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 March 31, 2006.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission File Number: 001-32470
Franklin Street Properties Corp.
(Exact name of registrant as specified in its charter)
Maryland 04-3578653
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
401 Edgewater Place, Suite 200
Wakefield, MA 01880-6210
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (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 90 days.
YES |X| NO |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer |X| Accelerated Filer |_| Non-Accelerated Filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES |_| NO |X|
The number of shares of common stock outstanding as of April 25, 2006 was
59,794,608.
Franklin Street Properties Corp.
Form 10-Q
Quarterly Report
March 31, 2006
Table of Contents
Part I. Financial Information
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2006
and December 31, 2005................................... 3
Consolidated Statements of Income for the three months
ended March 31, 2006 and 2005........................... 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 2006 and 2005.............. 5
Notes to Consolidated Financial Statements.............. 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 14-20
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................. 21
Item 4. Controls and Procedures................................. 22
Part II. Other Information
Item 1A. Risk Factors............................................ 23
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds................................................ 28
Item 5. Other Information....................................... 28
Item 6. Exhibits................................................ 29
Signatures ........................................................ 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Franklin Street Properties Corp.
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
(in thousands, except share and par value amounts) 2006 2005
==============================================================================================================
Assets:
Real estate assets:
Land $ 76,525 $ 72,152
Buildings and improvements 497,940 476,618
Fixtures and equipment 612 602
- --------------------------------------------------------------------------------------------------------------
575,077 549,372
Less accumulated depreciation 36,162 32,885
- --------------------------------------------------------------------------------------------------------------
Real estate assets, net 538,915 516,487
Acquired real estate leases, less accumulated amortization
of $12,560 and $10,448, respectively 28,108 30,180
Investment in non-consolidated REITs 4,966 5,006
Assets held for syndication, net 51,416 --
Assets held for sale 43,822 44,082
Cash and cash equivalents 33,312 69,715
Restricted cash 465 461
Tenant rent receivables, less allowance for doubtful accounts
of $350 and $350, respectively 1,240 1,447
Straight-line rent receivable. Less allowance for doubtful accounts
of $163 and $163, respectively 4,972 5,196
Prepaid expenses 830 805
Other assets 1,731 1,199
Office computers and furniture, net of accumulated depreciation
of $763 and $729, respectively 313 311
Deferred leasing commissions, net of accumulated amortization
of $1,032, and $890, respectively 2,298 2,284
- --------------------------------------------------------------------------------------------------------------
Total assets $ 712,388 $ 677,173
==============================================================================================================
Liabilities and Stockholders' Equity:
Liabilities:
Bank note payable $ 41,500 $ --
Accounts payable and accrued expenses 11,108 11,583
Accrued compensation 1,336 1,891
Tenant security deposits 1,369 1,293
Acquired unfavorable real estate leases, less accumulated amortization
of $199, and $134, respectively 889 823
- --------------------------------------------------------------------------------------------------------------
Total liabilities 56,202 15,590
- --------------------------------------------------------------------------------------------------------------
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,
59,794,608 and 59,794,608 shares issued and outstanding, respectively 6 6
Additional paid-in capital 677,397 677,397
Treasury stock, 731,898 and 731,898 shares at cost, respectively (14,008) (14,008)
Earnings (distributions) in excess of accumulated earnings/distributions (7,209) (1,812)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 656,186 661,583
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 712,388 $ 677,173
==============================================================================================================
The accompanying notes are an integral part of these consoldated financial statements.
3
Franklin Street Properties Corp.
Consolidated Statements of Income
(Unaudited)
For the
Three Months Ended
March 31,
- ---------------------------------------------------------------------------------------
(in thousands, except per share amounts) 2006 2005
=======================================================================================
Revenue:
Rental $24,281 $12,433
Related party revenue:
Syndication fees 1,921 2,519
Transaction fees 1,939 2,442
Management fees and interest income from loans 171 970
Other 22 5
- ---------------------------------------------------------------------------------------
Total revenue 28,334 18,369
- ---------------------------------------------------------------------------------------
Expenses:
Real estate operating expenses 4,992 2,522
Real estate taxes and insurance 2,733 1,828
Depreciation and amortization 5,377 2,623
Selling, general and administrative 1,805 1,825
Commissions 1,022 1,324
Interest 594 955
- ---------------------------------------------------------------------------------------
Total expenses 16,523 11,077
- ---------------------------------------------------------------------------------------
Income before interest income, equity in earnings of
non-consolidated REITs and taxes on income 11,811 7,292
Interest income 588 230
Equity in earnings of non-consolidated REITs 80 665
- ---------------------------------------------------------------------------------------
Income before taxes on income 12,479 8,187
Income tax expense 57 44
- ---------------------------------------------------------------------------------------
Income from continuing operations 12,422 8,143
Income from discontinued operations 717 2,280
- ---------------------------------------------------------------------------------------
Net income $13,139 $10,423
=======================================================================================
Weighted average number of shares outstanding,
basic and diluted 59,795 49,630
=======================================================================================
Earnings per share, basic and diluted, attributable to:
Continuing operations $ 0.21 $ 0.16
Discontinued operations 0.01 0.05
- ---------------------------------------------------------------------------------------
Net income per share, basic and diluted $ 0.22 $ 0.21
=======================================================================================
See accompanying notes to consolidated financial statements.
4
Franklin Street Properties Corp.
