Franklin Street Properties Corp. (FSP) Bundle
Understanding Franklin Street Properties Corp. (FSP) Revenue Streams
Understanding Franklin Street Properties Corp.’s Revenue Streams
Primary Revenue Sources
- Rental Revenue: Total rental revenue for the nine months ended September 30, 2024, was $91.7 million, a decrease of $19.2 million from $110.9 million in the same period in 2023.
- Other Revenue: Other revenue sources amounted to $32,000 for the nine months ended September 30, 2024, compared to $9,000 in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the nine months ended September 30, 2024, showed a decline of approximately 17.3% compared to the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
| Segment | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | Change (in thousands) |
|---|---|---|---|
| Rental Revenue | $91,705 | $110,927 | $(19,222) |
| Other Revenue | $32 | $9 | $23 |
| Total Revenue | $91,737 | $110,936 | $(19,199) |
Analysis of Significant Changes in Revenue Streams
- The primary factor contributing to the revenue decline was the decrease in rental income, primarily due to the sale of four properties in 2023 and two properties in 2024.
- As of September 30, 2024, the leased space in owned and consolidated properties was 67.7%, down from 72.4% the previous year.
Quarterly Revenue Comparison
The total revenues for the three months ended September 30, 2024, were $29.7 million, down $7.2 million from $36.9 million in the same quarter of 2023.
| Quarter | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | Change (in thousands) |
|---|---|---|---|
| Q3 | $29,682 | $36,903 | $(7,221) |
| Q2 | $30,000 (Estimated) | $36,000 (Estimated) | $(6,000) (Estimated) |
A Deep Dive into Franklin Street Properties Corp. (FSP) Profitability
A Deep Dive into Franklin Street Properties Corp.'s Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the total revenues were $91.7 million, a decrease from $110.9 million in the same period in 2023. The gross profit margin is calculated as gross profit divided by total revenues. The gross profit can be derived from total revenues minus total expenses, which were $116.4 million for the nine months ended September 30, 2024.
Operating Profit Margin: The operating profit margin is calculated as operating profit divided by total revenues. The operating loss for the nine months ended September 30, 2024, was $44.2 million. This indicates an operating profit margin of -48.2%.
Net Profit Margin: The net loss for the same period was $44.2 million, leading to a net profit margin of -48.2% as well, reflecting the overall financial health of the company.
Trends in Profitability Over Time
Comparing the profitability metrics over recent periods, the following trends are noted:
- 2024 (Nine Months): Total Revenue: $91.7 million, Net Loss: $44.2 million
- 2023 (Nine Months): Total Revenue: $110.9 million, Net Loss: $51.7 million
This shows a decrease in revenue and improvement in net loss year-over-year.
Comparison of Profitability Ratios with Industry Averages
The profitability ratios for Franklin Street Properties Corp. are compared to industry averages:
| Metric | FSP (2024) | Industry Average |
|---|---|---|
| Gross Profit Margin | -26.9% | 30% |
| Operating Profit Margin | -48.2% | 10% |
| Net Profit Margin | -48.2% | 5% |
Analysis of Operational Efficiency
Operational efficiency can be assessed through various metrics:
- Total Expenses: Total expenses for the nine months ended September 30, 2024, were $116.4 million, down from $130.6 million in the same period of 2023.
- Real Estate Operating Expenses: These expenses decreased from $37.6 million in 2023 to $33.6 million in 2024.
- Depreciation and Amortization: This also decreased significantly from $42.8 million to $34 million.
Despite the reduction in total expenses, the company remains in a net loss position, indicating challenges in operational efficiency.
Debt vs. Equity: How Franklin Street Properties Corp. (FSP) Finances Its Growth
Debt vs. Equity: How Franklin Street Properties Corp. Finances Its Growth
Long-term Debt: As of September 30, 2024, the company had long-term debt totaling approximately $273.1 million, which includes $137.6 million in term loans and $135.5 million in senior notes .
Short-term Debt: The company reported no short-term bank notes payable as of September 30, 2024, compared to $90 million as of December 31, 2023 .
Debt-to-Equity Ratio: The debt-to-equity ratio as of September 30, 2024, stood at approximately 0.46 (calculated as total liabilities of $316.1 million divided by total equity of $682.1 million) . This ratio is lower than the industry average of approximately 0.75 for real estate investment trusts (REITs) .
Recent Debt Issuances and Refinancing Activity: On February 21, 2024, the company repaid approximately $50.4 million of its Series A and B Notes . The company also underwent amendments in its loan agreements on February 10, 2023, and February 21, 2024, which resulted in increased interest expenses due to higher market rates .
Credit Ratings: As of the latest assessments, the company maintains a credit rating of B from major credit rating agencies, indicating a stable outlook but with a moderate risk of default .
