Hello. Good morning everyone, and welcome to the Franklin Street Properties Corp. Fourth Quarter and Full Year 2021 Results. My name is Gemma and I will be the operator for today. I'd now like to hand the call over to Scott Carter, General Counsel. Please go ahead, Scott. Thank you.

Good morning, and welcome to the Franklin Street Properties fourth quarter 2021 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; John Donahue, President of FSP Property Management; and Will Friend, Executive Vice Presidents 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, 2021, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, February 16, 2022, 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. Reconciliations 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'll turn the call over to John Demeritt. John?

Thank you, Scott and good morning everyone. I'm going to give a very brief overview of our fourth quarter and year-end results, and afterward I'll pass the call to George for his comments. 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. We reported net income of about $78.6 million or $0.75 per share for the fourth quarter of 2021 and $92.7 million or $0.87 per share for the full year 2021. We reported funds from operations, or FFO, of about $11 million or $0.10 per share for the fourth quarter of 2021 and $58.5 million or $0.55 per share for the full year of 2021. During Q4, we completed the sale of three properties at a net gain of about $83.9 million and used the proceeds from those sales to repay $200 million of our 2023 term loan maturity and $15 million to repay a drawn balance on our revolver. Looking back, we had approximately $1 billion in debt at the end of September of 2020. We sold a property at the end of December in 2020, and 10 properties were sold during 2021. We used asset sale proceeds primarily to repay about 53% of our debt. At December 31st, 2021, we had $475 million of debt outstanding. We ended 2020 with a net debt to EBITDA ratio of 8.7 times, which has since struck very significantly to 6.2 times at the end of 2021, primarily as a result of our debt repayment strategy. Our debt service coverage ratio was over three times for the fourth quarter as well. We believe that in 2021 we have meaningfully lowered our leverage and strengthened our balance sheet. Shortly after year-end, we entered into a new revolver with availability of $237.5 million and terminated our existing revolver. We appreciate our bank group and believe this new revolver will service is in our liquidity needs as we look ahead. As a reminder, all of our debt remains unsecured. With that, I'll turn the call over to George.

Thank you, John. And again, welcome to Franklin Street Properties fourth quarter and full year 2021 earnings call. I’d like to report that FSP executed very well on its primary 2021 strategies to reduce debt and to lease offices. 2021 achievements include the sale of 999 Peachtree in Atlanta for $223.9 million, a lease of approximately 100,000 square feet with a new tenant at our Pershing Park property in Atlanta and a lease renewal for approximately 250,000 square feet at Eldridge Green in Houston. For a full year 2021, we sold 10 properties for aggregate gross proceeds of approximately $603 million. We purchased approximately 3.4 million shares of our common for approximately $18.2 million. And we have reduced our total indebtedness since September 30th, 2020 by approximately 53% from approximately $1 billion to approximately $475 million. Looking forward, we are very optimistic that our remaining office portfolio has significant upside leasing potential in a post-COVID-19 environment. And so, in 2022, we will continue to focus all energies to leasing more of our available office space. We also continue to believe that the current price of our common stock does not accurately reflect the value of our underlying real estate assets and intend to continue our current strategy of seeking to realize that shareholder value through the sale of select properties, where we believe that short to intermediate term valuation potential has been reached. At this time, we are estimating property dispositions for 2022 to be in the range of $250 million to $350 million in aggregate gross proceeds. We intend to use the proceeds from any future dispositions or continued debt reduction, continued repurchases of our common stock and any special dividends required to meet REIT requirements, as well as other general corporate purposes. With that, I would like to turn the call over now to John Donahue, President of FSP Property Management Corp. John?

Thank you, George. Good morning, everyone. The FSP portfolio was approximately 78.4% lease at the end of the fourth quarter as compared to 78.8% leased at the end of the third quarter. The decrease is primarily attributable to asset dispositions. FSP finalized over 1 million square feet of total leasing during calendar 2021, including new deals, expansions and renewals. The leasing momentum that had been escalating on multiple occasions during 2021 was interrupted by the Delta variant surge and most recently by the Omicron variant surge. However, we are currently witnessing leasing momentum once again, with demand for office space in our portfolio, improving on a weekly basis. In the majority of FSP's markets across the country, there are improving fundamentals, shrinking sublease space, additional office reopenings and growth in the pipeline of new potential commitments. FSP is current tracking approximately 700,000 square feet of potential new tenant prospects. Included in the 700,000 square feet of prospects, there approximately 400,000 square feet of new tenant prospects that have short-listed FSP assets identified an FSP building as their top choice or signed a letter of intent. We continue to be encouraged by meaningful growth and leasing activity and FSP's healthy pipeline perspective tenants. Thank you. I will now turn it over to Jeff Carter.