Consolidated Statements of Cash Flows
(Unaudited)
For the
Three Months Ended
March 31,
----------------------------
(in thousands) 2006 2005
==============================================================================================
Cash flows from operating activities:
Net income $ 13,139 $ 10,423
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 5,659 3,374
Amortization of above market lease 1,474 59
Equity in earnings from non-consolidated REITs (275) (665)
Distributions from non-consolidated REITs 118 599
Shares issued as compensation -- 31
Changes in operating assets and liabilities:
Restricted cash (4) (43)
Tenant rent receivables, net 207 --
Straight-line rents, net 200 (230)
Operations of assets held for syndication, net -- (236)
Prepaid expenses and other assets, net 210 (1,971)
Accounts payable and accrued expenses (1,254) (953)
Accrued compensation (555) (105)
Tenant security deposits 76 43
Payment of deferred leasing commissions (156) (95)
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,839 10,231
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of real estate assets, office computers and
furniture, capitalized merger costs (25,744) (327)
Purchase of acquired favorable and unfavorable leases (951) --
Investment in non-consolidated REITs (11) --
Investment in assets held for syndication, net (51,500) (14,725)
- ----------------------------------------------------------------------------------------------
Net cash used for investing activities (78,206) (15,052)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Distibutions to stockholders (18,536) (15,385)
Borrowings (repayments) under bank note payable, net 41,500 14,725
- ----------------------------------------------------------------------------------------------
Net cash used for financing activities 22,964 (660)
- ----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (36,403) (5,481)
Cash and cash equivalents, beginning of period 69,715 52,752
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 33,312 $ 47,271
==============================================================================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 513 $ 905
Income taxes 50 401
Non-cash investing and financing activities:
Accrued merger costs at period end 779 --
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. ("FSP Corp." or the "Company"), holds, directly
and indirectly, 100% of the interest in FSP Investments LLC, FSP Property
Management LLC, and FSP Holdings LLC. The Company also has a non-controlling
common stock interest in 14 corporations organized to operate as real estate
investment trusts ("REITs").
On May 30, 2003, the shareholders of the Company approved the Company's
acquisition by merger of 13 REITs (the "2003 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 2003 Target
REITs. The mergers were accounted for as a purchase, and the acquired assets and
liabilities were recorded at their fair value.
On April 30, 2005, the Company acquired four real estate investment trusts
("Target REITs") by the merger of the four Target REITs with and into four of
the Company's wholly-owned subsidiaries. The merger was effective April 30, 2005
and, as a result, the Company issued 10,894,994 shares in a tax-free exchange
for all 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.
On March 15, 2006, the Company entered into an agreement to acquire five real
estate investment trusts (the "2006 Target REITs"), by the merger of the five
2006 Target REITs with and into five of the Company's wholly-owned subsidiaries.
The Company completed the mergers on April 30, 2006. Upon the consummation of
these mergers, the Company issued approximately 10,972,000 shares of common
stock to holders of preferred stock in these Target REITs.
The Company operates in two business segments: real estate operations and
investment banking/investment services. FSP Investments 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) sourcing of the acquisition of real estate on
behalf of the Sponsored REITs; and (iii) the sale of preferred stock in
Sponsored REITs. FSP Property Management provides asset management and property
management services for the Sponsored REITs.
Properties
The following table summarizes the Company's investment in real estate assets,
excluding assets held for syndication:
As of
March 31,
2006 2005
--------- ---------
Residential real estate:
Number of properties 1 4
Number of apartments 228 837
Commercial real estate:
Number of properties 26 24
Square feet 3,986,564 3,051,748
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 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, 2005, as filed with the Securities and Exchange
Commission.
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. Operating results for the three months ended March 31, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006 or for any other period.
Reclassifications
Certain balances from the 2005 balance sheet and interim financial statements
have been reclassified to conform to the 2006 presentation. The
reclassifications primarily were related to the disposition of six properties
sold in 2005 and two assets held for sale as of March 31, 2006, which are
reported as discontinued operations for all periods presented. These
reclassifications changed rental revenues, operating and maintenance expenses,
depreciation and amortization, other income and the related assets, which are
segregated on the financial statements. There was no change to net income for
any period presented as a result of these reclassifications.
Recent Accounting Standards
In June 2005, the Financial Accounting Standards Board ("FASB") ratified the
consensus reached by the Emerging Issues Task Force ("EITF") regarding EITF No.
05-6, "Determining the Amortization Period for Leasehold Improvements." The
guidance requires that leasehold improvements acquired in a business
combination, or purchased subsequent to the inception of a lease, be amortized
over the lesser of the useful life of the assets or a term that includes
renewals that are reasonably assured at the date of the business combination or
purchase. The guidance is effective for periods beginning after June 29, 2005.
EITF 05-6 does not impact the Company's results of operations, financial
position, or liquidity.
2. Investment Banking/Investment Services Activity
During the three months ended March 31, 2006, the Company sold on a best efforts
basis, through private placements, preferred stock in the following Sponsored
REIT:
Gross Proceeds
Sponsored REIT Property Location (in thousands) (1)
- --------------------------------------------------------------------------------
FSP Phoenix Tower Corp. Houston, TX $29,150
------------
Total $29,150
=============
1. The syndication of FSP Phoenix Tower Corp., which commenced in February
2006 was not complete at March 31, 2006. This amount represents the gross
proceeds syndicated during the three months ended March 31, 2006.
7
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
3. Related Party Transactions and Investments in Non-Consolidated Entities
Investment in Sponsored REITs
At March 31, 2006, the Company held an interest in fourteen Sponsored REITs.
Thirteen were fully syndicated and the Company no longer derives economic
benefits or risks from the common stock interest that is retained in them. The
Company holds a preferred stock investment in two of these Sponsored REITs, FSP
Blue Lagoon Drive Corp. and FSP Park Ten Development Corp., from which it
continues to derive economic benefit and risk. The remaining entity that was not
fully syndicated has a value of approximately $51.4 million on the accompanying
consolidated balance sheets and is classified as assets held for syndication.
The table below shows the Company's share of income and expenses from Sponsored
REITs prior to consolidation. Management fees of $11,000 and $5,000 for the
three months ended March 31, 2006 and 2005, respectively, and interest expenses
are eliminated in consolidation.
Three Months Ended
March 31,
(in thousands) 2006 2005
---- ----
Operating Data:
Rental revenues $ 1,215 $694
Operating and maintenance expenses 554 177
Depreciation and amortization 288 199
Interest expense 479 174
Interest income 9 2
------- ----
$ (97) $146
======= ====
Equity in earnings of investment in non-consolidated REITs:
The following table includes equity in earnings of investments in
non-consolidated REITs:
Three Months Ended
March 31,
(in thousands) 2006 2005
---- ----
Equity in earnings of Sponsored REITs $ 27 $602
Equity in earnings of Blue Lagoon 53 63
Equity in earnings of Park Ten Development -- --
---- ----
$ 80 $665
==== ====
Equity in earnings of investments in Sponsored REITs is derived from the
Company's share of income following the commencement of syndication of Sponsored
REITs. Following the commencement of syndication the Company exercises influence
over, but does not control these entities and investments are accounted for
using the equity method. Equity in earnings of FSP Blue Lagoon Drive Corp. and
FSP Park Ten Development Corp. is derived from the Company's preferred stock
investment in the entities, which were acquired in January 2004 and September
2005, respectively.