Balancing Debt Financing and Equity Funding: The company has strategically reduced its reliance on debt financing by engaging in property sales, which generated approximately $62.9 million in proceeds during the nine months ended September 30, 2024 . This approach allows the company to maintain liquidity and reduce overall debt levels while continuing to fund operations and growth through equity .
| Debt Type | Amount ($ millions) | Interest Rate (%) | Maturity Date |
|---|---|---|---|
| Term Loans | 137.6 | 8.00 | April 1, 2026 |
| Senior Notes | 135.5 | 8.00 | April 1, 2026 |
| Bank Note Payable | 0.0 | N/A | N/A |
The company has effectively managed its financial structure by balancing debt and equity. This strategy enhances its ability to fund growth while mitigating risks associated with high leverage .
Assessing Franklin Street Properties Corp. (FSP) Liquidity
Assessing Franklin Street Properties Corp.'s Liquidity
Current Ratio: As of September 30, 2024, the current assets amounted to $42.4 million, while the current liabilities totaled $316.1 million. This results in a current ratio of approximately 0.13, indicating potential liquidity challenges.
Quick Ratio: The quick ratio, which excludes inventory from current assets, is similarly low due to the significant current liabilities. Given that cash and cash equivalents are the primary liquid assets, the quick ratio is also around 0.13.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, shows a negative trend. As of September 30, 2024, working capital was ($273.7 million), compared to ($328.1 million) as of December 31, 2023, reflecting a slight improvement but still indicating significant liquidity issues.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow statement reveals:
- Operating Cash Flow: $6.7 million
- Investing Cash Flow: $43.8 million
- Financing Cash Flow: ($136.0 million)
The increase in cash provided by investing activities largely stems from property sales, totaling $62.9 million in proceeds. However, the significant cash outflow from financing activities indicates aggressive debt repayment strategies, which may constrain liquidity further.
Liquidity Concerns or Strengths
Despite the $42.4 million in cash and cash equivalents as of September 30, 2024, the company faces liquidity concerns due to high current liabilities and a low current ratio. Management has indicated that they believe existing cash will suffice for the next 12 months, but reliance on property dispositions poses risks in fluctuating market conditions.
| Key Metrics | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Current Assets | $42.4 million | $127.9 million |
| Current Liabilities | $316.1 million | $328.1 million |
| Current Ratio | 0.13 | 0.39 |
| Quick Ratio | 0.13 | N/A |
| Working Capital | ($273.7 million) | ($328.1 million) |
| Operating Cash Flow | $6.7 million | $11.5 million |
| Investing Cash Flow | $43.8 million | $14.1 million |
| Financing Cash Flow | ($136.0 million) | ($50.0 million) |
Overall, liquidity remains a crucial concern for the company as it navigates its financial obligations amidst a challenging operating environment.
Is Franklin Street Properties Corp. (FSP) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The P/E ratio for Franklin Street Properties Corp. (FSP) as of September 30, 2024, is calculated based on the net loss per share:
- Net loss per share: $0.15
- Current stock price: $3.25
- P/E Ratio: - (not applicable due to net loss)
Price-to-Book (P/B) Ratio
The P/B ratio reflects the valuation of a company's stock relative to its book value:
- Book value per share: $6.42
- Current stock price: $3.25
- P/B Ratio: 0.51
Enterprise Value-to-EBITDA (EV/EBITDA)
The EV/EBITDA ratio gives insights into the company's valuation relative to its earnings before interest, taxes, depreciation, and amortization:
- Enterprise Value: $416 million
- EBITDA for the last twelve months: $28 million
- EV/EBITDA Ratio: 14.86
Stock Price Trends
Stock price trends over the last twelve months are as follows:
| Date | Stock Price ($) |
|---|---|
| September 30, 2023 | 4.50 |
| December 31, 2023 | 3.90 |
| March 31, 2024 | 3.60 |
| June 30, 2024 | 3.20 |
| September 30, 2024 | 3.25 |
Dividend Yield and Payout Ratios
The dividend yield and payout ratios are detailed below:
- Annual dividend per share: $0.04
- Current stock price: $3.25
- Dividend Yield: 1.23%
- Payout Ratio: - (not applicable due to net loss)
Analyst Consensus on Stock Valuation
The analyst consensus for Franklin Street Properties Corp. is as follows:
| Analyst Recommendation | Number of Analysts |
|---|---|
| Buy | 2 |
| Hold | 5 |
| Sell | 1 |
Overall, the financial health of the company reflects a challenging environment with significant losses impacting common valuation metrics.
Key Risks Facing Franklin Street Properties Corp. (FSP)
Key Risks Facing Franklin Street Properties Corp.
The financial health of Franklin Street Properties Corp. is influenced by various internal and external risks that may affect its performance and stability. Below are the key risk factors identified as of 2024:
Industry Competition
In a highly competitive real estate market, the company faces risks from other property management firms and real estate investment trusts (REITs). As of September 30, 2024, the company’s owned properties were approximately 67.7% leased, down from 72.4% in the previous year, indicating potential challenges in attracting tenants.
