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UNITED STATES
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 June 30, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to __________.
Commission File Number: 0-32615
Franklin Street Properties Corp.
(Exact name of registrant as specified in its charter)
Maryland 04-3578653
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
401 Edgewater Place, Suite 200
Wakefield, MA 01880-6210
(Address of principal executive offices)
Registrant's telephone number: (781) 557-1300
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES |X| NO |_|
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
YES |X| NO |_|
The number of shares of common stock outstanding as of July 27, 2004 was
49,630,338.
Franklin Street Properties Corp.
Form 10-Q
Quarterly Report
June 30, 2004
Table of Contents
Part I. Financial Information
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2004 and
December 31, 2003...................................... 3
Consolidated Statements of Income for the three and
six months ended June 30, 2004 and 2003................ 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2004 and 2003.................... 5
Notes to Consolidated Financial Statements............. 6-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 16-27
Item 3. Quantitative and Qualitative Disclosures about Market
Risk................................................... 27
Item 4. Controls and Procedures................................ 28
Part II. Other Information
Item 1. Legal Proceedings...................................... 29
Item 2. Changes in Securities and Use of Proceeds.............. 29
Item 3. Defaults upon Senior Securities........................ 29
Item 4. Submission of Matters to a Vote of Security Holders.... 29
Item 5. Other Information...................................... 29
Item 6. Exhibits and Reports on Form 8-K....................... 29
Signatures ....................................................... 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Franklin Street Properties Corp.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
(in thousands, except shares and par value amounts) 2004 2003
=================================================================================================================
Assets:
Real estate investments, at cost:
Land $ 71,236 $ 71,236
Buildings and improvements 403,768 $403,243
Fixtures and equipment 894 889
- -----------------------------------------------------------------------------------------------------------------
475,898 475,368
Less accumulated depreciation 31,390 25,836
- -----------------------------------------------------------------------------------------------------------------
Real estate investments, net 444,508 449,532
Acquired real estate leases, net of accumulated amortization of
$2,605 and $1,539 6,898 7,964
Assets held for syndication -- 4,117
Cash and cash equivalents 59,000 58,793
Restricted cash 1,028 982
Tenant rent receivables, less allowance for doubtful accounts of
$150 and $155, respectively 630 881
Straight-line rent receivables, less allowance for doubtful accounts of
$360 and $360, respectively 4,941 4,087
Prepaid expenses 1,007 806
Investment in non-consolidated REITs 4,301 --
Office computers and furniture, net of accumulated depreciation of
$529 and $473, respectively 431 398
Deferred leasing commissions, net of accumulated amortization of
$725 and $586, respectively 1,082 969
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 523,826 $528,529
=================================================================================================================
Liabilities and Stockholders' Equity:
Liabilities:
Bank note payable $ -- $ 4,117
Accounts payable and accrued expenses 7,982 5,030
Accrued compensation 1,817 1,545
Tenant security deposits 1,028 982
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 10,827 11,674
- -----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.0001 par value, 20,000,000 shares
authorized, none issued or outstanding -- --
Common Stock, $.0001 par value, 180,000,000 shares
authorized, 49,630,338 issued and outstanding 5 5
Additional paid-in capital 512,813 512,797
Retained earnings (distributions in excess of earnings) (225) 3,647
Accumulated undistributed net realized gain on sale of properties 406 406
- -----------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 512,999 516,855
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 523,826 $528,529
=================================================================================================================
See accompanying notes to consolidated financial statements.
3
Franklin Street Properties Corp.
Consolidated Statements of Income
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
(in thousands, except shares and per share amounts) 2004 2003 2004 2003
=============================================================================================================================
Revenue:
Rental $17,022 $ 9,440 $35,067 $14,839
Syndication fees 5,407 2,174 8,448 5,407
Transaction fees 5,193 2,222 8,742 5,437
Sponsored REIT income 709 517 2,334 901
Other 348 289 742 606
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenue 28,679 14,642 55,333 27,190
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Real estate operating expenses 3,472 2,152 6,771 3,585
Real estate taxes and insurance 2,247 1,207 4,567 1,904
Depreciation and amortization 3,497 1,431 6,697 2,261
Sponsored REIT expenses 635 350 1,678 641
Selling, general and administrative 1,606 1,334 3,132 2,732
Commissions 2,767 1,090 4,287 2,706
Shares issued as compensation -- -- 162 --
Interest 253 207 517 538
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 14,477 7,771 27,811 14,367
- -----------------------------------------------------------------------------------------------------------------------------
Income before interest income and taxes on income 14,202 6,871 27,522 12,823
Interest income 122 59 349 108
- -----------------------------------------------------------------------------------------------------------------------------
Income before taxes on income 14,324 6,930 27,871 12,931
Taxes on income 648 196 976 425
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 13,676 6,734 26,895 12,506
Income from discontinued operations -- 49 -- 144
Gain on sale of properties, less applicable income tax -- -- -- 1,421
- -----------------------------------------------------------------------------------------------------------------------------
Net income $13,676 $ 6,783 $26,895 $14,071
=============================================================================================================================
Weighted average number of shares outstanding,
basic and diluted 49,630 32,964 49,627 28,797
=============================================================================================================================
Net income per share, basic and diluted, attributable to:
Continuing operations $ 0.28 $ 0.20 $ 0.54 $ 0.43
Discontinued operations -- -- -- 0.01
Gain on sale of properties, less applicable income tax -- -- -- 0.05
- -----------------------------------------------------------------------------------------------------------------------------
Net income per share, basic and diluted $ 0.28 $ 0.20 $ 0.54 $ 0.49
=============================================================================================================================
See accompanying notes to consolidated financial statements.
4
Franklin Street Properties Corp.
Consolidated Statements of Cash Flows
(Unaudited)
For the
Six Months Ended
June 30,
------------------------
(in thousands) 2004 2003
====================================================================================================================================
Cash flows from operating activities:
Net Income $ 26,895 $ 14,071
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 6,697 2,438
Amortization of above market lease 118 --
Gain on sale of real estate assets -- (1,421)
Equity in earnings from non-consolidated REITs (112) --
Distributions from non-consolidated REITs 59 --
Shares issued as compensation 162 --
Changes in operating assets and liabilities:
Restricted cash (46) 17
Tenant rent receivables, net 251 (35)
Straight-line rents, net (854) 240
Prepaid expenses and other assets, net (201) 338
Accounts payable and accrued expenses 2,952 304
Accrued compensation 272 (17)
Tenant security deposits 46 (553)
Payment of deferred leasing commissions (252) (149)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 35,987 15,233
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash acquired through issuance of common stock in merger transaction -- 23,524
Purchase of real estate assets, office computers and furniture, capitalized merger costs (619) (1,708)
Investment in non-consolidated REITs (4,248) --
Change in deposits on real estate assets -- 841
Sale of assets held for syndication 4,117 --
Proceeds received on sales of real estate assets -- 6,228
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (750) 28,885
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Distibutions to stockholders (30,767) (15,271)
Proceeds from (payments to) bank note payable, net (4,117) 38,122
Purchase of treasury stock (146) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (35,030) 22,851
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 207 66,969
Cash and cash equivalents, beginning of period 58,793 22,316
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 59,000 $ 89,285
===================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 517 $ 538
Income taxes 1,020 585
Non-cash investing and financing activities:
Dividends declared but not paid -- 5,172
Assets acquired through issuance of common stock in merger transaction, net -- 297,648
See accompanying notes to consolidated financial statements.
5
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization, Properties, Basis of Presentation, and Recent Accounting
Pronouncements
Organization
Franklin Street Properties Corp. (together with its subsidiaries, "FSP Corp." or
the "Company", known as Franklin Street Partners Limited Partnership, or the
"Partnership", prior to January 1, 2002) was formed as a Massachusetts limited
partnership on February 4, 1997.
In December 2001, the limited partners of the Partnership approved the
conversion of the Partnership from a partnership into a corporation (the
"Conversion"). The Conversion was effective January 1, 2002, and was
accomplished as a tax-free reorganization by merging the Partnership with and
into a wholly owned subsidiary, Franklin Street Properties Corp., with the
subsidiary as the surviving entity. In 2002, the Company elected to be taxed as
a real estate investment trust ("REIT"). As part of the Conversion, all of the
Partnership's outstanding units were converted on a one-for-one basis into
24,586,249 shares of common stock of the Company. The Conversion was accounted
for as a reorganization of affiliated entities, with assets and liabilities
recorded at their historical costs.
