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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10/A
POST-EFFECTIVE AMENDMENT TO GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
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Amendment No. 4
The undersigned hereby amends in its entirety its General Form for
Registration of Securities on Form 10.
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in its Charter)
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Massachusetts 04-2724223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Edgewater Place, Suite 200
Wakefield, MA 01880-6210
(Address of principal offices)
(781) 557-1300
(Registrant's telephone number, including area code)
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Securities to be registered under Section
12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Units of
Limited Partnership Interest
(Title of class)
A list of exhibits is located in Item 15(b).
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Table of Contents
10-12G
Item 1. Business............................................................ 1
Item 2. Financial Information............................................... 3
Item 3. Properties.......................................................... 15
Item 4. Security Ownership of Certain Beneficial Owners and Management...... 16
Item 5. Directors and Executive Officers.................................... 17
Item 6. Executive Compensation.............................................. 19
Item 7. Certain Relationships and Related Transactions...................... 19
Item 8. Legal Proceedings................................................... 20
Item 9. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters..................................... 20
Item 10. Recent Sales of Unregistered Securities............................. 21
Item 11. Description of Registrant's Securities to be Registered............. 21
Item 12. Indemnification of Directors and Officers........................... 22
Item 13. Financial Statements and Supplementary Data......................... 23
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................ 23
Item 15. Financial Statements and Exhibits................................... 25
Item 1. Business
Franklin Street Partners Limited Partnership (the "Partnership") was
formed as a Massachusetts general partnership in January 1997 as the successor
to a Massachusetts general partnership, that was formed in 1981 and known as
Franklin Street Partners, and subsequently formed as a Massachusetts limited
partnership in February 1997. The Partnership holds a 99% interest in FSP
Investments LLC, a Massachusetts limited liability company ("FSP Investments"),
a 99% interest in FSP Property Management LLC, a Massachusetts limited liability
company ("FSP Property Management"), and a 100% interest in FSP Holdings LLC, a
Delaware limited liability company ("FSP Holdings").
FSP Investments acts as a real estate investment firm and broker/dealer
with respect to (a) the organization of investment vehicles which are typically
syndicated through private placements exempt from registration under the
Securities Act of 1933 ("Sponsored Entities"), some of which are limited
partnerships (the "Sponsored Partnerships") and some of which are corporations
intended to qualify for tax purposes as real estate investment trusts (the
"Sponsored REITs"), (b) the acquisition of real estate by the Sponsored Entities
and (c) the sale of equity interests in the Sponsored Entities. FSP Investments
derives revenue from commissions received in connection with the sale of equity
interests in the Sponsored Entities. FSP Investments also derives revenue from
acquisition fees paid by the Sponsored Entities for the services of FSP
Investments in identifying, inspecting and negotiating to purchase real
properties on behalf of the Sponsored Entities. FSP Investments is a registered
broker/dealer with the Securities and Exchange Commission and is a member of the
National Association of Securities Dealers, Inc.
Between June 1997 and June 2000, FSP Investments completed the offerings
of limited partnership interests in 14 Sponsored Partnerships. The sole general
partner of each of the Sponsored Partnerships is FSP Holdings. On April 1, 1997,
FSP Holdings acquired the general partnership interest in four additional
Sponsored Partnerships (the "Prior Entities"), each of which had been organized
by the executive officers of the general partner of the Partnership prior to the
formation of the Partnership while they were employed by another entity. The
general partner of the Partnership is FSP General Partner LLC, a Massachusetts
limited liability company (the "General Partner"). The members of the General
Partner and their respective ownership interests therein are George J. Carter
(33.94%), R. Scott MacPhee (30.66%), Richard R. Norris (21.40%), William W.
Gribbell (11.36%), Barbara J. Corinha (1.60%), Melissa G. Mucciaccio (0.67%),
Janet P. Notopoulos (0.26%) and Patricia A McMullen (0.11%). The General Partner
has no other business other than acting as general partner of the Partnership.
The executive officers of the General Partner devote all of their business
activities to the Partnership and its subsidiaries.
Between June 2000 and December 31, 2000, FSP Investments completed the
offerings of preferred stock in three Sponsored REITs. The Partnership expects
that future Sponsored Entities will be Sponsored REITs. Effective January 1,
2001, one of the Sponsored Partnerships converted from a Partnership to a
Sponsored REIT. Accordingly, as of January 1, 2001, there were 21 Sponsored
Entities, of which 17 were Sponsored Partnerships and four were Sponsored REITs.
Each Sponsored Entity sold its equity interests only to "accredited
investors'" within the meaning of Regulation D under the Securities Act. The
Sponsored Entities (other than a Prior Entity that conducted its offering
pursuant to a registration statement on Form S-11) conducted their offerings
pursuant to exemptions from registration under Rule 506 of Regulation D and
Section 4(2) of the Securities Act. The Sponsored Entities issued equity
interests for aggregate gross cash proceeds of $277,100,000. Each Sponsored
Entity holds a single real property. FSP Property Management provides property
management services to each Sponsored Entity.
Pursuant to mergers effective January 1, 1999, January 1, 2000 and October
1, 2000, respectively, the Partnership acquired 17 Sponsored Partnerships. In
connection with these mergers, the Partnership issued units of its limited
partnership interest (the "Units") to the limited partners of the Sponsored
Partnerships. The mergers that were effective January 1, 1999 were approved by a
vote of limited partners of the Partnership. Neither the Partnership's governing
documents nor applicable state law required the approval of the limited partners
of the Partnership for the mergers that were effective January 1, 2000 and
October 1, 2000. Each merger was approved by a vote of the limited partners of
the applicable Sponsored Partnerships. Pursuant to the mergers, limited partners
in the Sponsored Partnerships exchanged an interest in a finite-life entity for
an interest in an infinite-life entity. As a result of the mergers, FSP Holdings
is the sole general partner of each Sponsored Partnership that was acquired and
the Partnership is the sole limited partner of each such Sponsored Partnership.
Accordingly, the Partnership owns, directly and indirectly, 100% of the interest
in the 17 Sponsored Partnerships, each of which owns real property. Reference in
this registration statement to the Partnership's properties means the real
properties owned by these 17 Sponsored Partnerships. The four Sponsored REITs
have not been acquired by the Partnership and continue to operate as independent
entities.
1
FSP Property Management provides property management services to each
Sponsored Entity and receives fee income from those Sponsored Entities that have
not been acquired by the Partnership. FSP Property Management does not receive
any rental income.
FSP Holdings acts as the general partner of each Sponsored Partnership.
The Partnership has two principal sources of revenue:
o Investment banking income consisting of brokerage commissions,
property acquisition, loan origination and other fees in connection
with the organization and offering of Sponsored Entities.
o Rental income from the real properties it owns.
The Partnership's investment objective is to increase the cash available
for distribution to its partners by increasing its revenue from investment
banking services nd rental income. The Partnership expects that, through FSP
Investments, it will continue to organize and cause the offering of Sponsored
Entities in the future and that it will continue to derive investment banking
income from such activities. The Partnership also expects that in the future it
will acquire additional real properties, either on its own behalf for cash
(although it has not to date done so) or through the acquisition by merger of
all the equity interest in Sponsored Entities through the issuance of Units of
limited partnership interest. The Partnership may sell from time to time the
real properties it owns as market conditions warrant (although it has not to
date done so) and either distribute the proceeds to its partners or retain some
or all of such proceeds for investment in real properties or other Partnership
activities. The Partnership may acquire real properties in any geographic area
of the United States and of any property type. Of the 17 properties the
Partnership owns, four are apartment complexes, 11 are office buildings and two
are industrial; four of these properties are located in Texas, three properties
are located in Massachusetts, three properties are located in northern
California, two properties are located in Maryland, and one property is located
in each of southern California, Louisiana, Michigan, North Carolina and South
Carolina. See Item 3 hereof. The Partnership has no restrictions on the
percentage of its assets that may be invested in any one real property. The
Partnership acquires its properties primarily for their rental income but seeks
to manage its properties with a goal of increasing their value.
The Partnership relies on the following principles in selecting real
properties for acquisition by a Sponsored Entity or the Partnership:
o Buying investment properties at a price which produces value for
investors and avoiding overpaying for real estate merely to outbid
competitors.
o Buying properties with excellent location with substantial
infrastructure in place around them and avoiding investing in
locations where the construction of such infrastructure is
speculative.
o Buying properties that are well-constructed and designed to appeal
to a broad base of users and avoiding properties where quality has
been sacrificed to cost savings in construction or which appeal only
to a narrow group of users.
o Aggressively managing, maintaining and upgrading a property and
refusing to neglect or undercapitalize management, maintenance and
capital improvement programs.
o Having the ability to hold properties through down cycles and
avoiding overleveraging properties and placing them at risk of
foreclosure.
The Partnership acquires and operates its real properties on an
unleveraged basis not subject to any mortgage loans. The Partnership has a
revolving line of credit that provides for borrowings of up to $53,000,000. The
Partnership has drawn on this line of credit, and intends to draw on this line
of credit in the future, only to obtain funds for the purpose of making interim
mortgage loans to Sponsored Entities. The Partnership's policy is to cause these
loans to be secured by a first mortgage of the real property (which may be of
any type) owned by the Sponsored Entity. The Partnership makes these loans to
enable a Sponsored Entity to acquire real property prior to the consummation of
the offering of its equity interests, and the loan is repaid out of the offering
proceeds. The Partnership has no restriction on the percentage of its assets
that may be invested in any single mortgage. The Partnership receives revenue
from origination fees and interest in connection with such mortgage loans. The
interest the Partnership charges is at the same rate as the interest payable by
the Partnership from time to time under its line of credit. The origination fees
the Partnership charges range from approximately 4% to approximately 7% of the
principal amount of the loan.
2
The Partnership's policy is not to invest in the securities of other
issuers except short-term investments in money market funds and similar
securities and the holding of a nominal interest in Sponsored REITs for the
purpose of facilitating the organization and operation of such Sponsored REITs.
The Partnership does not expect to receive any material amounts of revenue from
its nominal interest in any Sponsored REITs.
The Partnership's policy is not to issue senior securities, borrow money
(except as described above), make loans to other persons (except as described
above), invest in the securities of other issuers for the purpose of exercising
control, underwrite the securities of other issuers (except that FSP Investments
expects to continue to sell interests in Sponsored Entities on a best efforts
basis in offerings exempt from registration under the Securities Act) or offer
securities in exchange for property. The Partnership expects that it will engage
in the purchase and sale of real estate investments as market conditions
warrant. The Partnership may repurchase or otherwise reacquire its securities.
The Partnership's policy is to deliver annual reports to each partner, including
financial statements certified by independent public accountants.
Any of the Partnership's policies may be changed at any time by the
General Partner without the consent of the limited partners.
With respect to its investment banking and brokerage business, the
Partnership faces competition for the investment dollars of potential purchasers
of the Sponsored Entities from every other kind of investment, including stocks,
bonds, mutual funds and other real-estate related investments, including REITs.
Some of the Partnership's competitors have significantly more resources than the
Partnership and are able to advertise their investment products. Because the
offerings of the Sponsored Entities are made pursuant to an exemption from
registration under the Securities Act, FSP Investments may not advertise the
Sponsored Entities or otherwise engage in any general solicitation of investors
to purchase interests in the Sponsored Entities.
With respect to its real estate investments, the Partnership faces
competition in each of the markets where the properties are located. See
"Financial Information -- Management's Analysis and Discussion of Financial
Condition and Results of Operations -- Trends and Uncertainties" in Item 2
hereof. As of December 31, 2000, each of the Partnership's 17 properties had an
occupancy level in excess of 90%.
The rights, duties and obligations of the General Partner are set forth in
the Partnership's Third Amended and Restated Limited Partnership Agreement,
dated as of January 1, 2000, as amended (the "Partnership Agreement"). See Item
11 hereof. The General Partner has the exclusive right to manage the business of
the Partnership. The General Partner has no management agreement or other
contractual arrangement with the Partnership. The Partnership pays no fees or
other compensation to the General Partner or to the Partnership's subsidiaries
and affiliates. The General Partner is entitled to reimbursement by the
Partnership for its out-of-pocket expenses. No such expenses were reimbursed in
the year ended December 31, 2000. The executive officers of the General Partner
receive compensation from the Partnership and FSP Investments. See Item 6
hereof.
The Partnership had 22 employees as of December 31, 2000.
Item 2. Financial Information.
Special Note Regarding Forward-Looking Statements
This registration statement contains forward-looking financial statements.
These statements relate to future events or our future financial performance. In
some cases, one can identify forward-looking statements by terminology. For
example, "may", "will", "should", "expect", "plan", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", or the negative of these terms
or other comparable terminology, indicate forward-looking statements. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, an investor should specifically consider various
factors set forth under "Management's Discussion and Analysis -- Risk Factors".
These factors may cause our actual results to differ materially from any
forward-looking statement.
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 registration statement to
conform them to actual results or to changes in our expectations that occur
after the date of this registration statement, other than as required by law.
3
Selected Financial Data
The following selected financial information is derived from the
historical consolidated financial statements of the Partnership. This
information should be read in conjunction with "Financial
Information--Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 2 hereof and with the Partnership's consolidated
financial statements and related notes thereto included in Item 13 hereof.
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
(dollars in thousands, except per partnership unit data)
Quarter Ended
March 31, Year Ended December 31,
------------------------ ----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
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(unaudited) (unaudited) (unaudited) (unaudited)
OPERATING DATA:
Total revenues................. $12,787 $6,404 $34,793 $18,048 $11,555 $7,203 $3
Net income (loss).............. 6,002 (174) 8,914 1,139 (1,675) 272 (15)
Basic and diluted net income
(loss) per limited and general
partnership unit............... $0.25 ($0.01) $0.40 $0.09 ($0.88) $0.14 N/A(a)
As of December 31,
As of March 31, ----------------------------------------------------------
2001 2000 1999 1998 1997 1996
------------------------ ----------------------------------------------------------
(unaudited)
BALANCE SHEET DATA
(AT PERIOD END):
Total assets................... $204,114 $219,923 $190,486 $95,886 $66,117 $71
Total liabilities.............. 4,032 19,280 28,821 1,294 1,639 --
Minority interests in
consolidated entities.......... 67 63 78,090 89,593 56,304 --
Total partners' capital........ 200,015 200,580 83,575 93,856 64,478 71
(a) The Partnership was owned 100% by three general partners in 1996. No
units were issued until 1997.
The 2000 and 1999 financial statements reflect the merger of seventeen
Sponsored Partnerships. Prior to the merger the Partnership owned a controlling
general partner interest in the seventeen Sponsored Partnerships--See Note 4 to
the consolidated financial statements of the Partnership and "Financial
Information--Management's Discussion and Analysis of Financial Condition and
Results of Operations."
4
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following information should be read in conjunction with the
consolidated financial statements included at Item 13.
The Partnership operates in two business segments: rental operations and
investment banking services. FSP Investments provides real estate investment and
broker/dealer services that include: (a) the organization of Sponsored REITs in
2000 and Sponsored Partnerships prior to 2000, which were syndicated through
private placements; (b) the acquisition of real estate on behalf of the
Sponsored Entities; and (c) the sale of preferred stock in Sponsored REITs or
limited partnership interests in the Sponsored Partnerships. The following table
summarizes property owned by the Partnership and the Sponsored Partnerships for
quarter ended March 31, 2001 and the three years ended December 31, 2000, 1999
and 1998.
