On Friday, April 12, Franklin Street Properties (NYSEMKT:FSP) declared a $0.19/share quarterly dividend which was in line with the company's previous distribution. In the wake of FSP's dividend announcement, I wanted to examine several of the catalysts behind my decision to consider a long-term position in this viable income play.
Shares of FSP, which currently possess a market cap of $1.24 billion, a P/E ratio of 53.57, a forward P/E ratio of 50.00, settled at $15.00/share on Friday. One of the things to point out for growth investors is the fact that shares of FSP are actually 17.19% higher since January 1st of this year.
For those of you who may be considering a position in Franklin Street Properties, from an income perspective, shares of FSP currently possess a forward yield of 5.07% ($0.96) and an extremely high payout ratio of 844.00% (which is due to the fact the company has chosen to be taxed as a real estate investment trust or REIT).
In my opinion, there are several catalysts to consider when it comes to Franklin Street Properties, and they are the company's 5.97% increase in year-over-year leased-based occupancy amongst its 37 properties and its 9.19% increase in year-over-year (2012 versus 2011) Funds from Operations (aka FFO).
5.97% Increase in Leased Occupancy: When Franklin Street Properties announced its annual earnings performance on February 19th, the company demonstrated a very impressive 5.97% increase in the number leased-based occupancies spread over its 37 properties.
According George J. Carter, Franklin Street Properties, President and CEO:
Our directly-owned real estate portfolio of 37 properties, totaling approximately 7,854,679 square feet, was approximately 94.0% leased as of December 31, 2012, up from approximately 89.9% leased at the end of the third quarter and up from approximately 88.7% leased as of December 31, 2011. The increase in the percentage of leased space for the fourth quarter and full-year 2012 continues to make a meaningful contribution to our profit growth.
I strongly believe that Franklin Street Properties is taking the right approach when it comes to leased space, and if it can continue to demonstrate year-over-year growth, an occupancy number in the mid to upper 90s (95%-97.5%) could be well within reach.
9.19% Increase in Annual FFO: Also included in the company's annual results was the demonstration of a 9.19% ($0.08/share) increase in year-over-year ($0.95/share vs. $0.87/share) Funds from Operations. Most property based REITs use FFO as a barometer for growth rather than Net Income (aka EPS) as its gives investors a better sense of how the company's operations are performing.
George J. Carter, Franklin Street Properties, President and CEO, had noted that for the fourth quarter of 2012, FSP's profits as represented by FFO totaled approximately $20.5 million or $0.25 per share, an increase of approximately $0.6 million or $0.01 per share compared to the third quarter of 2012. Dividend distributions declared for the fourth quarter of 2012, which are payable on February 14, 2013, will be approximately $15.8 million or $0.19 per share. For the full-year 2012, FSP's profits as represented by FFO totaled approximately $79.0 million or $0.95 per share, an increase of approximately $7.8 million or $0.08 per share compared to full-year 2011.
Conclusion: I think there are several near-term and long-term catalysts to consider when it comes to Franklin Street properties. Over the next 6-12 months, I think FSP has the potential to not only increase occupancy but make several moves which should bring its total portfolio of properties to about the 40+ property level, as noted in its 2013 outlook. I also think that if the company can continue to increase its occupancy levels over the next 12-24 months, and continue to demonstrate strong growth in terms of both net income and FFO, I see no reason why this REIT play should not be considered a viable long-term REIT play.