UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q/A
Amendment No. 1 to
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to __________.
Commission File Number: 0-32615
The undersigned hereby amends in its entirety its Quarterly Report on Form 10Q
for the Quarter ended June 30, 2001.
Franklin Street Partners Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-2724223
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
401 Edgewater Place, Suite 200
Wakefield, MA 01880-6210
(Address of principal executive offices)
Registrant's telephone number (781) 246-4900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
YES |_| NO |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Not applicable
Franklin Street Partners Limited Partnership
Form 10-Q
Quarterly Report
June 30, 2001
Table of Contents
Part I. Financial Information
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001
and December 31, 2000 3
Consolidated Statements of Operations for the
three months ended June 30, 2001 and 2000 and
for the six months ended June 30, 2001 and 2000 4
Consolidated Statements of Cash flows for the
six months ended June 30, 2001 and 2000 5
Notes to the Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
(in thousands) 2001 2000
======================================================================================================
(Unaudited)
Assets:
Real estate investments, at cost:
Land $ 39,614 $ 39,994
Buildings and improvements 153,020 152,999
Fixtures and equipment 995 995
------------------------------------------------------------------------------------------------------
193,629 193,988
Less accumulated depreciation 15,155 12,917
------------------------------------------------------------------------------------------------------
Real estate investments, net 178,474 181,071
Cash and cash equivalents 22,303 13,718
Restricted cash 515 499
Marketable securities 1,001 5,322
Due from related parties 47 16,734
Tenant rent receivables, net of allowance for doubtful accounts of
$210 in 2001 and $10 in 2000 806 1,238
Prepaid expenses and other assets 1,143 1,038
Office computers and furniture, net of accumulated
depreciation of $163 in 2001 and $142 in 2000 364 303
------------------------------------------------------------------------------------------------------
Total assets $204,653 $219,923
======================================================================================================
Liabilities and Partners' Capital
Liabilities:
Bank note payable $ -- $ 16,500
Accounts payable and accrued expenses 4,999 2,281
Tenant security deposits 515 499
------------------------------------------------------------------------------------------------------
Total liabilities 5,514 19,280
------------------------------------------------------------------------------------------------------
Minority interests in consolidated subsidiaries 52 63
------------------------------------------------------------------------------------------------------
Partners ' capital (deficit):
Limited partners, 23,488,618 in 2001 and 23,486,096 in 2000
units issued and outstanding 202,633 204,067
General partner, 948,499 units issued and outstanding in 2001 and 2000 (3,546) (3,487)
------------------------------------------------------------------------------------------------------
Total partners ' capital 199,087 200,580
------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $204,653 $219,923
======================================================================================================
See accompanying notes to consolidated financial statements.
3
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Six Months
Ended Ended
June 30, June 30,
---------------------- -------------------
(in thousands, except per partnership unit amounts) 2001 2000 2001 2000
=========================================================================================================================
Revenues:
Rental income $ 6,831 $ 6,562 $ 13,319 $ 12,760
Investment services income 6,349 -- 12,102 --
Interest and other income 316 198 862 404
-------------------------------------------------------------------------------------------------------------------------
Total revenues 13,496 6,760 26,283 13,164
-------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 3,481 2,716 6,658 5,305
Other real estate operating expenses 2,022 1,548 3,433 2,963
Depreciation and amortization 1,151 1,149 2,424 2,230
Real estate taxes and insurance 698 650 1,416 1,344
Interest expense 209 108 394 495
Minority interests 19 1,111 40 1,523
-------------------------------------------------------------------------------------------------------------------------
Total expenses 7,580 7,282 14,365 13,860
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,916 $ (522) $ 11,918 $ (696)
=========================================================================================================================
Allocation of net income (loss) to:
Limited Partners $ 5,686 $ (493) $ 11,455 $ (657)
General Partner 230 (29) 463 (39)
-------------------------------------------------------------------------------------------------------------------------
$ 5,916 $ (522) $ 11,918 $ (696)
=========================================================================================================================
Basic and diluted net income (loss) per limited and
general partnership unit $ .24 $ (.03) $ .49 $ (.04)
=========================================================================================================================
See accompanying notes to consolidated financial statements.
