SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) OCTOBER 31, 1996
Franklin Select Realty Trust
(Exact Name of Registrant as Specified in its Charter)
California 1-12708 94-0395938
State or other jurisdiction of Commission File Number IRS Employer
incorporation Identification Number
1800 Gateway Drive, San Mateo, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415)312-3000
Item 5. OTHER EVENTS
PROPERTY ACQUISITIONS: On October 31, 1996, FSRT, L.P., a limited partnership of
which the Company is the sole general partner ("FSRT"), acquired two industrial
R&D buildings totaling 211,860 square feet located in Fremont, California (the
"LAM Buildings") for approximately $25.5 million. FSRT acquired the LAM
Buildings from Northport Associates No. 18, a California limited liability
company ("Northport Associates"), which is the limited partner of FSRT.
Northport Associates contributed to FSRT its fee title equity interests in the
LAM Buildings (with an approximate value of $9.3 million) in exchange for 1.625
million limited partnership units in FSRT (the "FSRT Units"). FSRT assumed the
existing financing on the LAM Buildings, consisting of approximately $16.2
million of fixed rate, non-recourse loans and refinanced the loans with
long-term fixed rate debt provided by Midland Commercial Financing Corporation
on November 25, 1996. The new debt bears monthly principal and interest payments
at 8.44% per annum, based on a 25-year amortization schedule, with the remaining
principal balance maturing in December, 2006. LAM Research Corporation occupies
both buildings under triple net leases that expire on December 31, 2014, and
include two 5-year extensions at the option of the tenant. Current combined
annual rent for the LAM Buildings is approximately $2.4 million.
In addition, the Company contributed to FSRT fee title to the
Data General Building in Manhattan Beach, California, with a net book value of
approximately $20.6 million, and contributed to FSRT approximately $1.5 million
in cash to cover transaction and closing costs, including loan prepayment fees.
For their contributions, the Company received an approximately 70% ownership
interest in FSRT as the general partner, and Northport Associates received an
approximately 30% ownership interest in FSRT, after adjustment for payment of
closing costs by the Company. The Company may contribute all of its remaining
properties to FSRT (the "UPREIT Contribution") at some later date.
Northport Associates is entitled to distributions from FSRT of
$.11 per FSRT Unit, payable quarterly. As of the first calendar quarter that
occurs eighteen months after the closing of the acquisition of the LAM
Buildings, the distributions shall be increased by 10%, and shall be increased
by 10% every year thereafter on the anniversary date of the first increase. The
balance of FSRT's cash flow shall be paid to the Company. However, if the
Company makes the UPREIT Contribution, the Company has the right to modify the
distributions payable to Northport Associates.
After October 31, 1997, each limited partner of FSRT will have
the right to exchange FSRT Units for shares of Series A common stock of the
Company. The Company has the option of satisfying the exchange obligation with
cash instead of stock. FSRT Units will be exchangeable for shares of Series A
common stock of the Company on a one-for-one basis, subject to adjustment for
stock splits, stock dividends or similar changes to the Series A common stock.
The acquisition involves a number of additional terms, including
but not limited to: (i) the appointment of two individual partners of Northport
Associates to the Company's Board of Directors; (ii) limitation on the ability
of FSRT to dispose of or prepay debt secured by the LAM Buildings during certain
periods; (iii) provisions that restrict the Northport Associates from
transferring shares of Series A common stock received in exchange for FSRT Units
except in accordance with applicable securities laws; and (iv) the grant to the
Northport Associates of certain registration rights to enable them to resell
shares of Series A common stock to the public under certain conditions.
Item 5. OTHER EVENTS (Continued)
REPURCHASE OF DISSENTING SHARES: On November 1, 1996, the Company purchased all
of the remaining "dissenting shares" of Series A common stock arising from the
merger of the Company with Franklin Real Estate Income Fund ("FREIF") and
Franklin Advantage Real Estate Income Fund ("Advantage") in May 1996. The
remaining dissenting shareholder agreed to sell its 634,137 dissenting shares of
Series A common stock of FREIF and 1,077,608 dissenting shares of Series A
common stock of Advantage for an aggregate purchase price of $8.4 million. After
giving effect to the transaction, the total number of shares of Series A common
stock outstanding is 12.25 million shares.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Consolidated Financial Statements
The pro forma consolidated financial statements of the Company
reflecting the above transactions are included on pages F-2 to
F-6.
(b) Historical Financial Statements
The Historical Summary of Gross Income of the LAM Research
Corporation Buildings is included on pages F-7 to F-9.
(c) Exhibits
*10.1 Agreement of Limited Partnership of FSRT, L.P. between the
Company and Northport Associates No. 18, a California
limited liability company, dated as of October 30, 1996.
*10.2 Contribution Agreement, dated as of October 30, 1996,
between FSRT, L.P., the Company, Northport Associates No.
