UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 30, 2004
-----------------
Franklin Street Properties Corp.
(formerly known as Franklin Street Partners Limited Partnership)
----------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Maryland
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(State or Other Jurisdiction of Incorporation)
000-32615 04-3578653
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
401 Edgewater Place, Suite 200, Wakefield, MA 01880-6210
--------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(781) 557-1300
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On August 13, 2004, Franklin Street Properties Corp. ("FSP Corp." or the
"Registrant"), a Maryland corporation, four wholly-owned acquisition
subsidiaries of FSP Corp., each a Delaware corporation (the "Acquisition Subs"),
and four real estate investment trusts, each a Delaware corporation (the "Target
REITs"), entered into an Agreement and Plan of Merger (the "Merger Agreement"),
providing for (i) FSP Corp.'s acquisition of each of the Target REITs by merging
each Target REIT into a related Acquisition Sub, resulting in the Acquisition
Sub being the surviving corporation and (ii) the issuance of approximately
10,894,994 shares of FSP Corp. Common Stock as consideration in connection with
the mergers. Upon consummation of the mergers, the holders of the preferred
stock of the preferred stock of the Target REITs will become stockholders of FSP
Corp.
Pursuant to the requirements of Rule 3-14 of Regulation S-X, this Current
Report on Form 8-K includes a Statement of Revenues over Certain Operating
Expenses for FSP Addison Circle Corp., FSP Collins Crossing Corp., FSP Montague
Business Center Corp., and FSP Royal Ridge Corp. for the six months ended June
30, 2004 (unaudited) and for the three years ended December 31, 2003 or, in the
case of FSP Royal Ridge Corp., for the two years ended December 31, 2003, as
well as pro forma financial information for FSP Corp. and the acquisition of 13
real estate investment trusts completed by FSP Corp. in June 2003. Because
changes will likely occur in occupancy, rents and expenses experienced by the
Target REITs and because the merger may not be completed, the historical
financial statements and pro forma financial data presented should not be
considered as a projection of future results.
In connection with the mergers, the Registrant is hereby filing as part of
this Current Report on Form 8-K the financial statements and pro forma financial
statements set forth below under Item 9.01.
Upon consummation of the mergers, the Registrant expects to file a Current
Report under Item 2.01 of Form 8-K, "Completion of Acquisition or Disposition of
Assets," reporting the information required to be set forth therein.
FORWARD LOOKING STATEMENTS
THIS FORM 8-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND THE FEDERAL SECURITIES
LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON FSP CORP.'S CURRENT
BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT GUARANTEED. FOR EXAMPLE, THE REVENUE
IN EXCESS OF OPERATING EXPENSES MAY BE LESS THAN CURRENTLY EXPECTED DUE TO
CHANGING MARKET CONDITIONS, INCREASED EXPENSES OR FOR OTHER REASONS. ALSO,
VARIOUS CLOSING CONDITIONS UNDER THE MERGER AGREEMENTS MAY NOT BE SATISFIED AND
THE ACQUISITION MAY NOT BE COMPLETED. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE UPON FORWARD LOOKING STATEMENTS.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements Under Rule 3-14 of Regulation S-X
Statements of revenue over certain operating expenses for
FSP Addison Circle Corp.
Index to Statements of revenue over certain operating expenses
for the six months ended June 30, 2004 and 2003 (unaudited) F-1
Index to Statements of revenue over certain operating expenses
for the three years ended December 31, 2003 F-4
Statements of revenue over certain operating expenses for
FSP Collins Crossing Corp.
Index to Statements of revenue over certain operating expenses
for the six months ended June 30, 2004 and 2003 (unaudited) F-10
Index to Statements of revenue over certain operating expenses
for the three years ended December 31, 2003 F-13
Statements of revenue over certain operating expenses for
FSP Montague Business Center Corp.
Index to Statements of revenue over certain operating expenses
for the six months ended June 30, 2004 and 2003 (unaudited) F-19
Index to Statements of revenue over certain operating expenses
for the three years ended December 31, 2003 F-22
Statements of revenue over certain operating expenses for
FSP Royal Ridge Corp.
Index to Statements of revenue over certain operating expenses
for the six months ended June 30, 2004 and 2003 (unaudited) F-28
Index to Statements of revenue over certain operating expenses
for the two years ended December 31, 2003 F-31
(b) Pro Forma Financial Information
Franklin Street Properties Corp. Unaudited Pro Forma
Condensed Combined Financial Statements F-37
(c) Exhibits
23.1 Consent of Braver and Company, P.C.
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 hereunto duly authorized.
Date: August 30, 2004 REGISTRANT
FRANKLIN STREET PROPERTIES CORP.
By: /s/ George J. Carter
--------------------------------
George J. Carter
President and Chief Executive Officer
FSP ADDISON CIRCLE CORP
JUNE 30, 2004 AND 2003
CONTENTS
PAGE
Statements of revenue over certain operating expenses F-2
Notes accompanying the statements of revenue over certain
operating expenses F-3
F-1
FSP ADDISON CIRCLE CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(unaudited)
2004 2003
---------- ----------
Revenue
Rental income $4,720,305 $4,332,624
---------- ----------
4,720,305 4,332,624
---------- ----------
Certain operating expenses
Taxes and insurance 682,882 626,066
Management fees 110,572 109,520
Administrative 24,829 50,793
Operating and maintenance 669,470 708,688
---------- ----------
1,487,753 1,495,067
---------- ----------
Excess of revenue over certain operating expenses $3,232,552 $2,837,557
========== ==========
The accompanying notes are an integral part of these financial statements
F-2
FSP ADDISON CIRCLE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
(unaudited)
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a recently constructed
ten-story Class "A" suburban office tower containing approximately 293,787
rentable square feet located on approximately 3.62 acres of land in
Addison, Dallas County, Texas (the "Property"). The subject property was
purchased by Champion Addison One, LP as a vacant tract of land on
November 11, 1997. On September 30, 2002, Champion Addison One, LP sold
the property to FSP Addison Circle Corp. (the "Company").
2. BASIS OF ACCOUNTING:
The accompanying Statements have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to the future operations of the Property.
3. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. CONCENTRATIONS OF RISKS:
For the six months ended June 30, 2004 and 2003, rental income was
received from various lessees. As such, future receipts are dependent upon
the financial strength of the lessees and their ability to perform under
the lease agreements.
