SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________________
Commission file number 1-12708
-------------------------------------------------------
FRANKLIN SELECT REALTY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3095938
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 312-2000
----------------------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Common Stock Shares Outstanding as of June 30, 1996, Series A: 13,328,001
Common Stock Shares Outstanding as of June 30, 1996, Series B: 745,584
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN SELECT REALTY TRUST
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(Shares and dollars in thousands, except per Restated
share amounts) 1996 1995
- -------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Rental property:
Land $ 30,949 $30,949
Buildings and improvements 83,396 83,121
- -------------------------------------------------------------------------------------------------------
114,345 114,070
Less: accumulated depreciation 15,947 14,416
- -------------------------------------------------------------------------------------------------------
98,398 99,654
Cash and cash equivalents 5,055 6,186
Mortgage-backed securities, available
for sale 6,452 7,135
Deferred rent receivable 1,941 1,970
Other assets 1,674 1,512
- -------------------------------------------------------------------------------------------------------
Total assets $113,520 $116,457
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes and bonds payable $6,629 $7,145
Tenants' deposits and other liabilities 613 741
Advance rents 48 64
Distributions payable 533 1,521
- -------------------------------------------------------------------------------------------------------
Total liabilities 7,823 9,471
- -------------------------------------------------------------------------------------------------------
Dissenting shareholders' interest: 7,933 -
- -------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, Series A, without par value.
Stated value $10 per share; 110,000 shares
authorized; 13,328 and 14,145 shares issued
and outstanding in 1996 and 1995 103,628 111,569
Common stock, Series B, without par value.
Stated value $10 per share; 2,500 shares
authorized; 746 shares issued and
outstanding in 1996 and 1995 6,294 6,294
Unrealized loss on mortgage-backed securities (232) (164)
Accumulated distributions in excess
of net income (11,926) (10,713)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 97,764 106,986
- -------------------------------------------------------------------------------------------------------
Total liabilities, dissenting shareholders'
interest and stockholders' equity $113,520 $116,457
===============================================================================-=======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
RESTATED RESTATED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
(Amounts in thousands, except per
share amounts) 1996 1995 1996 1995
- -------------------------------------------------------- --------------- -------------- --------------- -------------
REVENUE:
<S> <C> <C> <C> <C>
Rent $3,447 $3,402 $6,732 $6,687
Interest 161 163 344 327
Dividends 5 4 11 7
- -------------------------------------------------------- --------------- -------------- --------------- -------------
Total revenue 3,613 3,569 7,087 7,021
- -------------------------------------------------------- --------------- -------------- --------------- -------------
EXPENSES:
Interest 153 151 314 322
Depreciation and amortization 830 840 1,655 1,674
Operating 854 900 1,684 1,684
Related party 310 260 560 512
Consolidation expense 244 - 706 -
General and administrative 144 100 337 232
- -------------------------------------------------------- --------------- -------------- --------------- -------------
Total expenses 2,535 2,251 5,256 4,424
- -------------------------------------------------------- --------------- -------------- --------------- -------------
NET INCOME $1,078 $1,318 $1,831 $2,597
======================================================== =============== ============== =============== =============
Net income per share, based on
the weighted average shares
outstanding of Series A common
stock of 14,145 for the six month
periods ended June 30, 1996, and
1995; and 14,145 and 14,146 for
the three month periods ended June
30, 1996 and 1995, respectively $ .08 $ .09 $ .13 $ .18
======================================================== =============== ============== =============== =============
Distributions per share, based on
the weighted average shares
outstanding of Series A common
stock of 13,898 and 14,145 for
the six month periods ended June
30, 1996 and 1995; and 13,651 and
14,146 for the three month periods
ended June 30, 1996 and 1995,
respectively $.11 $ .11 $ .22 $ .22
======================================================== =============== ============== =============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
----------------------------------------------
(Unaudited)
Common Stock
--------------------------------------------------
Series A Series B
---------------------- ----------------------
<TABLE>
<CAPTION>
Excess of
Unrealized Accumulated
Gain/(Loss) Distributions
(Amounts in on in Excess of
thousands) Shares Amount Shares Amount Securities Net Income Total
- --------------------------- ------------- ------------- ----------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
beginning of
period 14,145 $111,569 746 $6,294 $(164) $(10,713) $106,986
Dissenting
shareholders'
interest (817) (7,941) - - - - (7,941)
Unrealized
loss on
mortgage-backed
securities - - - - (68) - (68)
Net income - - - - - 1,831 1,831