December 31,
March 31, ------------------------------------
2001 2000 1999 1998
------------- ----------- ------------ -----------
Residential
Number of Properties.............................. 4 4 4 4
Number of Apartment Units......................... 642 642 642 642
Commercial
Number of Properties.............................. 13 13 12 5
Square Footage.................................... 1,433,300 1,433,300 1,328,600 405,500
As described in Note 4 to Financial Statements, the Partnership has
consummated three series of mergers. As described above, the Partnership
operates in two segments, real estate operations and broker/dealer and real
estate investment services. Prior to the consummation of the first series of
mergers, the Partnership operated in the segment of broker/dealer and real
estate investment services. The first series of mergers added the real estate
operations of certain Sponsored Partnerships to the Partnership's business. The
nature of the Partnership's business was not changed by the second and third
series of mergers.
The mergers were accounted for as a purchase, whereby the assets and
liabilities of the Sponsored Partnerships were recorded at their fair values and
transaction costs were capitalized. In December 2001, the Partnership restated
its previously reported consolidated financial statements for the years ended
December 31, 2000, 1999 and 1998 to reflect certain adjustments related to the
Partnerships change in accounting treatment for the merger transactions. See
Note 4 to the consolidated financial statements.
In each merger the Partnership acquired the minority interests in the
Sponsored Parnterships. None of the merged Sponsored Partnerships was subject
to debt financing and no debt was assumed or created at the time of the merger.
The investors of the merged entities exchanged their interests for an interest
in the Partnership. There were no cash payments and no contingent payments.
The acquisitions have affected the Partnership in two ways: the real
estate portfolio is more diverse, both geographically and with respect to
property type; and the Partnership has a larger borrowing capacity.
The following table sets forth the identity of each merged Sponsored
Partnership, the date of its merger and the estimated value ascribed to that
Partnership.
Estimated Value
at Merger Date (in
Merged Partnership Merger Date thousands)
------------------- ------------------ --------------------------
Essex Lane January 1, 1999 $11,339
FSP Apartment Properties (REATA) January 1, 1999 12,591
One Technology January 1, 1999 11,989
FSP North Andover January 1, 1999 9,919
FSP Weslayan Oaks January 1, 1999 5,760
FSP Park Seneca January 1, 1999 10,126
FSP Santa Clara January 1, 1999 7,938
FSP Piedmont January 1, 1999 12,435
FSP Silverside January 1, 2000 19,063
FSP Hillview January 1, 2000 16,814
FSP Telecom January 1, 2000 5,328
5
Estimated Value
at Merger Date (in
Merged Partnership Merger Date thousands)
------------------- ------------------ --------------------------
FSP Southfield Centre October 1, 2000 16,412
FSP Blue Ravine October 1, 2000 6,475
FSP Bollman Place October 1, 2000 6,035
FSP Austin N.W. October 1, 2000 11,403
FSP Gateway Crossing October 1, 2000 20,870
FSP Lyberty Way October 1, 2000 10,612
During 2000, the Partnership was issued 100% of the common stock in three
Sponsored REITs for nominal consideration in connection with the organization of
such Sponsored REITs. Additionally, the Partnership's general partner interest
in one Sponsored Partnership was exchanged for the common stock in a newly
formed Sponsored REIT, in connection with this Sponsored Partnership's
reorganization from a limited partnership to a REIT on January 1, 2001. The
Partnership's cost of its investment in the Sponsored REITs approximates its
share of the underlying equity in the net assets of the REITs. The Partnership's
share of the Sponsored REITs' earnings, after deducting preferred stock
dividends paid or accrued, was not material for the year ended December 31,
2000.
The Sponsored REITs have issued both common stock and preferred stock. The
common stock is owned solely by the Partnership and the preferred stock is owned
by unaffiliated investors. Each Sponsored REIT was organized to acquire a single
real estate property using the proceeds raised through a private offering of its
preferred stock. The Sponsored REITs do not contemplate having any long-term
financing. Following consummation of the offerings, the preferred shareholders
in each of the Sponsored REITs are entitled to 100% of the Sponsored REIT's cash
distributions. As a common shareholder, the Partnership has no rights to the
Sponsored REIT's regular cash distributions. However, upon liquidation of the
Sponsored REITs, the Partnership will be entitled to its percentage interest in
any proceeds after the preferred shareholders have recovered their investment.
The Partnership's percentage interest in each Sponsored REIT is less than 1%.
The affirmative vote of the holders of a majority of the Sponsored REIT's
preferred stockholders is required for any actions involving merger, sale of
property, amendment to charter or issuance of additional capital stock. In
addition, all of the Sponsored REITs allow the holders of more than 50% of the
outstanding preferred shares to remove, without cause, and replace one or more
members of the REIT's Board of Directors.
Results of Operations
The following table shows the Partnership's financial data as a percentage
of total revenues for the quarters ended March 31, 2001 and 2000 and for the
three years ended December 31, 2000, 1999, and 1998 and the variance in dollars
between the quarters ended March 31, 2001 and 2000 and between the years ended
December 31, 2000 and 1999 and the years ended December 31, 1999 and 1998. See
Note 3 Business Segments of the Consolidated Financial Statements and
Supplementary Data for financial information about business segments.
Financial Data as a Percentage
of Total Revenues Variance in Dollars
------------------------------------------------ ----------------------------------------
For the Quarter For the Year Ended For the Quarter For the Years Ended
Ended March 31, December 31, Ended March 31, December 31,
------------------- ---------------------------- ----------------------------------------
2001 and 2000 and 1999 and
2001 2000 2000 1999 1998 2000 1999 1998
--------- --------- -------- --------- --------- ----------------------------------------
(in thousands) (in thousands)
REVENUES:
Rental income..................... 50.7% 96.8% 73.1% 90.4% 94.0% $ 290 $ 9,119 $ 5,456
Syndication and commission
income............................ 45.0% -- 21.8% 4.4% 0.0% 5,753 6,785 789
Interest and other income......... 4.3% 3.2% 5.1% 5.2% 6.0% 340 841 248
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 6,383 16,745 6,493
-------- -------- -------- -------- -------- -------- -------- --------
EXPENSES:
Selling, general and administrative 24.9% 40.5% 25.3% 28.9% 22.3% 588 3,572 2,648
Other real estate operating
expenses.......................... 11.0% 22.1% 18.7% 24.5% 26.1% (4) 2,060 1,417
Depreciation and amortization..... 10.0% 16.9% 13.3% 17.9% 18.2% 192) 1,382 1,127
Real estate taxes and insurance... 5.6% 10.8% 7.1% 8.0% 9.5% 24 1,025 347
Interest expense.................. 1.4% 6.0% 2.5% 1.7% 0.2% (202) 561 273
Minority interest................. 0.2% 6.4% 7.6% 12.6% 38.2% (391) 370 (2,133)
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses.................... 53.1% 102.7% 74.4% 93.7% 114.5% 207 8,970 3,679
-------- -------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)...................... 46.9% (2.7)% 25.6% 6.3% (14.5)% $6,176 $ 7,775 $ 2,814
======== ======== = ======== ====== ========= ======== ======== ========
6
Comparison Of The Quarter Ended March 31, 2001 To The Quarter Ended March 31,
2000.
Revenues
Total revenues increased $6.4 million or 99.7%, to $12.8 million for the
quarter ended March 31, 2001, as compared to $6.4 million for the quarter ended
March 31, 2000. Income from rental operations was $6.5 million for the quarter
ended March 31, 2001 compared to $6.2 million for the quarter ended March 31,
2000.
The increase in rental income of $290 thousand, or 4.7%, compared to the
quarter ended March 31, 2000, is attributable to the acquisition of one
commercial property in 2000, which contributed revenues for a full quarter in
2001, as compared with no revenue in 2000.
The increase in investment services (syndication and commission) income of
$5.8 million, compared to the quarter ended March 31, 2000, is attributable to
the syndication of two REITs in 2001. There were no syndications of any REITs in
the quarter ended March 31, 2000.
The increase in interest and other income of $340 thousand, or 165%,
compared to the quarter ended March 31, 2000 is attributable to interest earned
on higher cash balances, cash equivalents and marketable securities and higher
average yields in 2001 compared to 2000.
Expenses
Total expenses increased $207 thousand, or 3.1%, to $6.8 million for the
quarter ended March 31, 2001, as compared to $6.6 million for the quarter ended
March 31, 2000.
The increase in selling, general and administrative expenses of $588
thousand, or 22.7%, compared to the quarter ended March 31, 2000, is
attributable to:
o increased broker commissions and related costs of approximately $1.1
million;
o offset by decreased payroll and related expenses of $475 thousand;
o offset by decreased other costs of approximately $37 thousand.
Other real estate operating expenses for the quarter ended March 31, 2001
approximated other real estate operating expenses for the quarter ended March
31, 2000.
The increase in depreciation and amortization expenses of $192 thousand or
17.8%, compared to the quarter ended March 31, 2000, is primarily attributable
to the acquisition of one commercial property in 2000, which incurred costs for
a full quarter in 2001, as compared with no costs in 2000;
Real estate taxes and insurance expenses for the quarter ended March 31,
2001 approximated real estate taxes and insurance expenses for the quarter ended
March 31, 2000.
The decrease in interest expense of $202 thousand, or 52.2%, compared to
the quarter ended March 31, 2000, is primarily attributable to lower interest
rates and borrowings outstanding for a shorter period of time.
The decrease in minority interest expense of $391 thousand for the quarter
ended March 31, 2001 compared to the minority interest for the quarter ended
March 31, 2000 is a result of the October 2000 merger.
Comparison Of The Year Ended December 31, 2000 To The Year Ended December 31,
1999
Revenues
Total revenues increased $16.8 million or 92.8%, to $34.8 million for the
year ended December 31, 2000, as compared to $18.0 million for the year ended
December 31, 1999. Income from rental operations was $25.4 million for the year
ended December 31, 2000.
The increase in rental income of $9.1 million, or 55.9%, compared to the
year ended December 31, 1999, is attributable to:
o the acquisition of seven commercial properties in 1999, which
contributed revenues for a full year in 2000, as compared with a
partial year in 1999, resulting in $8.0 million in incremental
revenues;
o the acquisition of one commercial property in 2000, which
contributed revenues for a partial year in 2000, as compared with no
revenue in 1999, resulting in approximately $600 thousand in
incremental revenues;
7
o increased revenues of approximately $500 thousand as a result of
rent increases and other miscellaneous fees on existing properties.
The increase in investment services income of $6.8 million, or 859%,
compared to the year ended December 31, 1999, is attributable to the syndication
of three REITs in 2000 compared to the syndication of one unconsolidated
Sponsored Partnership in 1999.
The increase in interest and other income of $841 thousand, or 89.1%,
compared to the year ended December 31, 1999 is attributable to interest earned
on higher cash balances, cash equivalents and marketable securities and higher
average yields in 2000 compared to 1999.
Expenses
Total expenses increased $9.0 million, or 53.0%, to $25.9 million for the
year ended December 31, 2000, as compared to $16.9 million for the year ended
December 31, 1999.
The increase in selling, general and administrative expenses of $3.6
million, or 68.4%, compared to the year ended December 31, 1999, is attributable
to:
o increased payroll and related expenses of $3.0 million, of which
$2.3 million relates to equity based (non-cash) compensation;
o increased broker commissions and related costs of approximately $700
thousand;
o offset by decreased other costs of approximately $100 thousand.
The increase in other real estate operating expenses of $2.1 million, or
46.5%, compared to the year ended December 31, 1999, is primarily attributable
to the acquisition of seven commercial properties in 1999, which incurred costs
for a full year in 2000, as compared with a partial year in 1999.
The increase in depreciation and amortization expenses of $1.3 million or
44.8%, compared to the year ended December 31, 1999, is primarily attributable
to:
o the acquisition of seven commercial properties in 1999, which
incurred costs for a full year in 2000, as compared with a partial
year in 1999, resulting in $1.2 million in incremental expenses;
o the acquisition of one commercial property in 2000, which incurred
costs for a partial year in 2000, as compared with no costs in 1999,
resulting in approximately $100 thousand in incremental costs;
The increase in real estate taxes and insurance expenses of $1.0 million
or 70.8%, compared to the year ended December 31, 1999, is primarily
attributable to:
o the acquisition of seven commercial properties in 1999, which
incurred costs for a full year in 2000, as compared with a partial
year in 1999, resulting in approximately $800 thousand in
incremental expenses;
o tax increases on the existing properties of approximately $200
thousand.
The increase in interest expense of $561 thousand, or 187.6%, compared to
the year ended December 31, 1999, is primarily attributable to:
o the syndication of three REITs in 2000 compared to the syndication
of one unconsolidated Sponsored Partnership in 1999.
The increase in minority interest expense of $370 thousand for the year
ended December 31, 2000 compared to the minority interest for the year ended
December 31, 1999 is a result of the mergers completed during the year ended
December 31, 2000.
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998
Revenues
Total revenues increased $6.5 million or 56.2%, to $18.0 million for the
year ended December 31, 1999, as compared to $11.5 million for the year ended
December 31, 1998. Income from rental operations was $16.3 million in 1999.
8
The increase in rental income of $5.5 million, or 50.2%, compared to the
year ended December 31, 1998, is attributable to:
o the acquisition of two properties (one commercial, one residential)
in 1998 which contributed revenues for a full year in 1999, as
compared with a partial year 1998, resulting in $2.4 million in
incremental revenues;
o the acquisition of seven commercial properties 1999, which
contributed revenues for a partial year in 1999, as compared with no
revenue in 1998, resulting in $3.1 million in incremental revenues;
The increase in investment services income of $789 thousand, compared to
the year ended December 31, 1998, is attributable to the syndication of one
unconsolidated Sponsored Partnership in 1999. There was no investment services
revenue in 1998.
The increase in interest and other income of $248 thousand, or 35.6%,
compared to the year ended December 31, 1998 is attributable to interest earned
on higher cash balances and cash equivalents.
Expenses
Total expenses increased $3.7 million, or 27.8%, to $16.9 million for the
year ended December 31, 1999, as compared to $13.2 million for the year ended
December 31, 1998.
The increase in selling, general and administrative expenses of $2.6
million, or 102.8%, compared to the year ended December 31, 1998, is
attributable to:
o increased payroll and related expenses of approximately $700
thousand;
o increased broker commissions and related costs of $1.4 million;
o increased other costs of approximately $400 thousand.
The increase in other real estate operating expenses of $1.4 million, or
47.0%, compared to the year ended December 31, 1998, is primarily attributable
to:
o the acquisition of seven commercial properties in 1999, which
incurred costs for a partial year in 1999, as compared with no
expenses in 1998, resulting in approximately $400 in incremental
costs;
o the acquisition of two properties in 1998, which incurred costs for
a full year in 1999, as compared with a partial year in 1999,
resulting in approximately $900 thousand in incremental costs;
o increased costs of approximately $100 thousand on existing
properties.
The increase in depreciation and amortization expenses of $1.1 million or
37.7%, compared to the year ended December 31, 1998, is primarily attributable
to:
o the acquisition of seven commercial properties in 1999, which
incurred costs for a partial year in 1999, as compared with no
expense in 1998, resulting in $417 thousand in incremental expenses;
o the acquisition of two properties in 1998, which incurred costs for
a full year in 1999 compared with a partial year in 1998, resulting
in $376 thousand in incremental costs;
o the increased depreciable basis as a result of the January 1999
merger resulting in $334 thousand in incremental costs.