5. LEASES:
The Company, as lessor, has minimum future rentals due under a
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 3,342,000
2005 6,636,000
2006 5,698,000
2007 3,101,000
2008 2,369,000
Thereafter 943,000
------------
$ 22,089,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
F-3
FSP ADDISON CIRCLE CORP.
DECEMBER 31, 2003, 2002, AND 2001
CONTENTS
PAGE
Independent auditors' report F-5
Statements of revenue over certain operating expenses F-6
Notes accompanying the statements of revenue over certain
operating expenses F-7
F-4
[LETTERHEAD OF BRAVER AND COMPANY, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Stockholders
FSP Addison Circle Corp.
We have audited the accompanying statements of revenue over certain operating
expenses (the "Statements") of FSP Addison Circle Corp. for the years ended
December 31, 2003, 2002, and 2001. These Statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
Statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the Statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall Statements'
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Statements were prepared to comply with the requirements of
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission, and
exclude certain expenses described in Note 2, and therefore, are not intended to
be a complete presentation of the Property's revenue and expenses.
In our opinion, these Statements referred to above presents fairly, in all
material respects, the revenue over certain operating expenses (as described in
Note 2), of FSP Addison Circle Corp. for the years ended December 31, 2003,
2002, and 2001, in conformity with the basis of accounting described in Note 2.
/s/ Braver and Company, P.C
Newton, Massachusetts
February 28, 2004
F-5
FSP ADDISON CIRCLE CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
---------- ---------- ----------
(3) (2) (1)
REVENUE
Rental income $8,579,509 $8,679,187 $8,353,790
---------- ---------- ----------
CERTAIN OPERATING EXPENSES (Note 2):
Taxes and insurance 1,354,203 1,257,727 1,195,547
Management fees 216,292 158,765 135,923
Administrative 339,180 592,811 446,024
Operating and maintenance 1,227,418 880,036 905,373
---------- ---------- ----------
3,137,093 2,889,339 2,682,867
---------- ---------- ----------
Excess of revenue over certain
operating expenses $5,442,416 $5,789,848 $5,670,923
========== ========== ==========
Property Owner:
3 - FSP Addison Circle Corp
2 - January 1, 2002 to September 29, 2002 - Champion Addison One, LP
September 30, 2002 to December 31, 2002 - FSP Addison Circle Corp.
1 - Champion Addison One, LP
The accompanying notes are an integral part of these financial statements
F-6
FSP ADDISON CIRCLE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a recently constructed
ten-story Class "A" suburban office tower containing approximately 293,787
rentable square feet located on approximately 3.62 acres of land in
Addison, Dallas County, Texas (the "Property"). The subject property was
purchased by Champion Addison One, LP as a vacant tract of land on
November 11, 1997. On September 30, 2002, Champion Addison One, LP sold
the property to FSP Addison Circle Corp. (the "Company").
2. BASIS OF ACCOUNTING:
The accompanying Statements have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to the future operations of the Property.
3. REVENUE RECOGNITION:
Rental revenue includes income from leases, certain reimbursable expenses,
straight-line rent adjustments and other income associated with renting
the property. A summary of rental revenue is shown in the following table:
Year Ended December 31,
2003 2002 2001
---------- ---------- ----------
Income from leases $7,152,563 $7,230,163 $7,168,574
Straight-line rent adjustment 321,385 358,091 293,420
Reimbursable expenses 1,080,115 1,092,574 887,543
Other income 25,446 1,359 4,253
---------- ---------- ----------
Total $8,579,509 $8,682,187 $8,353,790
========== ========== ==========
The Company has retained substantially all of the risks and benefits of
the property and accounts for its leases as operating leases. Rental
income from leases, which include rent concessions (including free rent
and tenant improvement allowances) and scheduled increases in rental rates
during the lease term, is recognized on a straight-line basis. The Company
does not have any percentage rent arrangements with its tenants.
Reimbursable costs are included in rental income in the period earned.
4. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
5. CONCENTRATIONS OF RISKS:
For the years ended December 31, 2003, 2002, and 2001, rental income was
received from various lessees. As such, future receipts are dependent upon
the financial strength of the lessees and their ability to perform under
the lease agreements.
F-7
FSP ADDISON CIRCLE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
6. LEASES:
The Company, as lessor, has minimum future rentals due under a
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ -------------
2004 $ 6,684,000
2005 6,636,000
2006 5,698,000
2007 3,101,000
2008 2,369,000
Thereafter 943,000
-------------
$ 25,431,000
=============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
7. ALLOCATION:
Allocation of the statements of revenue over certain operating expenses by
property owner, is as follows:
For the period For the period
January 1, 2002 to September 30, 2002 to Total
September 29, 2002 December 31, 2002 2002
------------------ ----------------- ----------
Revenue
Rental income $6,577,352 $2,101,835 $8,679,187
---------- ---------- ----------
6,577,352 2,101,835 8,679,187
---------- ---------- ----------
Certain operating expenses
Taxes and insurance 930,968 326,759 1,257,727
Management fees 105,094 53,671 158,765
Administrative 512,993 79,818 592,811
Operating and maintenance 649,685 230,351 880,036
---------- ---------- ----------
2,198,740 690,599 2,889,339
---------- ---------- ----------
Excess of revenue over certain
operating expenses $4,378,612 $1,411,236 $5,789,848
========== ========== ==========
F-8
FSP ADDISON CIRCLE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
8. CASH DISTRIBUTION:
The Company declared and paid dividends as follows:
Taxable Income Return of Capital
Years Cash Dividends / per share / per share
----- -------------- ----------- -----------
2003 $ 4,628,950 $ 6,145 $ 1,133
2002 N/A N/A N/A
2001 N/A N/A N/A
F-9
FSP COLLINS CROSSING CORP.
JUNE 30, 2004 AND 2003
CONTENTS
PAGE
Statements of revenue over certain operating expenses F-11
Notes accompanying the statements of revenue over certain
operating expenses F-12
F-10
FSP COLLINS CROSSING CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(unaudited)
2004 2003
---------- ----------
(1)
Revenue
Rental income $3,923,538 $2,568,934
---------- ----------
3,923,538 2,568,934
---------- ----------
Certain operating expenses
Taxes and insurance 477,650 340,783
Management fees 112,653 74,103
Administrative 11,754 9,648
Operating and maintenance 784,669 410,658
---------- ----------
1,386,726 835,192
---------- ----------
Excess of revenue over certain operating expenses $2,536,812 $1,733,742
========== ==========
Property owner:
1 - March 3, 2003 to December 31, 2003 - FSP Collins Crossing Corp.