4
Franklin Street Partners
Limited Partnership and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the
Six
Months
Ended
----------------
June 30,
(in thousands) 2001 2000
==========================================================================================
Cash flows from operating activities:
Net income (loss) $ 11,918 $ (696)
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization 2,424 2,230
Partnership units issued as compensation 29 2,300
Gain on sale of land (11) (149)
Minority interests 40 1,523
Changes in operating assets and liabilities:
Restricted cash (16) --
Prepaid expenses (123) 130
Tenant rent receivables 432 (63)
Due from related parties 187 (170)
Deposits and other assets (147) (226)
Accounts payable and accrued expenses 2,718 (1,250)
Tenant security deposits 16 --
------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,467 3,629
------------------------------------------------------------------------------------------
Cash flow from investing activities:
Repayment of loans from related party 16,500 --
Purchase of property and equipment (161) (8,088)
Proceeds received on sale of land 449 1,076
Sale of marketable securities 4,321 --
------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 21,109 (7,012)
------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash distributions to partners (13,440) (10,737)
Cash distributions to minority interest holders (51) (30)
Net repayments under line of credit facility (16,500) (23,522)
Capital contributions -- 39,829
------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (29,991) 5,540
------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 8,585 2,157
Cash and cash equivalents, beginning of period 13,718 18,519
------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 22,303 $ 20,676
==========================================================================================
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 394 $ 495
Income taxes $ -- $ --
See accompanying notes to consolidated financial statements.
5
Franklin Street Partners Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Organization and Operations
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") and a 99% interest in
FSP Property Management LLC ("FSP Property Management").
The Partnership operates in two business segments: rental operations and
investment services. FSP Investments provides real estate investment and
broker/dealer services. FSP Investments' services include: (i) the organization
of real estate investment trust ("REIT") entities (the "Sponsored REITs"), which
are syndicated through private placements; (ii) the acquisition of real estate
on behalf of the Sponsored REITs; and (iii) the sale through best efforts of
private placements of preferred stock in Sponsored REITs.
During 1999 and 2000, a total of seventeen limited partnerships (the "Sponsored
Partnerships") were merged into the Partnership . The Partnership previously
owned a general partner interest in each of the Sponsored Partnerships. The
mergers were accounted for as a purchase whereby the assets and liabilities of
the acquired Sponsored Partnerships were recorded at their fair value at the
date of merger. See the following note on Restatement.
Restatement
The Partnership has restated its previously reported consolidated financial
statements for the year ended December 31, 2000, including the previously
reported quarterly financial statements, to reflect certain adjustments that
were identified during the second quarter of 2001. These non-cash adjustments
had the impact of decreasing reported net income for additional depreciation
expense and reallocating net income to minority interest holders, and increasing
real estate assets. As a result of the restatement, depreciation expense
increased approximately $122,000 and $245,000 for the three and six months ended
March 31, 2001 and June 30, 2001, respectively. Real estate investments, net,
total assets, and Partners' equity all increased by $20.2 million as of June 30,
2001. Minority Interest and Partners' Capital that related to the Partnership's
initial accounting treatment for certain merger transactions that occurred in
1999 and 2000 were also adjusted. These mergers were initially recorded similar
to a pooling of interests, whereby the assets and liabilities were recorded at
their historic book values and transaction costs were charged to expense. During
the third quarter of 2001, the Partnership determined that the purchase method
of accounting was the appropriate treatment for these mergers. Accordingly, the
Partnership has recorded the mergers based on the fair value of assets and
liabilities acquired. Additionally, transaction costs incurred in connection
with these mergers have been capitalized as a cost of acquisition. The following
tables summarize the impact to amounts previously reported:
Six Months Ended
June 30, 2000
-------------
In thousands Previously
Reported Adjustments Restated
-------- ----------- --------
Total Revenues $ 13,164 $ -- $ 13,164
Total operating expenses 12,137 200 12,337
Minority interests 27 1,496 1,523
-------- -------- --------
Total expenses 12,164 1,696 13,860
Net income (loss) $ 1,000 $ (1,696) $ (696)
-------- -------- --------
Net income (loss) per general and