18, a California limited liability company, and the members
of Northport Associates No. 18.
*10.3 Exchange Rights Agreement, dated as of October 30, 1996,
among the Company, FSRT, L.P., and Northport Associates
No. 18, a California limited liability company.
*10.4 Registration Rights Agreement, dated as of October 30,
1996, among the Company and Northport Associates No. 18, a
California limited liability company.
* Previously filed.
FRANKLIN SELECT REALTY TRUST
INDEX TO FINANCIAL STATEMENTS
Pro forma financial statements PAGE
Unaudited pro forma consolidated balance sheet
as of September 30, 1996
Unaudited pro forma consolidated statement of operations
for the nine months ended September 30, 1996
Unaudited pro forma consolidated statement of operations
for the year ended December 31, 1995
Notes to pro forma consolidated financial statements
Historical Summary of Gross Income of the Lam Research Corporation
Buildings
Report of Independent Accountants
Historical summary of gross income
for the year ended December 31, 1995
Notes to historical summary of gross income
F-1
FRANKLIN SELECT REALTY TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(Unaudited)
(In thousand, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
ASSETS:
Rental property:
<S> <C> <C> <C>
Land $30,949 $7,224 A $38,173
Buildings and improvements 83,464 19,532 A 102,996
------ ------ -------
114,413 26,756 141,169
Less: accumulated depreciation 16,716 - 16,716
------ ----- - ------
97,697 26,756 124,453
Cash and cash equivalents 7,139 (5,443) B 1,696
Mortgage-backed securities,
available for sale 6,194 (4,562) B 1,632
Deferred rent receivable 1,928 - 1,928
Other assets 1,532 262 A 1,794
----- --- -----
$114.490 $17,013 $131,503
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes and bonds payable $6,611 $16,222 A $22,833
Tenants' deposits and other liabilities 953 - 953
Advance rents 37 - 37
Distributions payable 1,466 - 1,466
----- ------ -----
Total liabilities 9,067 16,222 25,289
Dissenting shareholder's interest 8,400 (8,400) C -
Minority interest - 9,278 A 9,278
Stockholders' equity:
Common stock, Series A, without par
value. Stated value $10 per share;
110,000 shares authorized; 13,328
and 12,251 shares issued and
outstanding historical and pro forma,
respectively 103,161 - 103,161
Common stock, Series B, without par
value. Stated value $10 per share;
2,500 shares authorized; 746 shares
issued; and outstanding 6,294 - 6,294
Unrealized loss on mortgage-backed
securities (227) - (227)
Accumulated distributions in excess
of net income (12,205) (87) B (12,292)
-------- ---- --------
Total stockholders' equity 97,023 (87) 96,936
------ ---- ------
$114,490 $17,013 $131,503
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
FRANKLIN SELECT REALTY TRUST
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
(In thousand, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
REVENUE:
<S> <C> <C> <C>
Rental income $10,144 1,761 D $11,905
Interest, dividends and
other income 540 (446) E 94
--- ----- --
Total revenue 10,684 1,315 11,999
------ ----- ------
EXPENSES:
Interest 467 1,022 D 1,489
Depreciation and amortization 2,491 395 F 2,886
Property operations expense 2,690 - 2,690
Related party expenses 864 100 G 964
Consolidation expense, net 680 - 680
General and administrative
expense 474 - 474
Minority interest - 483 H 483
--- --- ---
Total expenses 7,666 2,000 9,666
----- ----- -----
Net income $3,018 ($685) $2,333
====== ====== ======
Net income per weighted
average Series A share $0.21 $0.19
Weighted average number
of Series A shares outstanding 14,145 (1,894) I 12,251
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
FRANKLIN SELECT REALTY TRUST
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
(In thousand, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
(Restated)
REVENUE:
<S> <C> <C> <C>
Rental income $13,383 2,348 D $15,731
Interest, dividends and
other income 728 (595) E 133
--- ----- ---
Total revenue 14,111 1,753 15,864
------ ----- ------
EXPENSES:
Interest 679 1,362 D 2,041
Depreciation and amortization 3,335 527 F 3,862
Property operations expense 3,705 - 3,705
Related party expenses 1,030 134 G 1,164
Consolidation expense, net 394 - 394
General and administrative expense 506 - 506
Minority interest - 644 H 644
---- --- ---
Total expenses 9,649 2,666 12,315
----- ----- ------
Net income $4,462 ($913) $3,549
====== ====== ======
Net income per weighted
average Series A share $0.32 $0.29
Weighted average number
of Series A shares outstanding 14,145 (1,894) I 12,251
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
FRANKLIN SELECT REALTY TRUST
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The pro forma consolidated financial statements of Franklin Select
Realty Trust (the "Company"), which are unaudited, have been prepared
based on the historical financial statements of the Company and include
the pro forma accounts of FSRT, L.P., a majority-owned partnership. The
pro forma consolidated statements of operations for the nine months
ended September 30, 1996, and the year ended December 31, 1995, have
been prepared as if the acquisition of the LAM Buildings and the
purchase of the dissenting shares had occurred on January 1, 1995. The
pro forma consolidated balance sheet as of September 30, 1996, has been
prepared as if the acquisition of the LAM Buildings and the repurchase
of dissenting shares had occurred on September 30, 1996. In management's
opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The pro forma consolidated financial
statements should be read in conjunction with the historical financial
statements of the Company.