1 - January 1, 2003 to March 2, 2003 - Collins Crossing Limited Partnership
The accompanying notes are an integral part of these financial statements
F-11
FSP COLLINS CROSSING CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
(unaudited)
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a commercial building located
in Dallas County, Texas (the "Property"). The Property is an eleven-story
Class "A" institutional quality suburban office tower containing
approximately 298,766 square feet of rentable space. The Property was
owned by Collins Crossing Limited Partnership and sold to FSP Collins
Crossing Corp. (the "Company") on March 3, 2003.
2. BASIS OF ACCOUNTING:
The accompanying Statement have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to future operations of the Property.
3. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. CONCENTRATIONS OF RISKS:
For the six months ended June 30, 2004 and 2003, rental income was from
three lessees. As such, future receipts are dependent upon the financial
strength of these lessees and their ability to perform under the lease
agreements.
5. LEASES:
The Company, as lessor, has minimum future rentals due under
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 3,351,000
2005 6,947,000
2006 6,036,000
2007 5,811,000
2008 5,811,000
Thereafter 8,688,000
------------
$ 36,644,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
F-12
FSP COLLINS CROSSING CORP.
DECEMBER 31, 2003, 2002 AND 2001
CONTENTS
PAGE
Independent auditors' report F-14
Statements of revenue over certain operating expenses F-15
Notes accompanying the statements of revenue over certain
operating expenses F-16
F-13
[LETTERHEAD OF BRAVER AND COMPANY, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Stockholders
FSP Collins Crossing Corp.
We have audited the accompanying statements of revenue over certain operating
expenses (the "Statements") of FSP Collins Crossing Corp. for the years ended
December 31, 2003, 2002 and 2001. These Statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
Statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the Statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall Statements'
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Statements were prepared to comply with the requirements of
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission, and
exclude certain expenses described in Note 2 and, therefore, are not intended to
be a complete presentation of the Property's revenue and expenses.
In our opinion, these Statements referred to above present fairly, in all
material respects, the revenue over certain operating expenses (as described in
Note 2), of FSP Collins Crossing Corp. for the years ended December 31, 2003,
2002 and 2001, in conformity with the basis of accounting described in Note 2.
/s/ Braver and Company, P.C.
Newton, Massachusetts
February 28, 2004
F-14
FSP COLLINS CROSSING CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
---------- ---------- ----------
(3) (2) (1)
Revenue
Rental income $7,810,887 $7,719,461 $7,231,817
---------- ---------- ----------
7,810,887 7,719,461 7,231,817
---------- ---------- ----------
Certain operating expenses
Taxes and insurance 916,353 906,803 1,080,465
Management fees 211,726 148,990 136,467
Administrative 102,130 64,208 59,948
Operating and maintenance 1,392,632 1,165,129 1,320,489
---------- ---------- ----------
2,622,841 2,285,130 2,597,369
---------- ---------- ----------
Excess of revenue over certain
operating expenses $5,188,046 $5,434,331 $4,634,447
========== ========== ==========
Property Owner:
3 - March 3, 2003 to December 31, 2003 - FSP Collins Crossing Corp.
3 - January 1, 2003 to March 2, 2003 - Collins Crossing Limited Partnership
2 - Collins Crossing Limited Partnership
1 - Collins Crossing Limited Partnership
The accompanying notes are an integral part of these financial statements
F-15
FSP COLLINS CROSSING CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a commercial building located
in Dallas County, Texas (the "Property"). The Property is an eleven-story
Class "A" institutional quality suburban office tower containing
approximately 298,766 square feet of rentable space. The Property was
owned by Collins Crossing Limited Partnership and sold to FSP Collins
Crossing Corp. (the "Company") on March 3, 2003.
2. BASIS OF ACCOUNTING:
The Statements have been prepared on the accrual basis of accounting. The
Statements have been prepared in accordance with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission for real estate properties
acquired or to be acquired. Accordingly, these Statements exclude certain
historical expenses not comparable to the operations of the Property after
acquisition such as amortization, depreciation, interest, corporate
expenses and certain other costs not directly related to future operations
of the Property.
3. REVENUE RECOGNITION:
Rental revenue includes income from leases, certain reimbursable expenses,
and straight-line rent adjustments associated with renting the property.
Year Ended December 31,
2003 2002 2001
---------- ---------- ----------
Income from leases $6,822,916 $6,747,319 $6,415,650
Straight-line rent adjustment 332,181 294,140 252,620
Reimbursable expenses 655,790 678,002 563,547
---------- ---------- ----------
Total $7,810,887 $7,719,461 $7,231,817
========== ========== ==========
The Company has retained substantially all of the risks and benefits of
the Property and accounts for its leases as operating leases. Rental
income from leases, which includes rent concessions (including free rent
and tenant improvement allowances) and scheduled increases in rental rates
during the lease term, is recognized on a straight-line basis. The Company
does not have any percentage rent arrangements with its tenants.
Reimbursable costs are included in rental income in the period earned.
4. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
5. CONCENTRATIONS OF RISKS:
For the years ended December 31, 2003, 2002, and 2001, rental income was
from three lessees. As such, future receipts are dependent upon the
financial strength of these lessees and their ability to perform under the
lease agreements.
F-16
FSP COLLINS CROSSING CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
6. LEASES:
The Company, as lessor, has minimum future rentals due under
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 6,701,000
2005 6,947,000
2006 6,036,000
2007 5,811,000
2008 5,811,000
Thereafter 8,688,000
------------
$ 39,994,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
7. ALLOCATION:
Allocation of the statements of revenue over certain operating expenses by
Property owner, is as follows:
For the period For the period
January 1, 2003 to March 3, 2003 to Total
March 2, 2003 December 31, 2003 2003
------------- ----------------- ----------
Revenue
Rental income $1,347,445 $6,463,442 $7,810,887
---------- ---------- ----------
1,347,445 6,463,442 7,810,887
---------- ---------- ----------
Certain operating expenses
Taxes and insurance 156,372 759,981 916,353
Management fees 24,885 186,841 211,726
Administrative 18,688 83,442 102,130
Operating and maintenance 275,996 1,116,636 1,392,632
---------- ---------- ----------
475,941 2,146,900 2,622,841
---------- ---------- ----------
Excess of revenue over certain
operating expenses $ 871,504 $4,316,542 $5,188,046
========== ========== ==========
F-17
FSP COLLINS CROSSING CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
8. CASH DISTRIBUTION:
The Company declared and paid dividends as follows:
Taxable Income Return of Capital
Years Cash Dividends / per share / per share
----- -------------- ----------- -----------
2003 $ 2,018,218 $ $ 3,636
2002 N/A N/A N/A
2001 N/A N/A N/A
F-18
FSP MONTAGUE BUSINESS CENTER CORP.