The Company recorded distributions declared or received of $118,000 and $599,000
from Sponsored REITs during the three months ended March 31, 2006 and 2005,
respectively.
8
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
3. Related Party Transactions and Investments in Non-consolidated Entities
(continued)
Non-consolidated REITs
The Company has in the past acquired by merger entities similar to the Sponsored
REITs, including on April 30, 2005, the acquisition of four real estate
investment trusts by merger. On March 15, 2006, the Company entered into an
agreement to acquire by merger (the "Merger Agreement") the 2006 Target REITs
and consummated the transactions on April 30, 2006. The Company's business model
for growth includes the potential acquisition by merger in the future of
Sponsored REITs. Following the consummation of the transactions contemplated by
the Merger Agreement, 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 and the approval of the
shareholders of the Sponsored REIT.
At March 31, 2006, December 31, 2005 and March 31, 2005, the Company had
ownership interests in fourteen, thirteen and sixteen Sponsored REITs,
respectively.
Summarized financial information for these Sponsored REITs is as follows:
March 31, December 31,
---------------------------
2006 2005
---------------------------
(in thousands)
Balance Sheet Data (unaudited):
Real estate, net $ 474,747 $ 403,161
Other assets 80,121 82,163
Total liabilities (98,668) (46,831)
---------------------------
Shareholders equity $ 456,200 $ 438,493
===========================
For the
Three Months Ended
March 31,
2006 2005
------------------------
(in thousands)
Operating Data (unaudited):
Rental revenue $ 16,522 $ 19,865
Other revenue 731 281
Operating and maintenance expenses (7,477) (7,188)
Depreciation and amortization (3,604) (3,730)
Interest expense and commitment fees (2,736) (2,316)
------------------------
Net income (loss) $ 3,436 $ 6,912
========================
Syndication fees and Transaction fees:
The Company provides syndication and real estate acquisition advisory services
for Sponsored REITs. Syndication and transaction fees from non-consolidated
entities amounted to approximately $3,860,000 and $4,961,000 for the three
months ended March 31, 2006 and 2005, respectively.
Management fees and interest income from loans:
Asset management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days notice. Asset management fee income from
non-consolidated entities amounted to approximately $167,000 and $225,000 for
the three months ended March 31, 2006 and 2005, respectively. The Company is
typically entitled to interest on funds advanced to Sponsored REITs. The Company
recognized interest income of approximately $4,000 and $745,000 for the three
months ended March 31, 2006 and 2005, respectively, relating to these loans.
9
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
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
$150,000,000. During August 2005 the loan agreement was amended and restated.
Borrowings under the Loan Agreement bear interest at either the bank's prime
rate (7.75% at March 31, 2006) or a rate equal to LIBOR plus 125 basis points
(6.08% at March 31, 2006). The balance outstanding was $41,500,000 at March 31,
2006, and there was no balance outstanding at December 31, 2005. The weighted
average interest rate on amounts outstanding during the three months ended March
31, 2006 and 2005 was 6.34% and 5.0%, respectively; and for the year ended
December 31, 2005 was approximately 5.35%.
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
unencumbered cash and liquid investments balance and 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 March 31, 2006 and December 31, 2005. Borrowings under the Loan
Agreement mature on August 18, 2008.
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 March 31, 2006 and 2005.
6. Discontinued Operations
During the year ended December 31, 2005, the Company disposed of three apartment
properties and three commercial properties, which are in the real estate
segment. The three apartments are Essex House and Gael Apartments, which are
located in Houston, Texas, and Mansions in the Park, located in Baton Rouge,
Louisiana. The three commercial buildings are Blue Ravine, which is located in
Folsom, California; Gateway Crossing, which is located in Columbia, Maryland;
and Telecom Business Center, which is located in San Diego, California. An
agreement was also reached to sell an office property in Santa Clara,
California, which is expected to be sold by December 2006 at a gain. In April
2006, an agreement was also reached to sell an office property in Fairfax,
Virginia, which is expected to be sold in the second quarter of 2006 at a gain.
Accordingly, the properties in Santa Clara, California and Fairfax, Virginia are
properties, which are held for sale and are classified as such on the
accompanying balance sheets.
The operating results for these real estate assets have been reflected as
discontinued operations in the consolidated statements of income for all periods
presented, and are summarized below:
For the Three Months Ended
(in thousands) March 31,
--------------------------
a 2006 2005
------- -------
Rental revenue $ 1,618 $ 4,809
Rental operating expenses (468) (1,052)
Real estate taxes and insurance (167) (527)
Depreciation and amortization (266) (950)
Interest income -- --
------- -------
Net income from discontinued operations $ 717 $ 2,280
======= =======
7. Business Segments
The Company operates in two business segments: real estate operations (including
real estate leasing, interim acquisition financing, development 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 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" in Note 2 to the Company's consolidated
financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 2005. The Company's operations are located in the United
States of America.
10
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
7. Business Segments (continued)
The Company evaluates the performance of its reportable segments based on
Adjusted Funds From Operations ("AFFO") as management believes that AFFO
represents the most accurate measure of the reportable segment's activity and is
the basis for distributions paid to equity holders. The Company defines AFFO as:
net income as computed in accordance with GAAP; excluding gains or losses on the
sale of real estate and non-cash income from Sponsored REITs; plus certain
non-cash items included in the computation of net income (depreciation and
amortization and straight-line rent adjustments); plus distributions received
from Sponsored REITs; plus the net proceeds from the sale of land; less
purchases of property and equipment ("Capital Expenditures") and payments for
deferred leasing commissions, plus proceeds from (payments to) funded reserves.
Depreciation and amortization, gain or loss on the sale of real estate, and
straight-line rents are an adjustment to AFFO, 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 AFFO, as they represent cash items not reflected in net income.
The funded reserve represents funds that the Company has set aside from time to
time 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. AFFO 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 AFFO in a different manner. It is at the Company's
discretion to retain a portion of AFFO for operational needs. We believe that in
order to facilitate a clear understanding of the results of the Company, AFFO
should be examined in connection with net income and cash flows from operating,
investing and financing activities in the consolidated financial statements.
