Franklin (FSP) Q2 Revenue Down 13%

Key Points

• GAAP EPS loss of $0.08 matched analyst expectations for Q2 2025, signaling ongoing weak profitability.

• The company reflected a shrinking portfolio and lower occupancy.

• Portfolio leased percentage slid to 69.1%, continuing a downward trend largely due to lease expirations.

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Franklin Street Properties (NYSEMKT:FSP), an office-focused real estate investment trust, released its financial results on July 29, 2025. The main takeaway was a GAAP net loss in line with muted analyst expectations, with earnings per share (EPS) of $(0.08) (GAAP), matching the estimated figure. Revenue was $26.7 million, driven by shrinking occupancy and reduced rental rates. These numbers highlight persistent operational challenges, including lower portfolio occupancy and ongoing cash flow pressures. The quarter failed to show meaningful operational improvement, with most financial and operating metrics revealing continued softness in the office real estate market.

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Focus

Franklin Street Properties specializes in owning and managing office properties in the United States, with a particular emphasis on the Sunbelt and Mountain West regions. The portfolio is concentrated in Texas, Colorado, and Minnesota. As of June 30, 2025, its directly owned portfolio held 14 properties totaling approximately 4.8 million square feet.

The company has recently centered its strategy on two primary areas. First, it aims to increase leasing in its existing properties to improve occupancy and rental income. Second, it continues to pursue selective property sales, using the proceeds to pay down debt. Especially while the office leasing environment remains in flux after the pandemic, key success for Franklin Street Properties depends on managing occupancy rates, responding to evolving tenant preferences, and making effective acquisition and disposition decisions.

Quarter in Detail: Operational Trends and Financial Results

The second quarter revealed persistent challenges in filling available office space. The percentage of the portfolio that was leased slipped to 69.1%, dropping from 70.3% leased at year-end 2024. Year-to-date leasing activity reached 187,000 square feet for the six months ended June 30, 2025, but most of that was due to renewals and expansions, not new tenants. New leasing volume remained limited as potential tenants delayed making long-term decisions. The average lease term on leases signed during the six months ended June 30, 2025, was 6.3 years, matching the average during the year ended December 31, 2024, offering some stability in overall portfolio duration.

Rental performance weakened further in the quarter. the portfolio-wide average rent per occupied square foot dropped from $31.77 at year-end 2024 to $30.98 at June 30, 2025. The decrease in the average leased percentage for the six months ended June 30, 2025, resulted mainly from lease expirations outpacing new occupancies.

The company reported revenue of $26.7 million, reflecting the combination of falling occupancy and declining rent per square foot. Funds from operations (FFO), a widely used metric in the real estate investment trust (REIT) sector that adjusts net income to account for non-cash charges like depreciation, fell to $0.02 per share. Adjusted funds from operations (AFFO), a non-GAAP metric that further removes capital expenditure costs and other recurring cash items, swung from a slight positive in Q2 2024 to approximately break-even in Q2 2025.

The company continued with selective property sales, aiming to reduce its outstanding debt, which stood at about $250 million at March 31, 2025. The total cash balance fell to $30.5 million. The major remaining asset in the Monument Circle REIT was sold this quarter. $8.0 million in capital expenditures for tenant improvements, leasing costs, and necessary property updates during the six months ended June 30, 2025.

The portfolio included nearly 44.5% of the portfolio’s space in Colorado, Texas accounted for 39.7% of portfolio square footage, and the remainder in Minnesota. Management highlighted continued difficulty in the Minneapolis market, with some optimism that large tenants like Target may boost occupancy, but no immediate improvement was seen. In Texas, especially Houston, management noted relatively firmer tenant demand compared to other regions, although this was not enough to materially change portfolio metrics during the quarter.

Franklin Street Properties also remained in a strategic review, exploring options ranging from further property sales to potentially selling the company or refinancing. The review process is continuing without a stated timeline, and no further guidance was given on when an outcome might be expected.

The quarterly dividend remained unchanged at $0.01 per share, representing a token payout. This level has persisted despite ongoing negative cash flow on an adjusted basis. No change was declared or announced for the quarter.

Looking Ahead

Management did not provide financial guidance for the next quarter or for fiscal 2025. The stated reason remains uncertainty surrounding the timing and amounts of proceeds from potential property sales, combined with broader economic conditions affecting leasing demand. Leadership reiterated that its ongoing review will determine medium-term strategy but provided no specifics on likely outcomes or a decision timeline.

For investors tracking Franklin Street Properties in the coming quarters, a few indicators will be critical. Occupancy rates, new leasing activity, and progress on asset sales all have direct financial implications. Questions remain about the ability to stabilize cash flow, reduce debt further, and support any meaningful dividend. No guidance was offered by management, leaving near-term prospects highly dependent on progress in those operational and strategic areas.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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