SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
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) FEBRUARY 10, 2000
FRANKLIN SELECT REALTY TRUST
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 1-12708 94-0395938
State or other jurisdiction Commission File IRS Employer
of incorporation Number Identification
Number
2000 ALAMEDA DE LAS PULGAS, SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (650) 312-3000
ITEM 2: DISPOSITION OF ASSETS.
On February 10, 2000, Franklin Select Realty Trust (the "Company") closed the
sale of all of its real estate assets to Value Enhancement Fund III LLC
("Value Enhancement") a private real estate fund formed by Lend Lease Real
Estate Investments to purchase properties. The aggregate purchase price was
$131.5 million, less existing project debt assumed or paid off by the buyer
of approximately $26.5 million and related transaction expenses. Other than
the sale transaction, there was no material relationship between Value
Enhancement and the Company or any of the affiliates, directors or officers
of the Company or the Company's advisor, Franklin Properties, Inc.
Pursuant to the plan of liquidation approved by shareholders on January 25,
2000, the Board declared an initial liquidating distribution of $7.11 to
shareholders of record on February 29, 2000. The initial distribution will
be paid on March 10, 2000. Under applicable AMEX regulations, the AMEX will
act to suspend trading in the Company's shares beginning on March 1, 2000,
which is the next business day after the record date for the initial
distribution, and to subsequently delist the Company's shares. Accordingly,
the Company does not expect that any trading market for the Company's shares
will exist after February 29, 2000.
Thereafter, the Company will continue to wind up its affairs pursuant to the
plan of liquidation. It is expected that shareholders will also receive a
final liquidating distribution before the end of the calendar year, subject,
however, to final court approval of settlements of pending litigation. It is
not expected that any interim or quarterly distributions will be declared or
paid before the final liquidating distribution.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
PRO FORMA FINANCIAL INFORMATION
Index
Page
3 Unaudited Pro Forma Balance Sheet as of September 30, 1999
4 Unaudited Pro Forma Statement of Income for the 9 months ended September
30, 1999
5 Unaudited Pro Forma Statement of Income for the year ended December 31,
1998
6 Notes to the Pro Forma Financial Statements
Page 2
PRO FORMA FINANCIAL INFORMATION
Pro Forma Balance Sheet
September 30, 1999
(In 000's)
(Unaudited)
Asset
Sale
Historical (Note 2) Pro Forma
--------- --------- ---------
Real estate, net $110,820 $(110,820A $ -
Cash and cash equivalents 15,638 103,590 B 119,228
Mortgage-backed securities, 287 - 287
available for sale
Deferred rent receivable 1,574 (1,574) C -
Deferred costs and other 3,431 (3,193) C 238
========= ========= =========
Total assets $131,750 $(11,997) $119,753
========= ========= =========
Notes and bonds payable 26,458 (26,458) D -
Tenant deposits, accounts
payable and accrued expenses 2,548 (1,701) C 847
Reserve for litigation 750 - 750
Distributions payable 1,767 - 1,767
--------- --------- ---------
Total liabilities 31,523 (28,159) 3,364
--------- --------- ---------
Commitments and contingencies
(Notes 5 and 6)
Minority interest 9,118 (9,118) E -
Stockholders' equity
Common stock A 103,161 11,984 F 115,145
Common stock B 6,294 - 6,294
Unrealized loss (33) - (33)
Accumulated distribution over (18,313) 13,296 G (5,017)
net income
--------- --------- ---------
Total stockholders' equity 91,109 25,280 116,389
--------- --------- ---------
========= ========= =========
Total liabilities and $131,750 $(11,997) $119,753
stockholders' equity ========= ========= =========
The accompanying notes are an integral part of these pro forma financial
statements.
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Franklin Select Realty Trust
Pro Forma Statement of Operations
For the nine months ended September 30, 1999
(In 000's except per share amounts)
(Unaudited)
Asset
Sale
Historical (Note 3) Pro
Forma
--------- ---------- ---------
Revenue
Rent $ 11,183 $(11,183) H $ -
Interest, dividends and other 715 - 715
--------- ---------- ---------
Total revenue 11,898 (11,183) 715
--------- ---------- ---------
Expenses
Property operating 2,694 (2,694) I -
Interest 1,774 (1,774) J -
Related party 933 (779) K 154
General and administrative 1,208 - 1,208
Loss on the sale of mortgage 110 - 110
backed securities
Depreciation and amortization 2,828 (2,828) L -
--------- ---------- ---------
Total expenses 9,547 (8,075) 1,472
Operating income (loss) before
reserve for 2,351 (3,108) (757)
litigation and minority interest
Reserve for litigation (750) - (750)
Minority interest (566) 566 M -
========= ========== =========
Net income (loss) $ 1,035 $ (2,542) $(1,507)
========= ========== =========
Net income (loss) per share $ $
0.08 (0.11)
Weighted average shares outstanding 12,250 1,625 N 13,875
The accompanying notes are an integral part of these pro forma financial
statements.
