The second in the office REIT basket is Franklin Street Properties (FSP) (~$180MM market cap), this one might be a more direct comparable to City Office REIT (CIO) in that it owns 14 central business district (some less CBD than others) multi-tenant office buildings in the sunbelt (like CIO) but also in places like Denver and Minneapolis which have been slower to recover. FSP has been on my radar for a long time as they’ve included the below language for years in their quarterly results, it’s been an unofficial liquidation of sorts since the pandemic. They’ve sold over $1B in property and used the proceeds to deleverage their balance sheet.
We continue to believe that the current price of our common stock does not accurately reflect the intrinsic value of our underlying real estate assets. We will continue to seek to increase shareholder value by pursuing the sale of select properties when we believe that short-to-intermediate term valuation potential has been reached.
In May, FSP officially announced a strategic alternatives process:
“The Board of Directors is committed to maximizing value for all our shareholders,” stated George J. Carter, Chairman and CEO. “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.”
We haven’t seen the CIO proxy yet, but I anticipate in the background to the merger we’ll see many counterparties participated in the auction (CIO mentioned conducting a comprehensive process). FSP could be a consolation prize if you’re a private equity manager with cash to burn.
FSP typically hosts a quarterly conference call to review their financial results, earnings were released today and FSP decided to skip having a call. The market has been frustrated with the speed of this slow motion liquidation, but it appears they’re finally serious about selling the remaining assets/entire company. FSP’s portfolio is only 69% leased, the office landlord business has a lot of operating leverage to it, if you (or an interested private buyer) have a strong view that leasing activity will recover then this one might be cheaper than it screens on an current NOI run-rate basis.
Franklin Street Properties is a bit of a family business, management pays themselves well, but do own 10% of the shares and to their credit have shrunk the business over the last 5 years. The risk here is that they run a process and don’t feel like they’re getting fair value, continue to pay themselves handsomely and let the slow-motion liquidation continue for a few more years.
Disclosure: I own shares of FSP