JUNE 30, 2004 AND 2003
CONTENTS
PAGE
Statements of revenue over certain operating expenses F-20
Notes accompanying the statements of revenue over certain
operating expenses F-21
F-19
FSP MONTAGUE BUSINESS CENTER CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(unaudited)
2004 2003
---------- ----------
Revenue
Rental income $2,295,842 $2,429,337
---------- ----------
2,295,842 2,429,337
---------- ----------
Certain operating expenses
Taxes and insurance 139,807 172,551
Management fees 68,104 67,955
Administrative 6,827 20,708
Operating and maintenance 55,920 85,432
---------- ----------
270,658 346,646
---------- ----------
Excess of revenue over certain operating expenses $2,025,184 $2,082,691
========== ==========
The accompanying notes are an integral part of these financial statements
F-20
FSP MONTAGUE BUSINESS CENTER CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
(unaudited)
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a commercial building located
in San Jose, California (the "Property"). The Property consists of two
adjacent single-story Class "A" suburban office buildings containing
145,951 square feet located on 9.95 acres of land. The Property was owned
by Teacher's Insurance and Annuity Association of America and TlAA Realty,
Inc. and sold to FSP Montague Business Center Corp (the "Company") on
August 27, 2002.
2. BASIS OF ACCOUNTING:
The accompanying statements have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to future operations of the Property.
3. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. CONCENTRATIONS OF RISKS:
For the six months ended June 30, 2004, and 2003, rental income was from
various lessees. As such, future receipts are dependent upon the financial
strength of the lessees and their ability to perform under the lease
agreements.
5. LEASES:
The Company, as lessor, has minimum future rentals due under
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 1,991,000
2005 4,174,000
2006 4,390,000
------------
$ 10,555,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
F-21
FSP MONTAGUE BUSINESS
CENTER CORP.
DECEMBER 31, 2003, 2002 AND 2001
CONTENTS
PAGE
Independent auditors' report F-23
Statements of revenue over certain operating expenses F-24
Notes accompanying the statements of revenue over certain
operating expenses F-25
F-22
[LETTERHEAD OF BRAVER AND COMPANY, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Stockholders
FSP Montague Business Center Corp.
We have audited the accompanying statements of revenue over certain operating
expenses (the "Statement") of FSP Montague Business Center Corp. for the years
ended December 31, 2003, 2002 and 2001. These Statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these Statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the Statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall Statements'
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Statements were prepared to comply with the requirements of
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission, and
exclude certain expenses described in Note 2 and, therefore, are not intended to
be a complete presentation of the Property's revenue and expenses.
In our opinion, these Statements referred to above present fairly, in all
material respects, the revenue over certain operating expenses (as described in
Note 2) of FSP Montague Business Center Corp. for the years ended December 31,
2003, 2002 and 2001, in conformity with the basis of accounting described in
Note 2.
/s/ Braver and Company, P.C.
Newton, Massachusetts
February 28, 2004
F-23
FSP MONTAGUE BUSINESS CENTER CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
---------- ---------- ----------
(3) (2) (1)
Revenue:
Rental income $4,807,583 $4,362,159 $3,822,325
---------- ---------- ----------
4,807,583 4,362,159 3,822,325
---------- ---------- ----------
Certain operating expenses (Note 2):
Taxes and insurance 338,516 200,690 223,859
Management fees 136,176 85,731 81,426
Administrative 34,697 35,803 4,169
Operating and maintenance 143,863 90,070 115,926
---------- ---------- ----------
653,252 412,294 425,380
---------- ---------- ----------
Excess of revenue over certain operating expenses $4,154,331 $3,949,865 $3,396,945
========== ========== ==========
Property Owner:
3 - FSP Montague Business Center Corp.
2 - January 1, 2002 to August 26, 2002 - Teachers Insurance and Annuity
Association of America August 27, 2002 to December 31, 2002 - FSP
Montague Business Center Corp.
1 - Teachers Insurance and Annuity Association of America
The accompanying notes are an integral part of these financial statements
F-24
FSP MONTAGUE BUSINESS CENTER CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a commercial building located
in San Jose, California (the "Property"). The Property consists of two
adjacent single-story Class "A" suburban office buildings containing
145,951 square feet located on 9.95 acres of land. The Property was owned
by Teacher's Insurance and Annuity Association of America and TIAA Realty,
Inc. and sold to FSP Montague Business Center Corp (the "Company") on
August 27, 2002.
2. BASIS OF ACCOUNTING:
The accompanying statements have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to future operations of the Property.
3. REVENUE RECOGNITION:
Rental revenue includes income from leases, certain reimbursable expenses,
straight-line rent adjustments and other income associated with renting
the property. A summary of rental revenue is shown in the following table:
Year Ended December 31,
2003 2002 2001
---------- ---------- ----------
Income from leases $3,788,888 $3,472,106 $2,731,934
Straight-line rent adjustment 262,263 375,540 679,196
Reimbursable expenses 745,269 503,350 411,195
Other income 11,163 11,163 --
---------- ---------- ----------
Total $4,807,583 $4,362,159 $3,822,325
========== ========== ==========
The Company has retained substantially all of the risks and benefits of
the Property and accounts for its leases as operating leases. Rental
income from leases, which includes rent concessions (including free rent
and tenant improvement allowances) and scheduled increases in rental rates
during the lease term, is recognized on a straight-line basis. The Company
does not have any percentage rent arrangements with its tenants.
Reimbursable costs are included in rental income in the period earned.
4. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
5. CONCENTRATIONS OF RISKS:
For the years ended December 31, 2003, 2002, and 2001, rental income was
from various lessees. As such, future receipts are dependent upon the
financial strength of the lessees and their ability to perform under the
lease agreements.