limited partnership unit $ 0.05 $ (0.08) $ (0.04)
-------- -------- --------
6
Franklin Street Partners Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Three Months Ended
June 30, 2000
-------------
In thousands Previously
Reported Adjustments Restated
-------- ----------- --------
Total Revenues $ 6,760 $ -- $ 6,760
Total operating expenses 6,071 100 6,171
Minority interests 23 1,088 1,111
-------- -------- --------
Total expenses 6,094 1,188 7,282
Net income (loss) $ 666 $ (1,188) $ (522)
-------- -------- --------
Net income (loss) per general and
limited partnership unit $ 0.03 $ (0.06) $ (0.03)
-------- -------- --------
December 31, 2000
-----------------
In thousands Previously
Reported Adjustments Restated
-------- ----------- --------
Real estate investments, net $160,631 $ 20,440 $181,071
Other Assets 38,852 -- 38,852
-------- --------
Total Assets $199,483 $ 20,440 $219,923
-------- -------- --------
Liabilities $ 19,280 $ -- $ 19,280
Minority interests 63 -- 63
Partners' equity 180,140 20,440 200,580
-------- -------- --------
Total liabilities and partner's equity $199,483 $ 20,440 $219,923
-------- -------- --------
Basis of Presentation
The consolidated financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Certain information and footnote disclosures normally
included in the Partnership's annual financial statements have been condensed or
omitted. The interim financial statements, in the opinion of management, reflect
all adjustments necessary for a fair statement of the results for the interim
periods ended June 30, 2001 and 2000. These adjustments are of a normal and
recurring nature. Operating results for the three and six months ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2001.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 2000, which are
contained in the Partnership's Form 10, as amended, filed with the Securities
and Exchange Commission (the "SEC").
Management's Estimates and Assumptions
The accompanying financial statements were prepared by the Partnership in
conformity with generally accepted accounting principles which require
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 reported period. The Partnership reviews all significant
estimates affecting the financial statements on a recurring basis and records
the effect of any necessary adjustments prior to their issuance. Actual results
could differ from those estimates.
7
Franklin Street Partners Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities as amended by SFAS No. 137 and No.
138. The provisions of this statement require that derivative instruments be
carried at fair value on the balance sheet. The statement continues to allow
derivative instruments to be used to hedge various risks and sets forth specific
criteria to be used to determine when hedge accounting can be used. For
derivative instruments not accounted for as hedges, changes in fair value are
required to be recognized in earnings. The provisions of this statement became
effective January 1, 2001. The Partnership has adopted these provisions, and the
impact on its financial position, results of operations and cash flows is not
material.
In June 2001, the FASB approved SFAS No. 141 "Business Combinations" ("SFAS
141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), effective
July 1, 2001 and January 1, 2002, respectively, for the Partnership. SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The Partnership has adopted SFAS
141; however, since June 30, 2001, there were no combinations by the Partnership
to which this would apply. Under SFAS 142, amortization of goodwill, including
goodwill recorded in past business combinations, will discontinue upon adoption
of this standard. In addition, goodwill recorded as a result of business
combinations completed during the three-month period ending December 31, 2001
will not be amortized. All goodwill and intangible assets will be tested for
impairment in accordance with the provisions of the Statement. The Partnership
has reviewed the provisions of SFAS 142 and believes that the impact of adoption
will not be material to its financial position, results of operations and cash
flows.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of the fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. This Statement will be effective at the beginning of
2003. The Partnership has reviewed the provisions of SFAS 143 and believes that
the impact of adoption will not be material to its financial position, results
of operations and cash flows.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". This Statement supersedes SFAS No. 121 and
requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less costs to sell. SFAS No. 144
retains the fundamental provisions of SFAS 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used, and (b)
measurement of long-lived assets to be disposed of by sale, but broadens the
definition of what constitutes a discontinued operation and how the results of a
discontinued operation are to be measured and presented. This Statement will be
effective at the beginning of 2002. The Partnership is currently assessing, but
has not yet determined the impact of SFAS No. 144 on its financial position or
results of operations and cash flows.