Thank you, John. Good morning, everyone. We here at Franklin Street Properties, hope that everyone remains safe and healthy. As we start 2022, FSP continues with our efforts to materially reduce corporate indebtedness at the company through select property sales. Importantly, we believe that our disposition efforts during 2021, which effectively began at the end of 2020, have served to highlight a disparity that exists between our public share price and the true market value of our real estate assets. And so, we believe our dispositions have been capturing associated embedded value for our shareholders. More specifically for the full year of 2021, FSP completed approximately $603 million in total property sales at an aggregate weighted average in place cap rate of approximately 5.5%. During the fourth quarter, specifically FSP completed three dispositions, totaling about $263.9 million that included 999 Peachtree in Atlanta for $223.9 million in October and Meadow Point and Stonecroft both in Chantilly, Virginia for $40 million in November. Looking at 2022, more specifically, FSP has confirmed expected disposition guidance of between $250 million and $350 million in aggregate gross proceeds for the calendar year, similarly to last year with any potential upcoming property sales FSP intends to continue you to utilize disposition proceeds primarily to paydown debt. FSP currently is, or will soon be seeking price discovery on Eldridge Green and Park Ten in Houston, Texas, 909 Davis in Evanston, Illinois, and 380 and 390 Interlocken in Broomfield, Colorado. And we will continue to provide updates as appropriate. Our criteria for selecting potential properties for dispositions continues to be asset-specific and not market specific. We consider a variety of factors, including analyzing respective short to intermediate term value potential. Lastly, an effort to try to add a bit of color around what we are experiencing in the marketplace on investment sales, FSP has generally been seeing strong demand for well located in high quality office properties from a diverse group of buyers. To date, the strongest interest has been from private buyers, but public buyers are also increasingly looking and participating. Interest has also brought in for mostly single or few tenant properties with strong weighted average lease terms to also select interest in core plus and even value-add. Strongest interest has been in the suburbs, but infill is also seeing exploration as well. And winning bidders are underwriting a return to a more normalized economy and office use landscape. Most interest that we have seen has been domestic in nature, but some international groups have been looking as well. And with that, we thank you for listening to our earnings conference call today. And now at this time, we'd like to up the call for any questions, Gemma?

Thank you. Our first question today comes from Rob Stevenson of Janney. Please go ahead, Rob. Your line is now open.

Good morning, guys. On the dispositions, does the $250 million to $350 million reflect just the five properties that you guys have identified and they're roughly 1.1 million square feet or does it include other stuff as well?

Hi Rob. This is Jeff Carter. Good morning. It includes the assets that we've noted.

Okay. So, anything else that you do -- besides those five would be in addition to the current guidance?

That would be correct and we'll update quarterly.

Okay. And then, George, how is the Board thinking about the continued disposition and another options here. I mean, stock price, hasn't budged, I assume that you and the Board and the rest of the management team have been a little disappointed by that, that it's not reflecting more of a value as you drop the leverage. And by addition -- by subtraction, in some cases improve the asset quality. What's -- if the stock continues to be in this sort of $5, $6 range, how long you is the Board willing to do to maintain that and sort of what are the next steps for you guys?

Hi, Rob. So, good question. And the answer to that question is somewhat multifaceted. First, I would say that the strategy that we executed on in 2021, if you take the stock at the close of 2021, and then what it did at the -- or at the close of 2020, and then the close of 2021, the market actually did value our stock higher year-over-year. And when you add dividends into that equation, actually our return to our shareholders for 2021 was reasonable, just isolating that year. Obviously, looking over a broader timeframe in spectrum, we are disappointed at the price of our stock. And the Board is very focused on the best way to get the best value, risk award adjusted for our shareholders. And that way, right now, in front of us for 2022 is the way that we have outlined with continued dispositions as a large focus. But with a great effort in commitment to leasing what we believe are fantastic properties and fantastic markets that we think will do well over the next year or two in terms of leasing and adding value properties. And that commitment is unrelenting by the Board. I would say that one of the things to consider and watch this year during 2022 is in fact what happens in the broader office market relative to COVID and office return. Again, we've had a lot of false starts here over the last couple years. We'll see where this one goes. We're optimistic. I think the office market is generally optimistic. We, specifically, also have faced in the last few years a real headwind in some of our energy markets, specifically, Houston and downtown Denver. Some of those headwinds may be turning to tailwinds. Time will tell, but again, as we proceed…