The increase in real estate taxes and insurance expenses of $347 thousand
or 31.5%, compared to the year ended December 31, 1998, is primarily
attributable to:
o the acquisition of seven commercial properties in 1999, which
incurred costs for a partial year in 1999, as compared with no
expense in 1998, resulting in $254 thousand in incremental expenses;
o the acquisition of two properties in 1998, which incurred costs for
a full year in 1999 compared with a partial year in 1998, resulting
in $251 thousand in incremental costs;
o offset by decreased costs of $158 thousand on existing properties.
The increase in interest expense of $273 thousand, or 1050%, compared to
the year ended December 31, 1998, is primarily attributable to the syndication
of one unconsolidated Sponsored Partnership in 1999 compared to the syndication
of no unconsolidated Sponsored Partnerships in 1998.
The decrease in minority interest expense of $2.1 million for the year
ended December 31, 1999 compared to the minority interest for the year ended
December 31, 1998 is a result of the Janaury 1999 merger.
9
Increases in Revenues
In June 2000, a vacant parcel of land in Peabody, Massachusetts, which was
part of the One Technology Drive property, was removed from the lease with
Alliant Foodservice, Inc., subdivided and sold for $1,100,000. Alliant
Foodservice, Inc. renewed its lease on the remaining land and building for a
higher rent than the prior rent on the unsubdivided land and building. In April
2001, the Partnership sold a vacant parcel of land that was part of the Gateway
Crossing property in Columbia, Maryland for $515,000. A subdivision and sale of
vacant land at the Partnership's Southfield Centre property is possible in the
future.
Effective October 15, 2000, Lucent Technologies extended the term of its
lease on the Partnership's property located in Santa Clara, California for five
more years. The first year's rent in the amount of $1,571,000 for the new lease
is approximately $835,000, or 213%, higher than the previous year's rent.
Trends and Uncertainties
The Partnership's properties in most locations benefited from the strong
economy and stock market in 2000. While rent increases in the Houston apartment
market slowed in 2000 as the market worked through a large inventory of new
product, office rents in high-demand markets, like Boston, Austin and Silicon
Valley increased, as evidenced by the lease renewals with Alliant Foodservice in
the Boston area and Lucent Technologies in Silicon Valley (which lease was
subsequently assigned to Agere). The Charlotte and Greenville office markets
were less robust with a significant amount of sublease space available.
Although the Partnership's real estate portfolio is diversified by
location, product type and tenancy, it is likely to be affected by deteriorating
general economic conditions in 2001. The Partnership's tenancy generally does
not include dot.com tenants as major tenants in any buildings. One tenant which
is engaged in e-commerce and occupies approximately 11% (7,586 square feet) of
the Partnership's Austin, Texas property was acquired by PSINet, which has filed
for bankruptcy protection. The Partnership is uncertain what effect the
bankruptcy will have on the tenant, which was not included in the filing. As of
June 14, 2001 the tenant had not paid the rent due June 1, 2001. In addition,
the Partnership has a number of tenants in the telecom and high technology
sectors and others whose businesses have slowed or whose stock prices have
tumbled. Several tenants have asked to sublet or reduce space. It is likely that
some tenants will be unable to pay rent and that some of the buildings will
suffer larger vacancies or lower rents in 2001 than in 2000 until the general
market conditions change.
The failure of many dot.com companies has put significant blocks of office
space back on the market in some of the Partnership's market areas, particularly
in Silicon Valley in California and Austin, Texas. Cutbacks at companies in
other industries have led those companies to offer sublease space at below
market rents, which has led to a further weakening in rents, larger vacancies
and lower prices for competing building space, particularly in Charlotte, North
Carolina and Greenville, South Carolina. These factors may affect the
Partnership's ability to retain and attract tenants in 2001 and the future. For
example, in the Charlotte, North Carolina market, both The Art Institutes and
Primary Physicians Care, which are companies that are growing, have given notice
that they will purchase their own buildings to take advantage of the
opportunities in the Charlotte market. In Greenville, South Carolina, Day &
Zimmermann intends to move to the top floor of a new high-rise building for less
rent than they have been paying in the Partnership's 1980's building. There are
no other major tenants with lease expirations in 2001, but there may be other
tenants who fail financially or who attempt to break their leases to take
advantage of favorable market conditions.
In the ordinary course of owning and operating real estate, the potential
could exist for the Partnership to dispose of one or more properties in its
portfolio. Market conditions in specific geographic locations could present the
Partnership with the opportunity to realize significant capital appreciation in
an asset's value. The Partnership maintains close attention to market conditions
in all geographic locations where its properties are located.
Liquidity and Capital Resources as of March 31, 2001
Cash and cash equivalents were $18.0 million and $13.7 million at March
31, 2001 and December 31, 2000, respectively. This 31.4% increase of $4.3
million is attributable to $8.6 million generated by operating activities and
$18.8 million generated by investing activities, partially offset by $23.1
million used by financing activities.
Operating Activities
The Partnership's cash provided by operating activities of $8.6 million is
attributable to $7.3 million from operations, after addback of $1.3 million from
non cash expenses primarily depreciation and amortization, and $1.2 million from
the increase in accounts payable and accrued expenses.
Investing Activities
10
The Partnership's cash provided by investing activities of $18.8 million
is attributable to the repayment of a $16.5 million loan from a Sponsored REIT
and $2.4 million redemption of marketable securities, offset by the purchase of
$0.1 million of property and equipment.
Financing Activities
The Partnership's cash used by financing activities of $23.1 million is
attributable to repayments of the line of credit of $16.5 million and cash
distributions to partners of $6.6 million.
Liquidity and Capital Resources as of December 31, 2000
Cash and cash equivalents were $13.7 million and $18.5 million at December
31, 2000 and 1999, respectively. This 25.9% decrease of $4.8 million is
attributable to $30.7 million used in investing activities partially offset by
$14.2 million provided by operating activities and $11.7 million provided by
financing activities.
Investing Activities
The Partnership's cash used in investing activities of $30.7 million is
primarily attributable to:
o $16.5 million for a loan to a Sponsored REIT which was subsequently
repaid in February 2001;
o $8.9 million for the purchase of property and equipment; and
o $5.3 million for the purchase of marketable securities partially
offset by proceeds of $1.1 million on the sale of land.
Operating Activities
The Partnership's cash provided by operating activities of $14.4 million
is primarily attributable to $18.5 million from operations, after addback of
$9.5 million from non cash expenses of which $4.6 million relates to
depreciation and amortization, $2.3 million relates to equity based
compensation, and $2.6 million relates to minority interests.
The cash provided by operating activities is partially offset by $2.5
million from the decrease in accounts payable and accrued expenses and $1.5
million decrease from a net change in other operating assets and liabilities.
Financing Activities
The Partnership's cash provided by financing activities of $11.7 million
is attributable to capital contributions of $39.8 million from the sale of
partnership units for three of the merged entities and borrowings under the line
of credit of $16.5 million;
The cash provided by financing activities is partially offset by
repayments of the line of credit of $23.5 million and cash distributions to
partners of $21.0 million.
Our principal demands for liquidity are cash for operations, distributions
to partners, debt repayments and expense associated with indebtedness. As of
December 31, 2000 we had $19,280,000 in liabilities and debt obligations. The
Partnership has no permanent, long-term debt. In the near term, liquidity is
generated from funds from ongoing real estate operations and fees and
commissions received from the sale of shares in new Sponsored REITs.
The Partnership maintains an unsecured line of credit through Citizens
Bank. The Partnership has entered into a Master Promissory Note and Loan
Agreement which provides for a revolving line of credit of up to $35 million
(increased to $53 million in January 2001). Borrowings under the loan bear
interest at either the bank's base rate or a variable LIBOR rate. We use the
unsecured line of credit to provide each newly-formed Sponsored Entity with the
funds to purchase its property. The Partnership loans the purchase price of the
property, at an interest rate equivalent to the rate which the Partnership is
paying to the bank, and takes back a mortgage. The Partnership collects a
commitment fee from the Sponsored Entity. The loan is paid back in full from the
capital contributions of each Sponsored Entity's investors. The Partnership's
loan agreement with the bank includes customary restrictions on property liens
and requires compliance with various financial covenants. Financial covenants
include maintaining minimum cash balances in operating accounts, tangible net
worth of at least $105 million (increased to $140 million in January 2001) and
compliance with other various debt and income ratios. The Partnership was in
compliance with all covenants as of December 31, 2000. Borrowings under the loan
agreement mature on February 23, 2003.
The Partnership had borrowings of $16,500,000 at the bank's base rate of
9.5% as of December 31, 2000. There was a corresponding amount due from related
parties at December 31, 2000. As of February 1, 2001, the entire amount of the
outstanding loan balance had been repaid in full. However, the Partnership
intends to utilize and subsequent to February 1, 2001 has utilized, its line of
credit for interim financing in connection with acquisition of real estate by
newly-formed
11
Sponsored Entities.
The Partnership's real properties generate rental income to cover the
ordinary, annual operating expenses of the properties and to fund distributions
to partners. As of December 31, 2000, the rental income covered the expenses for
each of the Partnership's real properties. In addition to rental income, the
Partnership maintains cash reserves that may be used to fund extraordinary
expenses or major capital expenses. The cash reserves were set aside when the
Sponsored Partnerships that the Partnership has acquired were originally
syndicated. The cash reserves as of December 31, 2000 (approximately $6.5
million) are in excess of the known needs for extraordinary expenses or capital
improvements for the real properties within the next few years. There are no
external restrictions on these reserves, and they may be used for any
Partnership purpose.
Although there is no guarantee 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 Entities. With adequate reserves in place to cover
extraordinary expenses or capital improvements, the Partnership believes that it
has adequate funds for future needs.
12
Risk Factors
THE PARTNERSHIP FACES RISKS IN CONTINUING TO ATTRACT INVESTORS FOR THE
SPONSORED ENTITIES.
The Partnership's investment banking business depends upon continuing to
attract purchasers of equity interests in Sponsored Entities. The Partnership's
success in this area will depend on the propensity and ability of investors who
have previously invested in Sponsored Entities to continue to invest in future
Sponsored Entities and on the Partnership's ability to expand the investor pool
for the Sponsored Entities by identifying new potential investors.
THE PARTNERSHIP FACES RISKS IN OWNING AND OPERATING REAL PROPERTY.
An investment in the Partnership is subject to the risks incident to the
ownership and operation of real estate-related assets. These risks include the
fact that real estate investments are generally illiquid, which may impact the
Partnership's ability to vary its 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.
THE PARTNERSHIP FACES RISKS FROM GEOGRAPHIC CONCENTRATION.
To the extent that the Partnership's portfolio of real properties is
concentrated in one or more geographic areas, the Partnership faces risks when
economic conditions deteriorate in such areas. The Partnership currently owns
two properties, constituting approximately 3.6% of the aggregate space owned by
the Partnership, that are located in Silicon Valley, an area in which economic
conditions have deteriorated.
THE PARTNERSHIP COMPETES WITH NATIONAL, REGIONAL AND LOCAL REAL ESTATE
OPERATORS AND DEVELOPERS, WHICH COULD ADVERSELY AFFECT THE PARTNERSHIP'S CASH
FLOW.
Competition exists in every market in which the Partnership's properties
are located. The Partnership competes with, among others, national, regional and
numerous local real estate operators and developers. Such competition may
adversely affect the occupancy levels and the rental revenues of the
Partnership's properties, which could adversely affect the Partnership's cash
flow from operations and its ability to make expected distributions to partners.
Some of the Partnership's competitors may have more resources than the
Partnership 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. The extent to which the Partnership is
affected by competition will depend in significant part on local market
conditions.
THERE IS LIMITED POTENTIAL FOR OCCUPANCY GAINS IN THE PARTNERSHIP'S
PROPERTIES.
Each of the properties owned by the Partnership had a rate of occupancy in
excess of 90% as of December 31, 2000. The General Partner anticipates that
future increases in revenue from the Partnership's properties will be primarily
the result of rental rate increases. To the extent that the existing properties
continue to operate profitably, this will likely stimulate new development of
competing properties and result in greater competition between the newly
developed properties and the Partnership's properties.
THE PARTNERSHIP IS SUBJECT TO POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL
MATTERS, AND THE PARTNERSHIP CANNOT ASSURE YOU THAT IT HAS 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. The Partnership cannot assure you that any
environmental assessments it has undertaken have
13
revealed all potential environmental liabilities, that any prior owner or
operator of the properties did not create any material environmental condition
not known to the Partnership, or that an environmental condition does not
otherwise exist as to any one or more of the properties that could have a
material adverse effect on the Partnership's financial condition or results of
operations. In addition, the Partnership cannot assure you that:
o future laws, ordinances or regulations will not impose any material
environmental liability,
o the current environmental conditions of the Partnership's 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 the Partnership, or
o tenants will not violate their leases by introducing hazardous or
toxic substances into the Partnership's properties that could expose
the Partnership to liability under federal or state environmental
laws.
THE PARTNERSHIP IS SUBJECT TO COMPLIANCE WITH THE AMERICANS WITH
DISABILITIES ACT AND FIRE AND SAFETY REGULATIONS WHICH COULD REQUIRE THE
PARTNERSHIP TO MAKE SIGNIFICANT CAPITAL EXPENDITURES.
All of the Partnership's properties are required to comply with the
Americans With Disabilities Act, and the regulations, rules and orders that may
be issued thereunder (the "ADA"). 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, the
Partnership will be required to operate its 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 the
Partnership's properties. Compliance with such requirements may require the
Partnership to make substantial capital expenditures, which expenditures would
reduce cash otherwise available for distribution to partners.
THE PARTNERSHIP MAY BECOME SUBJECT TO LOSS IN PROFIT OR IN ITS CAPITAL
INVESTMENT IN THE EVENT OF THE OCCURRENCE OF AN UNINSURED EVENT.
The Partnership or its tenants carry comprehensive liability, fire and
extended coverage with respect to each of the properties owned by the
Partnership, with policy specification and insured limits customarily carried
for similar properties. There are, however, certain types of losses, such as
from wars, pollution or earthquakes, that may be either uninsurable or not
economically insurable (although the properties located in California all have
earthquake insurance). Should an uninsured material loss occur, the Partnership
could lose both its capital invested in the property and anticipated profits.
THE LIMITED PARTNERS HAVE NO CONTROL OF THE OPERATIONS OF THE PARTNERSHIP.
The General Partner will have sole authority for the operation and
management of the Partnership. The limited partners will not have a right to
participate in management of the Partnership or the decisions of the General
Partner relating thereto. The limited partners have no right to remove the
General Partner.
THE LIMITED PARTNERS WILL HAVE NO RIGHT TO TRANSFER THEIR UNITS.
Until such time as the Units are listed for trading on a national stock
exchange, the transfer of any Unit (other than pursuant to the death,
incompetency or dissolution of a limited partner) will require the prior written
approval of the General Partner, the granting or denying of which is in the
General Partner's absolute discretion.
THERE IS NO PUBLIC TRADING MARKET FOR OUR SECURITIES.
There is no public trading market for limited partnership interests in the
Partnership. The Partnership cannot assure you that any market will develop or
that there will be any liquidity in a market for Units in the Partnership.
LIMITED PARTNERS MAY BE ALLOCATED TAX LIABILITY IN EXCESS OF CASH
DISTRIBUTIONS.
While not anticipated, the limited partners may be allocated net profits
such that the resulting tax liability will exceed the cash if any distributed to
them by the Partnership in a particular period. Under these circumstances, the
limited partners would be required to pay their income tax liabilities
associated with their allocable shares of the Partnership's taxable income from
sources other than their shares of distributions from the Partnership.
14
THERE IS A RISK OF TAX AUDIT.