Page 4
Franklin Select Realty Trust
Pro Forma Statement of Operations
For the year ended December 31, 1998
(In 000's except per share amounts)
(Unaudited)
Prior Asset
Sales Sale
Historical (Note 4) (Note 3) Pro Forma
--------- --------- ---------- ---------
Revenue
Rent $ 17,635 $(2,250) O $(15,385) H $ -
Interest, dividends and 302 - - 302
other
--------- --------- ---------- ---------
Total revenue 17,937 (2,250) (15,385) 302
--------- --------- ---------- ---------
Expenses
Property operating 4,081 (419) P (3,662) I -
Interest 2,930 (182) Q (2,748) J -
Related party 1,459 (185) R (1,036) K 238
General and administrative 1,076 - - 1,076
Depreciation and 3,979 (429) S (3,550) L -
amortization
--------- --------- ---------- ---------
Total expenses 13,525 (1,215) (10,996) 1,314
--------- --------- ---------- ---------
Operating income (loss)
gains on 4,412 (1,035) (4,389) (1,012)
sales and minority
interest
Gains on sales of property 1,335 (1,335) T - -
--------- --------- ---------- ---------
Operating income (loss)
before 5,747 (2,370) (4,389) (1,012)
minority interest
Minority interest (692) - 692 M -
========= ========= ========== =========
Net income (loss) $ $ $ (3,697) $
5,055 (2,370) (1,012)
========= ========= ========== =========
Net income (loss) per share $ 0.41 $ (0.07)
Weighted average shares 12,250 1,625 N 13,875
outstanding
The accompanying notes are an integral part of these pro forma financial
statements.
Page 5
FRANKLIN SELECT REALTY TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
For the nine months ended September 30, 1999 and
For the year ended December 31, 1998
(Unaudited)
1. Basis of Presentation
The pro forma financial statements of Franklin Select Realty Trust (the
"Company") have been prepared based on the historical financial statements of
the Company. On February 10, 2000, the Company closed the sale of its
remaining wholly owned real estate assets and its general partner interest in
FSRT L.P. (collectively, "the Properties" or "the Asset Sale"). In addition,
immediately prior to closing the Asset Sale, the Limited Partners of FSRT
L.P. (the "Limited Partners") converted all of their limited partner units
into 1,625,000 shares of the Company's Series A common stock (the "Series A
Shares"). In 1998, the Company sold three properties - Carmel Mountain
Gateway Plaza , Mira Loma Shopping Center and Glen Cove Center (collectively,
"the Prior Sales"). The accompanying pro forma balance sheet as of September
30, 1999, has been prepared as if the Asset Sale had occurred on September
30,1999. The accompanying pro forma statements of operations for the nine
months ended September 30, 1999 and the year ended December 31, 1998 have
been prepared as if the Asset Sale and the Prior Sales had occurred on
January 1, 1998. 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 unaudited pro forma financial statements are not necessarily indicative
of what the actual financial condition or the actual results of operations of
the Company would have been as of and for the nine months ended September 30,
1999, or for the year ended December 31, 1998, had the sales occurred on
January 1, 1998, nor do they purport to represent the future financial
condition or results of operations for the Company. In particular, they do
not purport to show the amount of cash available for distribution upon the
liquidation of the company.
The pro forma financial statements assume that the Company has elected and
qualified as a real estate investment trust for income tax reporting purposes
and has distributed all of its taxable income and, therefore, incurred no
income tax expense for the periods presented.
2. Pro Forma Balance Sheet Adjustments
Adjustments have been made to reflect the sale of the Properties, giving
effect to the following items:
A The adjustment to real estate, net represents the net carrying value of
the Properties.
Page 6
B The adjustment to cash and cash equivalents reflects the net proceeds to
the Company from sale of the Properties. The amount reflects
adjustments for prorations and closing costs.