Okay. Fair enough. And then one last one for me for John Demeritt. You have -- of the remaining $475 million of debt, you have some sub two, some low four, some high fours, what's the -- assuming that you get somewhere $350 million of disposition proceeds this year, what debt -- what's the order of debt that you'll attack and what type of prepayment penalties, if any are there going to be involved in that?

Well, the first, most likely would be the $110 million that remains on what was a $400 million term loan that matures in January of next year. So, first $110 million will go against that. There is no prepayment penalty on that. We would be accelerating some deferred financing costs, depending on when we paid it off, but I don't think that's a significant amount of money. The second piece that would be the $165 million term loan that we have was, that was led by Bank of Montreal that one's due in the end of January of 2024. That one does have a swap on it. So, if we were to repay that we'd have to break the swap and incur some costs from that. And I looked at the value of that swap at the end of January, where rates have been rising that does have a tendency to reduce the amount of the swap liability we have on it. I think it was $5.3 million at year-end. And by the end of January, it was around $3.5 million something like that. So, if we pay that $165 million back, there will be some portion of that, that we will need to break a swap on, let's race rise significantly.

Okay. So, the series A and B senior notes are not something that you're going to likely get to with this round of dispositions.

No, I don't think so. And that has -- they have a yield maintenance component to them that it's pretty expensive on those two pieces of debt.

And when do they start becoming more in the sort of less on risk to take out?

Well, $116 million of it matures in December of 2024 and then $84 million matures in December of 2027. So, the 2024 maturity would start to come down over the next couple of years.

Okay. All right. Thanks guys. Appreciate the time.

Our next question on the line comes from Dave Rodgers of Baird. Please go ahead, Dave. Thank you.

Yeah. Good morning, everybody. George, I wanted to follow up on your -- just your prior comment a moment ago. I think, going into the pandemic enterprise value, just under $2 billion. You're on track to sell about $1 billion of assets over the same time. G&A kind of keeps going up. So, if you're not really that interested in selling the company as a whole, how do you downsize the company? How do you right-size the overall to be this smaller company that you're heading toward, as you think about kind of not pursuing that strategic alternative?

Well, as you've asked this question before Dave, and I will say it again and as clear as I can. We are constantly reviewing all strategic alternatives. The business plan for 2022, at this point have laid out and business plans have changed during the course of the year, but that is the business plan as we've started 2022. But all strategic alternatives, all strategic alternatives are always being reviewed and are on the table. And so, assuming that we are going to stay a much smaller company for a much longer period of time and have to right size G&A and all of the other things that you would do, if that in fact is where we go, is probably not a good assumption in terms -- in the sense of, again, all options continuing to be on the table. And once, long-term option is chosen. And again, we'll learn a lot this year post-COVID, hopefully post-COVID, those long-term decisions and what strategic decision we make long-term, including growing again significantly in a number of potential ways, we will tackle what is necessary to tackle the company the most profitable it could be in whatever strategic scenario we choose.

Okay. Yeah. Fair enough on that. I think, on the disposition, you talked about the energy market is getting better, and I think, Jeff, you also might have mentioned kind of the value add market improving for acquisitions or your disposition. That said, I think what you've just teed up this year is somewhere between 99% and 91% leased. So, obviously, adding more to the backlog of what needs to be leased and kind of pressuring the percentage. Why not pursue a little bit more, why not tag on some of those value add assets in those markets, a Houston or a Denver, as opposed to just selling the well leased, well located assets?

Dave, this is Jeff. We are evaluating assets on an asset specific basis, not a market specific basis. And so, we're selling assets when we feel like the value potential is correct to sell them. And the assets that we are not selling are assets that we believe have tremendous upside potential for our shareholders and great opportunity for continued ownership.

Okay. That's fair. And then, I guess, maybe John Donahue, one question for you on the leasing front. You mentioned 700,000 square feet. Obviously, quite a bit of wood to chop about a million six of vacancy in the portfolio right now. Can you talk about kind of known move-ins and known move-outs at this point and how you see that impacting kind of the cadence of 2022?