There is a possibility that the Partnership will be audited by the
Internal Revenue Service. Such an audit could result in an adjustment not only
of the Partnership's tax returns but possibly could lead to an audit of the
limited partners' personal tax returns with respect to non-Partnership items.
Quantitative and Qualitative Disclosures About Market Risks
The Partnership was not a party to derivative commodity investments at or
during the year ended December 31, 2000. The Partnership's only other financial
instruments (as defined by Financial Accounting Standards Board Statement No.
107) are its cash and cash equivalents for which cost approximates market value.
The Partnership's only indebtedness consists of draws from time to time
upon its line of credit. These borrowings bear interest at a variable rate. The
Partnership uses the funds it draws on its line of credit only for the purpose
of making interim mortgage loans to Sponsored Entities. These mortgage loans
bear interest at the same variable rate payable by the Partnership under its
line of credit. Therefore, the Partnership believes that it has mitigated its
interest rate risk with respect to its borrowings.
Item 3. Properties.
Set forth below is information regarding our properties:
Sponsored
Partnership's Approx. Approx.
Purchase Date of Number Square Occupancy Number of
Property Location Price Purchase of Units Feet 12/31/00 Tenants Major Tenant(s)(1)
----------------- ----- -------- -------- ---- -------- ------- ------------------
APARTMENTS
3919 Essex Lane $ 10,100,000 6/30/93 135 118,800 over 95% 135 None - Apts.
Houston, TX
3231 Allen Parkway $ 10,700,000 8/11/94 159 129,000 over 95% 159 None - Apts.
Houston, TX
4041 Weslayan & Law $ 4,200,000 4/29/97 84 70,500 over 95% 84 None - Apts.
Houston, TX
7250 Perkins Road $ 18,000,000 10/16/98 264 223,800 over 95% 264 None - Apts.
Baton Rouge, LA
----------------------------------------------------------------------------------------------------------------------------------
Total Apartments $ 43,000,000 642 542,100
----------------------------------------------------------------------------------------------------------------------------------
OFFICE
451 Andover Street $ 8,000,000 6/1/96 92,000 over 95% 40 Pentucket
North Andover, MA Medical
1515 Mockingbird Lane $ 6,850,000 7/1/97 110,600 over 95% 80 The Art Institutes,
Charlotte, NC Primary Physicians Care
33 & 37 Villa Road $ 10,550,000 3/1/98 143,800 over 90% 40 Day & Zimmermann
Greenville, SC
4995 Patrick Henry Dr. $ 6,800,000 12/1/97 40,300 100% one Agere
Santa Clara, CA
678-686 Hillview Drive $ 4,862,500 3/9/99 36,300 100% one Headway
Milpitas, CA Technologies
5751-5771 Copley Drive $ 15,400,000 3/12/99 101,700 100% three XO, Tiernan,
San Diego, CA Nextel & Allegiance
15
Sponsored
Partnership's Approx. Approx.
Purchase Date of Number Square Occupancy Number of
Property Location Price Purchase of Units Feet 12/31/00 Tenants Major Tenant(s)(1)
----------------- ----- -------- -------- ---- -------- ------- ------------------
81 Blue Ravine $ 5,700,000 9/27/99 47,000 100% one Cardinal Health
Folsom, CA
18000 W. Nine Mile Rd. $ 14,950,000 9/30/99 212,500 over 90% four IBM
Southfield, Michigan
11211 Taylor Draper Lane $ 10,000,000 12/29/99 68,600 100% six Columbia Universal
Austin, Texas Life Insurance Co.
7130-7150 Columbia $ 19,850,000 12/20/99 188,800 100% eight Columbia National
Gateway Dr.
Columbia, MD
10 Lyberty Way $ 9,100,000 5/23/00 104,700 100% one Lucent Technologies
Westford, MA
----------------------------------------------------------------------------------------------------------------------------------
Total Office $112,062,500 1,146,300
----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
One Technology Dr. $ 9,175,000 12/1/95 188,000 100% one Alliant Foodservice
Peabody, MA
8730 Bollman Place $ 5,600,000 12/14/99 99,000 100% one Alliant Foodservice
Savage (Jessup), MD
----------------------------------------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL $ 14,775,000 287,000
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL $169,837,500 642 1,975,400
----------------------------------------------------------------------------------------------------------------------------------
(1) Major tenants are tenants who occupy 10% or more of the space in a
particular property.
The Partnership has no material undeveloped or unimproved properties. In
the opinion of the General Partner, the Partnership's properties are adequately
covered by insurance.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Principal Equity Owners
The general partner of the Partnership is FSP General Partner LLC, a
Massachusetts limited liability company (the "General Partner"). The following
table sets forth information regarding the beneficial ownership of our limited
partnership interests as of January 1, 2001 of: (1) each person known by us to
own beneficially five percent or more of our outstanding limited partnership
interests; (2) each of our directors and executive officers; and (3) all of our
directors and executive officers as a group. The Partnership is managed by the
General Partner, whose managing member is George J. Carter. Accordingly, the
General Partner and Mr. Carter are treated as directors of the Partnership, and
the executive officers of the General Partner are treated as executive officers
of the Partnership. Mr. Carter holds the 1% interest in FSP Investments and FSP
Property Management not held by the Partnership. Unless otherwise indicated in
the footnotes to the table, the beneficial owners named have, to our knowledge,
sole voting and investment power with respect to the Units beneficially owned,
subject to community property laws where applicable.
16
Units of Limited Partnership
Interest Beneficially Owned
or Into Which Securities are
Convertible(1)
Name of Holder Number Percent
-------------------------------------------------------------------------------
George J. Carter(2) 383,719 1.63%
Richard R. Norris(2)(3) 27,112 *
R. Scott MacPhee(2) 18,036 *
William W. Gribbell(2) 9,068 *
Barbara J. Corinha(2) 5,000 *
Janet P. Notopoulos(2) 5,000 *
--------- -------
All Executive Officers as a Group
(consisting of 6 persons)(2) 447,935 1.91%
========= =======
* Less than one percent.
(1) There are no securities convertible into Units of limited partnership
interest.
(2) FSP General Partners LLC owns 948,499.2 units of general partnership
interest in the Partnership, which equals a 3.88% interest in the cash
distributions, profits and losses of the Partnership. Mr. Carter, who may
be deemed to be a director of the Partnership, is the managing member of
the General Partner and each of the other executive officers of the
Partnership is a member of the General Partner.
(3) Includes 13,556 Units owned by the Richard R. Norris Living Trust, and
13,556 Units owned by the Karen C. Norris Living Trust which Mr. Norris
may be deemed to beneficially own. Excludes 5,664 Units owned by Gretchen
D. Norris as to which Mr. Norris has power of attorney but as to which Mr.
Norris disclaims beneficial ownership.
Item 5. Directors and Executive Officers.
Directors and Officers
The Partnership has no individual directors or executive officers. The
general partner of the Partnership is FSP General Partner LLC (the "General
Partner"). Information regarding the executive officers of the General Partner
is set forth below:
George J. Carter, age 52, is President of the General Partner and is
responsible for all aspects of the business of the Partnership and its
affiliates, with special emphasis on the evaluation, acquisition and structuring
of real estate investments. From 1992 through 1996 he was President of Boston
Financial Securities, Inc. ("Boston Financial"). Prior to joining Boston
Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a
commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988, Mr. Carter
served as Managing Director in charge of marketing of First Winthrop
Corporation, a national real estate and investment banking firm headquartered in
Boston, Massachusetts. Prior to that, he held a number of positions in the
brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes &
Co. Mr. Carter is a graduate of the University of Miami (B.S.). Mr. Carter is a
NASD General Securities Principal (Series 24) and holds a NASD Series 7 general
securities license.
Barbara J. Corinha, age 44, is the Vice President, Chief Operating
Officer, Treasurer and Secretary of the General Partner. In addition, Ms.
Corinha has as her primary responsibility, together with Mr. Carter, the
management of all operating business affairs of the Partnership and its
affiliates. From 1993 through 1996, she was Director of Operations for the
private placement division of Boston Financial. Prior to joining Boston
Financial, Ms. Corinha served as Director of Operations for Schuparra Securities
Corp. and as the Sales Administrator for Weston Financial Group. From 1979
through 1986, Ms. Corinha worked at First Winthrop Corporation in administrative
and management capacities; including Office Manager, Securities Operations and
Partnership Administration. Ms. Corinha attended Northeastern University and the
New York Institute of Finance. Ms. Corinha is a NASD General Securities
Principal (Series 24). She also holds other NASD supervisory licenses including
Series 4 and Series 53, and a NASD Series 7 general securities license.
17
R. Scott MacPhee, age 43, is an Executive Vice President of the General
Partner and has as his primary responsibility the direct equity placement of the
Sponsored Entities. From 1993 through 1996 he was an executive officer of Boston
Financial. From 1985 to 1993 Mr. MacPhee worked at Winthrop Financial
Associates. Mr. MacPhee attended American International College. Mr. MacPhee
holds a NASD Series 7 general securities license and is a registered investment
adviser.
Richard R. Norris, age 57, is an Executive Vice President of the General
Partner and has as his primary responsibility the direct equity placement of the
Sponsored Entities. From 1993 through 1996 he was an executive officer of Boston
Financial. From 1983 to 1993 Mr. Norris worked at Winthrop Financial Associates.
Prior to that, he worked at Arthur Young & Company (subsequently named Ernst &
Young through a merger). Mr. Norris is a graduate of Bowdoin College (B.A.) and
Northeastern University (M.S.). Mr. Norris holds a NASD Series 7 general
securities license and is a registered investment adviser.
William W. Gribbell, age 41, is an Executive Vice President of the General
Partner and has as his primary responsibility the direct equity placement of the
Sponsored Entities. From 1993 through 1996 he was an executive officer of Boston
Financial. From 1989 to 1993 Mr. Gribbell worked at Winthrop Financial
Associates. Mr. Gribbell is a graduate of Boston University (B.A.). Mr. Gribbell
holds a NASD Series 7 general securities license and is a registered investment
adviser.
Janet Prier Notopoulos, age 53, is a Vice President of the General
Partner, President of FSP Property Management LLC and has as her primary
responsibility the oversight of the management of the real estate assets of the
Partnership and its affiliates. Prior to joining Franklin Street Partners in
1997, Ms. Notopoulos was a real estate and marketing consultant for various
clients. From 1975 to 1983, she was Vice President of North Coast Properties,
Inc., a Boston real estate investment company. Between 1969 and 1973, she was a
real estate paralegal at Goodwin, Procter & Hoar. Ms. Notopoulos is a graduate
of Wellesley College (B.A.) and the Harvard School of Business Administration
(M.B.A).
Each of the above persons other than Ms. Notopoulos began working for the
Partnership at its inception in 1997. Ms. Notopoulos was employed as a
consultant by the Partnership commencing in March 1997 and became a full-time
employee on January 1, 1998.
18
Item 6. Executive Compensation.
The General Partner of the Partnership is entitled to receive 3.88% of all
cash distributions of the Partnership.
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years, awarded or accrued, to the Partnership's Chief
Executive Officer and the other four most highly compensated executive officers.
Annual Compensation
---------------------------------------------
Other All
Annual Annual Other
Name and Salary Bonus Compensation (1) Compensation (2)
Principal Position Year ($) ($) ($) ($)
------------------------------- ---------- --------------------------------------------------------------
George J. Carter 2000 120,000 40,746 1,703,770(3)
President and CEO 1999 120,000 80,000 6,000(4)
1998 120,000 30,000
Richard R. Norris 2000 5,453 1,545,750 233,190(5)
Executive VP 1999 849,330 6,000(4)
1998 643,240
R. Scott MacPhee 2000 4,329 981,338 186,360(6)
Executive VP 1999 849,533 6,000(4)
1998 643,240
William W. Gribbell 2000 2,176 701,358 96,680(7)
Executive VP 1999 404,822 6,000(4)
1998 342,287
Barbara J. Corinha 2000 60,000 161,200 56,000(8)
Chief Operating Officer 1999 50,000 125,000 6,000(4)
1998 45,000 105,000
(1) Consists of brokerage commissions paid by FSP Investments in respect of
the sale of securities by Sponsored Entities.
(2) All executive officers were issued Units, valued at $10 per Unit, in April
2000 as part of their annual compensation. The valuation of $10 per Unit
was determined in good faith by the General Partner. The value of $10 had
been ascribed to each Unit in connection with the mergers that were
effective January 1, 2000, and no material changes in the financial
condition or results of the Partnership had occurred between that date and
April 1, 2000.
(3) Includes $1,697,770 in Units and a $6,000 Partnership Contribution to a
Simple IRA.
(4) Represents Partnership contributions to Simple IRA plan.
(5) Includes $227,190 in Units and a $6,000 Partnership Contribution to a
Simple IRA.
(6) Includes $180,360 in Units and a $6,000 Partnership Contribution to a
Simple IRA.
(7) Includes $90,680 in Units and a $6,000 Partnership Contribution to a
Simple IRA.
(8) Includes $50,000 in Units and a $6,000 Partnership Contribution to a
Simple IRA.
Item 7. Certain Relationships and Related Transactions.
Messrs. Carter, MacPhee, Norris and Gribbell and Mses. Corinha and
Notopoulos, each of whom is an executive officer of the Partnership, are
executive officers and, except for Ms. Notopoulos, directors of each of the
Sponsored REITs. Messrs. Carter, MacPhee, Norris and Gribbell serve as executive
officers of the general partner of the Sponsored Partnerships. None of such
persons received any remuneration from the Sponsored Entities for such service.
FSP Investments has provided syndication and real estate acquisition
advisory services for the Sponsored REITs in 2000 and Sponsored Partnerships
prior to 2000. Transactions with merged Sponsored Partnerships have been
eliminated in the Partnership's consolidated financial statements. Fees from
non-consolidated related entities for property acquisition services amounted to
approximately $1,581,000, $348,000 and $0 for the years ended December 31, 2000,
1999 and 1998, respectively. Sales commissions earned for the sale of Sponsored
REIT preferred shares in 2000 and partnership units in one Sponsored Partnership
in 1999 amounted to approximately $4,036,000, $443,000 and $0 for the years
ended December 31,
19
2000, 1999 and 1998 respectively.
The Partnership has also provided interim financing for the purchase of
certain Sponsored REIT properties prior to completion of the Sponsored REITs
private equity offerings. Financing commitment fees earned by the Partnership
from the Sponsored REITs totaled approximately $1,952,000 for the year ended
December 31, 2000. Interest income charged to the Sponsored REITs amounted to
approximately $497,000 for the year ended December 31, 2000. The Partnership
received no interim financing fees or interest in 1999 or 1998.
Management fees charged to the merged Sponsored Partnerships have been
eliminated in the Partnership's consolidated financial statements. Total
property management fee income from non-consolidated entities amounted to
approximately $112,000, $16,000 and $0 for the years ended December 31, 2000,
1999 and 1998 respectively. Property management fees range from 1% to 5% of
collected rents.
Aggregate fees charged to the Sponsored Entities, which were eliminated in
the Partnership's consolidated financial statements, amounted to approximately
$6,176,000, $8,113,000 and $2,886,000 for the years ended December 31, 2000,
1999 and 1998, respectively.
At December 31, 2000, the Partnership had an interim financing note
receivable due from a Sponsored REIT. The note earned interest at 9.5% and was
paid in full upon closing of the Sponsored REIT's private equity offering in
February 2001.
The Partnership was organized in January 1997 by Messrs. Carter, MacPhee,
Norris and Gribbell. In connection with the initial equity funding of the
Partnership, they received general partnership interests in the Partnership that
were entitled in the aggregate to 50% of the Partnership's cash distributions,
profits and losses. Such interest is currently held through their membership
interests in the General Partner and aggregates less than 4%.