On May 30, 2003, the shareholders of the Company approved the Company's
acquisition by merger of 13 REITs (the "Target REITs"). The mergers were
effective June 1, 2003 and, as a result, the Company issued 25,000,091 shares in
a tax-free exchange for all the outstanding preferred shares of the Target
REITs. The mergers were accounted for as a purchase and the acquired assets and
liabilities were recorded at their fair value.
The Company operates in two business segments: real estate operations and
investment banking/investment services. As part of the Company's real estate
operations segment, FSP Property Management LLC, a wholly owned subsidiary of
the Company, provides asset management and property management services for our
properties and for the Sponsored REITs. As part of the Company's investment
banking/investment services segment, FSP Investments LLC, a wholly owned
subsidiary of the Company, provides real estate investment and broker/dealer
services. FSP Investments' services include: (i) the organization of REIT
entities (the "Sponsored REITs"), which are syndicated through private
placements; (ii) the acquisition of real estate on behalf of the Sponsored
REITs; and (iii) the sale of preferred stock in Sponsored REITs.
As of June 30, 2004, the Company has a non-controlling interest in twelve
Sponsored REITs.
Properties
The following table summarizes the Company's investment in real estate assets,
excluding assets held for syndication:
As of
June 30,
2004 2003
--------- ---------
Residential real estate
Number of properties 4 5
Number of apartments 837 996
Commercial real estate
Number of properties 24 24
Square feet 3,049,357 3,049,357
6
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization, Properties, Basis of Presentation and Recent Accounting
Pronouncements (continued)
Basis of Presentation
The unaudited consolidated financial statements of the Company include all the
accounts of the Company and its wholly and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated. These
financial statements should be read in conjunction with the Company's financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 2003.
The accompanying interim financial statements are unaudited; however, the
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the disclosures
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring matters) necessary for a fair
presentation of the financial statements for these interim periods have been
included.
Certain prior-year balances have been reclassified in order to conform to the
current-year presentation.
Recent Accounting Standards
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities.
In December 2003, the FASB revised FIN 46 with certain modifications and
clarifications. The objective of this interpretation is to provide guidance on
how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A VIE
exists when either the total equity investment at risk is not sufficient to
permit the entity to finance its activities by itself, or the equity investors
lack one of three characteristics associated with owning a controlling financial
interest. Application of this guidance was effective for all enterprises with
VIEs created after January 31, 2003. In December 2003, FASB issued a revised FIN
46 which provided for the deferral of the effective date of the interpretation
to January 1, 2004, for VIEs created prior to January 31, 2003. The adoption of
FIN 46 had no effect on our financial statements.
2. Investment Banking/Investment Services Activity
During the six months ended June 30, 2004, the Company sold on a best efforts
basis, through private placements, the preferred stock in the following
Sponsored REITs:
Date Syndication Gross Proceeds
Sponsored REIT Property Location Completed (in thousands)
---------------------------------------------------------------------------------------------------
FSP Blue Lagoon Drive Corp. Miami, FL January 30, 2004(1) $ 3,925
FSP Eldridge Green Corp. Houston, TX March 25, 2004 45,250
FSP Highland Place I Corp. Englewood, CO May 13, 2004 21,000
FSP Satellite Place Corp. Duluth, GA June 21, 2004 27,700
FSP 1441 Main Street Corp. Columbia, SC July 26, 2004 34,350(2)
---------
Total $ 132,225
=========
1. The syndication of the Blue Lagoon Drive Corp. commenced in the fourth
quarter of 2003.
2. The syndication of FSP 1441 Main Street Corp. was not complete at June 30,
2004. This represents the gross proceeds syndicated as of June 30, 2004.
An additional $2,650,000 was syndicated in July 2004.
Of the $132,225,000 gross proceeds from the sale of preferred stock in Sponsored
REITs, approximately $49,175,000 was syndicated in the three months ended March
31, 2004 and $83,050,000 was syndicated in the three months ended June 30, 2004.
7
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
2. Investment Banking/Investment Services Activity (continued)
The Company has in the past acquired by merger entities similar to the Sponsored
REITs. The Company's business model includes the potential acquisition by merger
in the future of Sponsored REITs. However, the Company has no legal or any other
enforceable obligation to acquire or to offer to acquire any Sponsored REIT. In
addition, any offer (and the related terms and conditions) that might be made in
the future to acquire any Sponsored REIT would require the approval of the
boards of directors of the Company and the Sponsored REIT, the approval of the
shareholders of the Sponsored REIT, and any such acquisition may also require
the approval of the shareholders of the Company.
3. Related Party Transactions and Investments in Non-consolidated Entities
The Company typically purchases and retains a non-controlling common stock
ownership interest in Sponsored REITs that it has organized. These ownership
interests have virtually no economic benefit or risk. In January 2004 the
Company also purchased 49.25 preferred shares or 8.22% of FSP Blue Lagoon Drive
Corp. for $4,248,000 ($4,925,000 less non-recorded commissions of $394,000 and
loan fees of $283,000). At June 30, 2004, December 31, 2003 and June 30, 2003,
the Company had ownership interests in twelve, eight and five Sponsored REITs,
respectively.
Summarized financial information for the Sponsored REITs is as follows:
June 30, December 31,
(unaudited) 2004 2003
--------- -----------
(in thousands)
Balance Sheet Data:
-------------------
Real estate, net $ 376,473 $ 257,700
Other assets 46,045 53,646
Total liabilities (6,783) (18,129)
----------------------------
Shareholders' equity $ 415,735 $ 293,217
============================
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
----------------------------------------------
(in thousands)
Operating Data:
---------------
Rental revenue $ 13,548 $ 6,052 $ 26,554 $ 10,857
Other revenue 124 38 244 76
Operating and maintenance expenses (4,359) (2,141) (8,212) (3,662)
Depreciation and amortization (3,195) (1,504) (6,245) (2,267)
Interest expense and commitment fees (4,918) (3,591) (8,250) (5,597)
----------------------------------------------
Net income (loss) $ 1,200 $(1,146) $ 4,091 $ (593)
==============================================
The Company's proportionate share of revenue and expenses prior to completion of
the syndication from these Sponsored REITs is shown in the following table:
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
----------------------------------------------
(in thousands)
Revenue $ 709 $ 517 $ 2,334 $ 901
Expenses (635) (350) (1,678) (641)
----------------------------------------------
Net income $ 74 $ 167 $ 656 $ 260
==============================================
8
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
3. Related Party Transactions and Investments in Non-consolidated Entities
(continued)
The Company also recognized $112,000 for the six months ended June 30, 2004,
which was the Company's equity in earnings resulting from its interest in
preferred stock of FSP Blue Lagoon Drive Corp. and is included in "Other"
revenue in the Consolidated Statements of Income.
The Company provided syndication and real estate acquisition advisory services
for the Sponsored REITs in 2004 and 2003. For the three months ended June 30,
2004 and 2003, respectively, syndication fees were approximately $5.4 million
and $2.2 million, and transaction fees were approximately $5.1 million and $2.2
million. For the six months ended June 30, 2004 and 2003, respectively,
syndication fees were approximately $8.4 million and $5.4 million, and
transaction fees were approximately $8.7 million and $5.4 million.
Asset management fees charged by the Company to the Sponsored REITs and reported
as revenue by the Company amounted to approximately $140,000 and $149,000 for
the three months ended June 30, 2004 and 2003, respectively, and $255,000 and
$298,000 for the six months ended June 30, 2004 and 2003, respectively, and is
included in "Other" revenue in the Consolidated Statements of Income. Asset
management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days' notice.
4. Bank Note Payable
The Company has a revolving line of credit agreement (the "Loan Agreement") with
a group of banks providing for borrowings at the Company's election of up to
$125,000,000. Borrowings under the Loan Agreement bear interest at either the
bank's base rate or a variable LIBOR rate, as defined. The balance outstanding
was $0 and $4,117,000 as of June 30, 2004 and December 31, 2003, respectively.
The Loan Agreement includes restrictions on property liens and requires
compliance with various financial covenants. Financial covenants include the
maintenance of at least $1,500,000 in operating cash accounts, a minimum
tangible net worth and compliance with various debt and operating income ratios,
as defined in the Loan Agreement. The Company was in compliance with the Loan
Agreement's financial covenants as of June 30, 2004. The Loan Agreement matures
on August 18, 2005.
5. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average number of Company shares outstanding during the period. Diluted net
income per share reflects the potential dilution that could occur if securities
or other contracts to issue shares were exercised or converted into shares.
There were no potential dilutive shares outstanding at or during the periods
ended June 30, 2004 and 2003.
6. Business Segments
The Company operates in two business segments: real estate operations (including
real estate leasing, interim acquisition financing and asset/property
management) and investment banking/investment services (including real estate
acquisition and broker/dealer services). The Company has identified these
segments because this discrete information is the basis upon which management
makes decisions regarding resource allocation and performance assessment. The
accounting policies of the reportable segments are the same as those described
in the "Significant Accounting Policies" set forth in Note 2 to the Company's
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 2003. The Company's segments are located in
the United States of America.
9
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
6. Business Segments (continued)
The Company evaluates the performance of its reportable segments based on Cash
Available for Distribution ("CAD") as management believes that CAD represents
the most accurate measure of the reportable segment's activity and is the basis
for distributions paid to equity holders. The Company defines CAD as: net income
as computed in accordance with accounting principles generally accepted in the
United States of America ("GAAP"); plus certain non-cash items included in the
computation of net income (depreciation and amortization, gain or loss on the
sale of real estate, equity in earnings from non-consolidated REITs net of cash
received, certain non-cash compensation expenses and straight-line rent
adjustments); plus the net proceeds from the sale of land; less capital
expenditures and payments for deferred leasing commissions, plus proceeds from
(payments to) cash reserves established at the acquisition date of the property.
Depreciation and amortization, gain or loss on the sale of real estate, equity
in earnings from non-consolidated REITs net of cash received, non-cash
compensation and straight-line rents are an adjustment to CAD, as these are
non-cash items included in net income. Capital expenditures, payments of
deferred leasing commissions and the proceeds from (payments to) the funded
reserve are an adjustment to CAD, as they represent cash items not reflected in
net income.
The funded reserve represents funds that the Company has set aside in
anticipation of future capital needs. These reserves are typically used for the
payment of capital expenditures, deferred leasing commissions and certain tenant
allowances; however, there are no legal restrictions on their use and they may
be used for any Company purpose.
CAD should not be considered as an alternative to net income (determined in
accordance with GAAP), as an indicator of the Company's financial performance,
nor as an alternative to cash flows from operating activities (determined in
accordance with GAAP), nor as a measure of the Company's liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the Company's
needs. Other real estate companies may define CAD in a different manner. It is
at the Company's discretion to retain a portion of CAD for operational needs. We
believe that in order to facilitate a clear understanding of the results of the
Company, CAD should be examined in connection with net income and cash flows
from operating, investing and financing activities in the consolidated financial
statements.
10
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
6. Business Segments (continued)
Cash Available for Distribution by business segment is as follows (in
thousands):
Investment Banking/
Rental Operations Investment Services Totals
----------------- ------------------- ------
Three Months Ended March 31, 2003
Net Income $ 6,986 $ 302 $ 7,288
Depreciation and amortization 901 30 931
Straight line rent 432 -- 432
Gain on sale of property (1,421) -- (1,421)
Capital expenditures (183) -- (183)
Payment of deferred leasing costs (53) -- (53)
Proceeds from funded reserve 191 -- 191
-------- -------- --------
Cash Available for Distribution $ 6,853 $ 332 $ 7,185
======== ======== ========
Three Months Ended June 30, 2003
Net Income $ 6,474 $ 309 $ 6,783
Depreciation and amortization 1,530 (23) 1,507
Straight line rent 208 -- 208
Capital expenditures and capitalized merger costs (1,525) -- (1,525)
Payment of deferred leasing costs (94) -- (94)
Proceeds from funded reserve 615 -- 615
-------- -------- --------
Cash Available for Distribution $ 7,208 $ 286 $ 7,494
======== ======== ========
Six Months Ended June 30, 2003
Net Income 13,460 611 14,071
Depreciation and amortization 2,431 7 2,438
Straight line rent 640 -- 640
Gain on sale of property (1,421) -- (1,421)
Capital expenditures and capitalized merger costs (1,708) -- (1,708)
Payment of deferred leasing costs (147) -- (147)
Proceeds from funded reserve 806 -- 806
-------- -------- --------
Cash Available for Distribution $ 14,061 $ 618 $ 14,679
======== ======== ========
11
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
6. Business Segments (continued)
Cash Available for Distribution by business segment is as follows (in
thousands):
Investment Banking/
Rental Operations Investment Services Totals
----------------- ------------------- ------
Three Months Ended March 31, 2004
Net Income $ 12,739 $ 480 $ 13,219
Depreciation and amortization 3,235 24 3,259
Straight line rent revenue (340) -- (340)
Non-cash compensation expense -- 162 162
Capital expenditures (100) (17) (117)
Payment of deferred leasing costs (151) -- (151)
Equity in earnings from non-consolidated REITs, net of cash received (44) -- (44)
Proceeds from funded reserves 251 -- 251
-------- -------- --------
Cash Available for Distribution $ 15,590 $ 649 $ 16,239
======== ======== ========
Three Months Ended June 30, 2004
Net Income $ 12,780 $ 896 $ 13,676
Depreciation and amortization 3,501 55 3,556
Straight line rent revenue (514) -- (514)
Capital expenditures (430) (72) (502)
Payment of deferred leasing costs (101) -- (101)
Payments to (proceeds from) funded reserve 531 -- 531
Equity in earnings from non-consolidated REITs, net of cash received (9) -- (9)
-------- -------- --------
Cash Available for Distribution $ 15,758 $ 879 $ 16,637
======== ======== ========
Six Months Ended June 30, 2004
Net Income $ 25,519 $ 1,376 $ 26,895
Depreciation and amortization 6,736 79 6,815
Straight line rent revenue (854) -- (854)
Capital expenditures (530) (89) (619)
Payment of deferred leasing costs (252) -- (252)
Payments to (proceeds from) funded reserve 782 -- 782
Non-cash compensation -- 162 162
Equity in earnings from non-consolidated REITs, net of cash received (53) -- (53)
-------- -------- --------
Cash Available for Distribution $ 31,348 $ 1,528 $ 32,876
======== ======== ========
12
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
6. Business Segments (continued)
The following table is a summary of other financial information by business
segment (in thousands):
Investment Banking/
Rental Operations Investment Services Totals
----------------- ------------------- ------
Three Months Ended June 30, 2004:
Revenue $ 22,857 $ 5,822 $ 28,679
Interest Income 117 5 122
Interest Expense 253 -- 253
Capital Expenditures 430 72 502
Total assets at June 30, 2004 $518,313 $ 5,513 $523,826
Three Months Ended June 30, 2003:
Revenue $ 12,107 $ 2,535 $ 14,642
Interest Income 40 19 59
Interest Expense 207 -- 207
Income from discontinued operations 49 -- 49
Capital Expenditures 1,525 -- 1,525
Total assets at June 30, 2003 $565,261 $ 6,083 $571,344
Six Months Ended June 30, 2004:
Revenue $ 45,749 $ 9,584 $ 55,333
Interest Income 328 21 349
Interest Expense -- -- 517
Capital Expenditures 530 89 619
Total assets at June 30, 2004 $518,313 $ 5,513 $523,826
Six Months Ended June 30, 2003:
Revenue $ 21,248 $ 5,942 $ 27,190
Interest Income 68 40 108
Interest Expense 538 -- 538
Income from discontinued operations 144 -- 144
Capital Expenditures 1,708 -- 1,708
Total assets at June 30, 2003 $565,261 $ 6,083 $571,344
13
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
7. Cash Dividends
The Company declared and paid dividends as follows (in thousands, except per
share amounts):
Dividends Per Total
Quarter Paid Share Dividends
---------------------- ------------- ---------
First Quarter of 2004 $0.31 $ 15,382
Second Quarter of 2004 0.31 15,385
--------
$ 30,767
========
8. Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). As a REIT, the Company generally is entitled to a
tax deduction for dividends paid to its shareholders, thereby effectively
subjecting the distributed net income of the Company to taxation at the
shareholder level only. The Company must comply with a variety of restrictions
to maintain its status as a REIT. These restrictions include the type of income
it can earn, the type of assets it can hold, the number of shareholders it can
have and the concentration of their ownership, and the amount of the Company's
income that must be distributed annually.
