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Franklin Street Properties Amends Existing $220M Term Loan

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Franklin Street Properties Corp. (FSP - Free Report) recently boosted its financial flexibility by amending the company’s existing $220-million unsecured term loan with Bank of Montreal (BMO - Free Report) .

Although the outstanding principal amount remained unchanged at $220 million, the company allocated $55 million to tranche A term loan, while $165 million has been allocated to tranche B.

In addition, tranche A term loan maturity date has been extended from Aug 26, 2020 to Nov 30, 2021. Similarly, tranche B of the loan will mature on Jan 31, 2024. Also, depending on the company’s credit rating, its margin over LIBOR was decreased to a range of 85-165 basis points (bps) as compared to the previous 105-215 bps band. In fact, based on the company’s credit rating of Baa3 with Moody’s, as of September 27, 2018, its margin over LIBOR improved from 165 bps to 125 bps.

Similarly, the company’s margin over base rate shrunk from 5-115 bps to 0-65 bps range. This recasting offers a cheaper line of credit to the company and helps reduce annualized interest expense. The move will also boost the company’s cash flow and alleviate its bottom-line pressure.

Moreover, extended maturities of the assumed debt will help improve its maturity profile and enjoy greater liquidity for day-to-day operations. The recast will also enable the company to leverage on improving market fundamentals, and make accretive investments in the company’s urban and in-fill office property portfolio.

Notably, with economic improvement and recovery in the job market, we expect healthy growth in demand for office spaces. This is because, as the economy revives, business grows and therefore, corporate sectors seek expansion, renting more space to accommodate the increased workforce. This will significantly be conducive to the performance of REITs, including Franklin Street Properties, Cousin Properties Incorporated (CUZ - Free Report) and Hudson Pacific Properties, Inc. (HPP - Free Report) , which have notable exposure to office properties.

As for Franklin Street Properties, it can leverage on the tailwind and execute its short- and long-term business plans. In fact, the favorable arrangement provides the company ample scope to deploy capital for long-term growth opportunities.

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