The Partnership pays no fees or other compensation to the General Partner.
Item 8. Legal Proceedings.
There are no material legal proceedings to which the Partnership is a
party. The Partnership from time to time may be involved in suits relating to
the real properties it owns for liability for slips and falls, damage to
automobiles in parking garages, minor theft or similar matters. Most of these
suits are covered by insurance. In addition, in the ordinary course of business,
the Partnership may become involved in litigation to collect rents or other
income due to it from tenants.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
There is no established public trading market for the Partnership's Units
of limited partnership interest.
As of December 31, 2000, there were 743 holders of record of Units limited
partnership interest in the Partnership. This computation is based upon the
number of record holders reflected in our corporate records.
Set forth below are the distributions per Unit that the Partnership has
made in respect of each quarter in the last two fiscal years.
Amount Per Limited and
Quarter Ended General Partner Unit
------------------- -------------------------
3/31/99 $0.20
6/30/99 $0.21
9/30/99 $0.22
12/31/99 $0.23
3/31/00 $0.24
6/30/00 $0.25
9/30/00 $0.26
12/31/00 $0.27
3/31/01 $0.28
20
Item 10. Recent Sales of Unregistered Securities.
On April 1, 2000, the Partnership issued 230,000 Units of limited
partnership interest as compensation to its executive officers pursuant to an
exemption from registration under Section 4(2) of the Securities Act. Effective
October 1, 2000, the Partnership acquired six Sponsored Entities through merger.
In connection with these mergers, the Partnership issued 7,204,716 Units of
limited partnership interest to the limited partners of those Sponsored
Entities. Effective January 1, 2000, the Partnership acquired three Sponsored
Entities though merger. In connection with these mergers, the Partnership issued
4,999,972 Units of limited partnership interest to the limited partners of those
Sponsored Entities. Effective January 1, 1999, the Partnership acquired eight
Sponsored Entities through mergers. In connection with these mergers, the
Partnership issued 11,999,907 Units of limited partnership interest to the
limited partners of those Sponsored Entities. The Partnership issued the Units
in each of these mergers pursuant to exemptions from registration under Rule 506
of Regulation D and Section 4(2) of the Securities Act. The Partnership bases
its belief that such transactions had the benefit of these exemptions on the
fact that no general solicitation was conducted and on information furnished in
investor questionnaires, and representations made, by the limited partners of
each acquired Sponsored Entity as to their status as accredited investors.
Item 11. Description of Registrant's Securities to be Registered.
Distributions of cash from the Partnership, if any, will be made within 90
days following the end of each fiscal quarter on the basis of the number of
Units in the Partnership held by each partner. As of December 31, 2000, the
holders of Units of limited partnership interest in the Partnership were
entitled in the aggregate to receive 96.12% of cash distributions. The net
proceeds available for distribution upon liquidation of the Partnership will be
distributed, after adjusting the partners' capital accounts to reflect any gain
or loss in connection with the event, to and among the partners having positive
balances in their respective capital accounts, in the proportions that such
positive capital accounts bear to each other.
Net profits and losses will generally be allocated on the basis of the
number of Units owned by each partner. Net profits from sale or other
disposition of all or any portion of the Partnership's property or upon
liquidation of the Partnership will be allocated, first, to partners having
negative capital account balances in proportion to and to the extent of such
balances and, second, to the partners in such proportions and amounts as would
result in the respective capital account balance of each partner equaling, as
nearly as possible, such partner's share of the then fair market value of the
Partnership's assets reduced by the amount of all of the Partnership's
liabilities (the "Partnership Capital") determined by calculating the amount
such partner would receive if the Partnership Capital were distributed to the
partners based on the number of units of partnership interest owned by each of
them. Net losses from sale or other disposition of all or any portion of the
Partnership's property or upon liquidation of the Partnership will be allocated,
first, to partners with positive capital account balances in the respective
amounts of such balances (except that if the amount of net losses to be
allocated is less than the sum of the capital account balances of all partners
having positive capital account balances, then the net losses will be allocated
to the partners in such proportions and in such amounts as would result in the
respective capital account balance of each partner equaling, as nearly as
possible, such partner's share of the then Partnership Capital determined by
calculating the amount such partner would receive if the Partnership Capital
were distributed to the partners based on the number of units of partnership
interest owned by each of them) and, second, pro rata to the partners in
accordance with the number of units of partnership interest held by each of
them. The Partnership Agreement also contains a number of special allocation
provisions, including provisions relating to the allocation of deductions
attributable to any nonrecourse indebtedness the Partnership may incur. The
Partnership Agreement contains no restrictions on the Partnership's ability to
incur indebtedness except that no such indebtedness may provide for the personal
liability of any limited partner.
The General Partner has the exclusive right to manage the business of the
Partnership. The holders of Units of limited partnership interest have no right
to take part in management, do not have any voice in the operations of the
Partnership and have no right to remove the General Partner or approve the
admission of a new General Partner. Each holder of Units of limited partnership
interest:
o shares in accordance with the Partnership Agreement in all charges,
credits and distributions;
o has access to books and records at all reasonable times and on
reasonable notice at the office of the Partnership;
o has a right to receive from the General Partner income tax
information; and
o has the right to vote on certain proposed amendments to the
Partnership Agreement.
The General Partner and a majority in interest of the holders of Units of
limited partnership interest may, subject to the various limitations set forth
in Sections 4.11 and 8.04 of the Partnership Agreement, at any time amend the
Partnership Agreement. The General Partner may also send notice in writing of
any proposed amendment to the holders of Units of limited partnership interest
not less than 30 days prior to the proposed effective date of such amendment. If
the holders of Units of limited partnership interest then owning 20% or more of
all of the Units of limited partnership interest give notice in
21
writing to the General Partner prior to such proposed effective date stating
that they object to such proposed amendment, then such proposed amendment may
not be adopted without the vote or written consent of the holders of a majority
of the Units of limited partnership interest. If such notice is not given by the
requisite percentage, such proposed amendment will become effective without any
further act on the part of the holders of Units of limited partnership interest.
The General Partner, without the consent or approval of the holders of
Units of limited partnership interest, may make certain amendments to the
Partnership Agreement or to add to its duties or surrender any of its rights or
powers, or to cure ambiguities or inconsistencies in the Partnership Agreement.
In addition, the General Partner, without the consent or approval of the
holders of Limited Partnership interest, may amend appropriate provisions of the
Partnership Agreement if the Partnership is advised at any time by its legal
counsel that the allocations of profits and loses provided in the Partnership
Agreement are unlikely to be respected for federal income tax purposes, either
because of the promulgation and adoption of regulations under Section 704 of the
Internal Revenue Code or other developments in applicable law. In making any
such amendment, the General Partner is required to use its best efforts to
effect as little change in the economic tax arrangement among the partners as it
shall determine in its sole discretion to be necessary to provide for
allocations of profits and losses which it believes will be respected for
federal income tax purposes.
Finally, the General Partner may, without the consent or approval of the
holders of Units of limited partnership interest, amend the Partnership
Agreement from time to time, including amending and restating it, in any manner
as the General Partner, in its sole discretion, deems necessary or appropriate
in connection with establishing, or taking steps to establish, a public market
for the Units of limited partnership interest in the Partnership; provided,
however, that no such amendment may:
o increase the amount of capital contributions required to be made by
any holder of Units of limited partnership interest;
o increase the liability for any holder of Units of limited
partnership interest; or
o affect the method of allocation of cash distributions among holders
of Units of limited partnership interest.
Until such time as the Units of limited partnership interest are listed
for trading on a national stock exchange, transferability of the Units is
limited and is subject to the prior written approval of the General Partner
(except in the case of assignments occurring pursuant to the death, incompetency
or dissolution of a limited partner), the granting or denying of which is in the
General Partner's absolute discretion. In addition, no transfer or assignment of
a Unit of limited partnership interest may be made if counsel for the
Partnership shall be of the opinion that such transfer or assignment may not be
effected without registration under the Securities Act or would result in a
violation of applicable state securities laws. Any assignment must be executed
by the assignor and assignee on a form satisfactory to the General Partner and
its terms must not contravene those set forth in the Partnership Agreement. The
assignee of any Unit of limited partnership interest has certain rights of
ownership, including the right to receive dividends, but may become a substitute
limited partner only upon meeting certain conditions, including the execution of
an agreement to be bound by the Partnership Agreement and a power of attorney
authorizing the General Partner to act in his or her behalf in connection with
certain affairs of the Partnership. An assignee who does not become a substitute
limited partner will have none of the rights and powers of a limited partner
under the Partnership Agreement and applicable state law.
The Partnership Agreement provides that on an annual basis the Partnership
will use its best efforts to repurchase any Units of limited partnership
interest in the Partnership from holders desiring to sell them. Any holder of
Units of limited partnership interest wishing to take advantage of this
opportunity must so request no later than July 1 of any year for a purchase
which would be effective the following January 1. The purchase price paid by the
Partnership will be 90% of the fair market value of the Units purchased, as
determined by the General Partner.
Item 12. Indemnification of Directors and Officers
Under Massachusetts partnership law, the General Partner of the
Partnership will be accountable to the Partnership as a fiduciary and must
exercise good faith and integrity in handling the Partnership's affairs. The
Partnership's Partnership Agreement provides that the General Partner will not
be liable to the Partnership or any of its limited partners for any act or
omission performed in good faith in a manner reasonably believed by it to be
within the scope of authority granted to it by the Partnership Agreement and in
the best interests of the Partnership, provided that the General Partner shall
not have been guilty of gross negligence or willful misconduct with respect to
such act or omission. As a result, limited partners might have a more limited
right of action in certain circumstances than they would have in the absence of
such a provision in the Partnership Agreement.
22
The Partnership Agreement also provides that the General Partner and its
affiliates performing services on behalf of the Partnership are indemnified to
the fullest extent permitted by law from losses, costs and expenses (including
attorneys' fees) incurred by them by reason of being a General Partner or having
served at the request of the Partnership as a director, officer or trustee of
another entity. Any claim for indemnification under the Partnership Agreement
will be satisfied only out of the assets of the Partnership and no limited
partner will have any personal liability to satisfy an indemnification claim
made against the Partnership.
Notwithstanding the foregoing, the above-mentioned persons will not be
indemnified by the Partnership from loss incurred by such person in connection
with matters as to which such person shall have been finally adjudicated in any
action, suit or proceeding not to have acted in good faith in the reasonable
belief that his, her or its action was in or not inconsistent with the best
interests of the Partnership.
The Partnership may also advance funds to a person indemnified under the
Partnership Agreement for legal expenses and other costs incurred as a result of
legal action brought against such person if such person undertakes to repay the
advanced funds to the Partnership if it is subsequently determined that such
person is not entitled to indemnification pursuant to the terms of the
Partnership Agreement. The General Partner may cause the Partnership to purchase
and maintain, at the Partnership's expense, insurance on behalf of the General
Partner or its agents which will insure them against any liability asserted
against all or any of them in any such capacity or arising out of their status
as such.
Item 13. Financial Statements and Supplementary Data.
See attached financial statements beginning on page F-1.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
See Report on Form 8-K filed October 11, 2001 reporting on Item 4,
"Changes in Certifying Accountant"
Item 15. Financial Statements and Exhibits
(a) Financial Statements
See Index to Financial Statements and Schedules on page F-1.
(b) Exhibits
3.1 Certificate of Limited Partnership
3.2 Amendment to Certificate of Limited Partnership
4.1 Third Amended and Restated Limited Partnership Agreement,
dated as of January 1, 2000
4.2 First Amendment, dated as of January 1, 2000, to Third Amended
and Restated Limited Partnership Agreement, dated as of
January 1, 2000
4.3 Second Amendment, dated as of June 26, 2000, to Third Amended
and Restated Limited Partnership Agreement, dated as of
January 1, 2000
21 Subsidiaries of the Registrant
23
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 4 to Form 10 to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: December 17, 2001 FRANKLIN STREET PARTNERS LIMITED
PARTNERSHIP
By: FSP General Partner LLC,
its General Partner
By: /s/ George J. Carter
-----------------------------
Managing Member and President
24
Franklin Street Partners
Limited Partnership and Subsidiaries
Index to Financial Statements
Reports of independent certified public accountants F-2 - F-9
Consolidated financial statements:
Balance sheets as of December 31, 2000 and 1999 and F-10 - F-11
March 31, 2001 (unaudited)
Statements of operations for the years ended F-12
December 31, 2000, 1999 and 1998 and for the three months
ended March 31, 2001 and 2000 (unaudited)
Statements of partners' capital for the years ended F-13
December 31, 2000, 1999 and 1998 and for the three months
ended March 31, 2001 (unaudited)
Statements of cash flows for the years ended F-14
December 31, 2000, 1999 and 1998 and for the three months
ended March 31, 2001 and 2000 (unaudited)
Notes to consolidated financial statements F-15 - F-28
F-1
Report of Independent Certified Public Accountants
To the Partners of
Franklin Street Partners Limited Partnership
Wakefield, Massachusetts
We have audited the accompanying consolidated balance sheets of Franklin Street
Partners Limited Partnership and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, partners' capital and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
certain real estate partnerships, which statements reflect total assets of
$85,859,000 as of December 31, 1999 and total revenues of $4,794,000 and
$490,000 for the years ended December 31, 1999 and 1998, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for such real
estate partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors for 1999 and 1998 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors for
1999 and 1998, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Franklin Street
Partners Limited Partnership and subsidiaries at December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 4 to the consolidated financial statements, the Partnership
has restated its previously reported consolidated financial statements for the
years ended December 31, 2000, 1999 and 1998 to reflect adjustments related to a
change in the accounting treatment for a series of merger transactions.
BDO Seidman, LLP
Boston, Massachusetts
February 27, 2001, except Note 6
which is as of April 9, 2001 and Note 4
which is as of December 13, 2001
F-2
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Austin N.W. Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Austin N.W. Limited
Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and
the related statements of operations, changes in partners' equity and cash flows
for the period October 13, 1999 (date of inception) to December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP Austin N.W. Limited
Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and
the results of its operations, and its cash flows for the period October 13,
1999 (date of inception) to December 31, 1999, in conformity with generally
accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
F-3
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Blue Ravine Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Blue Ravine Limited
Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and
the related statements of operations, changes in partners' equity and cash flows
for the period August 13, 1999 (date of inception) to December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP Blue Ravine Limited
Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and
the results of its operations, and its cash flows for the period August 13, 1999
(date of inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
F-4
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Bollman Place Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Bollman Place
Limited Partnership (A Massachusetts Limited Partnership), as of December 31,
1999, and the related statements of operations, changes in partners' equity and
cash flows for the period September 28, 1999 (date of inception) to December 31,
1999. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP Bollman Place Limited
Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and
the results of its operations, and its cash flows for the period September 28,
1999 (date of inception) to December 31, 1999, in conformity with generally
accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
F-5
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Hillview Center Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Hillview Center
Limited Partnership (A Massachusetts Limited Partnership), as of December 31,
1999, and the related statements of operations, changes in partners' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP Hillview Center Limited
Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and
the results of its operations and cash flows for the year ended December 31,
1999, in conformity with generally accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
February 15, 2000
F-6
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Telecom Business Center Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Telecom Business
Center Limited Partnership (A Massachusetts Limited Partnership), as of December
31, 1999, and the related statements of operations, changes in partners' equity
and cash flow for the period February 1, 1999 (date of inception) to December
31, 1999. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP Telecom Business Limited
Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and
the results of its operations, and its cash flows for the period February 1,
1999 (date of inception) to December 31, 1999, in conformity with generally
accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
F-7
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Silverside Plantation Limited Partnership
We have audited the accompanying balance sheet of FSP SILVERSIDE
PLANTATION LIMITED PARTNERSHIP as of December 31, 1999 and the related
statements of income, changes in partners' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP SILVERSIDE PLANTATION
LIMITED PARTNERSHIP as of December 31, 1999 and the results of its operations,
changes in partners' equity, and cash flows for the year then ended in
conformity with generally accepted accounting principles.