F-25
FSP MONTAGUE BUSINESS CENTER CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
6. LEASES:
The Company, as lessor, has minimum future rentals due under
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 3,982,000
2005 4,174,000
2006 4,390,000
------------
$ 12,546,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
7. ALLOCATION:
Allocation of the statements of revenue over certain operating expenses by
Property owner, is as follows:
For the period For the period
January 1, 2002 to August 27, 2002 to Total
August 26, 2002 December 31, 2002 2002
--------------- ----------------- ----------
Revenue
Rental income $2,772,694 $1,589,465 $4,362,159
---------- ---------- ----------
2,772,694 1,589,465 4,362,159
---------- ---------- ----------
Certain operating expenses
Taxes and insurance 117,594 83,096 200,690
Management fees 44,055 41,676 85,731
Administrative 11,095 24,708 35,803
Operating and maintenance 60,751 29,319 90,070
---------- ---------- ----------
233,495 178,799 412,294
---------- ---------- ----------
Excess of revenue over certain
operating expenses $2,539,199 $1,410,666 $3,949,865
========== ========== ==========
F-26
FSP MONTAGUE BUSINESS CENTER CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
8. CASH DISTRIBUTION:
The Company declared and paid dividends as follows:
Taxable Income Return of Capital
Years Cash Dividends / per share / per share
----- -------------- ----------- -----------
2003 $ 3,713,746 $ 11,119 $ --
2002 287,490 861
2001 N/A N/A N/A
F-27
FSP ROYAL RIDGE CORP.
JUNE 30, 2004 AND 2003
CONTENTS
PAGE
Statements of revenue over certain operating expenses F-29
Notes accompanying the statements of revenue over certain
operating expenses F-30
F-28
FSP ROYAL RIDGE CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(unaudited)
2004 2003
---------- --------
(1)
Revenue
Rental income $1,749,600 $590,491
---------- --------
1,749,600 590,491
---------- --------
Certain operating expenses
Taxes and insurance 163,900 147,830
Management fees 68,027 5,509
Administrative 9,361 2,035
Operating and maintenance 329,538 265,656
---------- --------
570,826 421,030
---------- --------
Excess of revenue over certain operating expenses $1,178,774 $169,461
========== ========
Property Owner:
1 - January 1, 2003, to January 29, 2003 - CK Royal 400, LLC
1 - January 30, 2003, to December 31, 2003 - FSP Royal Ridge Corp.
The accompanying notes are an integral part of these financial statements
F-29
FSP ROYAL RIDGE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
(unaudited)
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a commercial building located
in Alpharetta, Georgia (the "Property"). The Property is a recently
constructed six-story Class "A" institutional quality suburban office
tower containing approximately 161,366 square feet of rentable space
completed in December 2001. The Property was owned by CK Royal 400, LLC
and sold to FSP Royal Ridge Corp. (the "Company") on January 30, 2003.
2. BASIS OF ACCOUNTING:
The accompanying Statement have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to future operations of the Property.
3. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. CONCENTRATIONS OF RISKS:
For the six months ended June 30, 2004, and 2003, rental income was
received from three lessees. As such, future receipts are dependent upon
the financial strength of these lessees and their ability to perform under
the lease agreements.
5. LEASES:
The Company, as lessor, has minimum future rentals due under
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 1,012,000
2005 2,040,000
2006 2,071,000
2007 2,123,000
2008 2,176,000
Thereafter 6,750,000
------------
$ 16,172,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
F-30
FSP ROYAL RIDGE CORP.
DECEMBER 31, 2003 AND 2002
CONTENTS
PAGE
Independent auditors' report F-32
Statements of revenue over certain operating expenses F-33
Notes accompanying the statements of revenue over certain
operating expenses F-34
F-31
[LETTERHEAD OF BRAVER AND COMPANY, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Stockholders
FSP Royal Ridge Corp.
We have audited the accompanying statements of revenue over certain operating
expenses (the "Statements") of FSP Royal Ridge Corp. for the years ended
December 31, 2003 and 2002. These Statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
Statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the Statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall Statements'
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Statements were prepared to comply with the requirements of
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission, and
exclude certain expenses described in Note 2 and, therefore, are not intended to
be a complete presentation of the Property's revenue and expenses.
In our opinion, these Statements referred to above present fairly, in all
material respects, the revenue over certain operating expenses (as described in
Note 2) of FSP Royal Ridge Corp. for the years ended December 31, 2003 and 2002,
in conformity with the basis of accounting described in Note 2.
/s/ Braver and Company, P.C.
Newton, Massachusetts
February 28, 2004
F-32
FSP ROYAL RIDGE CORP.
STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---------- ---------
(2) (1)
Revenue
Rental income $2,693,318 $ 3,084
---------- ---------
2,693,318 3,084
---------- ---------
Certain operating expenses
Taxes and insurance 273,948 184,096
Management fees 73,071 33,212
Administrative 108,814 62,264
Operating and maintenance 649,604 526,358
---------- ---------
1,105,437 805,930
---------- ---------
Excess of revenue (deficit) over certain
operating expenses $1,587,881 $(802,846)
========== =========
Property Owner:
2 - January 1, 2003, to January 29, 2003 - CK Royal 400, LLC
2 - January 30, 2003, to December 31, 2003 - FSP Royal Ridge Corp.
1 - CK Royal 400, LLC
The accompanying notes are an integral part of these financial statements
F-33
FSP ROYAL RIDGE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
1. DESCRIPTION OF THE PROPERTY:
The accompanying statements of revenue over certain operating expenses
(the "Statements") include the operations of a commercial building located
in Alpharetta, Georgia (the "Property"). The Property is a recently
constructed six-story Class "A" institutional quality suburban office
tower containing approximately 161,366 square feet of rentable space
completed in December 2001. The Property was owned by CK Royal 400, LLC
and sold to FSP Royal Ridge Corp. (the "Company") on January 30, 2003.
2. BASIS OF ACCOUNTING:
The accompanying Statement have been prepared on the accrual basis of
accounting. The Statements have been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real
estate properties acquired or to be acquired. Accordingly, these
Statements exclude certain historical expenses not comparable to the
operations of the Property after acquisition such as amortization,
depreciation, interest, corporate expenses and certain other costs not
directly related to future operations of the Property.