Distributions
declared - - - - - (3,044) (3,044)
- --------------------------- ------------- ------------- ---------- ----------- -------------- --------------- --------------
Balance,
end of period 13,328 $103,628 746 $6,294 $(232) $(11,926) $97,764
=========================== ============= ============= ========== =========== ============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------- --------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,831 $2,597
- ----------------------------------------------------------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,655 1,674
(Increase) decrease in deferred rent receivable 29 (4)
Increase in other assets (288) (269)
Decrease in tenants' deposits and other liabilities (128) (42)
Decrease in advance rents (16) (19)
- ----------------------------------------------------------------- --------------- --------------
1,246 1,340
- ----------------------------------------------------------------- --------------- --------------
Net cash provided by operating activities 3,077 3,937
- ----------------------------------------------------------------- --------------- --------------
Cash flow from investing activities:
Improvements to rental property (275) (173)
Disposition of mortgage-backed securities 615 262
- ----------------------------------------------------------------- --------------- --------------
Net cash provided by investing activities 340 89
- ----------------------------------------------------------------- --------------- --------------
Cash flow from financing activities:
Distributions paid (4,032) (3,164)
Dissenting shareholders' interest paid (8) -
Payoff of seller carryback note (480) -
Principal payment on notes and bonds payable (36) (35)
Redemption of Series A common stock - (3)
- ----------------------------------------------------------------- --------------- --------------
Net cash used in financing activities (4,548) (3,202)
- ----------------------------------------------------------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents (1,131) 824
Cash and cash equivalents,
beginning of period 6,186 4,200
- ----------------------------------------------------------------- --------------- --------------
Cash and cash equivalents,
end of period $5,055 $5,024
================================================================= =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
------------------------------------------------------
NOTE 1 - ORGANIZATION
- ---------------------
Franklin Select Realty Trust (the "Company") (formerly Franklin Select Real
Estate Income Fund) is a California corporation formed on January 5, 1989 for
the purpose of investing in income-producing real property. The Company is a
real estate investment trust ("REIT") having elected to qualify as a REIT under
the applicable provisions of the Internal Revenue Code since 1989. Under the
Internal Revenue Code and applicable state income tax law, a qualified REIT is
not subject to income tax if at least 95% of its taxable income is currently
distributed to its stockholders and other REIT tests are met. The Company has
distributed at least 95% of its taxable income and intends to distribute
substantially all of its taxable income in the future. Accordingly, no provision
is made for income taxes in these financial statements.
On May 7, 1996, Franklin Real Estate Income Fund ( "FREIF" ) and Franklin
Advantage Real Estate Income Fund ( "Advantage" ) merged into the Company. In
connection with the merger of the three companies ("the Merger"), the Company
issued approximately 7,945,000 shares of Series A common stock and 559,718
shares of Series B common stock in exchange for 3,363,877 and 3,013,713 shares
of Series A common stock and 319,308 and 124,240 shares of Series B common stock
of FREIF and Advantage, respectively, in each case excluding dissenting shares.
Shareholders representing approximately 635,638 shares of FREIF Series A common
stock and 1,077,667 shares of Company Series A common stock elected to exercise
dissenter's rights pursuant to Chapter 13 of the California General Corporation
Law. The Company, as the surviving corporation after the merger, is required to
pay the fair market value for such dissenting shares. The Company has offered
the dissenting shareholders approximately $7.9 million for their shares. The
shareholders have asserted approximately $12 million as the fair market value.
If the Company and any dissenting shareholder cannot agree on the fair market
value, either party may file a complaint in the superior court within six months
of mailing the notice of merger, asking the court to determine the fair market
value of the dissenting shares.
As of June 30, 1996, the Company's real estate portfolio consisted of fee
interests in the Shores Office Complex, a three-building office complex located
in Redwood City, California; the Data General Building located in Manhattan
Beach, California; the Mira Loma Shopping Center, a shopping center located in
Reno, Nevada; three separate research and development buildings in the Northport
Business Park, located in Fremont, California; the Glen Cove Shopping Center
located in Vallejo, California; the Fairway Center, a two story office building
located in Brea, California; and the Carmel Mountain Gateway Plaza, a retail
center located in San Diego, California.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been presented as a
reorganization of entities under common control due to the common management of
the Company, FREIF and Advantage by the Advisor and are reflected in the
financial statements at their combined historical bases. Prior periods have been
restated to give effect to the merger.
