Good morning. Thank you for attending the Franklin Street Properties Corp. First Quarter 2023 Results Call. My name is Elissa, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Scott Carter, General Counsel. You may proceed.

Good morning, and welcome to the Franklin Street Properties first quarter 2023 earnings call. Joining me this morning are George Carter, our Chief Executive Officer; John Demeritt, our Chief Financial Officer; Jeff Carter, our President and Chief Investment Officer; John Donahue, President of FSP Property Management; and Toby Daley, Executive Vice President of FSP Property Management. Please note that various remarks that we may make about future expectations, plans and prospects for the company may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2022, as amended by our quarterly reports on Form 10-Q, all of which are on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, May 3, 2023. 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 in 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 brief overview of our first quarter 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 the 10-Q, which, as Scott mentioned, can be found on our website. We reported funds from operations, or FFO, of about $8.4 million or $0.08 per share for the first quarter of '23. And we reported GAAP net income of about $2.4 million or $0.02 per share for the first quarter of '23. On March 10, 2023, we sold an office property located in Elk Grove Village, Illinois for a sale price of about $29.1 million that resulted in a gain of about $8.4 million. We used the proceeds to repay a portion of our revolver balance. And as of the end of March, we had $400 million in total debt outstanding. We finished Q1 of '23 at a net debt-to-EBITDA calculation of 6.8x, and our debt service coverage ratio was 2.5x. These calculations are disclosed in our supplemental filing. With that, I'll turn the call over to George. George?

Thank you, John. And again, welcome to Franklin Street Properties First Quarter 2023 Earnings Call. As the second quarter of 2023 begins, we continue to believe that the current price of our common stock reflects a very significant discount to the underlying value of our real estate assets. We will continue to seek to increase shareholder value by pursuing the sale of select properties where we believe that short to intermediate valuation potential has been reached. And we will continue aggressive efforts to lease vacant space in our portfolio. We intend to use proceeds from property dispositions, primarily for continued debt reduction. We are continuing our strategy of not providing property disposition guidance for 2023, primarily for competitive reasons and the reality, at least at this time, that office property sales activity is very choppy and uncertain. However, we completed one property disposition in the first quarter and do anticipate continued meaningful dispositions during the balance of the year. Reduced liquidity in the capital markets for office properties has shown itself, at least to us, in our disposition activity to be a much bigger gating factor to sales consummation than price. Jeff will talk more about this in a few minutes. Leasing currently vacant space in the FSP property portfolio has meaningful potential upside impact on our future FFO metric, both because we have a significant amount of vacant space to lease and because much of that vacancy is in markets that are currently beginning to gain more traction and momentum, relative to underlying business demand forces and employee back-to-the-office trends. In Denver, our 3 CBD properties as well as Greenwood Plaza are examples. In Houston, Westchase I and II and Park Ten I and II are also showing increasing leasing activity. And across our entire property portfolio, we continue to see, in general, a slow but steady increase in the percentage of our tenants' employees that are working more days in the office. Ultimately, this broader return to office trend will help corporate decision makers to determine their office space needs and make firm leasing decisions for the future. For more color on our leasing activity, I will now turn the call over to John Donahue, President of FSP Property Management. John?

Thank you, George. Good morning, everyone. The FSP directly owned portfolio was approximately 73.9% leased at the end of the first quarter compared to 75.6% leased as of year-end 2022. Economic occupancy of the directly owned portfolio was approximately 71.5% at the end of the first quarter compared to 74.1% as of year-end. The decreases were primarily attributable to lease expirations in Denver and Minneapolis and secondarily, due to the disposition of an asset in the greater Chicago area. As of quarter end, there were approximately 136,000 square feet of executed leases with anticipated commencement dates in calendar 2023. FSP finalized approximately 129,000 square feet of total leasing during the first quarter of 2023, which included approximately 81,000 square feet of renewals and expansions, along with 48,000 square feet of new tenant leases. Subsequent to quarter end, FSP executed approximately 112,000 square feet of leases with new tenants and expansions of existing tenants. The lease occupancy of FSP's directly owned portfolio at the end of April was approximately 75.6% compared to the 73.9% leased occupancy as of the end of March. During the first 4 months of calendar 2023, FSP has witnessed a slow and steady increase in overall tenant prospect activity. Although it certainly takes longer to finalize new tenant leases since the pandemic, we have been encouraged by the quarter-over-quarter positive trend in tours and requests for proposals for FSP's assets. The modest pickup in activity has occurred in most of FSP's markets, including Downtown Denver, Suburban North Dallas, West Houston and Richmond. We are currently tracking a rising pipeline of over 700,000 square feet of prospective tenants for new leases, including approximately 400,000 square feet of prospects that have identified FSP assets on their respective short lists. Lease expirations for the remainder of calendar 2023 total approximately 256,000 square feet, representing 4.2% of FSP's directly owned portfolio. FSP has been engaged and continues to work with existing tenants for renewals and expansions that totaled in excess of 300,000 square feet. Thank you. I will now turn it over to Jeff Carter.

