Good afternoon and welcome to the Franklin Street Properties Corp. Second Quarter 2016 Results Conference Call. 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 Scott Carter, General Counsel. Please go ahead.

Good afternoon and welcome to the Franklin Street Properties second quarter 2016 earnings call. We apologize for the delay of the call. Our service provider had technical issues. We understand that this is a busy time for everyone and appreciate you being able to join us. With me this afternoon 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 afternoon are Toby Daley, Senior Vice President and Regional Director of Houston; Will Friend, Senior Vice President and Regional Director of Denver; and Patty McMullin, 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 the Form 10-K for the year ended December 31, 2015, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, July 27, 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. Now I'll turn the call over to John. John?

Thank you Scott and good afternoon everyone. On today's call, I'll begin with a brief overview of our second quarter results and afterward our CEO, George Carter, will discuss our performance in more detail and provide some guidance. John Donahue, our President of the Asset Management Team will then discuss recent leasing activities, and then Jeff Carter, our President and CIO, will discuss our investment and disposition activities. And 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 the 10-Q, all of which were filed yesterday and as Scott mentioned, can be found on our website. I also wanted to point out that we made some changes to the format of our earnings release this quarter that we hope you find to be more informative than what we did before. We report funds from operations or FFO of $26.7 million for the second quarter of 2016 and $52.8 million for the six months ended June 30, 2016. On a per share basis, these results matched our second quarter and year-date 2015. On a dollar basis, we're slightly lower in 2016 compared to 2015. It was only about on the six months number of about $100,000 decrease but the FFO decrease was primarily from the impact of asset sales and loan repayments that we've received in the last year, it was partially offset by the acquisition of a property we acquired in April of 2015 and another property that we acquired at the beginning of June 6, 2016. So for the quarter -- second quarter 2016, our FFO per share was $0.27 and that was in line with our expectations. Turning to our balance sheet and the current financial position; at June 30, 2016, we had…

Thank you, John and welcome, everyone, to Franklin Street Properties Second Quarter of 2016 Earnings Call. As John said, for the second quarter of 2016, FSP's funds from operations, or FFO, totaled approximately $26.7 million or $0.27 per share. These results are very close to our guidance range for the second quarter of 2016. Our dividend was $0.19 per share for the quarter and the FSP Board of Directors continues to feel very comfortable with that level of dividend payout for full-year 2016. At this time, our initial FFO guidance for full-year 2016 is being narrowed to an estimated range of $1.03 to $1.06 per diluted share. And more importantly, we continue to believe that 2016 will mark the bottom of the reductive effects that our ongoing effects property portfolio transition is having on FFO. We are reiterating our forecast for resumed FFO growth in 2017, propelled primarily from our projected realization of select new property investments, select new development or redevelopment efforts such as 801 Marquette Avenue in Minneapolis. An increased leasing in our more recently acquired urban office properties, many of which contained meaningful value add square footage. Currently perspective new tenant leasing activity at these properties is significant. And finally, as we move through July, we are estimating third quarter 2016 FFO to be in the range of $0.25 to $0.26 per diluted share. With that, I will now turn the call over to John Donahue, President of our Property Management Company. John?

Thank you, George. Good afternoon, everyone. The FSP portfolio remains slightly above 90% leased at the end of the second quarter. Leasing velocity and volume increased in the second quarter as compared to the first quarter. Approximately 421,000 square feet were leased bringing the year-to-date total to approximately 599,000 square feet. The quarter was highlighted by three significant renewals of approximately 273,000 square feet, two of which were scheduled to expire December 2016. At Northwest point in the Chicago suburbs, City Corp renewed 146,000 square feet for 10 years. That lease was scheduled to expire December 2016. At Timberlake Corporate Center in the St. Louis suburbs 70,000 square feet for five years, that lease was also scheduled to expire in December. Also at middle point in North Virginia, American Systems renewed 57,000 square feet for 11 years. FSP is encouraged by the recent leasing activity in a number of our core markets and we are optimistic about the next 18 months. With that I'll hand it over to Jeff.

