-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PpI2uLC1q1FXHHuqcoSSWVa4RQf9qGzQstWQLOg6IbsXLAMMzhv6xi/UTSqDWh0o JUGaNZHkAeg5v5GSbQOE5g== 0000845613-96-000012.txt : 19961118 0000845613-96-000012.hdr.sgml : 19961118 ACCESSION NUMBER: 0000845613-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN SELECT REALTY TRUST CENTRAL INDEX KEY: 0000845613 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 943095938 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12708 FILM NUMBER: 96662845 BUSINESS ADDRESS: STREET 1: 1800 GATEWAY DR - STE 200 CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153122000 MAIL ADDRESS: STREET 1: P O BOX 7777 CITY: SAN MATEO STATE: CA ZIP: 94403-7777 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN SELECT REAL ESTATE INCOME FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN CALIFORNIA REAL ESTATE FUND DATE OF NAME CHANGE: 19890307 10-Q 1 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 SEPTEMBER 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 (I.R.S. Employer incorporation or organization) 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 September 30, 1996, Series A: 13,328,001 Common Stock Shares Outstanding as of September 30, 1996, Series B: 745,584 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FRANKLIN SELECT REALTY TRUST BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Unaudited)
Restated (Shares and dollars in thousands, except per share amounts) 1996 1995 - -------------------------------------------------------------------------- -------------------- -------------------- ASSETS: Rental property: Land $ 30,949 $30,949 Buildings and improvements 83,464 83,121 - -------------------------------------------------------------------------- -------------------- -------------------- 114,413 114,070 Less: accumulated depreciation 16,716 14,416 - -------------------------------------------------------------------------- -------------------- -------------------- 97,697 99,654 Cash and cash equivalents 7,139 6,186 Mortgage-backed securities, available for sale 6,194 7,135 Deferred rent receivable 1,928 1,970 Other assets 1,532 1,512 - -------------------------------------------------------------------------- -------------------- -------------------- Total assets $114,490 $116,457 ========================================================================== ==================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes and bonds payable $6,611 $7,145 Tenants' deposits and other liabilities 953 741 Advance rents 37 64 Distributions payable 1,466 1,521 - -------------------------------------------------------------------------- -------------------- -------------------- Total liabilities 9,067 9,471 - -------------------------------------------------------------------------- -------------------- -------------------- Dissenting shareholders' interest: 8,400 - - -------------------------------------------------------------------------- -------------------- -------------------- 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 103,161 111,569 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 (227) (164) Accumulated distributions in excess of net income (12,205) (10,713) - -------------------------------------------------------------------------- -------------------- -------------------- Total stockholders' equity 97,023 106,986 - -------------------------------------------------------------------------- -------------------- -------------------- Total liabilities, dissenting shareholders' interest and stockholders' equity $114,490 $116,457 ========================================================================== ==================== ==================== The accompanying notes are an integral part of these financial statements. FRANKLIN SELECT REALTY TRUST STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED RESTATED RESTATED SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER 30 30 30 30 (Amounts in thousands, except per share amounts) 1996 1995 1996 1995 - ----------------------------------------------------------- --------------- --------------- ---------------- --------------- REVENUE: Rent $3,412 $3,408 $10,144 $10,087 Interest 164 181 508 508 Dividends 21 6 32 13 Other - 2 - 10 - ----------------------------------------------------------- --------------- --------------- ---------------- --------------- Total revenue 3,597 3,597 10,684 10,618 - ----------------------------------------------------------- --------------- --------------- ---------------- --------------- EXPENSES: Interest 153 187 467 509 Depreciation and amortization 836 833 2,491 2,507 Operating 1,006 1,127 2,690 2,811 Related party 304 260 864 772 Consolidation expense (26) 173 680 173 General and administrative 137 124 474 356 - ----------------------------------------------------------- --------------- --------------- ---------------- --------------- Total expenses 2,410 2,704 7,666 7,128 - ----------------------------------------------------------- --------------- --------------- ---------------- --------------- NET INCOME $1,187 $893 $3,018 $3,490 =========================================================== =============== =============== ================ =============== Net income per share, based on the weighted average shares outstanding of Series A common stock of 14,145for the nine month periods ended September 30, 1996 and 1995; and for the three month periods ended September 30, 1996 and 1995. $ .08 $ .06 $ .21 $ .25 =========================================================== =============== =============== ================ =============== Distributions per share, based on the weighted average shares outstanding of Series A common stock of 13,710 and 14,145 for the nine month periods ended September 30, 1996 and 1995; and 13,328 and 14,145 for the three month periods ended September 30, 1996 and 1995, respectively $.11 $ .11 $ .33 $ .33 =========================================================== =============== =============== ================ =============== The accompanying notes are an integral part of these financial statements. FRANKLIN SELECT REALTY TRUST STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 (Unaudited) Common Stock ------------------------------------------------ Series A Series B ---------------------------- ----------------- Unrealized Loss on Accumulated Mortgage- Distributions (Amounts in backed in Excess of thousands) Shares Amount Shares Amount Securities Net Income Total - ------------------- ------------- -------------- ----------- ----------- ---------------- -------------------- -------------- Balance, beginning of period 14,145 $111,569 746 $6,294 $ (164) $(10,713) $106,986 Dissenting shareholders' interest (817) (8,408) - - - - (8,408) Unrealized loss on mortgage- backed securities - - - - (63) - (63) Net income - - - - - 3,018 3,018 Distributions declared - - - - - (4,510) (4,510) - ------------------- ------------- -------------- ---------- ---------- ------------------ -------------------- -------------- Balance, end of period 13,328 $103,161 746 $6,294 $(227) $(12,205) $97,023 =================== ============= ============== ========== ========== ================== ==================== ============== The accompanying notes are an integral part of these financial statements. FRANKLIN SELECT REALTY TRUST STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) (Dollars in thousands) 1996 1995 - ------------------------------------------------------------------------------------ -------------- ---------------- Cash flows from operating activities: Net income $3,018 $3,490 - ------------------------------------------------------------------------------------ -------------- ---------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,491 2,507 (Increase) decrease in deferred rent receivable 42 (69) Increase in other assets (211) (102) Increase in tenants' deposits and other liabilities 212 321 Decrease in advance rents (27) (29) Loss on disposition of rental property - 100 - ------------------------------------------------------------------------------------ -------------- ---------------- 2,507 2,728 - ------------------------------------------------------------------------------------ -------------- ---------------- Net cash provided by operating activities 5,525 6,218 - ------------------------------------------------------------------------------------ -------------- ---------------- Cash flow from investing activities: Improvements to rental property (343) (213) Disposition of mortgage-backed securities 878 532 - ------------------------------------------------------------------------------------ -------------- ---------------- Net cash provided by investing activities 535 319 - ------------------------------------------------------------------------------------ -------------- ---------------- Cash flow from financing activities: Distributions paid (4,565) (4,746) Dissenting shareholders' interest paid (8) - Payoff of note payable (480) - Principal payment on notes and bonds payable (54) (52) Redemption of Series A common stock - (3) - ------------------------------------------------------------------------------------ -------------- ---------------- Net cash used in financing activities (5,107) (4,801) - ------------------------------------------------------------------------------------ -------------- ---------------- Net increase in cash and cash equivalents 953 1,736 Cash and cash equivalents, beginning of period 6,186 4,200 - ------------------------------------------------------------------------------------ -------------- ---------------- Cash and cash equivalents, end of period $7,139 $5,936 ==================================================================================== ============== ================
The accompanying notes are an integral part of these financial statements. FRANKLIN SELECT REALTY TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1 - ORGANIZATION Franklin Select Realty Trust (the "Company") 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 $8.4 million for their shares. The "dissenting shares" were subsequently repurchased by the company as described under Note 6 - Subsequent Events. As of September 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 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 SEPTEMBER 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 September 30, 1996, cash equivalents included $2,822,000 invested in Franklin Money Fund, an investment company managed by an affiliate of the Advisor. Distributions earned from the Franklin Money Fund totaled $32,000 for the nine month period ended September 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 nine month period ended September 30, 1996: Advisory fee expense, charged to related party expense $374,000 Reimbursement for data processing, accounting and certain other expenses, charged to related party expense $47,000 Property management fee, charged to related party expense $443,000 Leasing commission, capitalized and amortized over the term of the related lease $86,000 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 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 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 are as follows: 149,088 Series B shares will be exchanged for 149,088 Series A shares at $8.42, 185,866 Series B shares will be exchanged for 185,866 Series A shares at $10.35, and 410,630 Series B shares will be exchanged for 287,441 Series A shares at $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 may be paid on the Series B shares prior to exercise of the exchange rights. After exercise of the exchange right, the Advisor, like any other shareholder, will receive distributions on its Series A shares. FRANKLIN SELECT REALTY TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 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. For purposes of calculating net income per share, the weighted average shares outstanding of Series A common stock has been calculated assuming the 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 nine month period ended September 30, 1996 interest paid amounted to $467,000. NOTE 6 - SUBSEQUENT EVENTS On October 31, 1996, the Company acquired two research and development buildings ("the Properties") under a newly formed limited partnership, FSRT, L.P.