One such restriction is that the Company generally cannot own more than 10% of
the voting power or value of the securities of any one issuer unless the issuer
is itself a REIT or a "taxable REIT subsidiary" ("TRS"). The Company's ownership
of securities in all TRSs generally cannot exceed 20% of the value of all of the
Company's assets and, when considered together with other non-real estate
assets, cannot exceed 25% of the value of all of the Company's assets. Effective
January 1, 2001, FSP Investments has elected to be treated as a TRS. As a
result, FSP Investments operates as a taxable corporation under the Code and has
accounted for income taxes in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes.
Taxes are provided when FSP Investments has net profits for both financial
statement and income tax purposes.
Income taxes are recorded based on the future tax effects of the difference
between the tax and financial reporting bases of the Company's assets and
liabilities. In estimating future tax consequences, potential future events are
considered except for potential changes in income tax law or in rates.
The income tax expense reflected in the consolidated statement of income relates
only to FSP Investments. The expense differs from the amounts computed by
applying the Federal statutory rate of 35% to income before income taxes as
follows:
For the For the
Six Months Six Months
Ended Ended
(in thousands) June 30, 2004 June 30, 2003
------------- -------------
Federal income tax expense at statutory rate $ 823 $ 362
Increase in taxes resulting from:
State income taxes, net of federal impact 145 63
Other 8 --
------------- -------------
$ 976 $ 425
============= =============
No deferred income taxes were provided as there were no material temporary
differences between the financial reporting basis and the tax basis of FSP
Investments.
14
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
9. Merger Transactions
On June 1, 2003, the Company issued approximately 25 million shares of common
stock, $0.0001 par value per share in exchange for all of the outstanding
preferred stock of 13 Sponsored REITs it acquired by merger. The results of
operations for each of the Sponsored REITs have been included in the Company's
consolidated financial statements since that date. The merger transactions were
structured as exchanges of shares and no cash was involved.
The aggregate purchase price was approximately $321 million. On the acquisition
date, for each Sponsored REIT, the increase between the appraised value of the
property and the historical cost of the property was allocated to real estate
investments and leases, including lease origination costs. 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). The value assigned to buildings approximates
their replacement cost; the value assigned to land approximates its appraised
value; and the value assigned to leases approximates their fair value. Other
assets and liabilities are recorded at their historical costs, which
approximates fair value.
Pro forma operating results for the Company and the 13 Sponsored REITs the
Company acquired during 2003 are shown in the following table. The results
assume that the mergers occurred and the shares of the Company's stock were
issued on January 1, 2003 and are not necessarily indicative of what the
Company's actual financial position or results of operations would have been for
the period indicated, nor do they purport to represent the results of operations
for any future period.
For the
Six Months Ended
June 30, 2003
----------------
Revenues $ 46,418
Expenses (25,271)
Interest income 224
Taxes on income (425)
---------
Net income from continuing operations 20,946
Income from discontinued operations 1,432
---------
Net income $ 22,378
=========
Weighted average shares outstanding 49,630
=========
Net income per share $ 0.45
=========
10. Subsequent Events
The Company declared a dividend of $0.31 per share on July 30, 2004 to
shareholders of record as of July 30, 2004.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report and in our
Annual Report on Form 10-K for the year ended December 31, 2003. Historical
results and percentage relationships set forth in the Consolidated Statements of
Income contained in the financial statements, including trends which might
appear, should not be taken as necessarily indicative of future operations. This
discussion may also contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. For purposes of these Acts, any
statement that is not a statement of historical fact may be deemed a
forward-looking statement. The forward-looking statements found in this
Quarterly Report on Form 10-Q are based on current judgments and current
knowledge of management, which are subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from those
indicated in such forward-looking statements. Accordingly, readers are cautioned
not to place undue reliance on forward-looking statements. Investors are
cautioned that our forward-looking statements involve risks and uncertainty,
including without limitation, changes in economic conditions in the markets in
which we own properties, expectations with respect to individual properties
owned by us, changes in the demand by investors for investment in Sponsored
REITs, risks of a lessening of demand for the types of real estate owned by us,
changes in government regulations, and expenditures that cannot be anticipated
such as utility rate and usage increases, unanticipated repairs, additional
staffing, insurance increases and real estate tax valuation reassessments. See
the factors set forth below under the caption, "Certain Factors That May Affect
Future Results". Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We will not update any of the
forward-looking statements after the date this quarterly report is filed to
conform them to actual results or to changes in our expectations that occur
after such date, other than as required by law.
Overview
FSP Corp. operates in two business segments: real estate operations and
investment banking/investment services. The real estate operations segment
involves real estate rental operations, leasing, interim acquisition financing
and asset/property management services. The investment banking/investment
services segment involves the provision of real estate investment and
broker/dealer services that include the organization of Sponsored REITs, the
acquisition of real estate on behalf of Sponsored REITs and the syndication of
Sponsored REITs through sale of preferred stock in private placements.
The main factor that affects our real estate operations is the broad economic
market conditions in the United States. These market conditions affect the
occupancy levels and the rent levels on both a national and local level. We have
no influence on the national market conditions. We look to acquire quality
properties in good locations in order to lessen the impact of downturns in the
market and to take advantage of upturns when they occur.
Our investment banking/investment services customers are primarily institutions
and high net-worth individuals. To the extent that the broad capital markets
affect these investors our business is also affected. These investors have many
investment choices. We must continually search for real estate at a price and at
a competitive risk/reward rate of return that meets our customer's risk/reward
profile for providing a stream of income and as a long-term hedge against
inflation.
Critical Accounting Policies
We have certain critical accounting policies that are subject to judgments and
estimates by our management and uncertainties of outcome that affect the
application of these policies. We base our estimates on historical experience
and on various other assumptions we believe to be reasonable under the
circumstances. On an on-going basis, we evaluate our estimates. In the event
estimates or assumptions prove to be different from actual results, adjustments
are made in subsequent periods to reflect more current information. The
accounting policies that we believe are most critical to the understanding of
our financial position and results of operations, and that require significant
management estimates and judgments, are discussed in Item 7, Management's
Discussion and Analysis of Financial Conditions and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2003.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies (continued)
Critical accounting policies are those that have the most impact on the
reporting of our financial condition and results of operations and those
requiring significant judgments and estimates. We believe that our judgments and
assessments are consistently applied and produce financial information that
fairly presents our results of operations.
No changes to our critical accounting policies have occurred since our Annual
Report on Form 10-K for the year ended December 31, 2003 except with respect to
our accounting policy regarding "Ownership of stock in a Sponsored REIT" as
described below. This policy was previously reported on our Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2004.
Ownership of Stock in a Sponsored REIT
We typically purchase and retain a common stock ownership in a Sponsored REIT
following syndication, and earn an ongoing asset and/or property management fee.
Accordingly, transaction fee revenue and our share of the operations of these
Sponsored REITs are not classified as discontinued operations due to our
continuing involvement.
Our investment in non-consolidated REITs represents our investment in the common
and preferred stock in Sponsored REITs. We account for these investments using
the equity method of accounting as we exercise significant influence over, but
do not control, these entities. Under the equity method of accounting we record
our percentage share of net earnings from these investments and our investment
balance of these entities is subsequently adjusted. Equity in the losses of
these entities is not recognized to the extent that the investment balance would
become negative. Dividends are recognized as income after the investment balance
is reduced to zero.
Under the equity method, accounting policy judgments made by the Sponsored REITs
could have a material affect on our net income. Also, if we determine that there
is an other than temporary decline in the fair value of any of these
investments, its investment balance would be written down to fair value and the
amount of the write down would be included in our earnings. In evaluating the
fair value of these investments, we have considered, among other things, the
financial condition and near term prospects of the investment, earnings trends,
asset quality, asset valuation models, and the financial condition and prospects
for its industry. Incorrect assumptions may incorrectly report the carrying
value of the asset and incorrectly report revenue.
Trends and Uncertainties
Real Estate Operations
The portfolio remained 90% leased at the end of the second quarter. No major
leases expired during the quarter, and no new large leases were signed.
Our three Houston area apartments continue to face weakened demand for apartment
units. No major improvement in rents or occupancy is expected in the next
quarter, although an increase in mortgage interest rates could help to increase
the supply of renters versus homebuyers.