The accompanying unaudited financial statements contain all adjustments
(consisting of normal recurring accruals) which are necessary, in the opinion of
management, for a fair presentation. The statements, which do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements, should be read in conjunction with
the Company's, FREIF's and Advantage's financial statements for the year ended
December 31, 1995.
FRANKLIN SELECT REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
----------------------------------------
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has an agreement with Franklin Properties, Inc. (The "Advisor") to
administer the day-to-day operations of the Company. Under the terms of the
amended agreement, which is renewable annually, the Advisor will receive
quarterly an annualized fee equal to .5% of the Company's gross real estate
assets, defined generally as the book value of the assets before depreciation.
The fee will be reduced to .4% for gross real estate assets exceeding $200
million.
At June 30, 1996, cash equivalents included $1,030,000 invested in Franklin
Money Fund, an investment company managed by an affiliate of the Advisor.
Distributions earned from the Franklin Money Fund totaled $11,000 for the six
month period ended June 30, 1996.
The agreements between the Company and the Advisor, or affiliates, provide for
certain types of compensation and payments including but not limited to the
following for those services rendered for the six month period ended June 30,
1996:
Advisory fee expense, charged to related party expense $231,000
Reimbursement for data processing, accounting and certain $31,000
other expenses, charged to related party expense
Property management fee, charged to related party expense $298,000
Leasing commission, capitalized and amortized
over the term of the related lease $73,000
Construction supervision fee, capitalized and amortized
over the life of the related investment or the term
of the related lease $1,000
NOTE 4 - COMMON STOCK AND PER SHARE INFORMATION
- -----------------------------------------------
In 1994, the Company issued to the Advisor an exchange right to exchange the
Series B common stock held by the Advisor for Series A common stock. In
connection with the Merger, the Company issued an additional exchange right to
the Advisor in respect to the shares of Series B common stock held by Advisor in
FREIF and Advantage which were exchanged in the merger for Series B shares of
the Company. The exchange rights are exercisable only when the Series A common
stock achieves certain target trading prices for 20 consecutive trading days.
The number of shares of Series B common stock that will exchange for Series A
common stock, and the related trading prices that must be achieved are as
follows: 149,088 Series B shares will be exchanged for 149,088 Series A shares
at a target trading price of $8.42, 185,866 Series B shares will be exchanged
for 185,866 Series A shares at a target trading price of $10.35, and 410,630
Series B shares will be exchanged for 287,441 Series A shares at a target
trading price of $11.33. The rates of exchange and trading prices will be
subject to change under certain circumstances as provided in the Exchange Right
Agreement.
No distributions will be paid on the Series B shares prior to exercise of the
exchange rights. After exercise of an exchange right, the Advisor, like any
other shareholder, will receive distributions on its Series A shares.
Series A and Series B common stock have the same voting rights. Distributions on
Series A common stock are declared at the discretion of the Board of Directors.
FRANKLIN SELECT REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
----------------------------------------
NOTE 4 - COMMON STOCK AND PER SHARE INFORMATION (CONTINUED)
- -----------------------------------------------
For purposes of calculating net income per share, the weighted average shares
outstanding of Series A common stock has been calculated assuming that shares
attributable to remaining dissenting shareholders (equivalent to approximately
1.9 million shares of the Company's common stock) were outstanding for the
periods reported.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ---------------------------------------------------------
For the six month period ended June 30, 1996 the Company paid $314,000 of
interest.
FRANKLIN SELECT REALTY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
- ------------
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto.
As more fully described under Liquidity and Capital Resources, on May 7, 1996
Franklin Real Estate Income Fund and Franklin Advantage Real Estate Income Fund
merged into the Company. The financial statements of the Company have been
presented as a reorganization of entities under common control and therefore,
the financial statements, discussions of operations and liquidity and capital
are reflected at their combined historical bases. The Company now owns seven
office, industrial and retail properties located in the major metropolitan areas
of northern and southern California and Nevada.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
Net income for the six month period ended June 30, 1996 decreased $766,000, or
29%, compared to 1995 primarily due to non-recurring consolidation expenses
totaling $706,000 and general and administrative expenses of $72,000 also
related to the merger.
Total revenue for the six month period ended June 30, 1996 increased $66,000, or
1%, compared to the same period in 1995. The increase is attributable to an
increase in rental revenue of $45,000 as a result of improved occupancy at the
Shores Office Complex to 100% at June 30, 1996 and to an increase in interest
and dividend revenue of $21,000 primarily due to higher yields realized on
investments in mortgage-backed securities
Total expenses for the six month period ended June 30, 1996, increased $832,000,
or 19% from $4,424,000 in 1995 to $5,256,000 in 1996. The increase in total
expenses primarily resulted from non-recurring expenses of the merger.
