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) APRIL 1, 1997
Franklin Select Realty Trust
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(Exact Name of Registrant as Specified in its Charter)
California 1-12708 94-0395938
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State or other jurisdiction Commission File Number IRS Employer
of incorporation Identification Number
1800 Gateway Drive, San Mateo, CA 94404
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (650)312-3000
Item 5. OTHER EVENTS
Property Acquisitions. From April 1, 1997 through November 24, 1997,
Franklin Select Realty Trust or FSRT L.P. (collectively, the "Company"),
acquired a fee title interest in three properties from unrelated parties.
Franklin Select Realty Trust is the sole general partner of FSRT L.P. and owns
an approximate 70% interest in the partnership.
On April 1, 1997, the Company acquired the Tanon Building, a 108,600 square foot
R & D industrial building located in Fremont, California, from Utah State
Retirement Fund, a Utah independent state agancy, for $8.51 million. The
acquisition was funded by a draw on the Company's $25 million revolving credit
facility with the Bank of America (the "Credit Facility"). On July 30, 1997 the
Company refinanced $5.1 million of the borrowing under the Credit Facility with
a fixed rate loan provided by First Nationwide Life Insurance Company. The new
loan is collateralized by the property and bears monthly principal and interest
payments at 8.47% per annum, based on a 25-year amortization schedule, with the
remaining principal balance maturing on August 1, 2004. The property is 100%
leased to Tanon Manufacturing, Inc.
On June 25, 1997, the Company acquired a 12.5 acre parcel of undeveloped land
located in Rancho Cordova, California, from Prospect Park Land, LLC, a
California limited liability company, for $4.08 million The acquisition was
funded by a draw on the Credit Facility. The Company intended to enter into a
development agreement with the seller, a Sacramento, California, area developer,
to develop the land with two office buildings containing approximately 216,000
square feet in total. The land purchase agreement provided that if the parties
did not execute a development agreement for the land by September 23, 1997, the
seller had the option until December 22, 1997, to elect to repurchase the parcel
from the Company at a price equal to the sum of the Company's purchase price,
its closing costs, interest expense at an annual rate of 10%, plus $100,000. A
formal development agreement was not executed and on January 21, 1998 the
developer repurchased the land at a price of approximately $4.5 million. The
Company expects to record a gain on the sale of the land of approximately
$171,000 in the first quarter of 1998. Proceeds from the sale of the land will
be applied to the outstanding balance of the Credit Facility.
On November 24, 1997, the Company acquired the Hathaway Business Park, an 80,800
square foot R & D industrial complex located in Fremont, California, from
Hathaway Business Park, a California limited partnership, for $7.15 million. The
Company funded the acquisition by assuming the existing secured loan in the
amount of approximately $3.6 million, with the remainder being funded by a draw
on the Credit Facility. The loan assumed by the Company bears monthly principal
and interest payments at 7.75% per annum, based on a 20-year amortization
schedule, with the remaining principal balance maturing on January 1, 2003. The
property is 100% leased to fourteen tenants ranging in size from 3,033 square
feet to 10,424 square feet.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) PRO FORMA FINANCIAL STATEMENTS
The pro forma 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 for the Tanon Building is included
on pages F-7 to F-9.
(c) EXHIBITS
23.1 Consent of Independent Accountants
FRANKLIN SELECT REALTY TRUST
INDEX TO FINANCIAL STATEMENTS
Pro forma financial statements PAGE
Unaudited pro forma consolidated balance sheet as
of September 30, 1997 F-2
Unaudited pro forma consolidated statement of operations
for the nine months ended September 30, 1997 F-3
Unaudited pro forma consolidated statement of operations
for the year ended December 31, 1996 F-4
Notes to pro forma financial statements F-5
Historical Summary of Gross Income for the Tanon Building
Report of Independent Accountants F-7
Historical summary of gross income for the
year ended December 31, 1996 F-8
Notes to historical summary of gross income F-9
F-1
FRANKLIN SELECT REALTY TRUST
PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
(Shares and dollars in thousands, except per share amounts) HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Rental property:
Land $36,635 $2,153 A $38,788
Buildings and improvements 105,462 5,015 A 110,477
142,097 7,168 149,265
Less: accumulated depreciation 19,903 - 19,903
122,194 7,168 129,362
Land held for development 4,162 (4,162) B -
Rental property held for sale, net of accumulated depreciation 8,158 - 8,158
Real estate, net 134,514 3,006 137,520
Cash and cash equivalents 4,186 316 A 4,502
Mortgage-backed securities, available for sale 531 - 531
Deferred rent receivable 1,866 - 1,866
Deferred costs and other assets 2,431 96 A 2,527
$143,528 $3,418 $146,946
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes and bonds payable $35,417 $3,095 C $38,512
Accounts payable and accrued expenses 1,005 - 1,005
Distributions payable 1,463 - 1,463
Other liabilities 497 152 A 649
Total liabilities 38,382 3,247 41,629
Minority interest 9,276 - 9,276
Stockholders' equity:
Common stock, Series A, without par value. Stated value
$10 per share; 110,000 shares authorized; 12,250 shares 103,161 - 103,161
Issued and outstanding.
