Moody's Assigns Franklin Street Properties (FSP) 'Baa3' Issuer Rating; Outlook Stable

Moody's Investors Service has assigned a Baa3 issuer rating to Franklin Street Properties Corp. (AMEX: FSP). The rating outlook is stable. This is the first rating assigned to Franklin Street Properties by the rating agency.

The following rating was assigned with a stable outlook:

Franklin Street Properties Corp. -- issuer rating at Baa3

RATINGS RATIONALE

The Baa3 issuer rating reflects FSP's solid credit metrics, as exhibited in its modest overall leverage, high fixed charge coverage, and fully unencumbered asset pool. The rating also reflects the REIT's well-occupied portfolio of office assets in select urban infill and CBD districts across the US. These credit strengths are offset by FSP's modest asset and geographic concentrations in Texas and Denver and clustered debt maturities in 2016 and 2017.

The stable outlook reflects Moody's expectation that Franklin Street Properties will continue to enhance its financial flexibility by terming out its debt maturities, in addition to improving its operational strength while maintaining its current credit profile.

Franklin Street has adequate liquidity in our view. The company's $500 million unsecured credit facility matures in September 2016 with an option to extend for one additional year to 2017. As of 1Q14, there was $316.5 million outstanding on the revolver. While Franklin Street has no debt maturing in the intermediate term, its debt maturities are bunched into 2016 and 2017, when $316.5 million (not including extension option) and $400 million come due, respectively.

Moody's also notes that FSP has one of the more modest leverage ratios amongst Moody's rated office-REITs and remains committed to an unsecured capital structure, a plus. As of the end of the first quarter, the REIT's effective leverage (total debt plus preferred as a percentage of gross assets) was 41.4% and net debt to EBTIDA was 6.5x for the same period.

Although upward rating movement is unlikely in the intermediate term, a future rating upgrade would be predicated upon increased size (closer to $5 billion in gross assets), maintaining effective leverage (debt plus preferred as a percentage of gross assets) below 40% , net debt to EBITDA closer to 6.0x, and fixed charge coverage consistently above 3.0x. In addition, reducing market concentrations could also support a rating upgrade.

A downgrade would occur if fixed charge coverage were to fall below 2.2x on a consistent basis, secured debt levels greater than 20% of gross assets, or any challenges in managing its liquidity position.

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