Thank you, John. Good morning, everyone. FSP is focused on working to unlock value for our shareholders that we believe is not being accurately reflected in our current public share price. As George referenced, our efforts are centered on 2 key action areas. First, the continued sale of select properties that we judged to have met their short to intermediate-term potential; and second, through efforts to lease our vacant space and renew existing tenant customers. FSP has and will continue to principally direct most sales proceeds to reduce corporate indebtedness. More specifically, since December of 2020, FSP has completed approximately $851 million in office dispositions and reduced our debt by approximately 60% over that time period. At a macro level, the marketplace for office property sales and financings continues to experience a challenged environment, in particular, the sale of larger office properties, including bulk office portfolios, is seeing weak demand and more difficult conditions with greater execution risk, as opposed to smaller and more moderately sized single property transactions. This is due in large part to the currently constrained lending environment and relatedly to worries over stress within the banking sector, which, when combined with rising interest rates, has reduced the ability of real estate investors to reliably procure needed debt and/or equity capital to facilitate the closing of property purchases. Specifically, with regard to property sales here at FSP, we are seeing real interest from prospective buyers on several potential individual property sales candidates. Investors continue to seek high-quality and well-located office properties. However, there are fewer buyers than in the past. And as described, there are challenges that many potential buyers face in terms of their overall ability and the amount of time needed to procure the debt and/or equity capital needed to facilitate transaction completion. During the…

[Operator Instructions] Our first question comes from the line of Craig Kucera with B. Riley Securities.

As far as the -- what appears to be about $1.3 million in lease termination fees recognized in the quarter, were those all affiliated with the early termination you mentioned, Jeff, at Citicorp? Or is that someone else that terminated their leases?

Yes, Craig, this is John Demeritt. The Citicorp termination fees were about $780,000 of the termination fees we received in the first quarter.

Okay. Great. Changing gears. John, there was a pretty healthy improvement in free rents and TI and leasing costs, at least on a per square foot basis relative to recent quarters. Is that just a function of where leasing occurred in markets? Or are you seeing more of a firming in that regard?

Craig, so the activity that we have seen over the last 3 months or so, it's just been a little bit lower in concessions and more focus on the rental rate. So that's more of a function of which market the activity has been in. I wouldn't draw any conclusions from that. As you look at the last 18 months or so of activity, we've seen total concessions in the $40 per square foot range, and that -- in the free rent, somewhere between 5 and 7 months, about a month per year of lease transaction. So $6, $6.50 or so per square foot per year of total cost. And so I don't think there's anything to draw from that. I don't think that's a trend.

Okay. That's helpful. And I think you covered this in your comments, but I just kind of want to drill down. April looked like it was a really solid month from a leasing perspective as well. Was that fairly broad-based? And are you starting to see maybe some larger tenants that have been on the fence maybe starting to making some leasing decisions?

Yes. In fact, in regards to the leasing that was achieved, we did have one significant lease in Richmond that we've been working on for a while. But the broader picture is that we're seeing a rising pipeline in prospects for the first time in a long time that want full floors. So Denver, in particular, we have a handful of prospects that want between 30,000 and 40,000 square feet, and that is really welcome. We've been looking for that for quite a while. As we've been talking about in prior quarters, the predominant amount of prospects have been below 10,000 square feet. So very encouraged by what we're seeing in both Texas and Denver from some large prospects, 20,000 square feet above and some full floor prospects.

Okay. Great. What is the game plan with Monument Circle now that it has been consolidated?

Monument -- this is George. Craig, Monument Circle is actively being marketed both for leasing prospects and for sales prospects. And so we have several prospects for Monument Circle on both fronts and prospects that are lease-to-own type prospects. So we are optimistic that sometime this year, we will have a major transaction associated with Monument Circle. And what form that takes exactly is yet to be determined.

Okay. Got it. There was a sizable pickup in G&A this quarter from the last 6 months. I know you don't give guidance, but how should we think about G&A overall in 2023 relative to last year or years prior?

Craig, this is John Demeritt. This will vary quarter-to-quarter. But if you look at G&A in '22 compared to '21, we dropped G&A about $2 million or about 14.5% to about $13.9 million for the year. And we expect to focus on G&A as we go through this year, and believe it will be going down over the long term.

Okay. Great. And just one more for me. How much of the interest rate swap termination was recognized in the first quarter? And how should we think about that for the rest of the year?

The way it was recognized is we had about $660,000 as a reduction in interest expense, which is how GAAP requires you to amortize in the benefit of a swap break like that the way the rules are written. So we roughly got $4.2 million. You can see that on the cash flows as well as the $660,000 that was amortized in the first quarter. And we'll basically be amortizing 4-point -- a quarter -- or $4.2 million each quarter for the rest of the year and then the last of it in the first quarter or next year.

There are no additional questions waiting at this time. I would like to pass the conference over to George Carter for closing remarks.

Thank you, everyone, for tuning into the quarter. We look forward to talking with you next quarter. And we also look forward to the increased activity we're seeing on the leasing front, which is palpable and we're very excited about. Have a great day.

That concludes today's call. Thank you for your participation. You may now disconnect your lines.