During the second quarter of 2004, we continued to see an increase in leasing
activity in the office sector with a slight improvement in occupancy and
absorption rates in some of our markets, but we cannot predict if this leasing
activity will lead to an increase in occupancy in our buildings, which markets
will improve first, or if there will be an increase in rental rates. Some of our
current office vacancy is a result of large corporations shedding excess space
that they acquired as a result of a merger or acquisition, and we expect to see
that trend continue in the next quarter. If we cannot lease the space given back
by those tenants before their leases expire, then our occupancy rates could
decrease. We expect the competition for office tenants that we experienced in
the first half of the year to continue in the third quarter of 2004 and to cause
leasing commissions, tenant improvements, and rent concessions to remain high.
Our utility costs have increased, and we expect our utility costs to follow the
national trends. While many of our leases allow us to pass the increase in
utility costs on to the tenants, not all of our leases allow us to do so. We
also have to pay for the costs if the space becomes vacant. In contrast to
utility costs, we may realize a reduction in real estate taxes at many of our
buildings if the abatements of real estate tax assessments that we have received
as a result of appeals are not offset by increases in tax rates by the local
municipalities.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The following table summarizes property wholly owned by us as of the dates
indicated:
June 30,
----------------------------
2004 2003
Residential:
Number of properties 4 5
Number of apartment units 837 996
Commercial:
Number of properties 24 24
Square footage 3,049,357 3,049,357
Investment Banking/Investment Services
Unlike our real estate operations business, which provides a rental revenue
stream which is ongoing and recurring in nature, our investment
banking/investment services business is transactional in nature. Both the number
of Sponsored REIT syndications completed and the amount of equity raised in 2003
were below our expectations. Syndication business in the first half of 2004 was
also slightly below already reduced expectations. Future business in this area
is unpredictable.
Our property acquisition executives continue to be concerned about high
valuation levels for prime commercial investment real estate in 2004. It appears
that a combination of factors, including relatively low interest rates, a
recovering general economy and increased capital allocation to real estate
assets, is increasing prices on many properties we would have an interest in
acquiring. This general price increase is causing capitalization rates to fall
and prices per square foot to rise. Specifically, our acquisition executives
fear that we will not be able to purchase enough property during the second half
of 2004 at a price acceptable under our investment criteria to grow our overall
investment banking/investment services business for the full year. In the first
half of 2004 investment demand by our client base exceeded our ability to
acquire acceptable properties. If this situation continues into the second half
of the year, lower revenues from this business could reduce the cash available
for distribution to stockholders as dividends. However, the same capital market
forces that are causing higher real estate prices and difficulties in achieving
property acquisition goals are also presenting some appealing opportunities for
the dispositions of certain of our assets. Although our general intention is to
hold our properties for long-term appreciation, if opportunities present
themselves that are sufficiently attractive, we may take advantage of the
current market environment in 2004 and sell certain selected real estate assets.
The sale of these assets could generate cash gains available for distribution to
shareholders as dividends.
We continue to rely solely on our in-house investment executives to access
interested investors who have capital they can afford to place in an illiquid
position for an indefinite period of time (i.e., invest in a Sponsored REIT).
While we continue to expand our in-house sales force, uncertainties always exist
as to whether we are capable, either through our existing client base or through
new clients, of raising the amount of capital invested in Sponsored REITs to
achieve future performance objectives.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations
The following table shows variance in dollars for the three and six months ended
June 30, 2004 and 2003:
Variance Variance
For the three For the six
(in thousands) months ended months ended
June 30, June 30,
2004 and 2003 2004 and 2003
------------- -------------
Revenue
Rental operations
Rental income $ 7,582 $ 20,228
Transaction income 2,918 2,705
Sponsored REIT income 192 1,433
Other 59 136
-------- --------
Total rental operations 10,751 24,502
-------- --------
Investment banking/investment services
Syndication fees 3,233 3,041
Transaction fees 53 600
-------- --------
Total investment banking/investment services revenue 3,286 3,641
-------- --------
Total revenue 14,037 28,143
-------- --------
Expenses
Rental operations
Rental operating expenses 1,320 3,186
Real estate taxes and insurance 1,040 2,663
Depreciation and amortization 1,988 4,364
Sponsored REIT expense 285 1,037
Selling, general and administrative (207) (92)
Interest Expense 46 (21)
-------- --------
Total rental operations 4,472 11,137
-------- --------
Investment banking/investment services
Selling, general and administrative 479 492
Commission expense 1,677 1,581
Depreciation and amortization 78 72
Shares issued as compensation -- 162
-------- --------
Total investment banking/investment services 2,234 2,307
-------- --------
Total expenses 6,706 13,444
-------- --------
Income before interest income and taxes on income 7,331 14,699
Interest income 63 241
Taxes on income 452 551
-------- --------
Income from continuing operations 6,942 14,389
Income from discontinued operations (49) (144)
Gain on sale of real estate from discontinued operations -- (1,421)
-------- --------
Net income $ 6,893 $ 12,824
======== ========
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Comparison of the three months ended June 30, 2004 to the three months ended
June 30, 2003:
We completed the syndication of two Sponsored REITs and substantially completed
the syndication of a third Sponsored REIT in the three months ended June 30,
2004. The aggregate proceeds from the syndication of these three Sponsored REITs
was $83.0 million, an increase of $50.6 million compared to the gross proceeds
of $32.4 million in the comparable period in 2003 from the partial syndication
of one Sponsored REIT.
On June 1, 2003 we completed the acquisition by merger of 13 Sponsored REITs.
This merger more than doubled the size of our real estate operations. The
results of operations for these 13 properties are included in our operating
results for three months in 2004 compared to one month in 2003. We operated 28
properties for the three-month period ended June 30, 2004, and 15 properties for
two months, and 28 properties for one month, in the comparable period of 2003.
Increases in rental revenues and expenses for the three months ended June 30,
2004 as compared to the three months ended June 30, 2003 are primarily a result
of this merger. The results of operations for the two properties that were sold
in 2003 have been classified as discontinued operations.
Revenue
Total revenues increased $14.0 million, or 96%, to $28.7 million for the three
months ended June 30, 2004, as compared to $14.6 million for the comparable
period in 2003.
Income from rental operations was $22.9 million for the three months ended June
30, 2004, an increase of $10.7 million, or 89%, compared to the three months
ended June 30, 2003. The increase is attributable to:
o An increase in rental revenue $7.6 million of which $7.4 million relates
to the 13 properties acquired by the Company in June 2003;
o An increase in transaction fees of $2.9 million as a result of increased
syndication activity; and
o Sponsored REIT income of $0.2 million as a result of increased syndication
activity.
Investment banking/investment services revenue was $5.8 million for the three
months ended June 30, 2004, an increase of $3.3 million, or 130%, compared to
the three months ended June 30, 2003. The increase is attributable to the
increase in syndication activity.
Expenses
Total expenses were $14.4 million for the three months ended June 30, 2004, an
increase of $6.7 million, or 86%, compared to the three months ended June 30,
2003.
Expenses for rental operations were $10.2 million for the three months ended
June 30, 2004, a net increase of $4.5 million, or 78%, compared to the three
months ended June 30, 2003. The increase is attributable to:
o Rental operation expenses aggregating $4.5 million for the 13 properties
acquired by the Company in June, 2003;
o An increase of $0.3 million of Sponsored REIT expenses as a result of
increased syndication activity
o These expenses were offset by a decrease in selling, general and
administrative expenses of $0.2 million relating to certain professional
fees incurred in 2003 but did not occur in 2004.
Expenses for investment banking services were $4.3 million for the three months
ended June 30, 2004, an increase of $2.2 million, or 109%, compared to the three
months ended June 30, 2003. The increase is attributable to:
o An increase of $1.7 million of commission expenses relating to increased
syndication activity;
o An increase of $0.5 million in selling, general and administrative
expenses of which $0.2 million relates to an investor relations consulting
project; and $0.3 million relates to a general increase in overhead costs
resulting from increased personnel and occupancy costs;
Interest income for the three month period ended June 30, 2004 was consistent
with the comparable period of 2003.
Taxes on income increased $0.5 million as a result of increased syndication
activity. The tax rate was consistent with the comparable period of 2003.
20
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Comparison of the six months ended June 30, 2004 to the six months ended June
30, 2003:
We completed the syndication of four Sponsored REITs and substantially completed
the syndication of a fifth Sponsored REIT in the six months ended June 30, 2004.
The total proceeds from the syndication of these five Sponsored REITs was $132.2
million, an increase of $46.9 million compared to total gross proceeds of $85.3
million in the comparable period in 2003 from the syndication of two Sponsored
REITs.
