Office REIT Franklin Street Properties Searches For Potential Buyer
A Massachusetts-based office REIT is considering selling itself or its properties after a first-quarter earnings miss further weighed down its battered stock.
Franklin Street Properties on Wednesday announced a review of strategic alternatives to maximize shareholder value, including the sale of the company or its assets.
“The Board of Directors is committed to maximizing value for all our shareholders,” CEO and Board Chairman George Carter said in a statement. “We believe that FSP's share price does not adequately reflect the underlying value of our real estate, and, accordingly, we have undertaken this strategic review process to explore opportunities to eliminate this disconnect.”
There is no timeline for a potential sale, and FSP executives said no assurances could be made about the review’s outcome.
The REIT, which saw its stock surge more than 25% Wednesday to roughly $1.85 per share, has struggled to boost occupancy at its buildings.
Demand for its Class-B portfolio of space is weak, analysts at Janney covering the stock wrote in a note to investors Wednesday, and the analysts are skeptical that FSP will be able to attract a buyout offer significantly above the stock’s current valuation. FSP's had lost a fifth of its value this year before this week's rally.
“However, if we are wrong and an offer meaningfully north of $2 is forthcoming, we believe it would have a major impact on the entire office REIT space,” the Janney analysts wrote.
FSP owns 14 office properties totaling 4.8M SF in Houston, Dallas, Minneapolis, Denver, Indianapolis and Plano, Texas. It focuses on infill and central business district office buildings in the Sun Belt and Mountain West. Its operations include acquisitions, short-term financing, leasing, development and asset management.
Its largest asset is a 683K SF office building at 1999 Broadway in Denver that has been half empty since at least the end of 2024, according to the REIT's first-quarter earnings report.
FSP's largest tenant is oil and gas company Citgo, which leases 5% of FSP’s portfolio. The U.S. government is its third-largest tenant, with 169K SF leased.
Its portfolio was 69% occupied at the end of the first quarter, down slightly from 2024 as tenants' leases have expired. The REIT posted a $21.4M loss for the first quarter, up from a $7.5M loss for the same period a year earlier.
It has been shedding assets since 2020 to boost its stock price, selling $1.1B worth of properties and bringing its debt down to $283M in the process.
When its Q1 results were posted on April 29, Carter said FSP’s two primary priorities were to boost occupancy and pursue selective sales to shore up its balance sheet.
Office REITs on average lost nearly 11% of their value in the first quarter after posting 21.5% returns in 2024, according to Nareit. Some smaller publicly traded landlords have elected to shed assets, suspend dividends or consider bankruptcy in recent months as borrowing costs have stayed high and demand hasn't returned to prepandemic levels.
UPDATE, MAY 14, 12 P.M. ET: This story has been updated to include analyst commentary.