The pro forma consolidated financial statements are not necessarily
indicative of what the actual results of consolidated operations of the
Company would have been for the nine months ended September 30, 1996, or
for the year ended December 31, 1995, had the transactions involving the
property acquisition and the dissenting shares occurred on January 1,
1995, nor do they purport to represent the results of consolidated
operations for future periods.
2. Pro Forma Adjustments
A. Reflects the purchase and refinancing of the LAM Buildings.
B. Reflects the use of cash and the sale of marketable securities
for the repurchase of the dissenting shares, for acquisition
closing costs, and for refinancing costs related to the
acquisition of the LAM Buildings. The Company incurred a loss on
the sale of mortgage-backed securities of approximately $87.
C. Reflects the purchase and retirement of the dissenting shares.
D. Additional rental revenue and interest expense is attributable
to the acquisition of the LAM Buildings.
E. The reduction in interest, dividends and other income reflects
the sale of commercial paper and mortgage-backed securities to
provide funds for the repurchase of the dissenting shares and for
the acquisition of the LAM Buildings.
F. Additional depreciation and amortization is calculated to
reflect: (1) additional depreciation on the LAM Buildings, and
(2) amortization of loan costs related to refinancing the LAM
Buildings. Depreciation is computed using the straight-line
method of cost recovery over 39 years for buildings and
improvements. Loan costs are amortized over the 10 year term of
the loan.
G. Additional related party expense is attributable to an increase
in the advisory fee to Franklin Properties, Inc. due to the
acquisition of the LAM Buildings.
F-5
FRANKLIN SELECT REALTY TRUST
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
H. Minority interest reflects the pro rata share of income of
Northport Associates in FSRT, L.P., the limited partnership that
the Company formed in order to acquire the LAM Buildings. Net
income from the partnership is allocated first to the limited
partners in an amount equal to 90% of their cash distributions,
with the remaining income allocated to the Company.
I. Reduced weighted average number of Series A shares outstanding
reflects the purchase of dissenting shareholder's interest and
retirement of related shares.
F-6
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors:
We have audited the accompanying Historical Summary of Gross Income (the
"Historical Summary") of the LAM Research Corporation Buildings, Fremont,
California (the "Property") for the year ended December 31, 1995. The Historical
Summary is the responsibility of the Property's owner. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Historical Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Historical Summary. An audit also includes assessing the
basis of the accounting used and significant estimates made by management, as
well as evaluating the overall presentation of the Historical Summary. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission as
described in Note A. The Historical Summary is not intended to be a complete
presentation of the Property's gross income and may not be comparable to results
from proposed future operations of the Property.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income as described in Note A, of the Lam Research
Corporation Buildings, for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
San Francisco, California
December 6, 1996
F-7
LAM RESEARCH CORPORATION BUILDINGS
HISTORICAL SUMMARY OF GROSS INCOME
for the year ended December 31, 1995
---------------
Rental Income $2,348,400
==========
The accompanying notes are an integral part of the Historical Summary
F-8
LAM RESEARCH CORPORATION BUILDINGS
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
A. Property and Basis of Accounting
The accompanying Historical Summary of Gross Income (the "Historical
Summary") has been prepared in accordance with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission and relates to the
operations of the Lam Research Corporation Buildings (the "Property").
The Property consists of two buildings aggregating approximately 211,680
square feet of research and development/office space located in the
Northport Business Park, Fremont, California.
The Property is subject to two net leases that expire in December, 2014,
and provide for Lam Research Corporation, the tenant, to pay all
expenses. Therefore, no operating expenses have been presented in the
Historical Summary.
B. Mortgage Notes
During 1995, the Property was encumbered by two mortgage notes with
aggregate outstanding balances at December 31, 1995, of approximately
$16.3 million. Subsequent to December 31,1995, in connection with the
sale of the Property, such mortgage notes were repaid with proceeds from
new debt instruments obtained by the buyer. Accordingly, the
accompanying Historical Summary does not include interest expense
incurred for the year ended December 31, 1995, as historical interest
expense is not comparable with future operations of the Property.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 14, 1997 Franklin Select Realty Trust
By
David P. Goss
President