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
January 24, 2000
F-8
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Silverside Plantation Limited Partnership
We have audited the accompanying balance sheet of FSP SILVERSIDE
PLANTATION LIMITED PARTNERSHIP as of December 31, 1998 and the related
statements of income, changes in partners' equity, and cash flows for the period
October 16, 1998 [Date of Inception] to December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP SILVERSIDE PLANTATION
LMITED PARTNERSHIP as of December 31, 1998 and the results of its operations,
changes in partners' equity, and cash flows for the period October 16, 1998
[Date of Inception] to December 31, 1998 in conformity with generally accepted
accounting principles.
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
January 15, 1999
F-9
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Balance Sheets
December 31,
--------------------------- March 31,
2000 1999 2001
================================================================================================
(Unaudited)
Assets (in thousands):
Real estate investments, at cost (Notes 4 and 5):
Land $ 39,994 $ 37,678 $ 39,995
Buildings and improvements 152,999 139,720 153,020
Fixtures and equipment 995 896 995
------------------------------------------------------------------------------------------------
193,988 178,294 194,010
Less accumulated depreciation 12,917 8,526 13,993
------------------------------------------------------------------------------------------------
Real estate investments, net 181,071 169,768 180,017
Cash and cash equivalents 13,718 18,519 18,019
Restricted cash 499 489 509
Marketable securities 5,322 -- 2,952
Due from related parties (Note 6) 16,734 -- 19
Tenant rent receivables 1,238 573 1,006
Prepaid expenses 535 624 762
Office computers and furniture, net of accumulated
depreciation of $142,000, $72,000 and $153,000 303 239 347
Deposits and other assets 503 274 483
------------------------------------------------------------------------------------------------
Total assets $219,923 $190,486 $204,114
================================================================================================
See accompanying notes to consolidated financial statements.
F-10
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Balance Sheets
December 31,
------------------------ March 31,
2000 1999 2001
=======================================================================================================
(Unaudited)
Liabilities and Partners' Capital (in thousands):
Liabilities:
Bank note payable (Note 7) $ 16,500 $ 23,522 $ --
Accounts payable and accrued expenses 2,281 4,810 3,523
Tenant security deposits 499 489 509
-------------------------------------------------------------------------------------------------------
Total liabilities 19,280 28,821 4,032
-------------------------------------------------------------------------------------------------------
Minority interests in consolidated entities 63 78,090 67
-------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6, 7, 8 and 10)
Partners' capital (deficit) (Notes 4, 8 and 9):
Limited partners, 23,486,096, 11,051,408 and 23,488,618
units issued and outstanding 204,067 86,507 203,525
General partner, 948,499 units issued and outstanding (3,487) (2,932) (3,510)
-------------------------------------------------------------------------------------------------------
Total partners' capital 200,580 83,575 200,015
-------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $219,923 $190,486 $204,114
=======================================================================================================
See accompanying notes to consolidated financial statements.
F-11
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Statements of Operations
(Notes 3 and 4)
For the
Three Months
For the Years Ended Ended
December 31, March 31,
---------------------------------- ---------------------------
2000 1999 1998 2001 2000
==================================================================================================================================
(in thousands, except per partnership unit amounts) (Unaudited) (Unaudited)
Revenues (Note 6):
Rental income (Note 10) $25,434 $16,315 $10,859 $ 6,488 $ 6,198
Investment services income 7,574 789 -- 5,753 --
Interest and other income 1,785 944 696 546 206
----------------------------------------------------------------------------------------------------------------------------------
Total revenues 34,793 18,048 11,555 12,787 6,404
----------------------------------------------------------------------------------------------------------------------------------
Expenses (Note 6):
Selling, general and administrative (Notes 8 and 10) 8,795 5,223 2,575 3,177 2,589
Other real estate operating expenses 6,489 4,429 3,012 1,411 1,415
Depreciation and amortization (Note 5) 4,613 3,231 2,104 1,273 1,081
Real estate taxes and insurance 2,473 1,448 1,101 718 694
Interest expense 860 299 26 185 387
----------------------------------------------------------------------------------------------------------------------------------
Total expenses 23,230 14,630 8,818 6,764 6,166
----------------------------------------------------------------------------------------------------------------------------------
Income before minority interests 11,563 3,418 2,737 6,023 238
Income applicable to minority interests 2,649 2,279 4,412 21 412
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 8,914 $ 1,139 $(1,675) $ 6,002 $ (174)
==================================================================================================================================
Allocation of net income (loss) to:
Limited Partners $ 8,568 $ 1,049 $ (839) $ 5,769 $ (164)
General Partner 346 90 (836) 233 (10)
----------------------------------------------------------------------------------------------------------------------------------
$ 8,914 $ 1,139 $(1,675) $ 6,002 $ (174)
==================================================================================================================================
Basic and diluted net income (loss) per limited and
general partnership unit $ .40 $ .09 $ (.88) $ .25 $(.01)
==================================================================================================================================
See accompanying notes to consolidated financial statements.
F-12
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Statements of Partners Capital
Total Partners
For the years ended December 31, 2000, Limited Partners General Partner Capital
1999 and 1998 and for the three months ended --------------------------- ----------------------- --------------------------
March 31, 2001 (unaudited) Units Amount Units Amount Units Amount
====================================================================================================================================
(in thousands, except units)
Balance, December 31, 1997 952,301 $ 8,014 948,499 $ 160 1,900,800 $ 8,174
Net loss -- (839) -- (836) -- (1,675)
Distributions -- (751) -- (749) -- (1,500)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 952,301 6,425 948,499 (1,426) 1,900,800 4,999
Units issued in January 1, 1999 merger
transaction (Note 4) 10,099,107 88,413 -- -- 10,099,107 88,413
Net income -- 1,049 -- 90 -- 1,139
Distributions -- (9,380) -- (1,596) -- (10,976)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 11,051,408 86,507 948,499 (2,932) 11,999,907 83,575
Units issued in January 1, 2000 merger
transaction (Note 4) 4,999,972 45,269 -- -- 4,999,972 45,269
Units issued in October 1, 2000 merger
transaction (Note 4) 7,204,716 77,080 -- -- 7,204,716 77,080
Units issued for compensation (Note 8) 230,000 2,300 -- -- 230,000 2,300
Net income -- 8,568 -- 346 -- 8,914
Distributions -- (15,628) -- (930) -- (16,558)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 23,486,096 204,067 948,499 (3,487) 24,434,595 200,580
Net income -- 5,769 -- 233 -- 6,002
Distributions -- (6,340) -- (256) -- (6,596)
Units issued for compensation (Note 8) 2,522 29 -- -- 2,522 29
------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2001 (Unaudited) 23,488,618 $203,525 948,499 $(3,510) 24,437,117 $200,015
====================================================================================================================================
See accompanying notes to consolidated financial statements.
F-13
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Statements of Cash Flows
For the
Three Months
For the Years Ended Ended
December 31, March 31,
---------------------------------- ---------------------------
2000 1999 1998 2001 2000
==================================================================================================================================
(in thousands) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ 8,914 $ 1,139 $ (1,675) $ 6,002 $ (174)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,613 3,231 2,104 1,273 1,081
Partnership units issued for compensation 2,300 -- -- 29 --
Gain on sale of land (149) -- -- -- --
Minority interests 2,649 2,279 4,412 21 412
Changes in operating assets and liabilities:
Restricted cash (10) (406) 104 (10) 3
Prepaid expenses and other (364) (566) (590) (227) 114
Tenant rent receivables (665) (389) (101) 232 (15)
Due from related parties (234) -- -- 215 --
Deposits and other assets (381) 306 110 (166) 113
Accounts payable and accrued expenses (2,529) 3,635 (401) 1,242 (876)
Tenant security deposits 10 406 (104) 10 (3)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,154 9,635 3,859 8,621 655
----------------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Loan to related party (16,500) -- -- 16,500 --
Purchase of property and equipment (9,952) (77,255) (28,980) (76) (28)
Proceeds received on sale of land 1,076 -- -- -- --
Change in marketable securities (5,322) -- -- 2,370 --
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (30,698) (77,255) (28,980) 18,794 (28)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash distributions to partners (16,558) (10,976) (1,500) (6,596) (2,760)
Cash distributions to minority interest holders (4,506) (2,375) (5,856) (18) (788)
Borrowings under line of credit 16,500 23,522 -- -- --
Repayments of line of credit (23,522) -- -- (16,500) (7,857)
Capital contributions from minority interest holders 39,829 63,316 34,752 -- 9,120
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 11,743 73,487 27,396 (23,114) (2,285)
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,801) 5,867 2,275 4,301 (1,658)
Cash and cash equivalents, beginning of period 18,519 12,652 10,377 13,718 18,519
----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 13,718 $ 18,519 $ 12,652 $ 18,019 $16,861
==================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 860 $ 299 $ 26 $ 185 $ 387
Income taxes $ -- $ -- $ -- $ -- $ --
Non-cash investing and financing activities:
In connection with the merger transactions described in Note 4, the
Partnership issued limited partnership units in exchange for the limited
partner minority interests in Sponsored Partnerships resulting in a
non-cash fair value step-up in the Partnership's real estate properties
totaling approximately $6,581,000 and $14,390,000 during the year ended
December 31, 2000 and 1999, respectively.
See accompanying notes to consolidated financial statements.
F-14
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
1. Organization Franklin Street Partners Limited Partnership (the
"Partnership") was formed as a Massachusetts limited
partnership on February 4, 1997. The Partnership owns
a 99% interest in FSP Investments LLC ("FSP
Investments"), a 99% interest in FSP Property
Management LLC ("FSP Property Management") and 100%
of FSP Holdings LLC ("FSP Holdings"). The Partnership
also has a nominal interest in five corporations
organized to operate as Real Estate Investment Trusts
("REITs"), which are accounted for on the equity
method (see Notes 2 and 6).
The Partnership operates in two business segments:
rental operations and investment services. FSP
Investments provides real estate investment and
broker/dealer services. FSP Investment's services
include: (i) the organization of REIT entities in
2000 and 2001 (the "Sponsored REITs") and limited
partnerships prior to 2000, (the "Sponsored
Partnerships"), which are syndicated through private
placements; (ii) the acquisition of real estate on
behalf of the sponsored entities; and (iii) the sale
of preferred stock in REITs or limited partnership
interests in the Sponsored Partnerships. FSP Property
Management provides property management services for
the sponsored entities.
During 1999 and 2000, a total of seventeen Sponsored
Partnerships were merged in to the Partnership (see
Note 4). Prior to the merger transactions, FSP
Holdings owned a 5% general partner interest in each
of the merged Sponsored Partnerships. Following the
consummation of the merger transactions, the
Partnership held 100% of the partnership interests in
each of the seventeen Sponsored Partnerships.
2. Significant of
Accounting
Policies
Basis of Presentation The accompanying consolidated financial statements
include the accounts of the Partnership, seventeen
Sponsored Partnerships and majority-owned
subsidiaries. All significant intercompany accounts
and transactions have been eliminated in
consolidation.
Restatement As discussed in Note 4, the Partnership has restated
its previously reported consolidated financial
statements for the years ended December 31, 2000,
1999 and 1998 to reflect certain adjustments related
to the Partnership's change in the accounting
treatment for a series of merger transactions.
Unaudited Information The accompanying consolidated financial statements
include the unaudited consolidated balance sheet as
of March 31, 2001 and the related consolidated
statements of operations and cash flows for the three
months ended March 31, 2001 and 2000. This unaudited
information has been prepared by the Partnership on
the same basis as the audited financial statements
and, in management's opinion, reflects all
adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the
financial information, in accordance with generally
accepted accounting principles, for the periods
presented. Results for interim periods are not
necessarily indicative of the results to be expected
for the entire year.
Business Segments The Partnership follows Statement of Financial
Accounting Standards ("SFAS") No. 131 "Disclosures
about Segments of an Enterprise and Related
Information," which established standards for the way
that public business enterprises report information
about operating segments in annual financial
statements and requires that those enterprises report
selected information about operating segments in
interim financial reports issued to shareholders (see
Note 3).
Minority Interests Minority interests represents the 95% limited partner
interests in Sponsored Partnerships prior to the date
of merger (see Note 4) and the 1% interest in FSP
Investments and FSP Property Management, which is
held by an officer and member of the general partner
of the Partnership. Minority interests included in
the Partnership's results of operations represents
the minority interest holders' share of the income or
loss of the consolidated entities. The minority
interests in the Partnership's consolidated balance
sheets reflects the original investment made by the
minority interest holders in the consolidated
entities along with their proportional share of the
earnings or losses less cash distributions. Cash
distributions paid to minority interest holders were
approximately $4,506,000, $2,375,000 and $5,856,000
for the years ended December 31, 2000, 1999 and 1998,
respectively.
F-15
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
2. Significant of
Accounting
Policies
(Continued)
Estimates and The preparation of financial statements in conformity
Assumptions with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Reclassifications Certain balances in the 1999 and 1998 financial
statements have been reclassified to conform to the
2000 presentation.
Investments in REITs Common stock investments in REITs are accounted for
using the equity method. Under the equity method of
accounting, the Partnership's cost is subsequently
adjusted by their share of the Sponsored REITs'
earnings, after deducting the REITs' preferred stock
dividends paid or accrued. Equity in the losses of
Sponsored REITs' are not recognized to the extent
that the investment balance would become negative.
Dividends are recognized as income after the
investment balance is reduced to zero.
There were no dividends received from the REITs for
the year ended December 31, 2000 or for the quarter
ended March 31, 2001.
Real Estate Real estate investments are carried at cost, net of
Investments and accumulated depreciation. Betterments, major
Depreciation renovations, and certain costs directly related to
the acquisition and improvement of real estate are
capitalized. Expenditures for maintenance and
repairs, including routine painting and carpeting,
are charged to operations as incurred. Depreciation
is computed using the straight line method over the
assets' estimated useful lives as follows:
Category Years
-----------------------------------------------------
Buildings:
Residential 27
Commercial 39
Building and improvements 15 to 39
Fixtures and equipment 5 to 7
The Partnership evaluates its assets used in
operations by identifying indicators of impairment
and by comparing the sum of the estimated
undiscounted future cash flows for each asset to the
asset's carrying value. When indicators of impairment
are present and the sum of the undiscounted future
cash flows are less than the carrying value of such
asset, an impairment loss is recorded equal to the
difference between the assets current carrying value
and its value based on discounting its estimated
future cash flows. At March 31, 2001 and at December
31, 2000, 1999 and 1998, no such indicators of
impairment were identified.
Cash and The Partnership considers all highly liquid debt
Cash Equivalents instruments purchased with a maturity of three months
or less to be cash equivalents. Cash and cash
equivalents consists of the following (in thousands):
December 31,
-------------------
2000 1999
=====================================================
Capital reserve funds held
in money market and cash
equivalent accounts $ 3,464 $ 8,024
Money market accounts 3,826 --
Operating accounts 6,428 10,495
=====================================================
$13,718 $18,519
=====================================================
Capital reserve funds are internally segregated by
the Partnership and have no external restrictions.