The calculation of AFFO by business segment is shown in the following table:
Investment
Banking/
Real Estate Investment
(in thousands) Operations Services Total
----------- ---------- --------
Three Months Ended March 31, 2006
Net Income $ 13,054 $ 85 $ 13,139
Equity in income of non-consolidated REITs (275) -- (275)
Distributions from non-consolidated REITs 118 -- 118
Depreciation and amortization 7,100 33 7,133
Straight line rent 200 -- 200
Capital Expenditures (232) (36) (268)
Payment of deferred leasing costs (156) -- (156)
Proceeds from funded reserves 388 36 424
-------- -------- --------
Adjusted Funds From Operations $ 20,197 $ 118 $ 20,315
======== ======== ========
Three Months Ended March 31, 2005
Net Income $ 10,346 $ 77 $ 10,423
Equity in income of non-consolidated REITs (665) -- (665)
Distributions from non-consolidated REITs 599 -- 599
Depreciation and amortization 3,598 34 3,632
Straight line rent (307) -- (307)
Capital Expenditures (327) -- (327)
Payment of deferred leasing costs (95) -- (95)
Proceeds from funded reserves 422 -- 422
-------- -------- --------
Adjusted Funds From Operations $ 13,571 $ 111 $ 13,682
======== ======== ========
11
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
7. Business Segments (continued)
The following table is a summary of other financial information by business
segment:
Investment
Banking/
Real Estate Investment
(in thousands) Operations Services Total
----------- ---------- --------
March 31, 2006:
Revenue $ 26,167 $2,167 $ 28,334
Interest income 579 9 588
Interest expense 594 -- 594
Capital expenditures 232 36 268
Identifiable assets $707,481 $4,907 $712,388
March 31, 2005:
Revenue $ 15,533 $2,836 $ 18,369
Interest income 222 8 230
Interest expense 955 -- 955
Capital expenditures 327 -- 327
Identifiable assets $578,220 $3,670 $581,890
8. Cash Dividends
The Company declared and paid dividends as follows (in thousands, except per
share amounts):
Dividends Total
Quarter Paid Per Share Dividends
--------------------- --------- ---------
First quarter of 2006 $.31 $18,536
First quarter of 2005 $.31 $15,385
9. 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"). In the case of TRSs,
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, a subsidiary of the Company 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.
12
Franklin Street Properties Corp.
Notes to Consolidated Financial Statements
(Unaudited)
9. Income Taxes (continued)
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 statements of income
relates only to the TRS. The expense differs from the amounts computed by
applying the Federal statutory rate of 34% to income before income taxes as
follows:
For the
Three Months Ended
March 31,
(in thousands) 2006 2005
--------------------
Federal income tax expense at statutory rate $ 48 $ 37
Increase in taxes resulting from:
State income taxes, net of federal impact 9 7
------ ------
$ 57 $ 44
====== ======
No deferred income taxes were provided as there were no material temporary
differences between the financial reporting basis and the tax basis of the
taxable REIT subsidiary.
10. Subsequent Events
The Company declared a cash distribution of $0.31 per share on April 14, 2006 to
stockholders of record on April 28, 2006 payable on May 19, 2006.
In April 2006, an agreement was reached to sell an office property in Fairfax,
Virginia which is expected to be sold in the second quarter of 2006 at a gain.
On April 30, 2006 the Company acquired by merger the five 2006 Target REITs and
issued approximately 10,972,000 of common stock, $0.0001 par value per share, in
connection with the mergers.
13
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, 2005. Historical
results and percentage relationships set forth in the consolidated financial
statements, including trends which might appear, should not be taken as
necessarily indicative of future operations. The following discussion and other
parts of this Quarterly Report on Form 10-Q may also contain forward-looking
statements 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, 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, Item 1A. "Risk Factors". 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 of this Quarterly Report on Form 10-Q 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., or the Company, 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, development services 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 and development of real estate
on behalf of Sponsored REITs and the raising of capital to fully equitize the
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
believe we have no influence on these market conditions. We look to acquire
and/or develop 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 customers' 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, 2005.
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, 2005.
14
Trends and Uncertainties
Real Estate Operations
Our property operations during the first quarter of 2006 produced profit results
that were generally in line with management's expectations. Most of our
properties are suburban office buildings, and, in most markets, we are
continuing to find improving conditions for both occupancy and rental rates.
However, there are still many tenant leases which were signed at the height of
the most recent office market cycle, which we believe was approximately from
1997-2001. Consequently, we and many other office property owners continue to
face rent roll downs as old leases expire and new ones are signed. National
occupancy levels continue to improve, but rent levels in most office markets are
still only modestly increasing from a very low level. We believe that
significant broad-based rental increases, above the 1997-2001 peak, are probably
one to three years away, assuming continued overall U.S. economic growth and
traditional cyclical real estate dynamics. We are aggressively managing our
lease turnover to maximize our rental operations' contribution as the office
markets continue to climb back up their cyclical curve. Concern always remains
about the possibility of a new, significant downturn in the broader economy that
would reverse the positive trends our markets are starting to see. Lofty
worldwide energy prices, inflation and interest rates are likely to be
influencing factors.
The portfolio was approximately 86% leased at March 31, 2006, which was a
decrease from 92% at December 31, 2005. The decrease was principally caused by
an early termination of one lease for 100% of one property in the first quarter.
In April 2006 we signed a lease with a new tenant that will occupy 100% of the
space. We started 2006 with about 17% of the square footage in our
non-residential real estate portfolio scheduled to expire during the year.
Following the lease signing, the lease expiration percentage for the remainder
of 2006 was reduced to 10.9%. We cannot predict if these tenants will renew
their leases or what the terms and conditions of the lease renewals will be,
although we expect to renew or sign new leases at current market rates for the
locations where the buildings are located, which in most cases will be below the
expiring rental rates.
The one apartment property we own was 94% leased at March 31, 2006.
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 2005
were below our expectations. During the first quarter of 2006 our investment
banking group completed sales of preferred stock in a private placement, which
we call syndication proceeds of $29.2 million, that was below our 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. It appears that a
combination of factors, including moderate interest rates, a growing general
economy and substantially increased capital allocation to real estate assets is
increasing prices on many properties we would have an interest in acquiring.
