REIT Stands Out From Crowd

That's right, absolutely no leverage. This is arguably the major difference between FSP and its peers. Most REITs are leveraged by between 100% and 300% of their equity as a matter of course to help boost returns. But Franklin eschews leverage as a matter of philosophy.

"There is some degree of risk in putting debt on a property," points out Franklin's CFO, John Demeritt. "You have to manage interest rate risk, and there is dividend risk if rates make interest payments climb." Without either interest rate or dividend risks, FSP's returns come with a lower degree of risk than most of its peers'.

The lack of leverage during the recent good times for real estate, however, has been most obvious for making Franklin's funds-from-operations growth less than its peers'. So even though the income portion of FSP is safer, the penalty for lower growth has recently made FSP a laggard in its group on a total-return basis. But FSP's safe indicated yield should provide decent downside support going forward, and anyone worried about a slowdown in the economy should appreciate Franklin's clean balance sheet for the safety net it provides the yield if weakness rears its head.

And what if a real estate crash causes fire sales in the suburban office environment Franklin considers its core competency? Would Franklin consider finally leveraging itself to make the most of the opportunity? "We would have to consider it," admits Demeritt. "It would challenge the [no-debt] philosophy."

A large challenge for Franklin right now, however, is just getting noticed. With no obvious banking business to try for, only Oppenheimer's Marvin Loh has found FSP worth getting to know. He rates the stock a buy with a $24 price target. If reached, that would yield a 28% total return over the coming year.