F-16
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
2. Significant of
Accounting
Policies
(Continued)
Restricted Cash Restricted cash consists of tenant security deposits.
Tenant security deposits are refunded when tenants
vacate provided that the tenant has not damaged the
property.
Marketable The Partnership accounts for investments in debt and
Securities equity securities under the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and
Equity Securities". The Partnership classifies its
debt and equity securities as available-for-sale
securities.
Investments in marketable securities mature as
follows (in thousands):
After
1 Year
Within Through
December 31, 2000 1 Year 3 Years Total
=====================================================
Government-backed
debt securities $3,957 $ -- $3,957
Corporate bonds 968 397 1,365
-----------------------------------------------------
$4,925 $397 $5,322
=====================================================
The above securities are stated at cost, which
approximates their fair value at December 31, 2000.
Financial Instruments The Partnership estimates that the carrying value of
cash and cash equivalents, restricted cash,
marketable securities, amounts due from related
parties and the bank note payable approximate their
fair values based on their short-term maturity and
prevailing interest rates.
Revenue Recognition Commercial Properties -- The Partnership has retained
substantially all of the risks and benefits of
ownership of the Partnership's commercial properties
and accounts for its leases as operating leases.
Rental income from leases, which include scheduled
increases in rental rates during the lease term, is
recognized on a straight-line basis. The Partnership
does not have any percentage rent arrangements with
its commercial property tenants. Reimbursable common
area maintenance charges are included in rental
income in the period earned.
Residential Apartments -- Rental income from tenants
of residential apartment properties is recognized in
the period earned.
Investment Services Income -- The Partnership
recognizes property acquisition and syndication fees
in the period services are rendered, provided that
the fee is fixed and collection is probable. Interim
financing fees are recognized in the period earned.
Commission income from the sale of partnership units
in Sponsored Partnerships or preferred stock in
Sponsored REITs is recognized as earned, which
generally occurs upon closing.
Income Taxes No provision has been made for Federal or state
income taxes in the consolidated financial statements
of the Partnership. Partners are required to report
on their individual tax returns their allocable share
of income, gains, losses, deductions and credits of
the Partnership. The Partnership files its tax
returns on the accrual basis.
Net Income (Loss) Per The Partnership follows SFAS No. 128 "Earnings per
Partnership Unit Share", which specifies the computation, presentation
and disclosure requirements for the Partnership's net
income (loss) per partnership unit. Basic net income
(loss) per unit is computed by dividing net income
(loss) by the weighted average number of partnership
units outstanding during period. Diluted net income
(loss) per share reflects the potential dilution that
could occur if securities or other contracts to issue
units were exercised or converted into units. There
were no potential dilutive units outstanding at March
31, 2001 and 2000 or at December 31, 2000, 1999 and
1998.
F-17
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
2. Significant of
Accounting
Policies
(Continued)
Net Income (Loss) Per The denominator used for calculating basic and
Partnership Unit diluted net income (loss) per unit is as follows:
(Continued)
Three
Years Ended Months Ended
December 31, March 31,
---------------------------------- -------------------------
2000 1999 1998 2001 2000
=================================================================================================
(Unaudited)
Weighted average number
of units outstanding:
Limited partners 21,608,258 11,051,408 952,301 23,487,988 16,051,380
General partner 948,499 948,499 948,499 948,499 948,499
-------------------------------------------------------------------------------------------------
22,556,757 11,999,907 1,900,800 24,436,487 16,999,879
=================================================================================================
The new partnership units exchanged for the existing
general partner and limited partners interests, in
connection with the January 1, 1999 merger
transactions described in Note 4, are treated as
outstanding for the year ended December 31, 1998.
Recent Accounting In June 1998, the Financial Accounting Standards
Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS
No. 133 requires companies to recognize all
derivative contracts at their fair values, as either
assets or liabilities on the balance sheet. If
certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of
which is to match the timing of gain or loss
recognition on the hedging derivative with the
recognition of (1) the changes in the fair value of
the hedged asset or liability that are attributable
to the hedged risk, or (2) the earnings effect of the
hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. SFAS
No. 133, as amended by SFAS No. 137 and 138, is
effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Historically, the
Partnership has not entered into derivative contracts
either to hedge existing risks or for speculative
purposes. Accordingly, adoption of the new standard
did not affect the Partnership's financial
statements.
In March 2000, the FASB issued interpretation No. 44
("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of
APB Opinion No. 25." FIN 44 clarifies the application
of APB No. 25 for (a) the definition of an employee
for purposes of applying APB No. 25, (b) the criteria
for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences
of various modifications to the previously fixed
stock options or awards, and (d) the accounting for
an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1,
2000 but certain conclusions covered specific events
that occurred after either December 15, 1998 or
January 12, 2000. Adoption of FIN 44 did not have an
effect on the Partnership's financial statements. In
December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101
which summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to
revenue recognition in financial statements. The
Staff Accounting bulletin became effective in the
fourth quarter of 2000. The adoption of this guidance
did not have an impact on the Partnership's results
of operations or financial position, however, the
guidance may impact the way in which the Partnership
will account for future transactions.
F-18
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
3. Business Segments The Partnership operates in two business segments:
rental operations and investment services (including
real estate acquisition, financing and broker/dealer
services). Segment operating results are measured and
assessed based on a performance measure known as
Funds From Operations ("FFO"). FFO is defined as net
income (computed in accordance with generally
accepted accounting principles) plus depreciation and
amortization and other non-cash expenses. FFO is not
a measure of operating results or cash flows from
operating activities as measured by generally
accepted accounting principles, and is not
necessarily indicative of cash available to fund cash
needs and should not be considered an alternative to
cash flows as a measure of liquidity.
FFO by business segment are as follows (in
thousands):
Per
Consolidated
Rental Investment Intercompany Statements of
Operations Services Total Eliminations Operations
=================================================================================================================================
For the three months ended March 31, 2001 (Unaudited):
Total revenues $ 6,592 $ 6,299 $ 12,891 $ (104) $ 12,787
Total expenses (4,645) (2,288) (6,933) 148 (6,785)
Depreciation and amortization 1,307 10 1,317 (44) 1,273
Non-cash expenses -- 29 29 -- 29
--------------------------------------------------------------------------------------------------------------------------------
FFO $ 3,254 $ 4,050 $ 7,304 $ -- $ 7,304
================================================================================================================================
For the three months ended March 31, 2000 (Unaudited):
Total revenues $ 6,469 $ 1,838 $ 8,307 $(1,903) $ 6,404
Total expenses (5,761) (950) (6,711) 641 (6,070)
Depreciation and amortization 1,107 10 1,117 (36) 1,081
--------------------------------------------------------------------------------------------------------------------------------
FFO $ 1,815 $ 898 $ 2,713 $(1,298) $ 1,415
================================================================================================================================
Year ended December 31, 2000:
Total revenues $ 26,817 $14,152 $ 40,969 $(6,176) $ 34,793
Total expenses (14,332) (9,854) (24,186) 1,099 (23,087)
Depreciation and amortization 4,694 68 4,762 (149) 4,613
Non-cash expenses -- 2,300 2,300 -- 2,300
--------------------------------------------------------------------------------------------------------------------------------
FFO $ 17,179 $ 6,666 $ 23,845 $(5,226) $ 18,619
================================================================================================================================
Year ended December 31, 1999:
Total revenues $ 17,204 $ 9,143 $ 26,347 $(8,299) $ 18,048
Total expenses (9,945) (5,315) (15,260) 667 (14,593)
Depreciation and amortization 3,299 41 3,340 (109) 3,231
--------------------------------------------------------------------------------------------------------------------------------
FFO $ 10,558 $ 3,869 $ 14,427 $(7,741) $ 6,686
================================================================================================================================
Year ended December 31, 1998:
Total revenues $ 11,560 $ 6,208 $ 17,768 $(6,213) $ 11,555
Total expenses (6,979) (2,802) (9,781) 203 (9,578)
Depreciation and amortization 2,136 33 2,169 (65) 2,104
--------------------------------------------------------------------------------------------------------------------------------
FFO $ 6,717 $ 3,439 $ 10,156 $(6,075) $ 4,081
================================================================================================================================
Non-cash expenses of $2,300,000 for the year ended
December 31, 2000 and $29,000 for the three months
ended March 31, 2001 are comprised of equity-based
compensation charges (see Note 8).
F-19
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
3. Business Segments
(Continued)
The Partnership's cash distributions from operations
for the year ended December 31, 2000 (excluding
$3,953,000 of cash distributions related to the
October 1, 2000 Merged Partnerships for the period
prior to the date of merger) are summarized as
follows:
Quarter paid Distribution Total
Per Partnership Cash
Unit Distributions
=====================================================
(in thousands)
Second quarter of 2000 $.24 $ 4,080
Third quarter of 2000 .25 4,308
Fourth quarter of 2000 .26 4,480
First quarter of 2001 .27 6,597
-----------------------------------------------------
$19,465
=====================================================
Cash distributions per partnership unit is based on
the total outstanding units at the end of each
calendar quarter. Cash available for distribution, as
determined at the sole discretion of the general
partner, is required to be distributed to unit
holders within 90 days following the end of each
calendar quarter. The cash distribution of
approximately $6,597,000 for the fourth quarter of
2000 was declared and paid in 2001. The cash
distribution of approximately $4,200,000 for the
fourth quarter of 1999 was declared and paid in the
first quarter of 2000.
The following table is a summary of other financial
information by business segment (in thousands):
Rental Investment
Operations Services Total
==================================================================================
March 31, 2001 (unaudited):
Capital expenditures $ 76 $ -- $ 76
Identifiable assets $198,560 $ 5,554 $204,114
December 31, 2000:
Capital expenditures $ 9,825 $ 127 $ 9,952
Identifiable assets $194,328 $25,595 $219,923
December 31, 1999:
Capital expenditures $ 77,060 $ 195 $ 77,255
Identifiable assets $159,324 $31,162 $190,486
Capital expenditures:
December 31, 1998 $ 28,973 $ 7 $ 28,980
March 31, 2000 (unaudited) $ 28 $ -- $ 28
F-20
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
4. Merger Transactions In December 2001, the Partnership restated its
previously reported consolidated financial statements
for the year ended December 31, 2000, 1999 and 1998
to reflect certain adjustments related to the
Partnerships accounting treatment for the merger
transactions described below. The merger transactions
involved the exchange of the Partnership's limited
partner units for the minority interest holder
limited partnership units in seventeen Sponsored
Partnerships. The merger transactions were initially
recorded at their historic book values similar to a
pooling of interests and transaction costs were
charged to expense in accordance with the guidance
found in Emerging Issues Task Force ("EITF") 87-21
"Change of Accounting Basis in Master Limited
Partnership Transactions." In connection with the
review of the Partnership's public filings by the
Staff of the Securities and Exchange Commission
("SEC") in December of 2001, the Staff of the SEC and
the Partnership determined that acquisition of
minority interest accounting using the purchase
method in accordance with FASB Technical Bulletin
85-5 "Issues Relating to Accounting for Business
Combinations" was the preferable treatment.
Accordingly, the Partnership has recorded the
minority interest acquisitions based on the fair
value of assets and liabilities acquired.
Additionally, transaction costs incurred in
connection with the 2000 and 1999 mergers totaling
approximately $453,000 and $736,000, respectively
have been reflected as a cost of the minority
interest acquisitions. The fair market value of the
merged entities' real estate was determined based on
independent appraisals.
The non-cash adjustments had the impact of decreasing
reported net income for additional depreciation
expense and reallocating net income to minority
interest holders. Additionally, the purchase
accounting fair value adjustments increased real
estate assets and partners' capital. The impact to
the Partnership's consolidated financial statements
is summarized in the table below (in thousands,
except per unit amounts):
As Previously
Reported Adjustment Restated
------------------------------------------------
Year ended December 31, 2000:
Real estate investments, net $160,631 $ 20,440 $181,071
Total partners' capital 180,140 20,440 200,580
Net income 11,706 (2,792) 8,914
Basic and diluted net income per
partnership unit .50 (.10) .40
Year ended December 31, 1999:
Real estate investments, net $155,712 $ 14,056 $169,768
Minority interests 52 78,038 78,090
Total partners' capital 147,326 (63,751) 83,575
Net income 3,455 (2,316) 1,139
Basic and diluted net income per
partnership unit .21 (.12) .09
Year ended December 31, 1998:
Net income (loss) $ 1,977 $ (3,652) $ (1,675)
Basic and diluted net income (loss)
per partnership unit .17 (1.05) (.88)
Three months ended March 31, 2001 (unaudited):
Real estate investments, net $159,698 $ 20,319 $180,017
Total partners' capital 179,696 20,319 200,015
Net income 6,124 (122) 6,002
Basic and diluted net income per
partnership unit .25 -- .25
Three months ended March 31, 2000 (unaudited):
Net income (loss) $334 $(508) $(174)
Basic and diluted net income per
partnership unit .02 (.03) (.01)
F-21
Franklin Street Partners Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
4. Merger Transactions
(Continued)
Effective October 1, 2000, the Partnership and six
Sponsored Partnerships consummated a series of
mergers pursuant to an Agreement and Plan of Merger
(the "October 2000 Merger"). Under the terms of the
October 2000 Merger, all limited partnership
interests in the six Sponsored Partnerships
outstanding on October 1, 2000 were exchanged for
7,204,716 new limited partnership units in the
Partnership. The operations of the six merged
Sponsored Partnerships consist of six commercial
rental properties (see Note 5).
Effective January 1, 2000, the Partnership and three
Sponsored Partnerships consummated a series of
mergers pursuant to an Agreement and Plan of Merger
(the "January 2000 Merger"). Under the terms of the
January 2000 Merger, all limited partnership
interests in the three Sponsored Partnerships
outstanding on January 1, 2000 were exchanged for
4,999,972 new limited partnership units in the
Partnership. The operations of the three merged
Sponsored Partnerships consist of a residential
apartment property and two commercial real estate
properties (see Note 5).
Effective January 1, 1999, the Partnership and eight
Sponsored Partnerships consummated a series of
mergers pursuant to an Agreement and Plan of Merger
(the "1999 Merger"). Under the terms of the 1999
Merger, all limited partnership interests in the
eight Sponsored Partnerships outstanding on January
1, 1999 were exchanged for 10,099,107 new limited
partnership units in the Partnership. Additionally,
the partnership interests held by the Partnership's
existing general partner and limited partners were
exchanged for 948,499 new general partnership units
and 952,301 new limited partnership units,
respectively. The operations of the merged Sponsored
Partnerships consist of five commercial rental
properties and three residential real estate
properties (see Note 5).
Following the consummation of the mergers described
above, the Partnership owned 100% of the interests in
each merged Sponsored Partnership. The merger
transactions were solely an exchange of partnership
units and no cash was involved. The Partnership's
consolidated financial statements include the full
results of operations of the merged Sponsored
Partnerships from the date of merger.