This upward pressure on prices has caused capitalization rates to fall and
prices per square foot to rise. Specifically, our acquisition executives are
having difficulty identifying enough property at a price acceptable under our
investment criteria to grow our overall investment banking/investment services
business. Lower revenues from this business reduced net income and Adjusted
Funds From Operations (AFFO). As the first quarter of 2006 ends, valuation
levels for many top quality investment properties remain at historically high
levels, with significant competition from a variety of capital sources to
acquire them. 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). We also continue to evaluate whether our in-house sales force is capable,
either through our existing client base or through new clients, of raising
sufficient investment capital in Sponsored REITs to achieve future performance
objectives.
Results of Operations
We consider contribution from each of our two business segments, Real Estate
Operations and Investment Banking/Investment Services in evaluating performance.
Contribution includes revenue from each segment, less related expenses such as
rental property operating expenses, depreciation and amortization, commissions
and interest income and expense. Selling, general and administrative expenses
arise primarily from corporate related expenses and costs associated with our
headquarters in Wakefield, Massachusetts where both business segments are
managed. Over the last few years there has been a shift in expense and cost
allocation between the segments from being primarily related to investment
banking activity to a greater focus on real estate operations. This shift has
occurred as a result of:
o The increase in the number of owned properties in our real estate
portfolio, and related direct acquisition and disposition of real
estate assets;
o The trend to a lower level of syndication proceeds from the
investment banking segment; and
15
o An increased level of management time related to our real estate
operations.
As a result of this internal shift, we compare the total selling, general and
administrative expenses from period-to-period as we believe it more meaningful
than comparison of allocated expenses to each segment.
The following table shows each segment for the three months ended March 31, 2006
and 2005.
(in thousands)
Three months ended March 31,
--------------------------------------
Real Estate Operations 2006 2005 Change
---- ---- ------
Revenues:
Rental income $ 24,281 $ 12,433 $ 11,848
Transaction fees 1,693 2,125 (432)
Management fees and interest income from loans 193 975 (782)
---------------------------------------
26,167 15,533 10,634
---------------------------------------
Expenses:
Real estate operating expenses 4,992 2,522 2,470
Real estate taxes and insurance 2,733 1,828 905
Depreciation and amortization 5,344 2,589 2,755
Interest 594 955 (361)
---------------------------------------
13,663 7,894 5,769
---------------------------------------
Other items:
Interest income 579 222 357
Equity in earnings in non-consolidated REIT's 80 665 (585)
--------------------------------------
659 887 (228)
---------------------------------------
Contribution from real estate 13,163 8,526 4,637
---------------------------------------
Investment Banking/Investment Services:
Syndication fees 1,921 2,519 (598)
Transaction fees 246 317 (71)
---------------------------------------
2,167 2,836 (669)
---------------------------------------
Expenses:
Commissions 1,022 1,324 (302)
Depreciation and amortization 33 34 (1)
---------------------------------------
1,055 1,358 (303)
---------------------------------------
Other items:
Interest income 9 8 1
Taxes on income (57) (44) (13)
---------------------------------------
(48) (36) (12)
---------------------------------------
Contribution from investment banking 1,064 1,442 (378)
---------------------------------------
Selling, general and administrative expenses 1,805 1,825 (20)
---------------------------------------
Income from continuing operations (Combined) 12,422 8,143 4,279
Discontinued operations, less applicable income tax:
Income from discontinued operations 717 2,280 (1,563)
---------------------------------------
Net income $ 13,139 $ 10,423 $ 2,716
=======================================
16
Comparison of the three months ended March 31, 2006 to the three months ended
March 31, 2005
The real estate segment includes operating results of properties held in
our real estate portfolio, commitment fee income earned on real estate loans and
development fees earned for services provided. During 2005 we increased the real
estate portfolio by four properties from a merger and two properties by
acquisitions completed during the year. We also sold six properties in the
second half of 2005 and reached an agreement to sell another property, which is
expected to close in 2006. As of December 31, 2005 we operated 27 properties and
had one property held for sale. During the first quarter of 2006 we acquired one
property and in April 2006 reached agreement to sell another property, which is
expected to close in the second quarter. As of March 31, 2006 we operated 27
properties and had two properties held for sale.
Acquisitions, Mergers and Dispositions:
In February 2005 we acquired one commercial property in Colorado, on April
30, 2005 we completed the acquisition by merger of four Sponsored REITs, and in
July 2005 we acquired one commercial property in Indiana. The results of
operations for each of the acquired or merged properties are included in our
operating results as of their respective purchase date or the merger date of
April 30, 2005. Increases in rental revenues and expenses for the quarter ended
March 31, 2006 as compared to the first quarter of 2005 are primarily a result
of having the Colorado acquisition and the impact of the 2005 merger for the
entire first quarter of 2006, while in first quarter of 2005 we had the Colorado
property for about half of the quarter. The operating results of the six
properties sold and the properties held for sale were classified as discontinued
operations in our financial statements for all periods presented.
Investment Banking:
The investment banking/investment services segment is primarily based on
the gross proceeds from the sale of securities of the Sponsored REITs. During
the three months ended March 31, 2006 our investment banking/investment services
segment had total gross proceeds of $29.2 million; which was derived from the
syndication of FSP Phoenix Tower Corp. For the three months ended March 31, 2005
there were total gross proceeds of $37.0 million, which included completion of
the syndication for FSP 505 Waterford Corp. and a continuing syndication of FSP
Galleria North Corp., which had been started in the fourth quarter of 2004. As a
result, total gross proceeds decreased $7.8 million for the three months ended
March 31, 2006 compared to three months ended March 31, 2005. The syndication
currently in process commenced in February 2006, as compared to 2005, which had
syndications in process for the entire three month period.
Overview
Total revenues increased $10.0 million to $28.3 million for the first
quarter ended March 31, 2006, as compared to $18.3 million for the quarter ended
March 31, 2005. Total expenses were $16.5 million for the quarter ended March
31, 2006, which was an increase of $5.4 million compared to the quarter ended
March 31, 2005.
Each segment is discussed below.