The results of operations for the 13 properties acquired in 2003 are included in
our operating results for six months in 2004 compared to one month in 2003. We
operated 28 properties for the six-month period ended June 30, 2004, and 15
properties for five months, and 28 properties for one month, in the comparable
period of 2003. Increases in rental revenues and expenses in the six months
ended June 30, 2004 are primarily a result of this merger. The results of
operations for the two properties that were sold in 2003 have been classified as
discontinued operations.
Revenue
Total revenue increased $28.1 million, or 103%, to $55.3 million for the six
months ended June 30, 2004, as compared to $27.2 million for the comparable
period in 2003.
Revenue from rental operations was $45.7 million for the six months ended June
30, 2004, an increase of $24.5 million, or 115%, compared to the six months
ended June 30, 2003. The increase is attributable to:
o An increase in rental revenue of $20.2 million, of which $19.9 million
relates to the 13 properties acquired by the Company in June 2003. This
includes a lease termination fee of approximately $1.2 million paid by a
tenant;
o An increase in transaction income of $2.7 million and sponsored REIT
income of $1.4 million, both as a result of our increased syndication
activity in 2004; and
o An increase in other revenue of $0.1 million primarily representing our
proportionate share of income from FSP Blue Lagoon Drive Corp. in which we
acquired an interest in preferred stock in January 2003.
Investment banking/investment services revenue was $9.6 million for the six
months ended June 30, 2004; an increase of $3.6 million, or 61%, compared to the
six months ended June 30, 2003. The increase is attributable to the increase in
gross syndication proceeds as discussed above.
Expenses
Total expenses were $27.8 million for the six months ended June 30, 2004, an
increase of $13.4 million, or 94%, compared to the six months ended June 30,
2003.
Expenses for rental operations were $20.6 million for the six months ended June
30, 2004, a net increase of $11.1 million, or 118%, compared to the six months
ended June 30, 2003. The increase is attributable to:
o Rental operation expenses aggregating $10.3 million for the 13 properties
acquired by the Company in June, 2003; and
o An increase of $1.0 million of Sponsored REIT expenses as a result of
increased syndication activity.
Expenses for investment banking services were $7.2 million for the six months
ended June 30, 2004, an increase of $2.3 million, or 46%, compared to the six
months ended June 30, 2003. The increase is attributable to:
o An increase of $1.6 million in commissions and broker expenses as a result
of increased syndication activity;
o An increase of $0.1 million in office rents and occupancy expenses as a
result of increasing office space in the third quarter of 2003;
o An increase of $0.2 million relating to a investor relations consulting
project;
o Expenses of $0.2 million as a result of the issuance of shares as
compensation in 2004. No shares were issued in 2003; and
o An aggregate net increase of $0.2 million in other selling, general and
administrative expenses.
Interest income for the six-month period ended June 30, 2004 was consistent with
the comparable period of 2003.
Taxes on income increased $0.6 million as a result of increased syndication
activity. The tax rate was consistent with the comparable period of 2003.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources
Cash and cash equivalents were $59.0 million and $58.8 million at June 30, 2004
and December 31, 2003, respectively. This increase of $0.2 million is
attributable to $36.0 million provided by operating activities; $0.8 million
used for investing activities; and $35.0 million used for financing activities.
Operating Activities
The cash provided by the Company's operating activities of $36.0 million is
primarily attributable to net income of $26.9 million plus the add-back of $6.9
million from non-cash activity, principally consisting of depreciation and
amortization, plus a $2.4 million net change in operating assets and
liabilities, less payments for deferred leasing costs of $0.3 million.
Investing Activities
The Company's cash used for investing activities of $0.8 million is attributable
to $4.1 million in proceeds from the sale of assets held for syndication offset
by $0.6 million used for the purchase of real estate assets, office computers
and furniture, and a $4.2 million investment in non-consolidated REIT.
Financing Activities
The Company's cash used for financing activities of $35.0 million is
attributable to $4.1 million in payments on our line of credit, and $30.8
million of distributions to the Company's shareholders as dividends.
Sources and Uses of Funds
Our principal demands for liquidity are cash for operations, dividends to equity
holders, debt repayments and expenses associated with indebtedness. As of June
30, 2004 we had approximately $10.8 million in liabilities. The Company has no
permanent, long-term debt. In the near term, liquidity is generated from funds
from ongoing real estate operations and transaction fees and commissions
received in connection with the sale of shares in new Sponsored REITs.
Contingencies
We are subject to various legal proceedings and claims that arise in the
ordinary course of its business. Although occasional adverse decisions (or
settlements) may occur, we believe that the final disposition of such matters
will not have a material adverse effect on our financial position or results of
operations.
Assets Held For Syndication
In July 2004 we completed the syndication of FSP 1441 Main Street Corp.
Related Party Transactions
In the three months ended June 30, 2004, we completed the syndication of two
Sponsored REITs and substantially completed the syndication of a third Sponsored
REIT. The Company did not enter into any other significant transactions with
related parties during the quarter ended June 30, 2004. For a discussion of
transactions between the Company and related parties during 2003, see "Related
Party Transactions" under Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - of the Company's Annual Report
on Form 10-K for the year ended December 31, 2003.
Economic Conditions
We generally pay the ordinary annual operating expenses of our properties from
the rental revenue generated by the properties. For the six months ended June
30, 2004, the rental income exceeded the expenses for each individual property,
with the exception of Blue Ravine. The single tenant lease at the Blue Ravine
property located in Folsom, California, expired June 30, 2003; there is no new
lease, and we expect that the property will not produce revenue to cover its
expenses in the third quarter. In addition to rental income we maintain cash
reserves that may be used to fund unusual expenses or major capital
improvements.
The cash reserves included in cash and cash equivalents, which as of June 30,
2004 were approximately $15.7 million, are in excess of the known needs for
extraordinary expenses or capital improvements for the real properties currently
owned by us within the next year. There are no external restrictions on these
reserves, and they may be used for any business purpose.
Although there is no guarantee that we will be able to obtain the funds
necessary for our future growth, we anticipate generating funds from continuing
real estate operations and from fees and commissions from the sale of shares in
newly formed Sponsored REITs. We believe that we have adequate funds to cover
unusual expenses and capital improvements, in addition to normal operating
expenses. Our ability to maintain or increase our level of dividends to
stockholders, however, depends in part upon the level of interest on the part of
investors in purchasing shares of Sponsored REITs and the level of rental income
from our real properties.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.
If we are not able to collect sufficient rents from each of our owned real
properties, we may suffer significant operating losses.
A substantial portion of our revenues are generated by the rental income of our
real properties. If our properties do not provide us with a steady rental
income, our revenues will decrease and may cause us to incur operating losses in
the future.
We face risks in continuing to attract investors for Sponsored REITs.
Our investment banking/investment services business continues to depend upon its
ability to attract purchasers of equity interests in Sponsored REITs. Our
success in this area will depend on the propensity and ability of investors who
have previously invested in Sponsored REITs to continue to invest in future
Sponsored REITs and on our ability to expand the investor pool for the Sponsored
REITs by identifying new potential investors. Moreover, our investment
banking/investment services business may be affected to the extent existing
Sponsored REITs incur losses or have operating results that fail to meet
investors' expectations.
If we are unable to fully syndicate a Sponsored REIT, we may be required to keep
a balance outstanding on our line of credit or use our cash balance to repay our
line of credit, which may reduce cash available for distribution to our
stockholders.
We typically draw on our line of credit to make an interim mortgage loan to a
Sponsored REIT, so that it can acquire real property prior to the consummation
of the offering of its equity interests; this interim loan is secured by a first
mortgage of the real property acquired by the Sponsored REIT. Once the offering
has been completed, the Sponsored REIT repays the loan out of the offering
proceeds. If we are unable to fully syndicate a Sponsored REIT, the Sponsored
REIT could be unable to fully repay the loan, and we would have to satisfy our
obligation under our line of credit through other means. If we are required to
use cash for this purpose, we would have less cash available for distribution to
our stockholders.
We may not be able to find properties that meet our criteria for purchase.
Growth in our investment banking/investment services business is dependent on
the ability of our acquisition executives to find properties for sale which meet
our investment criteria. To the extent they fail to find such properties, we
will be unable to syndicate offerings of Sponsored REITs to investors, and this
segment of our business could have lower revenue, which would reduce the cash
available for distribution to our stockholders.
We are dependent on key personnel.