Thanks, John. Good afternoon, everyone. I will discuss an update on our current investment picture and strategy on the disposition and asset recycling front. During the second quarter, FSP sold our Lakeside Crossing One property in Greater St. Louis for about $20.2 million. Since 2014, we've sold properties where we had mortgages repaid to us that withheld of approximately $180 million through our portfolio repositioning program. This program has allowed us to recycle out of a number of non-core and more commodity-oriented properties and loans into a more focused urban infill portfolio within our glorified markets. We believe that such efforts have positioned FSP to realize greater long term FFO and profit growth. We will continue to keep the market up to date on any further disposition news during 2016. On the acquisition front, on June 6 we added to our position in downtown Minneapolis with the 326,000 square foot acquisition of Plaza 7 Office Tower where $82 million or about $252. Additionally and as mentioned in our earnings release, we're currently under purchase and sale agreement to acquire an urban infill class A office property in the midtown sub market of Atlanta for $45.5 million. We're very pleased to be working on that a more high-quality class-A square footage where already existing 620,000 square feet at 999 Peach Tree in the dynamic and growing midtown sub Marquette. The acquisition remains subject to closing conditions and confidentiality provisions and so we will not provide full details at this time. If successful though, we expect to close by the end of August and anticipate first full year yields of about 6.7% on both the GAAP and the cash basis. Subject to finding more credible value creation acquisition opportunities and being able to match fund them against any remaining dispositions we will…

Thank you, Jeff, and everyone. And Austin we can open up the call for question now.

Sure, we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Dave Rodgers with Baird. Please go ahead.

Yes, good afternoon guys. And I guess, Jeff, thanks for your comment, I guess around kind of the drivers going forward. I guess I want to touch on leasing to start with. Can you talk about kind of what the activity is across the portfolio right now? I think in the second quarter here you leased about 4% of the availability. It seems like that's going to need to kind of step up in pace in order for you kind of drive the goals and achieve what you're trying to do. So I don't know if you got tossed about kind of maybe pushing the brokers harder or placing some brokers, if you feel that you're happy with the performance. But if you could dive in on some of that, either Jeff or George, I would love just some thoughts around that please.

Dave, this is Jeff. I'm going to actually have John Donahue start with that question.

Sure, Dave, happy to. The robust activity that we've been seeing is really in what we have been referred to as the Midwest region. So Minneapolis, Chicago and St. Louis are among the most active markets, and we're expecting good news over the coming quarters there. We also were encouraged over the past three months with better action than anticipated in Denver and Houston. A little surprising but that's true. We have witnessed increasing velocity of volumes towards proposal etcetera, despite the typical summer slowdown or I guess cognizant of the energy headwinds and lowered demand in some of these markets that are influenced by energy. But we were encouraged by the activity and are expecting good things over the coming quarters. So as far as details on what we're doing where every deal is different, so we're attacking and pressing for all deals that are worthy appropriately. We're expecting that velocity for the vacant space to pick up.

Okay, good, yes, thanks for that color. And then I guess, Jeff, back to the investment side. New acquisitions, it sounds like you've been working actively on the pipeline. Can you kind of talk about the depth of the pipeline that you have there in addition to the $45 million that you're under contract with in Midtown, Atlanta?

Sure, Dave, this is Jeff. It's been, this year particularly after the start of the first quarter, the pipeline activity just of what we're underwriting and looking at has increased, and for us it really has been centered upon, there's still very few things that we're seeing active in Houston, but the other markets have had a fair amount of opportunities in them, both off and on market opportunities. And so we have been actively looking at things and had some success this year in June obviously with the Plaza Seven acquisition, and we're excited about having new square footage in the Midtown with this acquisition we're working on currently. So it's an active pipeline and as I said early in the first half of the first quarter, at this stage still expecting to be another quarter [ph] over the year.

Okay, thanks. Last one for me, maybe two parts on really funding. You talked about balance sheet management, it's kind of an appropriate way to fund this. You're talking about being a net acquire -- so I guess how do you fund the continued growth, the external here at this point. How do you think about that and how comfortable are you? The second question is how comfortable are you doing equity at this point?

Dave, George. We have talked about over the last couple of years this disposition, acquisition organic growth activity in trying to match off disposition proceeds with acquisition proceeds. And we have in the main head dispositions ahead of acquisitions, and consequently that is one of the factors that's sort of the -- as you take that out before you replace it. The Midtown, Atlanta that Jeff has talked about briefly and that we hope to close would actually be the first time in a while that we truly sort of bought forward of dispositions. So at the cornerstone of funding acquisitions at the cornerstone is dispositions, and we feel very comfortable about match funding those without getting out over our skies at all. Again, there are some times where cash accumulates or dispositions accumulate before acquisition and then there are some times like Midtown where you're buying ahead. More than that, the broader capital markets are watched by us all the time, and certainly that the extension of our $400 million term loan was just the ability to go ahead and fix that rate for the foreseeable future so that we just didn't have to deal with that uncertainty. But new capital in any and all of its forms are just constantly being looked at relative to the capital markets and relative to our acquisition opportunities.

All right, great, thanks.

And our next question comes from Kyle McGrady with Stifel. Please go ahead.

