushing back on TI?

I would think that, in general, it's probably more reflective of the proportion of renewals versus new leases. We haven't seen an increase in tenant improvement across our markets, but we haven't seen a significant decrease either. And we're still in multiple markets, so that's a hard one to pin down.

Okay. And then on Page 23, your CapEx, there's a bit of a pickup on the deferred leasing costs. Can you just remind us what that's in relation to?

I'm sorry, you're saying there's an increase in the deferred leasing cost?

Yes.

Deferred leasing costs are essentially the brokerage commissions. And so since those -- and one of my favorite discussion points internally is that since the GAAP reported numbers are on really what's more like a cash basis, we often pay the brokerage commissions in front of -- as soon as we do the leasing or at least half of it at the signing, half when it commences and the TI may follow later. So there is a little bit of a disconnect on those. So that's because we did do leasing.

And remind us again, please, the difference between Page 23 and Page 20. Page 23 is more of a cash outlay and Page 20 is leases that you're signing during the period? So there might be a sort of a timing mismatch?

Yes. And so on Page 20, since it's on more of an accrual basis and we do it as soon as we -- if we lease a space in the quarter, we estimate what the leasing -- the cost for leasing and brokerage commissions will be and amortize that over the term of the lease. So that condenses it all into the same time frame, so that's going to be different than what we report. As you know, some tenants never come and collect their TI amount so...

Okay. A question for George or Jeff. Are there markets that you're seeing softness in demand or softness in cap rates potentially, either your noncore assets or some of your targeted markets?

Yes. This is Jeff here. In terms of -- the softness that I'm seeing is really a -- is really heavily in Houston, as you might imagine, given the oil condition of the marketplace. In -- I'm not seeing considerable softness in our other core markets. Denver still has quite a bit of demand. Atlanta has a tremendous amount of demand, and Dallas has a tremendous amount of demand. And so Houston has been the one notable exception there.

And final question for me. Your net debt to EBITDA, it looks like it's a little bit below 7x at the end of the year. Where is it today post the sale of 385 Interlocken?

385 Interlocken was a mortgage loan that was repaid, so I don't have that for you, but you could probably calculate it by the interest rate that's in the supplemental, John.

Okay. Any thoughts on maintaining potentially a more conservative balance sheet during the year or holding back on cash proceeds from asset sales as potentially you see some more opportunities in your markets?

George, John. I think it's just opportunity-driven. Again, I think when you do debt as a percentage of total market cap -- one number. When you do debt as a percentage of what we believe we're closer to NAV on -- it's another number. When you do debt service coverage ratio -- it is another number. We feel very comfortable with our debt right now, and we're going to be opportunity-driven. But we have to live within our organic growth scenario, and we will live there and, I think, be conservative but opportunistic on our balance sheet.

[Operator Instructions] The next question comes from Craig Kucera of Wunderlich Securities.

Wanted to follow up on the sale of the Interlocken. How should we think about the use of proceeds in the near term? It sounds like you guys are thinking about being a net acquirer for the year. But should we think that you'll invest that soon or more likely do something else with the excess capital?

Craig, it's George. So both Montague and 385 Interlocken, when you put those proceeds together, you come up with close to $60 million. And what -- again, what we found -- I talked about it on the last call -- what we're finding in this transition to urban from our noncore suburban particularly is the urban properties are much larger. And so many times, there is this delay between selling your suburban properties and acquiring urban. I know we will be opportunistic. We are looking at things now, and if they lined up we would buy forward an urban property ahead of other dispositions so long as we thought the further dispositions were a strong likelihood. So that capital does need to be redeployed, and we plan to do it. There are prospects for it, but it -- that is one of the things that's hurting the first quarter a bit on the FFO number.

Got it. So it sounds like probably in the near term, maybe some debt repayment on the short-term debt. What is the thought about any sort of share repurchases given where the stock is trading?

The -- this is George again. The Board considers that along with all other opportunities. It's -- and if the Board decided to go that direction, we would let the market know immediately.

Okay. Can you give us some color on the mortgage loan investment made this quarter?

Yes, sure. This is John Demeritt. We made a loan to a property in Indianapolis, and we call it Monument Circle. It's currently -- the tenant that's in there currently is Anthem, and they're in the process of a merger with Cigna, I believe. And they have announced that Indianapolis is going to be their headquarters. The mortgage loan that was on the property has -- was -- it came -- expired on December 7, and we financed it and are working -- hope to work with them on a lease extension, after which there may be an opportunity to have that loan be repaid.

All right. I see that loan is yielding, I think, 4.9%. How does that size up with how you view your cost of capital relative to making acquisitions or doing other things with capital?

Well, if you look at some of the asset acquisitions that we've looked at, their cap rates have been in sort of the 5%, 5.5% range for assets that we're interested in buying. When you acquire an asset with that kind of a cap rate, generally it comes with some capital expenditure that you need to make and asset management expenses you need to incur. And when you compare that to a yield on a loan with no CapEx, it's a wash at best, and maybe we're ahead of the game a little bit without having the CapEx to spend on it. So we view it as a good investment, solid investment. And I think that addresses the cost of capital question.

And Craig, this is George. Just we view this particular loan as potentially quite short term, very low loan-to-value, and it's a real good cash flow-er. And again, as John said, when you look at any other acquisition and you go from the NOI line to the cash flow line, a short-term low loan-to-value like this is really competitive; really competitive from a cash flow point of view.

One other point, Craig, on that. We -- the 385 loan was repaid in January. So our balance sheet, if you pro forma-ed it today, we've got about $90 million outstanding on these loans in aggregate today.

Okay. Can you give us some color also on the cap rates that you guys were able to sell in the property in San Jose and Interlocken?

Sure. This is Jeff Carter. The Montague property was sold at an approximate 5.5% cap rate.

And what about the property in Denver?

That was sold for roughly a 5.75% cap rate.

Got it, okay. And a couple more questions, then I'll hop off. Let's see -- and I thought the quarter looked very good from a leasing perspective and a nice pickup. Can you give us some -- and I think this question came up earlier, but I don't know that -- if I heard the answer. Particularly, as it relates to the Timberlake properties, when are those -- when is that tenant or tenants expected to take occupancy?

They -- we basically leased -- 3 large leases, one to Energizer Edgewell. That commenced. We did a big chunk to Centene, that commenced, I believe, December 1. And the next tranche will be in April of '16, and that's disclosed in that footnote under major tenants.

So I guess my question is, so are we going to be at about 95% occupancy then in the second quarter at those properties given where the leasing is?

Oh, I'm sorry, it's physical occupancy?

Yes.

Yes. That's probably about right. It should start -- it should close out to be the same as the statistics that I read off as far as leased occupancy.

Okay. And the last one I have is the Denbury Onshore lease that I think is expiring in, it looks like, July. Where is that located? Is that the Houston asset that is tied to the oil industry?

No. It's definitely tied to the oil industry. It's located in Dallas in the legacy Plano submarket, which is one of the really attractive markets right now. We're in negotiations with subtenants, and we expect that we'll have significant leasing done at that building before or by the time that lease expires in July.

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

Thank you, everyone, for coming to the call. We appreciate it. We look forward to talking to you next quarter.

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