("FSRT"), in which the Company is the sole general partner. Upon formation of FSRT, the Company contributed the Data General Building to the partnership and the limited partners contributed the Properties. The Properties were acquired for approximately $25.5 million with the assumption of $16.2 million of existing non-recourse financing on the Properties and the issuance of 1,625,000 limited partnership units representing an approximately 30% interest in FSRT. The limited partnership units are convertible into Series A shares of the Company's common stock on a one-for-one basis after one year. The Company expects to refinance the debt during the fourth quarter with new non-recourse fixed-rate debt. In connection with the acquisition and refinancing, the Company estimates that total transaction costs will be approximately $1.3 million including prepayment penalties on the existing loans. REPURCHASE OF DISSENTING SHARES On November 1, 1996, the Company purchased all of the remaining "dissenting shares" of Class A common stock arising from the Merger for an aggregate price of $8.4 million. After giving effect to the transaction, the total number of shares of Series A common stock of the Company outstanding is approximately 12.25 million. Cash for the purchase price was provided by the sale of a portion of the Company's mortgage-backed securities. The Company incurred a loss on the sale of the securities of approximately $80,000. 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 described under Note 1 to the accompanying financial statements, 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 historical bases. RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 Net income for the nine month period ended September 30, 1996 decreased $472,000, or 14%, compared to 1995 primarily due to an increase in non-recurring consolidation expenses of $507,000 in 1996. Total revenue for the nine month period ended September 30, 1996 increased $66,000, or 1%, compared to the same period in 1995. The increase is primarily attributable to an increase in rental revenue at the Northport Businesss Park due to an increase in the average rental rate. The average portfolio occupancy rate at September 30, 1996 was 97.5% compared to 97.0% in the prior year. Total expenses for the nine month period ended September 30, 1996, increased $538,000, or 8% from $7,128,000 in 1995 to $7,666,000 in 1996. The increase in total expenses primarily resulted from non-recurring expenses of the merger. Related party expense for the nine month period ended September 30, 1996 increased $92,000 primarily as a result of an increase in advisory fees of $111,000. General and administrative expense for the nine month period ended September 30, 1996, increased $118,000 primarily due to increases in non-recurring legal fees of $51,000, and merger related expenses of $54,000. LIQUIDITY AND CAPITAL RESOURCES 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. At September 30, 1996, the cash reserves and marketable securities of the Company totaled approximately $13.3 million. 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 security's market value to fluctuate, which could result in a realized gain or loss to the Company if the securities are sold before maturity. FRANKLIN SELECT REALTY TRUST ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Management continues to evaluate other properties for acquisition by the Company. The source of capital for future acquisitions is expected to be provided by the issuance of additional limited partnership units in FSRT, and from debt financing. 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 nine month period ended September 30, 1996 was $5,525,000, or $693,000 less than the same period in 1995. The decrease in cash flow 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 nine month period ended September 30, 1996, increased $216,000 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 $306,000 reflecting the payoff of the Fairway Center note payable in the amount of $480,000 in March, 1996, which was partially offset by a decrease in cash distributions related to dissenting shares. On October 31, 1996, the Company acquired two research and development buildings ("the Properties") under a newly formed limited partnership, FSRT, L.P.("FSRT"), in which the Company is the sole general partner. Upon formation of FSRT, the Company contributed the Data General Building to the partnership and the limited partners contributed the Properties. The Properties were acquired for approximately $25.5 million with the assumption of $16.2 million of existing non-recourse financing on the Properties and the issuance of 1,625,000 limited partnership units representing an approximately 30% interest in FSRT. The limited partnership units are convertible into Series A shares of the Company's common stock on a one-for-one basis after one year. The Company expects to refinance the debt during the fourth quarter with new non-recourse fixed-rate debt. In connection with the acquisition and refinancing, the Company estimates that total transaction costs will be approximately $1.3 million including prepayment penalties on the existing loans. On November 1, 1996, the Company purchased all of the remaining "dissenting shares" of Class A common stock arising from the Merger for an aggregate price of $8.4 million. After giving effect to the transaction, the total number of shares of Series A common stock of the Company outstanding is approximately 12.25 million. Cash for the purchase price was provided by the sale of a portion of the Company's mortgage-backed securities. Funds from Operations for the nine month period ended September 30, 1996 decreased $488,000, or 8%, to $5,509,000 compared to the same period in 1995. The decrease is primarily due to an increase in merger 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, FRANKLIN SELECT REALTY TRUST ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) investing, or financing activities as a measure of liquidity. As defined by the National Association of Real Estate Investment Trusts, Funds from Operations 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 nine-month period ended September 30, 1996, the Company declared distributions totaling $4,510,000. FRANKLIN SELECT REALTY TRUST PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Not applicable (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended September 30, 1996. 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: NOVEMBER 13, 1996 EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 7,139 6,194 1,928 0 0 0 114,413 16,716 114,490 0 0 0 0 109,455 (12,432) 114,490 0 10,684 0 7,199 0 0 467 0 0 0 0 0 0 3,018 0 0
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