Kyle, am I asking there question. Are you there George?

Yes, go ahead, I'm sorry, go ahead.

Essentially over the last six years you've jumped up from debt to total enterprise value up to around from under 20% to somewhere in the mid-40s. You're now at a net debt to EBITDA of seven times. The good news is you guys have borrowed short which has turned out to be a very, very smart decision. The bad news is you are sort of bumping against sort of the outer limits of what people think appropriate leverage. Is there a place of which you tap out? And then the second question is $12.20 is a mid-six cap rate by our number, pretty healthy. How are you thinking about raising equity vis-à-vis your leverage constraints?

John, it's John Demeritt. On the leverage equation here, I looked at the last couple of years and when you think about the disposition and acquisition strategy, our leverage hasn't changed all that much when you go back to, you look at '14, '15 and '16, we I think topped at a high in line of credit of about 316 and a low of about 265, and we just did an acquisition to soft up a lot of the proceeds from the asset sales that we've made previously and ended the quarter at about 310. So I think in the last three years our leverage has not moved that dramatically, so I wanted to point that out. And I think George wanted to talk about the other part of your question.

John, again we watch every markets all the time. The point about price of equity and cost of capital relative to equity is right on and appropriate. We watch all the time. One of the things that is happening now and over the next few months is we do have some properties that may in fact be sold, and again we don't know that. But if those properties are sold and proceeds are applied against the line which is exactly what we do at least for interim period of time. That ratio will drop and having extra equity at that time without, and this is the key, without the appropriate investment acquisition opportunity to place that equity money and in fact dropping the equity-to-debt ratio but acquiring assets that enrolling give you a positive rate of return on that equity is just something's that important to us. So we're trying to balance all of the things, the disposition proceeds that may come -- the opportunity and cost of capital for equity against -- and this is the key thing against the real acquisitions opportunities that will overtime give us a good return on the cost of capital. So it is a balancing act plus everything is on the table all the time.

Great. Okay, thanks a lot.

Our next question comes from Tom Lesnick with Capital One Securities. Please go ahead.

Great, thanks for taking my questions. I guess first, I just wanted to touch back on leasing. Looks like you guys executed early renewals at a handful of properties that are not in your core market. As you kind of look out to 2017, are there any additional releasing opportunities that we should be aware off of any significance, just looking at your supplemental, looks like maybe Murphy and North [ph] are in there?

Sure, this is John Donahue. Yes, there are certainly other tenants that we are engaged with and will be heading for the discussions with early renewals. And there are some tenants that have already departed. So we expect the third quarter 2016 to be more heavily weighted towards new leasing versus what we saw for the first half of the year. And as I mentioned, we did -- we've been seeing the robust activity in the Midwest region and the activity is also picking up in the other core markets as well. So we don't talk specifically about tenants that we're in negotiations with but it is certainly possible that you will see few more renewals over the balance of the year, especially when it makes sense to renew those tenants early but we'll see a heavier weighting we believe over the balance of the year, our new leasing. I hope I've answered your question?

Yes, I appreciate it. And I guess one housekeeping question for me. To be clear on guidance, does that reflect core or reported FFO?

That will be reported FFO.

Reported FFO, okay. Great, that's all I've got. Thanks guys.

Our next question comes from Craig Kucera with Wunderlich. Please go ahead.

Good afternoon. When I look at your leasing trends, I appreciated the color. It appears that the rec-roll after slowing down a bit, at least from where we were. A year or two ago incentives are up maybe a month, four months versus three months, we're paying more in leasing commissions and tenant improvements per square foot. Those things we shift around but do you think this is more property specific quarter or were you may be willing to push a little harder to give a little bit more to get -- or more just where the markets going right now?

Craig, it's John Donahue again. I think there is a number of factors in those numbers. I think the length of the term -- of the significant deals that we did had something to do with the concessions as compared to the first quarter and prior quarters. The average per year being in the $4 to $5 range seems just about right for most of our markets right now and the run rate has been bumping up and the IRRs have been very solid for the renewals that we've done. So I don't see anything that is not in tune with where things are. Concessions had -- as you know across the country has been going up over the last year or so but thankfully the rental rates are in tune with as well. Any other details that you're looking for?

No. I mean I guess just trying to get some color on -- obviously occupancy is down and some of that because you've sold fully occupied property, some of that's just -- you've lost the marketing area, just trying to get a read on sort of whether or not it was more market specific or kind of where things are today, I think are good. I guess the second question is with special way, that's the property that's been somewhat challenging from an occupancy perspective for some time. What was the -- why was the decision made this quarter to move that subsequent to the quarter to be potentially sold?