Purchase Price $131,500
Less debt assumed or paid off (26,458)
Less closing costs (1,238)
Less prorations (214)
Net proceeds $103,590
C The adjustments to deferred rent receivable; deferred costs and other
assets; and tenant deposits, accounts payable and accrued expenses
represent assets and liabilities specifically related to the Properties.
D The adjustment to notes and bonds payable represents debt paid off or
assumed by the buyer.
E The adjustment represents the elimination of the minority interest of
the Limited Partners pursuant to the conversion discussed at F below.
F The adjustment represents the market price of the Series A Shares issued
to the Limited Partners in connection with the conversion of their
minority interest in FSRT, L.P.
G The amount represents the estimated gain on sale.
3. Pro Forma Income Statement Adjustments - Asset Sale
Adjustments have been made to reflect the sale of the Properties giving
effect to the following items. The adjustments reflect only those items that
are directly related to the Asset Sale (including conversion of the Limited
Partners' minority interest in FSRT, L.P.) and do not include all costs that
the Company may incur at, or subsequent to, closing the Asset Sale For
instance, they do not include expenses or holdback related to the future
liquidation of the Company, liabilities or possible liabilities or insurance
costs relating to the Shareholder Litigation or other contingencies, or the
effects on the Company's cash and liabilities balances of it's operations and
capital expenditures subsequent to the proforma financial statement dates.
H The adjustment represents the elimination of rental revenue of the
Properties.
I The adjustment represents the elimination of operating expenses of the
Properties.
J The adjustment represents the elimination of interest expense on debt
paid off or assumed by Value Enhancement.
K The adjustment represents the elimination of property management and
asset management fees related to the Properties.
L The adjustment represents the elimination of depreciation and
amortization related to the Properties.
M The adjustment represents the elimination of the minority interest of
the Limited Partners pursuant to the conversion discussed at N below.
N The adjustment represents the Series A Shares issued to the Limited
Partners in connection with the conversion of their minority interest in
FSRT, L.P.
Page 7
4. Pro Forma Income Statement Adjustments - Prior Sales
Adjustments have been made to reflect the Prior Sales, giving effect to the
following items:
O The adjustment represents the elimination of rental revenue of the Prior
Sales.
P The adjustment represents the elimination of operating expenses of the
Prior Sales.
Q The adjustment represents the elimination of interest expense on debt
that was related to the Prior Sales.
R The adjustment represents the elimination of property management and
asset management fees related to the Prior Sales.
S The adjustment represents the elimination of depreciation and
amortization related to the Prior Sales.
T The adjustment represents the elimination of the gains related to the
Prior Sales.
5. Commitments and Contingencies
See the discussion regarding commitments and contingencies in the Company's
annual report on Form 10K dated December 31, 1999, and in the Company's
Current Report on Form 8K dated January 13, 2000.
6. Subsequent Event
In its Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, the Company disclosed that it would recognize a $750,000 reserve, based
on management's assessment at that time of potential liability with respect
to two shareholder lawsuits which were previously disclosed in the Company's
public filings and referred to as the Hodge Lawsuit and the Vigneau Lawsuit.
Subsequent to September 30, 1999, the Company reached preliminary agreements
in principle with the plaintiffs and other involved parties regarding
possible settlement of the two lawsuits. Efforts to finalize these
settlements are ongoing. Based on management's revised assessment of
potential liability with respect to the shareholder litigation, the Company
increased its reserve relating to the shareholder litigation from $750,000 to
$2,100,000 for the quarter ending December 31, 1999.
The successful conclusion of each of these settlement efforts would require
that the parties enter into a written agreement with respect to all of the
terms of the settlement, that the relevant court certify a class for
settlement purposes and approve the mailing of notice to the class, that the
court determine that the settlement is fair, reasonable and adequate after a
hearing at which class members may appear and be heard, and that certain
other conditions are met, a process that would take many months to complete.
The Company expects that the costs of defense and settlement of the Hodge
Lawsuit and the Vigneau Lawsuit would be funded by insurance coverage,
contributions from certain other defendants, and contributions from the
Company. No assurance can be given as to the outcome of the settlement
efforts. If the settlement efforts are not successful, the Company will
continue to pursue its vigorous defense of the litigation.
Page 8
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 heretofore duly authorized.
Dated: February 23, 2000 Franklin Select Realty Trust
BY: /s/ David P. Goss
David P. Goss
President