The following unaudited pro forma consolidated
results of operations are presented as if the merger
transactions had occurred at the beginning of the
periods presented (in thousands, except per unit
amounts):
Years ended December 31, 2000 1999 1998
===============================================================================================
(in thousands)
Revenues $34,793 $18,048 $11,555
Net income $10,987 $ 3,121 $ 1,643
Basic and diluted net income per limited and general
partnership unit $ 0.47 $ 0.19 $ 0.14
F-22
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
5. Real Estate In connection with the various merger transactions
Investments described at Note 4, the Partnership acquired 100%
ownership in seventeen real estate properties during
2000 and 1999. The following is a summary of the more
significant elements of the Partnership's real estate
investments at December 31, 2000 (dollar amounts in
thousands):
Partnership's
Acquisition Cost
Date --------------------------
Approximate Acquired by Buildings,
Date of Square Date Sponsored Improvements
Description Merger Units Footage Constructed Partnership Land and Fixtures
====================================================================================================================================
Residential Apartments:
Essex House, Houston, TX January 1999 135 118,800 1993 1993 $ 2,920 $ 9,367
Reata, Houston, TX January 1999 159 129,000 1994 1994 3,399 9,657
Weslayan Oaks, Houston, TX January 1999 84 70,500 1995 1997 1,658 3,990
Silverside Plantation, Baton Rouge, LA January 2000 264 223,800 1998 1998 2,136 17,151
Commercial Properties:
North Andover
Office Park, No. Andover, MA January 1999 -- 92,000 1972-1978 1996 1,311 8,136
Park Seneca, Charlotte, NC January 1999 -- 110,600 1969 1997 1,915 7,817
Piedmont Center, Greenville, SC January 1999 -- 143,800 1973 1998 1,449 9,839
4995 P. Henry Drive, Santa Clara, CA January 1999 -- 40,300 1978 1997 3,274 4,130
One Technology Drive, Peabody, MA January 1999 -- 188,000 1982 1995 1,658 10,246
Hillview Center, Milpitas, CA January 2000 -- 36,300 1984 1999 2,203 2,813
Telecom Business Center, San Diego, CA January 2000 -- 101,700 1997 1999 5,035 11,363
Southfield Center, Southfield, MI October 2000 -- 212,500 1977 1999 4,344 11,455
Blue Ravine, Folsom, CA October 2000 -- 47,000 1984 1999 846 5,450
Bollman Place, Savage, MD October 2000 -- 99,000 1984 1999 1,585 4,121
Austin N.W., Austin, TX October 2000 -- 68,600 1998 1999 708 10,494
10 Lyberty Way, Westford, MA October 2000 -- 104,700 1984 2000 1,315 8,862
Gateway Crossing 95, Columbia, MD October 2000 -- 188,800 1988-1994 1999 4,453 15,931
------------------------------------------------------------------------------------------------------------------------------------
$40,209 $150,822
====================================================================================================================================
F-23
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
5. Real Estate
Investments
December 31, 2000
Cost ----------------------- Total
Capitalized Accumulated
(Disposals) Buildings, Depreciation at
Subsequent to Improvements December 31,
Description Acquisition Land And Fixtures Total 2000
==================================================================================================================================
Residential Apartments:
Essex House, Houston, TX $ 648 $ 2,920 $ 10,015 $ 12,935 $ 2,598
Reata, Houston, TX 567 3,399 10,224 13,623 2,082
Weslayan Oaks, Houston, TX 70 1,658 4,060 5,718 566
Silverside Plantation, Baton Rouge, LA (205) 2,021 17,061 19,082 1,311
Commercial Properties:
North Andover
Office Park, No. Andover, MA 895 1,311 9,031 10,342 1,458
Park Seneca, Charlotte, NC (42) 1,815 7,875 9,690 584
Piedmont Center, Greenville, SC 596 1,449 10,435 11,884 796
4995 P. Henry Drive, Santa Clara, CA 58 3,274 4,188 7,462 294
One Technology Drive, Peabody, MA (450) 1,658 9,796 11,454 1,173
Hillview Center, Milpitas, CA 7 2,203 2,820 5,023 126
Telecom Business Center, San Diego, CA 78 5,035 11,441 16,476 515
Southfield Center, Southfield, MI 138 4,344 11,593 15,937 348
Blue Ravine, Folsom, CA 22 846 5,472 6,318 154
Bollman Place, Savage, MD 45 1,585 4,166 5,751 98
Austin N.W., Austin, TX 161 708 10,655 11,363 264
10 Lyberty Way, Westford, MA 78 1,315 8,940 10,255 135
Gateway Crossing 95, Columbia, MD 291 4,453 16,222 20,675 415
----------------------------------------------------------------------------------------------------------------------------------
$2,957 $39,994 $153,994 $193,988 $12,917
==================================================================================================================================
There were no encumbrances on the above properties.
Depreciation lives at December 31, 2000 are
summarized at Note 2.
The following table summarizes the changes in the
Partnership's real estate investments and accumulated
depreciation (in thousands):
December 31,
------------------------------
2000 1999 1998
=====================================================================================
Real estate investments, at cost:
Balance, beginning of period $178,294 $ 86,835 $58,080
Acquisitions 15,982 91,271 28,634
Improvements 639 188 121
Dispositions (927) -- --
-------------------------------------------------------------------------------------
Balance, end of period $193,988 $178,294 $86,835
=====================================================================================
Accumulated depreciation:
Balance, beginning of period $ 8,526 $ 5,447 $ 3,617
Depreciation 4,391 3,079 1,830
Dispositions -- -- --
-------------------------------------------------------------------------------------
Balance, end of period $ 12,917 $ 8,526 $ 5,447
=====================================================================================
F-24
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
6. Related Party
Transactions
Investment in During 2000, the Partnership acquired 100% of the
Sponsored REITs common stock in four Sponsored REITs for nominal
consideration. Additionally, the Partnership's 5%
general partner interest in one Sponsored Partnership
was exchanged for the common stock in a newly formed
REIT, in connection with this Sponsored Partnership's
reorganization from a limited partnership to a REIT
on January 1, 2001.
The Sponsored REITs were formed as corporations under
the laws of Delaware and operate in a manner intended
to qualify as REITs for Federal income tax purposes.
To qualify as a REIT, each entity must comply with
certain operating activity requirements and must
generally distribute 95% (90% commencing January 1,
2001) of its taxable income to its shareholders. The
REITs have issued both common stock and preferred
stock. The common stock is owned solely by the
Partnership and the preferred stock is owned by
outside individual investors. Each REIT was organized
to acquire a single real estate property using the
proceeds raised through private offerings of its
preferred stock. The REIT's do not contemplate having
any long-term financing. The preferred shareholders'
in each of the REITs are entitled to 100% of the
REITs dividends. As a common shareholder, the
Partnership has no rights to the REIT's regular cash
dividends. However, upon liquidation of the REITs the
Partnership will be entitled to its percentage
interest in any proceeds after the preferred
shareholders have recovered their investment. The
Partnership's percentage interest in each REIT is
less than 1%. The Partnership's cost of its
investment in the REITs approximates its share of the
underlying equity in the net assets of the REITs. The
Partnership's share of the REITs' earnings, after
deducting preferred stock dividends paid or accrued,
was not material for the quarter ended March 31, 2001
or for the year ended December 31, 2000.
The affirmative vote of the holders of a majority of
the REIT's preferred stockholders is required for any
actions involving merger, sale of property, amendment
to charter or issuance of additional capital stock.
In addition, all of the REIT's amended their
certificates of incorporation in April 2001 to allow
the holders of more than fifty percent of the
outstanding preferred shares to remove, without
cause, and replace one or more members of the REIT's
Board of Directors
Sponsored Entity Fees FSP Investments has provided syndication and real
estate acquisition advisory services for the
Sponsored REITs in 2001 and 2000 and Sponsored
Partnerships prior to 2000. Transactions with merged
Sponsored Partnerships have been eliminated in the
accompanying consolidated financial statements. Fees
from non-consolidated related entities for property
acquisition services amounted to approximately
$1,581,000 and $346,000 for the years ended December
31, 2000 and 1999, respectively. Sales commissions
earned for the sale of Sponsored REIT preferred
shares in 2000 and partnership units in one Sponsored
Partnership in 1999 amounted to approximately
$4,036,000 and $443,000 for the years ended December
31, 2000 and 1999, respectively. The Partnership has
also provided interim financing for the purchase of
certain REIT properties prior to completion of the
REIT's private equity offerings. Financing commitment
fees earned by the Partnership from the REITs totaled
approximately $1,957,000 for the year ended December
31, 2000. Interest income charged to the REITs
amounted to approximately $457,000 for the year ended
December 31, 2000.
Management Fees Management fees charged to the merged Sponsored
Partnerships have been eliminated in the accompanying
consolidated statements of operations. Total property
management fee income from non-consolidated entities
amounted to approximately $112,000 and $16,000 for
the years ended December 31, 2000 and 1999,
respectively. There were no related entity management
fees for the year ended December 31, 1998. Property
management fees range from 1% to 5% of collected
rents.
F-25
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
6. Related Party
Transactions
(Continued)
Due From Related Amounts due from related parties consist of the
Parties following (in thousands):
December 31, 2000 1999
=================================================================================================
Interim financing note receivable due from
Sponsored REIT, bearing interest at the
bank's base rate (9.5% at December 31,
2000), collateralized by the REIT's
real estate and the assignment of its
rents; paid in full upon closing of
REIT's private equity
offering in February 2001. $16,500 $--
Interest receivable from Sponsored REITs,
paid upon closing of private equity
offering in February
2001. 144 --
Non-interest bearing cash advances due on demand from
Sponsored REITs. 90 --
-------------------------------------------------------------------------------------------------
$16,734 $--
=================================================================================================
7. Bank Note Payable The Partnership has a revolving line of credit
agreement (the "Loan Agreement") with a bank
providing for borrowings up to $35 million (increased
to $53 million in February 2001). Borrowings under
the Loan Agreement bear interest at either the bank's
base rate or a variable LIBOR rate, as defined.
Borrowings outstanding under the Loan Agreement
consist of the following (in thousands):
December 31, 2000 1999
=====================================================================================
Note payable, bearing interest at the bank's base rate
(9.5% at December 31, 2000). $16,500 $ 3,672
Note payable, bearing interest at LIBOR plus 1.25%
per annum (7.75% at December 31, 1999). -- 19,850
-------------------------------------------------------------------------------------
$16,500 $23,522
=====================================================================================
The Loan Agreement includes restrictions on property
liens and requires compliance with various financial
covenants. Financial covenants include the
maintenance of at least $1,500,000 in operating cash
accounts, a minimum tangible net worth of
$140,000,000 and compliance with various debt and
operating income ratios, as defined in the Loan
Agreement. The Partnership was in compliance with the
Loan Agreement's financial covenants as of December
31, 2000. Outstanding borrowings of $16,500,000 at
December 31, 2000 were repaid in February 2001. The
Loan Agreement matures on February 23, 2003.
The Loan Agreement also provides for personal
borrowings of up to $3,000,000 by the members of the
Partnership's general partner for the purpose of
acquiring partnership units or paying income taxes
thereon. Borrowings of $800,000 were outstanding with
members of the general partner at December 31, 2000,
which are guaranteed by the Partnership.
F-26
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
8. Partners' Capital
General The Partnership's general partner has the exclusive
right to manage the business of the Partnership and
make certain amendments to the Partnership Agreement,
without the consent or approval of the limited
partners. The Partnership's limited partners do not
take part in management and do not have any voting
rights regarding the Partnership's operations. A
majority in interest of the limited partners, with
the consent of the general partners, may amend the
Partnership Agreement, subject to certain limitations
as defined in the Partnership Agreement. Except as
provided for under certain Federal tax provisions
described in the Partnership Agreement, net income or
net losses from operations shall be allocated to all
partners based on their percentage interest in the
Partnership. Net profits or losses arising from a
sale or other disposition of all or any portion of
the Partnership's property or upon liquidation of the
Partnership shall be allocated as follows:
Net Profit -- The Partnership's net profits are
allocated first to the extent of any partner's
negative capital account balance, and thereafter in
proportion with their percentage interest in the
Partnership.
Net Losses -- First to the extent of any partner's
positive capital account balance, and thereafter in
proportion with their percentage interest in the
Partnership.
The Partnership's cash distributions are allocated to
the limited partners and the general partner based on
each partner's percentage interest in the
Partnership.
Equity-Based In April 2000 and January 2001, the Partnership
Compensation issued 230,000 and 2,522 partnership units,
respectively, with a fair value of approximately
$2,300,000 and $29,000, respectively, to certain
officers and employees of the Partnership in lieu of
cash compensation. These partnership units were fully
vested on the date of issuance. The equity-based
compensation charges of $2,300,000 and $29,000 are
included in selling, general and administrative
expenses in the accompanying statements of operations
for the year ended December 31, 2000 and three months
ended March 31, 2001, respectively. Cash
distributions paid to the holders of the 230,000
units amounted to approximately $117,000 for the year
ended December 31, 2000.
General Partner On December 30, 1999, FSP General Partner LLC (the
"General Partner") was organized solely to hold the
Partnership's general partner units, which were
previously held by eight individuals. The General
Partner's financial activities consist of receiving
cash distributions from the Partnership and paying
such amounts to its members. The members of the
General Partner function as Officers and/or Directors
of the Partnership. The Partnership pays no fees or
other compensation to the General Partner. The
General Partner has no commitment or intent to
furnish direct or indirect financial assistance to
the Partnership. Total cash distributions paid to the
General Partner were approximately $930,000,
$1,596,000 and $749,000 for the years ended December
31, 2000, 1999 and 1998, respectively.
9. Federal Income The difference between Partners' capital for
Tax Reporting financial reporting purposes and for income tax
purposes is approximately as follows (in thousands):
Partnership capital - financial reporting
purposes, December 31, 2000 $200,580
Partnership's cumulative tax reporting
differences, primarily relating to
non-deductible expenses, depreciation
and other temporary differences and
the effects of mergers (19,090)
-----------------------------------------------------
Partners' capital-- income tax purposes,
December 31, 2000 per Form 10 $181,490
=====================================================
The merger transactions described in Note 4 were
treated as tax-free reorganizations for income tax
reporting purposes.
F-27
Franklin Street Partners
Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
(Information for March 31, 2001 and 2000 is unaudited)
10. Commitments
Rentals Under The Partnership's commercial rental operations
Operating Leases include the leasing of office buildings and
industrial properties subject to leases with terms
greater than one year. The leases thereon expire at
various dates through 2012. The following is a
schedule of approximate future minimum rental income
on non-cancelable operating leases as of December 31,
2000 (in thousands):
Year ended December 31,
=====================================================
2001 $26,719
2002 14,759
2003 12,179
2004 8,444
2005 3,936
Thereafter 12,358
-----------------------------------------------------
$78,395
=====================================================
Office Lease The Partnership leases its corporate office space
under a six year operating lease that commenced in
June 1999. The lease includes a base annual rent and
additional rent for the Partnership's share of taxes
and operating costs.
Future minimum lease payments are approximately as
follows (in thousands):
Year ended December 31,
=====================================================
2001 $190
2002 199
2003 203
2004 209
2005 97
-----------------------------------------------------
$898
=====================================================
Rent expense was approximately $184,000, $126,000 and
$52,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
Retirement Plan During 1999, the Partnership formed a retirement
savings plan for eligible employees. Under the plan,
the Partnership matches participant contributions up
to $6,000 annually per participant. The Partnership's
total contribution under the plan amounted to
approximately $53,000 and $46,000 for the years ended
December 31, 2000 and 1999, respectively.
F-28
Exhibit Index
Exhibits Description
-------- -----------
3.1 Certificate of Limited Partnership
3.2 Amendment to Certificate of Limited Partnership
4.1 Third Amended and Restated Limited Partnership Agreement,
dated as of January 1, 2000
4.2 First Amendment, dated as of January 1, 2000, to Third Amended
and Restated Limited Partnership Agreement, dated as of
January 1, 2000
4.3 Second Amendment, dated as of June 26, 2000, to Third Amended
and Restated Limited Partnership Agreement, dated as of
January 1, 2000
21 Subsidiaries of the Registrant