- Franklin Street Properties (FSP) is reviewing strategic alternatives, including a sale of the company or its portfolio, as its stock trades well below perceived asset value.
- The REIT reported a $21.4M Q1 loss and saw occupancy drop to 69%, prompting concerns about future viability.
- FSP’s portfolio includes 14 office buildings totaling 4.8M SF across major Sun Belt and Mountain West markets, but weak demand for its Class-B properties remains a challenge.
- Analysts remain skeptical a buyer will pay meaningfully above the stock’s current $1.85 valuation, though an attractive offer could shift sentiment across the office REIT sector.
A Struggling Office REIT Weighs Its Options
Franklin Street Properties, a Newton, Massachusetts-based office REIT, is exploring a sale amid weak demand, reports Bisnow. The decision follows a disappointing first-quarter performance, where FSP reported a $21.4M loss and further declines in occupancy across its 4.8M SF portfolio.
CEO and Chairman George Carter emphasized that the review is aimed at closing the gap between the company’s stock price—hovering under $2—and what management sees as the true value of its assets. “We believe that FSP’s share price does not adequately reflect the underlying value of our real estate,” Carter said.
Investor Skepticism Remains
Despite a 25% rally in FSP’s share price following the announcement, analysts remain cautious. Janney analysts covering the stock noted that demand for FSP’s Class-B buildings remains soft, and a significant premium buyout offer appears unlikely under current market conditions.
Before this week’s gains, the stock had dropped roughly 20% year-to-date. Analysts warned that unless an offer exceeds $2 per share, the review may have limited impact.
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Portfolio Breakdown
FSP’s 14-property portfolio spans key markets like Houston, Dallas, Denver, and Indianapolis, with a focus on infill and central business district assets. Its largest asset, a 683K SF office building at 1999 Broadway in Denver, has been at least 50% vacant since late 2024.
Notably, Citgo is FSP’s largest tenant, occupying 5% of the portfolio, while the US government leases 169K SF, making it the third-largest tenant. Overall portfolio occupancy was just 69% at the end of Q1, down from the prior year.
A Sector Under Pressure
Franklin Street Properties is not alone in facing headwinds. Office REITs broadly saw an average 11% decline in Q1 after posting strong 2024 returns, according to Nareit. As borrowing costs remain high and remote work reshapes office demand, several smaller landlords have opted to sell assets, suspend dividends, or explore bankruptcy.
FSP has already sold off $1.1B in assets since 2020, reducing its debt to $283M, but the company still faces a steep climb to regain investor confidence.
What’s Next
There is no timeline for the completion of the strategic review, and FSP has made no guarantees about its outcome. In the meantime, the REIT remains focused on boosting occupancy and selectively offloading assets. The market will be closely watching to see if a buyer emerges—or if this signals deeper distress in the Class-B office segment.