3. REVENUE RECOGNITION:
Rental revenue includes income from leases, certain reimbursable expenses,
and straight-line rent adjustments associated with renting the property. A
summary of rental revenue is shown in the following table:
Year Ended December 31,
2003 2002
---------- ----------
Income from leases $1,152,591 $ --
Straight-line rent adjustment 954,172 --
Reimbursable expenses 586,555 3,084
---------- ----------
Total $2,693,318 $ 3,084
========== ==========
The Company has retained substantially all of the risks and benefits of
the Property and accounts for its leases as operating leases. Rental
income from leases, which includes rent concessions (including free rent
and tenant improvement allowances) and scheduled increases in rental rates
during the lease term, is recognized on a straight-line basis. The Company
does not have any percentage rent arrangements with its tenants.
Reimbursable costs are included in rental income in the period earned.
4. USE OF ESTIMATES:
The preparation of the Statements in conformity with the basis of
accounting described in Note 2 requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
5. CONCENTRATIONS OF RISKS:
For the years ended December 31, 2003, and 2002, rental income was
received from three lessees. As such, future receipts are dependent upon
the financial strength of these lessees and their ability to perform under
the lease agreements.
F-34
FSP ROYAL RIDGE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
6. LEASES:
The Company, as lessor, has minimum future rentals due under
noncancellable operating leases as follows:
Year Ending
December 31, Amount
------------ ------------
2004 $ 2,198,000
2005 2,040,000
2006 2,071,000
2007 2,123,000
2008 2,176,000
Thereafter 6,750,000
------------
$ 17,358,000
============
In addition, the lessees are liable for real estate taxes and operating
expenses as direct expenses to the lessees.
7. ALLOCATION:
Allocation of the statements of revenue over certain operating expenses by
Property owner, is as follows:
For the period For the period
January 1, 2003 to January 30, 2003 to Total
January 29, 2003 December 31, 2003 2003
---------------- ----------------- -----------
Revenue
Rental income $ 1,195 $ 2,692,123 $ 2,693,318
----------- ----------- -----------
1,195 2,692,123 2,693,318
----------- ----------- -----------
Certain operating expenses
Taxes and insurance 19,046 254,902 273,948
Management fees 2,652 70,419 73,071
Administrative 4,736 104,078 108,814
Operating and maintenance 87,616 561,988 649,604
----------- ----------- -----------
114,050 991,387 1,105,437
----------- ----------- -----------
(Deficit) excess of revenue over
certain operating expenses $ (112,855) $ 1,700,736 $ 1,587,881
=========== =========== ===========
F-35
FSP ROYAL RIDGE CORP.
NOTES ACCOMPANYING THE STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES
8. CASH DISTRIBUTION:
The Company declared and paid dividends as follows:
Taxable Income Return of Capital
Years Cash Dividends / per share / per share
----- -------------- ----------- -----------
2003 $ 1,375,196 $ $ 4,623
2002 N/A N/A N/A
F-36
FSP Corp. Unaudited Condensed Consolidated Pro Forma Financial Statements
Overview .................................................................. F-38
Unaudited Condensed Consolidated Pro Forma Balance Sheet at
June 30, 2004 ........................................................... F-39
Unaudited Condensed Consolidated Pro Forma Statement of Income
for six months ended June 30, 2004 ...................................... F-40
Unaudited Condensed Consolidated Pro Forma Statement of Income
for the year ended December 31, 2003 .................................... F-41
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements .. F-42
F-37
Overview
The following unaudited pro forma financial information has been prepared
based upon certain pro forma adjustments to the historical consolidated
financial statements of FSP Corp. The pro forma consolidated balance sheets have
been presented as if the mergers occurred as of June 30, 2004. The pro forma
consolidated statements of income for the six months ended June 30, 2004 and for
the year ended December 31, 2003 and the consolidated pro forma statements of
cash flow for the six months ended June 30, 2004 and December 31, 2003 are
presented as if the mergers occurred at the beginning of the period presented.
The unaudited pro forma consolidated financial statement data are not
necessarily indicative of what the company's actual financial position or
results of operations would have been as of the date or for the period
indicated, nor do they purport to represent the company's financial position or
results of operations as of or for any future period. The unaudited pro forma
consolidated financial statement data should be read in conjunction with the
financial statements and pro forma financial statements included in this Form
8-K, and FSP Corp.'s Annual Report on Form 10-K for the year ended December 31,
2003 and FSP Corp.'s Quarterly Report on Form 10-Q for the quarterly period
ending June 30, 2004.
F-38
Franklin Street Properties Corp.
Condensed Consolidated Pro Forma Balance Sheets
June 30, 2004
(Unaudited)
Historical Purchase of
(in thousands) (FSP Corp.) Target REITs Adjustments Pro Forma
-----------------------------------------------------------------------------------------------------------------------
Assets:
Real estate assets, net $ 444,508 $ 135,185(d) $ 500(c)(d) $ 580,193
Acquired favorable leases, net -- 9,571(d) -- 9,571
Acquired lease origination costs, net 6,898 4,319(d) -- 11,217
Cash and cash equivalents 59,000 6,664(d) (500)(c) 65,164
Restricted cash 1,028 -- -- 1,028
Tenant rents receivable, net 630 -- -- 630
Straight line rents receivable, net 4,941 -- -- 4,941
Prepaid expenses 1,007 -- -- 1,007
Investment in non-consolidated REITs 4,301 -- -- 4,301
Deferred leasing commissions, net 1,082 -- -- 1,082
Office computers and equipment, net 431 -- -- 431
-----------------------------------------------------------------------------------------------------------------------
Total assets $ 523,826 $ 155,739 $ -- $ 679,565
=======================================================================================================================
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued expenses $ 7,982 $ -- $ -- $ 7,982
Accrued compensation 1,817 -- -- 1,817
Tenant security deposits 1,028 -- -- 1,028
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 10,827 -- -- 10,827
-----------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred Stock -- -- -- --
Common Stock 5 1(i) -- 6
Additional paid-- in capital 512,813 155,738(i) -- 668,551
Retained earnings (distributions in excess
of earnings) (225) -- -- (225)
Accumulated undistributed net realized
gain on sale of properties 406 -- -- 406
-----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 512,999 155,739 -- 668,738
-----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 523,826 $ 155,739 $ -- $ 679,565
=======================================================================================================================
See accompanying notes to condensed consolidated pro forma financial statements.
F-39
Franklin Street Properties Corp.