Real Estate Operations
Contribution from the real estate segment was $13.2 million for the three
months ended March 31, 2006; an increase of $4.6 million, compared to the three
months ended March 31, 2005. The increase is primarily attributable to:
o An increase to real estate operating income of $8.5 million to $16.6
million for the three months ended March 31, 2006 compared to $8.1
million for same period in 2005. We define real estate operating
income as rental revenues less real estate operating expenses, real
estate taxes and insurance. The increase was primarily a result of:
- Real estate operating income from four properties we acquired
by merger on April 30, 2005, and acquisitions by direct
purchase of properties in Colorado during February 2005,
Indiana during July 2005 and Texas during February 2006. Real
estate operating income from acquisitions is included in
current operating income. Each of these acquisitions resulted
in an increase in real estate operating income for the first
quarter of 2006 compared to the first quarter of 2005; and
- A $4.6 million lease termination payment from a tenant in
Illinois.
o A decrease in interest expense of $0.4 million resulting from a
lower average loan balance outstanding for syndications in process
during the three months ended March 31, 2006 compared to the three
months ended March 31, 2005, which was partially offset by higher
interest rates in the 2006 period than the 2005 period.
17
o An increase to interest income of $0.4 million during the three
months ended March 31, 2006, which was primarily a result of higher
interest rates earned on higher average balances of cash, cash
equivalents and other investments compared to the three months ended
March 31, 2005.
These increases were partially offset by:
o A $0.4 million decrease in transaction (loan commitment) fees, which
was principally caused by the decrease in gross syndication proceeds
in the quarter compared to the same period in 2005.
o A decrease in management fees and loan interest income of $0.8
million as a result of fewer properties managed during the three
months ended March 31, 2006 compared to 2005, and, a decrease in
loan interest income. The decrease in loan interest income was
principally a result of no loan balance outstanding until February
2006 in our first quarter of 2006, as compared to the first quarter
of 2005, when a large syndication was underway for the entire
quarter. The impact of this decrease was partially mitigated by
increases in overall interest rates between the two periods.
o An increase in depreciation expense of $2.7 million to $5.3 million
for the three months ended March 31, 2006 as compared to $2.6
million for the same period in 2005. The increase was primarily a
result of property acquisitions over the last twelve months.
o A decrease in equity in income from non-consolidated REITs of $0.6
million, which was principally a result of a syndication, which was
in process for only a portion of our first quarter of 2006, as
compared to the first quarter of 2005, when a large syndication was
underway for the entire quarter.
Investment Banking/Investment Services
Contribution from the investment banking and services segment was $1.1
million for the three months ended March 31, 2006; a decrease of $0.4 million,
compared to the three months ended March 31, 2005. The decrease was primarily
attributable to:
o A decrease in syndication and transaction fee revenues of $0.7
million, which was primarily attributable to a lower level of gross
syndication proceeds during the three months ended March 31, 2006
compared to the three months ended March 31, 2005.
o A decrease in commission expense of $0.3 million, which relates to
the decrease in gross syndication proceeds.
o There were insignificant changes to depreciation; interest income
and income taxes during the three months ended March 31, 2006
compared to the three months ended March 31, 2005.
Selling, general and administrative expenses
Selling, general and administrative costs increased insignificantly during
the three months ended March 31, 2006 compared to the three months ended March
31, 2005.
Income from continuing operations
Contribution from both segments, net of selling, general and
administrative expenses for the first quarter of 2006 increased $4.3 million to
$12.4 million compared the first quarter of 2005 for the reasons discussed
above.
Discontinued Operations
During 2005, we sold six properties and classified one property in
California as held for sale. During April 2006, an agreement was reached to sell
an office property in Fairfax, Virginia, which is expected to be sold in the
second quarter of 2006 at a gain and is also classified as held for sale.
Accordingly, each of the six properties sold and the two properties held for
sale are reported as discontinued operations on our financial statements for the
relevant periods presented. Income from discontinued operations of $0.7 million
for the three months ended March 31, 2006 resulted from the two properties that
are held for sale. Income from discontinued operations of $2.3 million for the
three months ended March 31, 2005 resulted from the six properties sold and the
two held for sale.
During the first and third quarter of 2005 the Company acquired two office
properties, one in Englewood, Colorado and another in Indianapolis, Indiana,
through borrowings under the Loan Agreement. During February 2006 the Company
acquired an office property in Addison, Texas with cash. Proceeds from the sale
of properties during 2005 were used to repay the borrowings and was a source of
cash used to acquire the property in 2006.
The Company will continue to evaluate its portfolio, and from time-to-time
may decide to dispose of other properties.
18
Net Income
Net income for the three months ended March 31, 2006 increased $2.7
million to $13.1 million compared to $10.4 million for the reasons discussed
above.
Liquidity and Capital Resources
Cash and cash equivalents were $33.3 million and $69.7 million at March
31, 2006 and December 31, 2005, respectively. This decrease of $36.4 million is
attributable to $18.8 million provided by operating activities, less $78.2
million used for investing activities, plus $23.0 million provided by financing
activities. Management believes that existing cash, cash anticipated to be
generated internally by operations, cash anticipated to be generated by fees and
commissions from the sale of preferred stock in future Sponsored REITs and our
line of credit will be sufficient to meet working capital requirements and
anticipated capital expenditures and improvements for at least the next 12
months. 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 significant 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.
Operating Activities
The cash provided by our operating activities of $18.8 million is
primarily attributable to net income of $13.1 million, plus the add-back of $7.0
million of non-cash activity and was partially offset by decreases in accrued
compensation and changes in other current operating accounts of $1.3 million.
Investing Activities
Our cash used for investing activities of $78.2 million is attributable to
our investment in assets held for syndication of $51.5 million, the purchase of
a property in Addison, Texas for $26.4 million, additions to real estate
investments and office equipment of approximately $0.3 million.
Financing Activities
Our cash provided by financing activities of $23.0 million is primarily
attributable to net proceeds from our line of credit of $41.5 million used to
purchase assets held for syndication, which were partially offset by
distributions to shareholders of $18.5 million.
Line of Credit
We have 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
$150,000,000. Borrowings under the Loan Agreement bear interest at either the
bank's prime rate (7.75% at March 31, 2006) or a rate equal to LIBOR plus 125
basis points (6.08% at March 31, 2006). The balance outstanding was $41,500,000
at March 31, 2006, and there was no balance outstanding at December 31, 2005. We
are in compliance with all bank covenants required by the Loan Agreement.