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 (25) - (25)
Accumulated distributions in excess of net income (13,560) 171 B (13,389)
$143,528 $3,418 $146,946
</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, 1997
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts) HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
REVENUE:
Rental income $12,982 863 D $13,845
Interest, dividends and other income 143 - 143
Total revenue 13,125 863 13,988
EXPENSES:
Interest 1,999 594 E 2,593
Depreciation and amortization 2,968 153 F 3,121
Property operations expense 2,940 169 D 3,109
Related party expenses 1,074 53 G 1,127
Consolidation expense, net 2 - 2
General and administrative expenses 411 - 411
Minority interest 483 - 483
Total expenses 9,877 969 10,846
NET INCOME $3,248 ($106) $3,142
Earnings per weighted average Series A common
share outstanding $0.27 - $0.26
Weighted average number of Series A common
shares outstanding 12,250 - 12,250
</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, 1996
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts) HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
REVENUE:
Rental income $13,926 1,589 D $15,515
Interest, dividends and other income 642 - 642
Total revenue 14,568 1,589 16,157
EXPENSES:
Interest 886 1,264 E 2,150
Depreciation and amortization 3,440 323 F 3,763
Property operations expense 3,635 214 D 3,849
Related party expenses 1,205 99 G 1,304
Consolidation expense, net 695 - 695
General and administrative expense 642 - 642
Loss on the sale of mortgage-backed securities 151 - 151
Minority interest 107 - 107
Total expenses 10,761 1,900 12,661
NET INCOME $3,807 ($311) $3,496
Earnings per weighted average Series A common
share outstanding $0.28 - $0.25
Weighted average number of Series A common
shares outstanding 13,830 - 13,830
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
FRANKLIN SELECT REALTY TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The pro forma financial statements of Franklin Select Realty Trust (the
"Company"), which are unaudited, have been prepared based on the historical
financial statements of the Company. From April 1, 1997 to November 24, 1997,
the Company acquired three properties including the Tanon Building, the Rancho
Cordova land, and the Hathaway Business Park (collectively the "Acquired
Properties"). The accompanying pro forma balance sheet as of September 30, 1997,
has been prepared as if the acquisition of the Acquired Properties and the
probable disposition of the Rancho Cordova land had occurred on September 30,
1997. The accompanying pro forma statements of operations for the nine months
ended September 30, 1997 and the year ended December 31, 1996 have been prepared
as if the purchase of the Acquired Properties had occurred on January 1, 1996.
In management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made. The pro forma financial statements should be
read in conjunction with the historical financial statements of the Company.
The pro forma financial statements are not necessarily indicative of what
the financial condition or the actual results of operations of the Company would
have been as of and for the nine months ended September 30, 1997, or for the
year ended December 31, 1996, had the property acquisitions occurred on January
1, 1996, nor do they purport to represent the financial condition or results of
operations for future periods.
2. Pro Forma Adjustments
A. Reflects the purchase of the Hathaway Business Park and the net
proceeds from the sale of the Rancho Cordova land after application of $4.1
million to notes and bonds payable.
B. Reflects the sale of the Rancho Cordova land.
C. Additional notes and bonds payable reflects the new debt associated
with the acquisition of the Hathaway Business Park, totaling $7.2 million,
less the application of $4.1 million of net sale proceeds from the sale of
the Rancho Cordova land.
D. Additional rental revenue and property operations expense is
attributable to the Acquired Properties.
E. Additional interest expense is calculated to reflect the two new
permanent loans totaling approximately $8.8 million and the aggregate draw
on the Company's Credit Facility of $7.1 million in connection with the
acquisition of the Tanon Building and the Hathaway Business Park, computed
at the actual fixed interest rates for the permanent loans, and the
weighted average interest rate in effect on actual borrowings under the
Credit Facility during 1997. Because development activities had commenced
at the Rancho Cordova land, interest expense incurred by the Company
related to the draw on the Credit Facility for the acquisition of the land
was capitalized, and is reflected under Land Held for Development on the
Company's historical balance sheet as of September 30, 1997.
F-5
FRANKLIN SELECT REALTY TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
2. Pro Forma Adjustments continued
F. Additional depreciation and amortization is calculated to reflect:
(1) additional depreciation on the Acquired Properties, and (2)
amortization of loan costs related to the permanent loans for the Acquired
Properties. Depreciation is computed using the straight-line method of cost
recovery over 40 years for building and improvements. Loan costs are
amortized over the terms of the related loans.
G. Additional related party expense is attributable to an increase in
the advisory fee to Franklin Properties, Inc. relating to the Acquired
Properties.
F-6
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors:
We have audited the accompanying Historical Summary of Gross Income (the
"Historical Summary") of the Tanon Building, Fremont, California (the
"Property") for the year ended December 31, 1996. 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 Tanon
Building, for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 12, 1998
F-7
TANON BUILDING
HISTORICAL SUMMARY OF GROSS INCOME
for the year ended December 31, 1996
---------------
Rental Income $792,346
The accompanying note is an integral part of the Historical Summary
F-8
TANON BUILDING
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
for the year ended December 31, 1996
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 Tanon Building (the "Property"). The Property
consists of one building comprising 108,600 square feet of research
and development/office space located in Fremont, California.
The Property is subject to a triple net lease that expires in April,
2003, and provides for Tanon Manufacturing, Inc., the tenant, to pay
all expenses. Therefore, no operating expenses have been presented in
the Historical Summary. Gross income includes a downward adjustment of
$80,798 as a result of the straight-line rent adjustment for
differences between straight-line rents and contractual rent payments.
F-9
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Franklin Select Realty Trust on Form S-3 (File No. 333-38463) of our report
dated January 12, 1998, on our audit of the Historical Summary of Gross Income
of the Tanon Building for the year ended December 31, 1996, which report is
included in this Current Report on Form 8-K/A.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 27, 1998
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 27, 1998 Franklin Select Realty Trust
By: /S/DAVID P. GOSS
David P. Goss
President