Condensed Consolidated Pro Forma Statements of Income
For the six months ended
June 30, 2004
(Unaudited)
Historical
(in thousands, except per share amounts) (FSP Corp.) Target REITs (l) Adjustments Pro Forma
----------------------------------------------------------------------------------------------------------------
Revenue:
Rental income $ 35,067 $12,690 $ (1,080)(d) $ 46,677
Syndication fees 8,448 -- -- 8,448
Transaction fees 8,742 -- -- 8,742
Sponsored REIT income 2,334 -- -- 2,334
Other 742 -- (118)(e) 624
---------------------------------------------------------------------------------------------------------------
Total revenue 55,333 12,690 (1,198) 66,825
---------------------------------------------------------------------------------------------------------------
Expenses:
Real estate operating expenses 6,771 2,252 (118)(e) 8,905
Real estate taxes and insurance 4,567 1,465 -- 6,032
Depreciation and amortization 6,697 -- 1,500(e) 8,662
465(e)
Sponsored REIT expenses 1,678 -- -- 1,678
Selling, general and administrative 3,132 -- 420(b) 3,552
Commissions 4,287 -- -- 4,287
Shares issued as compensation 162 -- -- 162
Interest 517 -- -- 517
---------------------------------------------------------------------------------------------------------------
Total expenses 27,811 3,717 2,267 33,795
---------------------------------------------------------------------------------------------------------------
Income(loss) before interest, taxes and
discontinued operations, 27,522 8,973 (3,465) 33,030
Interest income 349 -- -- 349
Taxes on income (a)(b) (976) -- -- (976)
---------------------------------------------------------------------------------------------------------------
Net income $ 26,895 $ 8,973 $ (3,465) $ 32,403
===============================================================================================================
Weighted average shares outstanding,
basic and diluted 49,627 -- 10,895(i) 60,522
===============================================================================================================
Net income per share basic and diluted $ 0.54 $ -- $ -- $ 0.54
===============================================================================================================
See accompanying notes to condensed consolidated pro forma financial statements.
F-40
Franklin Street Properties Corp.
Condensed Consolidated Pro Forma Statements of Income
For the year ended
December 31, 2003
(Unaudited)
2003 Merger
Historical (Pro Forma)
(in thousands, except per share amounts) (FSP Corp.) Target REITs (m) Adjustment (j) Adjustments Pro Forma
-------------------------------------------------------------------------------------------------------------------------------
Revenue:
Rental income $49,789 $23,890 $15,204 $ (2,160)(d) $ 86,723
Syndication fees 14,631 -- -- (5,403)(g) 9,228
Transaction fees 14,745 -- -- (5,558)(g) 9,187
Sponsored REIT income 3,452 -- -- (1,468)(h) 1,984
Other 1,151 -- -- (204)(e) 674
(273)(f)
------------------------------------------------------------------------------------------------------------------------------
Total revenue 83,768 23,890 15,204 (15,066) 107,796
==============================================================================================================================
Expenses:
Real estate operating expenses 10,425 4,635 3,997 (204)(e) 18,853
Real estate taxes and insurance 6,264 2,883 2,667 -- 11,814
Depreciation and amortization 9,265 -- 3,298 3,930(d) 16,493
Sponsored REIT expenses 2,620 -- -- (1,208)(h) 1,412
Selling, general and administrative 5,711 -- -- 420(b) 6,131
Commissions 7,291 -- -- -- 7,291
Interest 1,036 -- -- (264)(g) 772
------------------------------------------------------------------------------------------------------------------------------
Total expenses 42,612 7,518 9,962 2,674 62,766
==============================================================================================================================
Income (loss) before interest, taxes,
discontinued operations and gain
on sales of properties 41,156 16,372 5,242 (17,740) 45,030
Interest income 367 -- 117 -- 484
Taxes on income (a)(b) (1,700) -- -- -- (1,700)
Income from discontinued operations 195 -- -- -- 195
Gain on sale of properties,
net of tax 6,362 -- -- -- 6,362
------------------------------------------------------------------------------------------------------------------------------
Net income $46,380 $16,372 $ 5,359 $(17,740) $ 50,371
==============================================================================================================================
Weighted average shares outstanding,
basic and diluted 39,214 -- 10,416(j) 10,895(j) 60,525
==============================================================================================================================
Basic and diluted net income per share $ 1.18 $ -- $ -- $ -- $ 0.83
==============================================================================================================================
See accompanying notes to condensed consolidated pro forma financial statements.
F-41
Franklin Street Properties Corp.
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The following unaudited pro forma condensed consolidated financial
statement presentation has been prepared based upon certain pro forma
adjustments to the historical consolidated financial statements of FSP Corp. The
pro forma balance sheets are presented as if the mergers occurred as of June 30,
2004. The pro forma statements of income are presented as if the mergers
occurred as of the beginning of the period.
The mergers will be treated as a purchase of assets and each Target REIT's
assets and liabilities will be recorded on FSP Corp.'s books at their fair value
as of the effective date of the mergers.
PRO FORMA ADJUSTMENTS
Certain assumptions regarding the operations of FSP Corp. have been made
in connection with the preparation of the pro forma condensed consolidated
financial information. These assumptions are as follows:
(a) FSP Corp. and each of the Target REITs have elected to be, and are
qualified as, a real estate investment trust for federal income tax
purposes. Each entity has met the various required tests; therefore,
no provision for federal or state income taxes have been reflected
on real estate operations.
(b) FSP Corp. has subsidiaries which are not in the business of real
estate operations. Those subsidiaries are taxable as real estate
investment trust subsidiaries (each, a "TRS") and are subject to
income taxes at regular tax rates. The taxes on income shown in the
pro forma statements of operations are the taxes on income incurred
by the TRS. There are no material items that would cause a deferred
tax asset or a deferred tax liability.
F-42
Franklin Street Properties Corp.
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(c) The costs of the mergers to FSP Corp. are estimated at $500,000 and
are reflected as paid as of June 30, 2004 and are capitalized to the
assets acquired.
(d) The cost of the property (including capitalized merger costs of
$500,000) has been allocated to real estate investments, acquired
lease origination costs and acquired favorable leases. Acquired
lease origination costs represent the value associated with
acquiring an in-place lease (i.e. the market cost to execute a
similar lease, including leasing commission, legal, vacancy and
other related costs). Acquired favorable leases represents the value
associated with a lease which has a rental stream with above market
rates. The value assigned to buildings land and to leases
approximates their fair value.
The following schedule shows the allocation of the aggregate cost of
the properties based upon appraised values. Depreciation and
amortization for the Target REITs is based on a preliminary
allocation of the purchase price to real estate investments and to
the leases acquired. The allocation is subject to change as
additional information is obtained. An increase in the allocation to
lease origination costs will result in an increase in amortization
expense. For each $1,000,000 increase in lease origination costs,
the related pro forma amortization expense will increase by
approximately $200,000 per year.