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
As of March 31, 2006 there was one asset held for syndication, consisting
of the office property owned by FSP Phoenix Tower Corp. and as of December 31,
2005 there were no assets held for syndication.
19
Assets Held for Sale
During 2005 an agreement was reached to sell a commercial property in
Santa Clara, California that is expected to be sold by December 2006 and is
anticipated to be sold at a gain. During April 2006 an agreement was reached to
sell a commercial property in Fairfax, Virginia, which is expected to be sold in
the second quarter of 2006 at a gain. Accordingly, as of March 31, 2006, these
properties are classified as held for sale on the balance sheet at their
respective cost basis.
Related Party Transactions
During the three months ended March 31, 2006, we began the syndication of
FSP Phoenix Tower Corp. On March 15, 2006 we entered into a plan of merger with
five 2006 Target REITs, which was approved by our Board of Directors and the
2006 Target REITs' Boards of Directors and was approved by shareholders of the
five 2006 Target REITs in April 2006. The Company completed the mergers on April
30, 2006. Upon the consummation of these mergers, the Company issued
approximately 10,972,000 shares of common stock to holders of preferred stock in
these five 2006 Target REITs. We did not enter into any other significant
transactions with related parties during the quarter ended March 31, 2006. For a
discussion of transactions between us and related parties during 2005, see
Footnote No. 5 "Related Party Transactions" to the Consolidated Financial
Statements of the Company's Annual Report on Form 10-K for the year ended
December 31, 2005.
Other Considerations
We generally pay the ordinary annual operating expenses of our properties
from the rental revenue generated by the properties. For the three months ended
March 31, 2006 and 2005, the rental income exceeded the expenses for each
individual property, with the exception of three properties we call Lyberty Way,
Santa Clara and Blue Ravine. The single tenant lease at the Lyberty Way property
located in Westford, Massachusetts, expired October 31, 2004. We have not re-let
this property and expect that it will not produce revenue to cover its expenses
in the second quarter. The property called Santa Clara has been vacant since
October 2005 and had operating expenses of $40,000 for the three months ended
March 31, 2006. The Santa Clara property is under agreement to be sold in 2006,
which is expected to be at a gain. The property called Blue Ravine, which was
sold on July 13, 2005, had been vacant since June 2003 and had operating
expenses of approximately $88,000 for the three months ended March 31, 2005.
20
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 March 31, 2006.
We borrow from time-to-time on our line of credit. These borrowings bear
interest at the bank's base rate (7.75% at March 31, 2006) or at LIBOR plus 125
basis points (6.08% at March 31, 2006), as elected by us when requesting funds.
As of March 31, 2006, $41,500,000 was outstanding under the line of credit
consisting of one borrowing at the LIBOR plus 125 basis point rate. We have used
funds drawn on our line of credit for the purpose of making interim mortgage
loans to Sponsored REITs and for interim financing of acquisitions. Generally
interim mortgage loans bear interest at the same variable rate payable by us
under our line of credit. We therefore believe that we have mitigated our
interest rate risk with respect to our borrowings for interim mortgage loans.
Historically we have satisfied obligations arising from interim financing of
acquisitions through cash or sale of properties in our portfolio, so we believe
that we can mitigate interest rate risk with respect to borrowings for interim
financing of acquisitions as well.
21
Item 4. Controls and Procedures.
Our management, with the participation of FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2006. Based on
this evaluation, FSP Corp.'s President and Chief Executive Officer and FSP
Corp.'s Chief Financial Officer concluded that, as of March 31, 2006, 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 Chief
Financial Officer by others within these entities as appropriate to allow timely
decisions regarding required disclosure, 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 March 31, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
22
PART II - OTHER INFORMATION
Item 1A. Risk Factors
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 or a reduction in cash
available for future dividends.
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 may not be able to find properties that meet our criteria for purchase.
Growth in our investment banking/investment services business and our
portfolio of real estate is dependent on the ability of our acquisition
executives to find properties for sale and/or development 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, and we would be unable to increase the
size of our portfolio of real estate.
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 against 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.
A default under our line of credit could have a material adverse effect on the
cash available for distribution to our stockholders and would limit our growth.
We typically draw on our line of credit to make an interim mortgage loan
to a Sponsored REIT, so that the Sponsored REIT can acquire real property prior
to the consummation of the offering of such Sponsored REIT's equity interests.
Once the offering has been completed, the Sponsored REIT repays the loan out of
the offering proceeds. We also may use the line of credit to purchase properties
directly for our real estate portfolio. A default under our line of credit could
result in difficulty financing growth in both the investment banking/investment
services and real estate segments of our business. It could also result in a
reduction in the cash available for distribution to our stockholders because
revenue for our investment banking/investment services segment is directly
related to the amount of equity raised by Sponsored REITs which we syndicate. In
addition, a significant part of our growth strategy is to acquire additional
real properties by cash purchase or by acquisition of Sponsored REITs, and the
inability to utilize the line of credit would make it substantially more
difficult to pursue acquisitions by either method. To the extent we have a
balance outstanding on the line of credit on the date of its default, we would
have to satisfy our obligation 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 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.
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 our not being able to maintain or grow
dividend levels in the future.
23
The real properties held by us may significantly decrease in value.
As of April 28, 2006, we owned 29 properties, of which two were held for
sale. 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. The value of our common stock may be adversely
affected if the real properties held by us decline in value since these real
properties represent the majority of the tangible assets held by us. Moreover,
if we are forced to sell or lease the real property held by us below its initial
purchase price or its carrying costs or if we are forced to lease real property
at below market rates because of the condition of the property, our results of
operations would be adversely affected and such negative results of operations
may result in lower dividends being paid to holders of our common stock.
New acquisitions may fail to perform as expected.
We may acquire new properties, whether by direct FSP Corp. purchase with
cash or our line of credit, by acquisition of Sponsored REITs or other entities
by cash or through the issuance of shares of our stock or by investment in a
Sponsored REIT. We acquired four Sponsored REITs and the properties they own on
April 30, 2005, and acquired a property in Colorado in February 2005, another
property in Indiana, in July 2005 and another property in Texas, in February
2006. 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, developing and operating real property.