Craig, Jeff Carter here. As we evaluate the portfolio every quarter and we make a determination when we think we have more value to add versus the cost of leasing versus disposition and we have decided on Federal Way that now is the time to -- as we exit to non-core markets, it's our only asset. In that marketplace pricing across the country is -- this is -- while technically greater -- Seattle at the Federal area and we thought this was the right time to put that into the market and take those proceeds and reinvest them to one of our permanent type property.

Okay. And I just wanted to follow-up finally on, sort of the capital recycling. It sounds like you're going to be a net acquirer but outside of Federal Way it sounds like you have made a soft circle, some other properties that you may sell in order to sort of match fund. Is that correct?

Exactly, we have more things that we're looking at and working on, and I'll update at the end of the next quarter to see whether that shifts at all in that acquisition and disposition but we'll update.

Okay, thanks very much.

[Operator Instructions] Our next question comes from John Kim with BMO Capital Markets. Please go ahead.

Thank you. I was wondering if you could provide some color on the $15 million to $20 million capital spending in any one market. How much of that is going to be spend on the lobby and common area? And is there any retail potential given the location next to VW [ph]?

John, this is Jeff Carter. Will Friend is in here, he is our Regional Director in-charge of Minneapolis and Denver. I think he can give some better color on that.

Sure. Hi, John. The $15 million to $20 million online includes -- I think as Jeff's comment indicated, tend improve leasing costs but there will be some components of it that are dedicated to retail but the core of it will be office. We're really going after more -- either single working or hopefully a whole building tenant. So I don't have a cost application that's -- what goes, who -- one component at this point but it's not going to be -- it will be mixed use and it will have a small component of detail but really more ancillary detail, maybe a restaurant but nothing -- it gets -- it's probably office.

Okay. So it sounds like it's being sort of a minor reconfiguration of the asset, not a repositioning?

Yes, a minor reconfiguration of the same building to include some retail on the first level and maybe the skyway level which is Minneapolis as attritional retail level but it's really a repositioning where reconfiguration of the existing office building to more office, not a complete reconfiguration.

And I may have missed this but did you provide like development yield or IRR hurdle for it?

No, I have not provided an IRR with development yield but we have provided as our prospective rental rate range or $15 to $18 on a net basis on 120,000 square feet versus expiring rents from the previous tenant is about -- were 75 on a net basis.

Okay. On the expansion of the term facility, it looks like you got a favorable rate on this but did you explore the unsecured bond market and where do you think you could price 10-year money today?

John, this is John Demeritt. We looked at the public debt markets and we also looked at the private issuance markets and enough pricing on that was fairly wide compared to what we could do with our bank group. Particularly the public debt markets were very wide and we looked at some transactions that occurred in the marketplace in the last few months and a lower healthcare REIT. While I saw our couple of healthcare transactions go through it, very different interest rates. A line went for about 5.25 on a 10-year and one month pricing 3.75. And so we haven't issued public debt yet and as a first time issuer we'd be asked to pay a higher rate. And looking at that -- and also risk-reward adjusted where we thought it would be smarter to play stats as we saw we're better off going to the direction that we did. And the long is actually for -- the extended loan if you look at it in total, it's little more than five years, it's about 5.2 years taking itself to September of 2021 we thought that this was the best transaction for the company and the shareholders.

So in your estimate do you think you would have raised north of 4%?

Yes, probably.

Okay. And John, while I have you -- I never see you add hedge and effectiveness to your core facility this period?

Yes.

What is this relationship, is it out of money hedges?

No, it's -- I can give you a technical answer but I'll probably put you to sleep if I did. What it really is as a mark-to-market calculation that we're going to have to do going forward that will never be settled in cash. We have in our credit agreements a definition of LIBOR that says if the interest rates in the United States go negative, the interest rate for purposes of -- would be zero. And that is what in the accounting trend they call it investment embedded derivative which has really not had any material value to us until this time but we -- with a negative interest activity and that's happened in the last few months, it rose to a level where we know it's recorded. So each quarter I'm in need of reported two -- not to settle every cash when mean the swap matures we'll just take the cumulative value of all that's in and wipe it off the books. So where it's non-cash, it's didn't seem to make sense to me to include it in some of our metrics we provide like EBITDA FFO and some other things that you'll see in the supplemental.

I manage that, and will wait for that. Very helpful.

You did good, that's pretty good.

So it's a non-cash deduction that you're adding back?

Right, yes.

All right, thank you.

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

Thank you, everyone. Look forward to third quarter call. Have a great day and again, sorry for the delay on the call. Thank you.