We depend on the efforts of George Carter, our Chief Executive Officer, and our
other executive officers. If they were to resign, our operations could be
adversely affected. We do not have employment agreements with Mr. Carter or any
other of our executive officers.
Our level of dividends may fluctuate.
Because our investment banking/investment services business is transactional in
nature and real estate occupancy levels and rental rates can fluctuate, there is
no predictable recurring level of revenue from such activities. As a result of
this, the amount of cash available for distribution may fluctuate, which may
result in us not being able to maintain or grow dividend levels in the future.
The real properties held by us may significantly decrease in value.
As of June 30, 2004, we owned 28 properties. Some or all of these properties may
decline in value. To the extent our real properties decline in value, our
stockholders could lose some or all the value of their investments.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
New acquisitions may fail to perform as expected.
We may acquire new properties, whether by cash purchase, by acquisition of
Sponsored REITs or by investment in a Sponsored REIT. Newly acquired properties
may fail to perform as expected, in which case our results of operations could
be adversely affected.
We face risks in owning and operating real property.
An investment in us is subject to the risks incident to the ownership and
operation of real estate-related assets. These risks include the fact that real
estate investments are generally illiquid, which may impact our ability to vary
our portfolio in response to changes in economic and other conditions, as well
as the risks normally associated with:
o changes in general and local economic conditions;
o the supply or demand for particular types of properties in particular
markets;
o changes in market rental rates;
o the impact of environmental protection laws; and
o changes in tax, real estate and zoning laws.
Certain significant costs, such as real estate taxes, utilities, insurance and
maintenance costs, generally are not reduced even when a property's rental
income is reduced. In addition, environmental and tax laws, interest rate
levels, the availability of financing and other factors may affect real estate
values and property income. Furthermore, the supply of commercial and
multi-family residential space fluctuates with market conditions.
We face risks from tenant defaults or bankruptcies.
If any of our tenants defaults on its lease, we may experience delays in
enforcing our rights as a landlord and may incur substantial costs in protecting
our investment. In addition, at any time, a tenant of one of our properties may
seek the protection of bankruptcy laws, which could result in the rejection and
termination of such tenant's lease and thereby cause a reduction in cash
available for distribution to our stockholders.
We may encounter significant delays in reletting vacant space, resulting in
losses of income.
When leases expire, we will incur expenses and may not be able to re-lease the
space on the same terms. Certain leases provide tenants the right to terminate
early if they pay a fee. If we are unable to re-lease space promptly, if the
terms are significantly less favorable than anticipated or if the costs are
higher, we may have to reduce distributions to our stockholders.
We face risks from geographic concentration.
The properties in our portfolio, by aggregate square footage, are distributed
geographically as follows: Southwest - 26%, Northeast - 31%, Midwest - 19%, West
- - 16% and Southeast 8%. However, within certain of those segments, we hold a
larger concentration of our properties in Houston, Texas - 18% and Washington,
DC - 13%. We are likely to face risks to the extent that any of these areas in
which we hold a larger concentration of our properties suffer deteriorating
economic conditions.
We compete with national, regional and local real estate operators and
developers, which could adversely affect our cash flow.
Competition exists in every market in which our properties are located and in
every market in which our properties will be located. We compete with, among
others, national, regional and numerous local real estate operators and
developers. Such competition may adversely affect the percentage of leased space
and the rental revenues of our properties, which could adversely affect our cash
flow from operations and our ability to make expected distributions to our
stockholders. Some of our competitors may have more resources than we do or
other competitive advantages. Competition may be accelerated by any increase in
availability of funds for investment in real estate. For example, decreases in
interest rates tend to increase the availability of funds and therefore can
increase competition. To the extent that our properties continue to operate
profitably, this will likely stimulate new development of competing properties.
The extent to which we are affected by competition will depend in significant
part on local market conditions.
24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
There is limited potential for an increase in leased space gains in our
properties.
We anticipate that future increases in revenue from our properties will be
primarily the result of scheduled rental rate increases or rental rate increases
as leases expire. Properties with higher rates of vacancy are generally located
in soft economic markets so that it may be difficult to realize increases in
revenue when vacant space is re-leased.
We are subject to possible liability relating to environmental matters, and we
cannot assure you that we have identified all possible liabilities.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property. Such
laws may impose liability without regard to whether the owner or operator knew
of, or caused, the release of such hazardous substances. The presence of
hazardous substances on a property may adversely affect the owner's ability to
sell such property or to borrow using such property as collateral, and it may
cause the owner of the property to incur substantial remediation costs. In
addition to claims for cleanup costs, the presence of hazardous substances on a
property could result in the owner incurring substantial liabilities as a result
of a claim by a private party for personal injury or a claim by an adjacent
property owner for property damage.
In addition, we cannot assure you that:
o future laws, ordinances or regulations will not impose any material
environmental liability;
o the current environmental conditions of our properties will not be
affected by the condition of properties in the vicinity of such properties
(such as the presence of leaking underground storage tanks) or by third
parties unrelated to us;
o tenants will not violate their leases by introducing hazardous or toxic
substances into our properties that could expose us to liability under
federal or state environmental laws; or
o environmental conditions, such as the growth of bacteria and toxic mold in
heating and ventilation systems or on walls, will not occur at our
properties and pose a threat to human health.
We are subject to compliance with the Americans With Disabilities Act and fire
and safety regulations which could require us to make significant capital
expenditures.
All of our properties are required to comply with the Americans With
Disabilities Act (ADA), and the regulations, rules and orders that may be issued
thereunder. The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to persons with disabilities. Compliance with ADA
requirements might require, among other things, removal of access barriers and
noncompliance could result in the imposition of fines by the U.S. government, or
an award of damages to private litigants.
In addition, we are required to operate our properties in compliance with fire
and safety regulations, building codes and other land use regulations, as they
may be adopted by governmental agencies and bodies and become applicable to our
properties. Compliance with such requirements may require us to make substantial
capital expenditures, which expenditures would reduce cash otherwise available
for distribution to its stockholders.
There are significant conditions to our obligation to redeem shares of our
common stock, and any such redemption will result in the stockholders tendering
shares receiving less than their fair market value.
Under our redemption plan, we are only obligated to use our best efforts to
redeem shares of our common stock from stockholders wishing to have them
redeemed. There are significant conditions to our obligation to redeem shares of
our common stock including:
o we cannot be insolvent or be rendered insolvent by the redemption;
o the redemption cannot impair our capital or operations;
o the redemption cannot contravene any provision of federal or state
securities laws;
o the redemption cannot result in our failing to qualify as a REIT; and
o our management must determine that the redemption is in our best
interests.
Any redemption effected by us under this plan would result in those stockholders
tendering shares of our common stock receiving 90% of the fair market value of
such shares, as determined by our board of directors in its sole and absolute
discretion, and not their full fair market value.
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
We may lose capital investment or anticipated profits if an uninsured event
occurs.
We carry or our tenants carry comprehensive liability, fire and extended
coverage with respect to each of our properties, with policy specification and
insured limits customarily carried for similar properties. There are, however,
certain types of losses, such as from wars, pollution or earthquakes, that may
be either uninsurable or not economically insurable (although the properties
located in California all have earthquake insurance). Should an uninsured
material loss occur, we could lose both capital invested in the property and
anticipated profits.
Contingent or unknown liabilities acquired in mergers or similar transactions
could require us to make substantial payments.
The properties which we acquired in mergers were acquired subject to liabilities
and without any recourse with respect to liabilities, whether known or unknown.
As a result, if liabilities were asserted against us based upon any of these
properties, we might have to pay substantial sums to settle them, which could
adversely affect our results of operations and financial condition and our cash
flow and ability to make distributions to our stockholders. Unknown liabilities
with respect to properties acquired might include:
o liabilities for clean-up or remediation of environmental conditions;
o claims of tenants, vendors or other persons dealing with the former owners
of the properties; and
o liabilities incurred in the ordinary course of business.
We would incur adverse tax consequences if we failed to qualify as a REIT.