Sure. Dave, good morning. And in terms of move-ins and move-outs, which would be economic occupancy, it will largely depend on when -- and when assets are sold and which assets are sold, of course. But what we're seeing right now is a much better improving pipeline of decision-making and moving more quickly towards the finish line, which is -- now, we've been waiting for that for quite a while. So, if that continues with no surprises, I would expect the level of success to be not just inching along or being linear, but might really surge and upward quickly. COVID is the big wildcard. And these prospects that are looking at long-term commitments need to just get over that hurdle of decision-making. My sense right now is that we're in a better place than we were September/October, just a little bit better, and it's fragile depending on COVID, but it is better. And so, there is more optimism and more positive talk in the markets today than there were on multiple occasions last year. So, if I had to guess, I would say that this is not going to be an inching or a linear progress throughout the year, but it could be more quick and escalate quickly.

Thank you for that. Specifically on Ovintiv, is that about two-thirds backfilled and then any update on the DirecTV space?

So, in regards to Ovintiv, we have released between 60% and 66% of that space and looking at new prospects for the balance. So, we believe that we're done at this time with the subtenants. So, Denver is the lion share of our vacancy followed by Texas, but the market has been improving greatly in Denver, especially downtown. And we do have a prospect that would backfill to DirecTV. We expect DirecTV to vacate over the next three, four months.

Downtown on that space.

Well, hard to say. I think, we do have one very strong prospect, but we're probably looking at downtime of at least a quarter or two, maybe three quarters, but it's just hard to say.

Lastly, just to move in of Blue Lagoon, the lease you just announced subsequently the end of the quarter, timing on that.

That would -- yeah, the timing of the move-in would be as soon as they're done with build out. And so, at some point in the fourth quarter would be our estimate.

Okay. And then -- I'm sorry, I had one more WPX Energy, four months left, I think on that term. What happens to that? Is that a sell or is that a re-lease?

That's a known move-out re-lease.

Okay. Thank you for all the details. Appreciate it.

You're welcome.

We should now move to our final question on the line from Craig Kucera from B Riley Securities. Please go ahead, Craig. Thank you.

Yeah. Thanks. Good morning guys. I wanted to circle back with another question related to Ovintiv. You made some headway here in the fourth quarter. Can you give us a sense of kind of when those leases -- I think there are three currently are going to start paying rent at that property that vacate.

Hi, Craig. It's John Donahue. I'll -- I'm going to pass that along to Will Friend. On average, between six and 12 months.

Okay. Great. That's helpful. Okay. Great. And just thinking about capital allocation, you have brought down the leverage considerably from last year and beginning this year kind of in the low sixes. Do you have a target leverage that you're thinking about what Franklin Street looks like maybe post all of these dispositions that you're contemplating this year?

This is John Demeritt. We don't have a target leverage in mind. No. We've just got the disposition guidance that we're going to follow. I don't know if you want to add anything to that, George?

No. I think that's right, Greg. John Demeritt mentioned earlier in the call, the two term loans, and if you -- if we were able to achieve our target dispositions, and aggregate gross proceeds and so on, you would basically -- you could basically get through the bulk of those two term loans, which would lead of the private placement debt. And again, that assumes we got through the dispositions. We could contract that disposition guidance in future quarters or expand it, and that would leave the private placement debt as there only debt with at least sort of what we put forward now relative to dispositions. And that would be 15% to 20% indebtedness.

Got it. And I guess, just how is the Board thinking about cost of capital when you're buying back debt at below 2%, and then maybe 4% sort of beyond.

Gets focused here and at the Board level, does properly. And based upon our trading volume, our average trading volume and the procedures forward purchasing shares to actually achieve, step -- stepped up share repurchases of consequence. You would probably have to work hard at looking for potential block trades, if they were available in the market, properly under the program. So, some of it is going to be achievable relative to our volume levels and the program that we -- virtually most companies that we purchase shares are under.

Okay. I appreciate the colors. Thank you.

We have no further questions on the line. So, I'll hand back over to George Carter for closing remarks. Thank you.

Just thank everybody for tuning into the call today. 2022 will be an exciting year for us and for the whole office market for that matter. We are looking forward to it. We're excited. The energy markets are interesting, but certainly there are a lot of moving parts for the office market and FSP, in particular to look forward to talking to you next quarter.

Thank you very much for joining us today. Ladies and gentlemen, you may now disconnect your lines. Have a good afternoon. Thank you.