An investment in us is subject to the risks incident to the ownership,
development and operation of real estate-related assets. These risks include the
fact that real estate investments are generally illiquid, which may affect 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. For
example, our standard lease term is five years, so approximately 20%, of our
rental revenue from commercial properties could be expected to expire each year.
Leases for residential properties generally expire in less than one year.
We face risks from geographic concentration.
The properties in our portfolio as of March 31, 2006, excluding those held
for sale, by aggregate square footage, are distributed geographically as
follows: Southwest - 30%, Northeast - 18%, Midwest - 22%, West - 19% and
Southeast 11%. However, within certain of those regions, we hold a larger
concentration of our properties in Dallas, Texas - 19%, Houston, Texas - 9% and
Chesterfield, Missouri 8%. 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 currently
located and in every market in which properties we may acquire in the future
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
24
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.
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, any of 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 our stockholders.
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 most properties
located in California 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;
25
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.
The provisions of the tax 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, as a result of our acquisition of the target REITs pursuant to the
mergers, we might no longer qualify as a real estate investment trust. We could
lose our ability to so qualify for a variety of reasons relating to the nature
of the assets acquired from the target REITs, the identity of the shareholders
of the target REITs who become our shareholders or the failure of one or more of
the target REITs to have previously qualified as a real estate investment trust.
Moreover, you should note that if one or more of the REITs that we acquired in
April 2006, April 2005 or June 2003 did not qualify as a real estate investment
trust immediately prior to the consummation of its acquisition, we could be
disqualified as a REIT as a result of such acquisition.
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 regular 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 our 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.
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.
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 our
equity shares, 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. 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 2006, 2007 and 2008, 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.
26
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.
Our employee retention plan may prevent changes in control.
During February 2006, our Board of Directors approved a change in control
plan, which included a form of retention agreement and discretionary payment
plan. Payments under the discretionary plan are capped at 1% of the market
capitalization of FSP Corp. as reduced by the amount paid under the retention
plan. The costs associated with these two components of the plan may have the
effect of discouraging a third party from making an acquisition proposal for us
and may thereby inhibit a change in control under circumstances that could
otherwise give the holders of our common stock the opportunity to realize a
greater premium over the then-prevailing market prices.
The price of our common stock may vary.
The market prices for our common stock may fluctuate with changes in
market and economic conditions, including the market perception of REITs in
general, and changes in the financial condition of our securities. Such
fluctuations may depress the market price of our common stock independent of the
financial performance of FSP Corp. The market conditions for REIT stocks
generally could affect the market price of our common stock.
27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
(c) The following table provides information about purchases by Franklin
Street Properties Corp. during the quarter ended March 31, 2006 of equity
securities that are registered by the Company pursuant to Section 12 of the
Exchange Act:
ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d)
Maximum Number (or
Total Number of Approximate Dollar
Shares (or Units) Value) of Shares (or
Purchased as Part Units) that May Yet Be
Total Number of Average Price of Publicly Purchased Under the
Shares (or Units) Paid per Share Announced Plans Plans or Programs
Period Purchased (1) (2) (or Unit) or Programs (1) (2) (1) (2)
- -------------------------------------------------------------------------------------------------------------------------
01/01/06-01/31/06 0 N/A 0 $21,008,101
- -------------------------------------------------------------------------------------------------------------------------
02/01/06-02/28/06 0 N/A 0 $21,008,101
- -------------------------------------------------------------------------------------------------------------------------
03/01/06-03/30/06 0 N/A 0 $21,008,101
- -------------------------------------------------------------------------------------------------------------------------
Total: 0 N/A 0 $21,008,101
- -------------------------------------------------------------------------------------------------------------------------
(1) Our Articles of Incorporation provide that we will use our best
efforts to redeem shares of our common stock from stockholders who request such
redemption. Any FSP Corp. stockholder wishing to have shares redeemed must make
such a request no later than July 1 of any year for a redemption that would be
effective the following January 1. This obligation is subject to significant
conditions. However, as our common stock is currently listed for trading on the
American Stock Exchange, we are no longer obligated to, and do not intend to,
effect any such redemption.
(2) On October 28, 2005 FSP Corp. announced that the Board of Directors of
FSP Corp. had authorized the repurchase of up to $35 million of the Company's
common stock from time to time in the open market or in privately negotiated
transactions. The stock repurchase expires at the earlier of (i) November 1,
2007 or (ii) a determination by the Board of Directors of FSP Corp. to
discontinue repurchases.
Item 5. Other Information:
For purposes of Regulation FD the Company has attached a table regarding
the investors in Sponsored REITs attached as Exhibit 99.1 hereto.
28
PART II - OTHER INFORMATION (Continued)
Item 6. Exhibits:
2.1 Agreement and Plan of Merger by and among the Company, Blue Lagoon
Acquisition Corp., Innsbrook Acquisition Corp., Willow Bend Acquisition
Corp., 380 Interlocken Acquisition Corp., Eldridge Green Acquisition
Corp., FSP Blue Lagoon Drive Corp., FSP Innsbrook Corp., FSP Willow Bend
Office Center Corp., FSP 380 Interlocken Corp. and FSP Eldridge Green
Corp., dated as of March 15, 2006 (1)
10.1 Form of Retention Agreement (2)
10.2 Change in Control Discretionary Plan (3)
10.3 Summary of Executive Compensation. (4)
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 Chief Financial Officer 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 Chief Financial 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.
99.1 Table regarding investors in Sponsored REITs.
- ----------
(1) Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K
dated March 15, 2006 (File No. 001-32470) and incorporated herein by
reference.
(2) Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2005 (File No. 001-32470) and
incorporated herein by reference.
(3) Filed as Exhibit 99.2 to the Company's Current Report on Form 8-K
dated February 3, 2006 (File No. 001-32470) and incorporated herein
by reference.
(4) Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2005 (File No. 001-32470) and
incorporated herein by reference.
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
---- --------- -----
Date: May 8, 2006 /s/ George J. Carter Chief Executive Officer and Director
-------------------------- (Principal Executive Officer)
George J. Carter
Date: May 8, 2006 /s/ John G. Demeritt Chief Financial Officer
-------------------------- (Principal Financial Officer)
John G. Demeritt
30