If in any taxable year we do not qualify as a real estate investment trust, we
would be taxed as a corporation and distributions to our stockholders would not
be deductible by us in computing our taxable income. In addition, if we were to
fail to qualify as a real estate investment trust, we could be disqualified from
treatment as a real estate investment trust in the year in which such failure
occurred and for the next four taxable years and, consequently, we would be
taxed as a corporation during such years. Failure to qualify for even one
taxable year could result in a significant reduction of our cash available for
distribution to stockholders or could require us to incur indebtedness or
liquidate investments in order to generate sufficient funds to pay the resulting
federal income tax liabilities. In addition, timing differences between the
receipt of income and payment of expenses and the inclusion and deduction of
such amounts in arriving at taxable income could make it necessary for us to
borrow in order to make certain distributions to our stockholders in
satisfaction of the 90% distribution requirement applicable to real estate
investment trusts. The provisions of the Internal Revenue Code governing the
taxation of real estate investment trusts are very technical and complex, and
although we expect that we will be organized and will operate in a manner that
will enable us to meet such requirements, no assurance can be given that we will
always succeed in doing so. In addition, you should note that if one or more of
the REITs we acquired in June 2003 did not qualify as a real estate investment
trust immediately prior to the consummation of the mergers, we would be
disqualified as a REIT as a result of the mergers.
As a result of our acquisition of 13 REITs, we may no longer qualify as a REIT.
As a result of our acquisition of 13 REITs by merger in June 2003, we might no
longer qualify as a real estate investment trust under Section 856 of the
Internal Revenue Code of 1986, as amended. We could lose our ability to so
qualify for a variety of reasons relating to the nature of the assets acquired
from the acquired REITs, the identity of the shareholders of the acquired REITs
who became our shareholders, or the failure of one or more of the acquired REITs
to have previously qualified as a real estate investment trust.
Provisions in our organizational documents may prevent changes in control.
Our Articles of Incorporation and Bylaws contain provisions, described below,
which may have the effect of discouraging a third party from making an
acquisition proposal for us and may thereby inhibit a change of control under
circumstances that could otherwise give the holders of our common stock the
opportunity to realize a premium over the then-prevailing market prices.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Ownership Limits. In order for us to maintain our qualification as a real estate
investment trust, the holders of our common stock may be limited to owning,
either directly or under applicable attribution rules of the Internal Revenue
Code, no more than 9.8% of the lesser of the value or the number of equity
shares of us, and no holder of common stock may acquire or transfer shares that
would result in our shares of common stock being beneficially owned by fewer
than 100 persons. Such ownership limit may have the effect of preventing an
acquisition of control of us without the approval of our board of directors.
Moreover, we will have the right to redeem any shares of common stock that are
acquired or transferred in violation of these provisions at the market price,
which is determined by our board of directors. In addition, our Articles of
Incorporation give our board of directors the right to refuse to give effect to
the acquisition or transfer of shares by a stockholder in violation of these
provisions.
Staggered Board. Our board of directors is divided into three classes. The terms
of these classes will expire in 2005, 2006 and 2007, respectively. Directors of
each class are elected for a three-year term upon the expiration of the initial
term of each class. The staggered terms for directors may affect our
stockholders' ability to effect a change in control even if a change in control
were in the stockholders' best interests.
Preferred Stock. Our Articles of Incorporation authorize our board of directors
to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share,
and to establish the preferences and rights of any such shares issued. The
issuance of preferred stock could have the effect of delaying or preventing a
change in control even if a change in control were in our stockholders' best
interest.
Increase of Authorized Stock. Our board of directors, without any vote or
consent of the stockholders, may increase the number of authorized shares of any
class or series of stock or the aggregate number of authorized shares we have
authority to issue. The ability to increase the number of authorized shares and
issue such shares could have the effect of delaying or preventing a change in
control even if a change in control were in our stockholders' best interest.
Amendment of Bylaws. Our board of directors has the sole power to amend our
Bylaws. This power could have the effect of delaying or preventing a change in
control even if a change in control were in our stockholders' best interests.
Stockholder Meetings. Our Bylaws require advance notice for stockholder
proposals to be considered at annual meetings of stockholders and for
stockholder nominations for election of directors at special meetings of
stockholders. Our Bylaws also provide that stockholders entitled to cast more
than 50% of all the votes entitled to be cast at a meeting must join in a
request by stockholders to call a special meeting of stockholders. These
provisions could have the effect of delaying or preventing a change in control
even if a change in control were in the best interests of our stockholders.
Supermajority Votes Required. Our Articles of Incorporation require the
affirmative vote of the holders of no less than 80% of the shares of capital
stock outstanding and entitled to vote in order (i) to amend the provisions of
our Articles of Incorporation relating to the classification of directors,
removal of directors, limitation of liability of officers and directors or
indemnification of officers and directors or (ii) to amend our Articles of
Incorporation to impose cumulative voting in the election of directors. These
provisions could have the effect of delaying or preventing a change in control
even if a change in control were in our stockholders' best interest.
There is no public trading market for our securities.
There is no public trading market for our common stock, and we cannot assure you
that any market will develop or that, if such a market develops, there will be
any liquidity in such a market for our common stock. We have announced our
intention to file an application for the listing of our stock on the American
Stock Exchange. However, there is no assurance that we will file such
application, or in the event that we do, that the American Stock Exchange will
accept it.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We were not a party to any derivative financial instruments at or during the
three months ended June 30, 2004.
We borrow from time to time on our line of credit. These borrowings bear
interest at a variable rate. As of June 30, 2004, $0 was outstanding under this
line of credit. We have used the funds from our line of credit for the purpose
of making interim mortgage loans to Sponsored REITs. These mortgage loans bear
interest at the same variable rate payable by us under our line of credit.
Therefore, we believe that we have mitigated our interest rate risk with respect
to our borrowings.
27
Item 4. Controls and Procedures.
Our management, with the participation of FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Vice President and Chief Operating Officer
(equivalent of Chief Financial Officer), evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(d)
under the Exchange Act) as of June 30, 2004. Based on this evaluation, FSP
Corp.'s President and Chief Executive Officer and FSP Corp.'s Vice President and
Chief Operating Officer (equivalent of Chief Financial Officer) concluded that,
as of June 30, 2004, our disclosure controls and procedures were (1) designed to
ensure that material information relating to us, including our consolidated
subsidiaries, is made known to FSP Corp.'s President and Chief Executive Officer
and FSP Corp.'s Vice President and Chief Operating Officer (equivalent of Chief
Financial Officer) by others within these entities, particularly during the
period in which this report was being prepared and (2) effective, in that they
provide reasonable assurance that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
No change to our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended June 30, 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities:
Not applicable.
Item 3. Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
On May 7, 2004, the Registrant held its 2004 Annual Meeting of
Stockholders (the "2004 Annual Meeting"). The 2004 Annual Meeting
was called for the following purposes: (1) to elect two Class II
directors to serve until the 2007 annual meeting and (2) to transact
such other business as may properly come before the meeting or any
adjournment thereof.
The following table sets forth the names of the directors elected at
the 2004 Annual Meeting for new three-year terms and the number of
votes cast for and withheld for each director:
Withheld
Directors For Authority to Vote
--------- --- -----------------
Dennis J. McGillicudy 34,700,635.37 75,376.77
Janet P. Notopoulos 34,753,638.14 22,374.00
The names of each of the other directors whose terms of office
continued after the 2004 Annual Meeting are as follows: George J.
Carter, Barry Silverstein, Barbara J. Fournier and Richard R.
Norris.
Item 5. Other Information:
Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
31.1 Certification of the President and Chief Executive Officer of
the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of the Vice President, Chief Operating Officer
(equivalent of Chief Financial Officer), Treasurer and Secretary of
the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of the President and Chief Executive Officer of
the Registrant pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Vice President, Chief Operating Officer
(equivalent of Chief Financial Officer), Treasurer and Secretary of
the Registrant pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On May 7, 2004 the Registrant filed a current report on Item 9 of
Form 8-K dated May 7, 2004 to report that George J. Carter,
President, Chief Executive Officer, and a member of the Board of
Directors of the Registrant, intended to inform the stockholders of
the Registrant at the Annual Meeting of Stockholders that the
Registrant's Board of Directors had authorized management to pursue
a listing on the American Stock Exchange.
On June 1, 2004 the Registrant filed a current report on Item 5 of
Form 8-K dated June 1, 2004 to report that John Burke had been
elected as a member of the Board of Directors of the Registrant and
appointed as chairperson of the Audit Committee of the Board of
Directors.
29
SIGNATURES
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 Street Properties Corp.
Date Signature Title
July 30, 2004 /s/ George J. Carter Chief Executive Officer and
------------------ Director (Principal Executive Officer)
George J. Carter
July 30, 2004 /s/ Lloyd S. Dow Senior Vice President and Controller
----------------- (Principal Accounting Officer)
Lloyd S. Dow
30