Depreciation and Amortization
for the for the
(in thousands) Life Six months ended Year Ended
Asset Category Amount (years) June 30, 2004 December 31, 2003
-----------------------------------------------------------------------------------------------------
Land $ 18,707 N/A $ -- $ --
Buildings and improvements 116,978 39 1,500 3,000
--------- ------- -------
Real estate investments 135,685 1,500 3,000
--------- ------- -------
Acquired lease origination costs 4,319 3 - 6 465 930
Acquired favorable leases 9,571 3 - 6 1,080 2,160
--------- ------- -------
Total lease costs 13,890 1,545 3,090
--------- ------- -------
Total $ 149,575 $ 3,045 $ 6,090
========= ======= =======
In addition to real estate assets, FSP Corp. is also acquiring
approximately $6,664,000 in cash from the Target REITs. Other assets
and liabilities, net, are expected to be immaterial at the effective
date of the mergers.
(e) Management fees charged by FSP Corp. to the Target REITs have been
eliminated from revenue and expenses as follows.
Six Months Ended Year Ended
June 30, 2004 December 31, 2003
-------------------------------------------------------------
$ 118,000 $ 204,000
F-43
Franklin Street Properties Corp.
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(f) Interest of $273,000 charged by FSP Corp. on loans to the two Target
REITs syndicated in 2003 has been eliminated from revenue and
expenses. See footnote (g) for additional interest expense incurred
during syndications.
(g) Income and expenses directly related to the syndication of two
Target REITs in 2003 have been eliminated. A summary of these items
is as follows:
Revenue directly related to the syndication of two Target REITs in
2003 that is included in FSP Corp.'s financial statements as
follows:
Loan origination fees $ 4,902,000
Other organization costs 656,000
-----------
Total transaction fees $ 5,558,000
Syndication fees, gross $ 6,820,000
Syndication fees, rebates (1,417,000)
-----------
Total syndication fees, net 5,403,000
------------
Total revenue adjustment $ 10,961,000
============
The two Target REITs have accounted for these fees in their
financial statements as follows:
Interest expense $ 4,902,000
Real estate acquisition costs 656,000
-----------
$ 5,558,000
===========
Gross syndication fees recorded as an
offset to additional paid-in capital $ 6,820,000
===========
In connection with the syndication of the two Target REITs in 2003,
FSP Corp. incurred direct expenses of $264,000 relating to interest
expense that is eliminated in the pro forma statement of income.
(h) Represents the elimination of FSP Corp's proportionate share of
Sponsored REIT revenue and expense while the Target REITs were being
syndicated by FSP Corp.
(in thousands) Six Months Ended Year Ended
June 30, 2004 December 31, 2003
------------------------------------------------------------------
Sponsored REIT revenue $ -- $ 1,468
Sponsored REIT expenses -- 1,208
----------- ---------
$ -- $ 260
=========== =========
F-44
Franklin Street Properties Corp.
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(i) Approximately 10,894,994 million shares of FSP common stock, par
value of $0.0001 per share, will be issued in exchange for the
1822.5 outstanding shares of Target REIT preferred Stock in
connection with the mergers.
(j) Represents the revenue and expenses of the 13 sponsored REITs
acquired by FSP Corp. for the period January 1, 2003 to May 31,
2003, the date of acquisition.
For the period
(unadudited) January 1, 2003
(in thousands) to May 31, 2003
---------------
Revenue $ 15,204
Real estate operating expenses (3,997)
Real estate taxes and insurance (2,667)
Deprciation and amortization (3,298)
Interest income 117
---------
Net income $ 5,359
=========
Weighted average shares outstanding are adjusted by approximately
10,416,000 shares which is the impact of the shares assumed to be
issued on January 1, 2003.
(k) The following table summarizes the assets acquired from the Target
REITs as of June 30, 2004.
(in thousands)
Montague Addison Circle Royal Ridge Collins Crossing Total
-------- -------------- ----------- ---------------- ----------
Assets:
Real estate, cost (1) $ 20,000 $ 54,500 $ 26,075 $ 48,500 $ 149,075
Cash 2,035 1,677 967 1,985 6,664
Other assets and liabilities, net -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total assets acquired $ 22,035 $ 56,177 $ 27,042 $ 50,485 $ 155,739
========== ========== ========== ========== ==========
(1) Cost of property at appraised value including land, buildings and
acquired leases.
F-45
Franklin Street Properties Corp.
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(l) The following information represents the historical revenue and
certain operating expenses of the Target REITs for the six months
ended June 30, 2004.
(in thousands)
Montague Addison Circle Royal Ridge Collins Crossing Total
-------- -------------- ----------- ---------------- ----------
Revenue:
Rental $ 2,296 $ 4,720 $ 1,750 $ 3,924 $ 12,690
---------- ---------- ---------- ---------- ----------
Total Revenue 2,296 4,720 1,750 3,924 12,690
---------- ---------- ---------- ---------- ----------
Expenses:
Rental operating expenses 131 805 407 909 2,252
Real estate taxes and insurance 140 683 164 478 1,465
---------- ---------- ---------- ---------- ----------
Total expenses 271 1,488 571 1,387 3,717
---------- ---------- ---------- ---------- ----------
Net income $ 2,025 $ 3,232 $ 1,179 $ 2,537 $ 8,973
========== ========== ========== ========== ==========
(m) The following information represents the historical revenue and
certain operating expenses for the Target REITs for the year ended
December 31, 2003.
(in thousands)
Montague Addison Circle Royal Ridge Collins Crossing Total
-------- -------------- ----------- ---------------- ----------
Revenue:
Rental $ 4,807 $ 8,579 $ 2,693 $ 7,811 $ 23,890
---------- ---------- ---------- ---------- ----------
Total Revenue 4,807 8,579 2,693 7,811 23,890
---------- ---------- ---------- ---------- ----------
Expenses:
Rental operating expenses 314 1,783 831 1,707 4,635
Real estate taxes and insurance 339 1,354 274 916 2,883
---------- ---------- ---------- ---------- ----------
Total expenses 653 3,137 1,105 2,623 7,518
---------- ---------- ---------- ---------- ----------
Net income $ 4,154 $ 5,442 $ 1,588 $ 5,188 $ 16,372
========== ========== ========== ========== ==========
F-46