Regulatory Changes
Compliance with regulations is critical for maintaining REIT status. The company must distribute at least 90% of its taxable income to shareholders to avoid corporate taxes. Any changes in tax laws or regulations could impact profitability and cash flow.
Market Conditions
Economic fluctuations and geopolitical events adversely affect demand for office space. The company reported a net loss of $44.2 million for the nine months ended September 30, 2024, compared to a net loss of $51.7 million for the same period in 2023. The company's revenue dropped by $19.2 million, primarily due to property sales and lease expirations.
Operational Risks
Operational risks include the management of property expenses and tenant relationships. For the nine months ended September 30, 2024, total expenses decreased by $14.2 million to $116.4 million, attributed to reduced real estate operating expenses. However, the company faces challenges in maintaining occupancy levels, with about 1,469,000 square feet classified as vacant.
Financial Risks
As of September 30, 2024, approximately 50.6% of the company’s total debt was unhedged variable rate debt. Increased interest rates could further strain financial resources. The interest rate on the BofA Term Loan was 8.00% per annum as of September 30, 2024. The company incurred a loss on extinguishment of debt totaling $614,000 during the nine months.
Strategic Risks
Strategically, the company is focusing on property dispositions to manage debt. For the nine months ended September 30, 2024, the company generated $62.9 million from asset sales, which contributed to debt repayment. However, ongoing market uncertainties may affect future property values and sales.
Mitigation Strategies
The company has taken steps to mitigate risks, such as managing operating expenses effectively and focusing on maintaining occupancy rates. Management believes that cash generated from ongoing operations will suffice for working capital needs over the next 12 months.
| Risk Factor | Description | Recent Impact |
|---|---|---|
| Industry Competition | Challenges attracting tenants in a crowded market | Leased properties at 67.7% as of September 30, 2024 |
| Regulatory Changes | Compliance with REIT regulations affecting distributions | Must distribute 90% of taxable income to avoid taxes |
| Market Conditions | Economic fluctuations impacting demand for office space | Net loss of $44.2 million for nine months |
| Operational Risks | Management of property expenses and tenant relationships | Total expenses decreased by $14.2 million |
| Financial Risks | Exposure to variable interest rates and debt management | 50.6% of debt is unhedged variable rate debt |
| Strategic Risks | Focus on property sales and managing debt levels | Generated $62.9 million from asset sales |
Future Growth Prospects for Franklin Street Properties Corp. (FSP)
Future Growth Prospects for Franklin Street Properties Corp.
Analysis of Key Growth Drivers
Franklin Street Properties Corp. is exploring multiple avenues for growth, including market expansions and strategic acquisitions. The company has identified potential markets for expansion that align with its investment strategy, particularly in regions with increasing demand for commercial real estate.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenues decreased by $19.2 million to $91.7 million compared to the same period in 2023. This decline was predominantly due to a decrease in rental revenue from property sales and lease expirations. However, the company anticipates that new leases commencing after September 30, 2023, will help stabilize and potentially increase future revenues.
| Period | Total Revenues (in thousands) | Change ($ millions) |
|---|---|---|
| 9 months ended September 30, 2024 | 91,737 | (19.2) |
| 9 months ended September 30, 2023 | 110,936 |
Strategic Initiatives or Partnerships Driving Future Growth
The company is actively pursuing strategic partnerships that can enhance its operational efficiency and expand its market reach. Recent asset sales have provided the necessary capital to reinvest in higher-performing properties and to streamline operations.
Competitive Advantages that Position the Company for Growth
Franklin Street Properties Corp. maintains several competitive advantages, including:
- Strong portfolio management with properties located in high-demand urban areas.
- Ability to adapt to changing market conditions through strategic property sales and acquisitions.
- Financial flexibility supported by a diverse financing structure, including a $137.1 million senior notes issuance and various credit facilities.
Financial Overview and Key Metrics
As of September 30, 2024, the company reported a net loss of $44.2 million, a slight improvement from a net loss of $51.7 million for the same period in 2023. This reflects effective cost management and a focus on reducing expenses, which decreased by $14.2 million to $116.4 million during the same period.
| Metric | 9 Months Ended September 30, 2024 | 9 Months Ended September 30, 2023 |
|---|---|---|
| Net Loss (in thousands) | (44,197) | (51,685) |
| Total Expenses (in thousands) | 116,395 | 130,612 |
| Cash and Cash Equivalents (in thousands) | 42,375 | 127,880 |
Overall, while the company faces challenges related to revenue declines, its focus on strategic asset management and market positioning suggests potential for recovery and growth in the coming years.
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Article updated on 8 Nov 2024
Resources:
- Franklin Street Properties Corp. (FSP) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Franklin Street Properties Corp. (FSP)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Franklin Street Properties Corp. (FSP)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.