Explanations of the material changes in total expenses are as follows:
Related party expense for the six month period ended June 30, 1996 increased
$48,000 as a result of increases in advisory fees of $55,000 and property
management fees of $12,000. These increases were partially offset by a decrease
in data processing expense of $19,000.
General and administrative expense for the six month period ended June 30, 1996,
increased $105,000 primarily due to increases in non-recurring legal fees of
$36,000, and merger related expenses of $72,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As described in Note 1 to the accompanying financial statements, effective May
7, 1996, Franklin Real Estate Income Fund ( "FREIF" ) and Franklin Advantage
Real Estate Income Fund ( "Advantage" ) merged into the Company. In connection
with the Merger, the Company issued approximately 7,945,000 shares of Series A
common stock and 559,718 shares of Series B common stock in exchange for
3,363,877 and 3,009,479 shares of Series A common stock and 319,308 and 124,240
shares of Series B common stock of FREIF and Advantage, respectively, in each
case excluding dissenting shares.
Shareholders representing approximately 635,638 shares of FREIF Series A common
stock, and 1,077,667 shares of Company Series A common stock elected to exercise
dissenter's rights pursuant to Chapter 13 of the California General Corporation
Law. The Company, as the surviving corporation after the merger, is required to
pay the fair market value for such dissenting shares. The Company has offered
the dissenting shareholders approximately $7.9 million for their shares. The
shareholders have asserted approximately $12 million as the fair market value.
If the Company and any
FRANKLIN SELECT REALTY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
dissenting shareholder cannot agree on the fair market value, either party may
file a complaint in the superior court within six months of mailing the notice
of merger, asking the court to determine the fair market value of the dissenting
shares. Alternatively, if an agreement is not reached and neither party files a
complaint within the six month period, then the Company's dissenting shares will
cease to be dissenting, and the FREIF dissenting shares will be converted to
approximately 817,000 shares of Series A common stock of the Company. In that
event, the Company would be relieved of the obligation to purchase the
dissenting shares, and the Company's total payments for quarterly cash
distributions would return to a level substantially equal to the total
distributions that were paid by the Company, FREIF and Advantage, on a combined
basis prior, to the Merger. The Company's cash distributions per share are
expected to remain unchanged regardless of how the dissenting shares are
resolved. The Company's source of capital to purchase the dissenting shares will
vary depending upon the amount of funds required. The most likely sources are
the Company's cash reserves, the liquidation of its marketable securities, or
debt financing. At June 30, 1996, the cash reserves and marketable securities of
the Company totaled approximately $11.5 million, and the assets and liabilities
of the Company are approximately $113.5 million and $8 million, respectively.
Therefore, management believes that it has adequate sources of capital to
purchase the dissenting shares.
The Company's principal source of capital for the acquisition and major
renovation of properties has been the proceeds from the initial public offering
of its stock. The Company's cash flow has been its principal source of capital
for minor property improvements, leasing costs and the payment of quarterly
distributions. The Company's investment in mortgage-backed securities consists
of GNMA, FNMA and FMLMC adjustable rate pass-through certificates in which
payments of principal and interest are guaranteed by the respective agencies.
However, changes in market interest rates cause the market value of the
securities to fluctuate, which could result in a realized gain or loss to the
Company if the securities are sold before maturity.
In the short-term and in the long term, management believes that the Company's
current sources of capital will continue to be adequate to meet both its
operating requirements and the payment of dividends.
Net cash provided by operating activities for the six month period ended June
30, 1996 was $3,077,000, or $860,000 less than the same period in 1995. The
decrease in cash flows provided by operating activities is primarily
attributable to the decrease in net income as described under "Results of
Operations".
Net cash provided by investing activities for the six month period ended June
30, 1996, increased $251,000 when compared to the same period in 1995. The
increase was due to an increase in principal payments received from
mortgage-backed securities which was partially offset by an increase in
improvements to rental property.
Net cash used in financing activities increased $1,346,000 reflecting the
payment of an interim cash distribution to shareholders in May, 1996 and the
payoff of the Fairway Center note payable in the amount of $480,000 in March,
1996.
Funds from Operations for the six month period ended June 30, 1996 decreased
$785,000, or 18%, to $3,486,000 compared to the same period in 1995. The
decrease is primarily due to $778,000 of total merger related expenses incurred
in 1996. The Company believes that Funds from Operations is helpful in
understanding a property portfolio in that such calculation reflects income from
operating activities and the properties' ability to support general operating
expenses and interest expense before the impact of certain activities, such as
gains and losses from property sales and changes in the accounts receivable and
accounts payable. However, it does not measure whether income is sufficient to
fund all of the Company's cash needs including principal amortization, capital
improvements and distributions to shareholders. Funds from Operations should not
be considered an alternative to net income or any other GAAP measurement of
performance or as an alternative to cash flows from operating, investing, or
financing activities as a measure of liquidity. As defined by the National
Association of Real Estate Investment Trusts, Funds from Operations
FRANKLIN SELECT REALTY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
is net income ( computed in accordance with GAAP ), excluding gains or losses
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustment for unconsolidated joint ventures. The
Company reports Funds from Operations in accordance with the NAREIT definition.
For the periods presented, Funds from Operations represents net income plus
depreciation and amortization. The measure of Funds from Operations as reported
by the Company may not be comparable to similarly titled measures of other
companies that follow different definitions.
IMPACT OF INFLATION
- -------------------
The Company's management believes that inflation may have a positive effect on
the Company's property portfolio, but this effect generally will not be fully
realized until such properties are sold or exchanged. The Company's policy of
negotiating leases which incorporate operating expense "pass-through" provisions
is intended to protect the Company against increased operating costs resulting
from inflation.
DISTRIBUTIONS
- -------------
Distributions are declared quarterly at the discretion of the Board of
Directors. The Company's present distribution policy is to at least annually
evaluate the current distribution rate in light of anticipated tenant turnover
over the next two or three years, the estimated level of associated improvements
and leasing commissions, planned capital expenditures, any debt service
requirements and the Company's other working capital requirements. After
balancing these considerations, and considering the Company's earnings and cash
flow, the level of its liquid reserves and other relevant factors, the Company
seeks to establish a distribution rate which:
i) provides a stable distribution which is sustainable despite short
term fluctuations in property cash flows;
ii) maximizes the amount of cash flow paid out as distributions
consistent with the above listed objective; and
iii) complies with the Internal Revenue Code requirement that a REIT
annually pay out as distributions not less than 95% of its
taxable income.
During the six-month period ended June 30, 1996, the Company declared
distributions totaling $3,044,000.
FRANKLIN SELECT REALTY TRUST
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On November 2, 1995, the Boards of Directors of the Company and of two other
real estate investment trusts that Franklin Properties, Inc. advises, Franklin
Advantage Real Estate Income Fund ("Advantage") and Franklin Real Estate Income
Fund ("FREIF"), authorized the execution of a Merger Agreement and the filing of
a Joint Proxy Statement/Prospectus with the Securities and Exchange Commission.
The Prospectus was filed on November 13, 1995, and became effective on March 14,
1996.
At a Special Meeting of Shareholders held on May 7, 1996, the proposed merger of
the Company with Advantage and FREIF was approved. Among other requirements,
completion of the merger was subject to the approval of a majority of the
outstanding shares of each of the three companies. The actual tabulation of the
vote was as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Franklin Real Estate Income Fund 54.34% 20.84% 3.12%
Franklin Select Real Estate Income Fund 52.30% 24.78% 2.66%
Franklin Advantage Real Estate Income Fund 73.79% 4.05% 2.43%
</TABLE>
In the merger, Advantage and FREIF were merged into the Company, which was
renamed Franklin Select Realty Trust. Shares of the Company were issued in
exchange for the shares of Advantage and FREIF on the basis described in the
Joint Proxy Statement/Prospectus.
There were no other matters submitted to a vote of security holders during the
quarter covered by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Not applicable
(b) Reports on Form 8-K
On May 21, 1996, the Company filed a report dated May 7, 1996 (date of
earliest event reported) on Form 8-K, with respect to the authorized
execution of an Agreement and Plan of Merger and the authorized filing
of a Joint Proxy Statement/Prospectus with the Securities and Exchange
Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRANKLIN SELECT REALTY TRUST
By: /S/ DAVID P. GOSS
David P. Goss
Chief Executive Officer
Date: AUGUST 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,055
<SECURITIES> 6,452
<RECEIVABLES> 1,941
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 114,345
<DEPRECIATION> 15,947
<TOTAL-ASSETS> 113,520
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 109,922
<OTHER-SE> (12,158)
<TOTAL-LIABILITY-AND-EQUITY> 113,520
<SALES> 0
<TOTAL-REVENUES> 7,087
<CGS> 0
<TOTAL-COSTS> 4,942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,831
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