Reclassifications
Certain reclassifications have been made to the 2000 financial statements to
conform to the 2001 presentations.
Net Income Per Partnership Unit
The Partnership follows SFAS No. 128 "Earnings per Share", which specifies the
computation, presentation and disclosure requirements for the Partnership's net
income per partnership unit. Basic net income per unit is computed by dividing
net income by the weighted average number of partnership units outstanding
during the period. Diluted net income per unit 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
June 30, 2001 and 2000.
8
Franklin Street Partners Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Net Income Per Partnership Unit (continued)
The denominator used for calculating basic and diluted net income per unit is as
follows:
For the For the
Three Months Six Months
Ended Ended
June 30, June 30,
---------------------- -------------------
2001 2000 2001 2000
==========================================================================================================================
Weighted average number of units outstanding:
Limited partners 23,488,618 16,281,380 23,488,409 16,166,380
General partner 948,499 948,499 948,499 948,499
--------------------------------------------------------------------------------------------------------------------------
24,437,117 17,229,879 24,436,908 17,114,879
==========================================================================================================================
Business Segments
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 six months ended
June 30 , 2001:
Total revenues $ 13,951 $ 12,523 $ 26,474 $ (191) $ 26,283
Total expenses (7,190) (7,453) (14,643) 278 (14,365)
Depreciation and amortization 2,421 90 2,511 (87) 2,424
Non-cash expenses -- 1,529 1,529 -- 1,529
------------------------------------------------------------------------------------------------------------------------
FFO $ 9,182 $ 6,689 $ 15,871 $ -- $ 15,871
========================================================================================================================
p
For the six months ended June 30, 2000:
Total revenues $ 13,164 $ 6,019 $ 19,183 $(6,019) $ 13,164
Total expenses (8,863) (5,865) (14,728) 868 (13,860)
Depreciation and amortization 2,213 90 2,303 (73) 2,230
Non-cash expenses -- 2,300 2,300 -- 2,300
------------------------------------------------------------------------------------------------------------------------
FFO $ 6,514 $ 2,544 $ 9,058 $(5,224) $ 3,834
========================================================================================================================
Non-cash expenses of $1,529,000 and $2,300,000 for the six months ended June 30,
2001 and 2000, respectively, are comprised of equity-based compensation charges.
9
Franklin Street Partners Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Business Segments (continued)
The Partnership's cash distributions from operations are summarized as follows
(in thousands, except per partnership unit amounts):
Distribution Total
Per Partnership Cash
Quarter Paid Unit Distributions
================================================================================
First quarter of 2001 $.27 $ 6,597
Second quarter of 2001 .28 6,843
-------------------------------------------------------------------------------
$ 13,440
================================================================================
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 the first quarter of 2001. The cash
distribution of approximately $6,843,000 for the first quarter of 2001 was
declared and paid in the second quarter 2001.
The following table is a summary of other financial information by business
segment (in thousands):
Rental Investment
Operations Services Total
================================================================================
June 30, 2001:
Capital expenditures $ 79 $ 82 $ 161
Total assets $197,920 $ 6,733 $204,653
June 30, 2000:
Capital expenditures $ 8,018 $ 70 $ 8,088
Subsequent Event
Effective July 1, 2001, a wholly-owned subsidiary of the Partnership purchased
the 1% ownership interest in FSP Investments and the 1% ownership interest in
FSP Property Management for an aggregate purchase price of approximately
$32,000. As a result of the purchase, there is no longer a minority interest
holder in the subsidiaries of the Partnership.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table summarizes property owned by the Partnership:
June 30,
----------------------
2001 2000
---- ----
Residential:
Number of properties 4 4
Number of apartment units 642 642
Commercial:
Number of properties 13 13
Square footage 1,433,300 1,433,300
Results of Operations
The following table shows the Partnership's financial data as a percentage of
total revenues for the three months ended June 30, 2001 and 2000 and for the six
months ended June 30, 2001 and 2000 and the variance in dollars between the
periods:
Financial Data as a Percentage Variance in
of Total Revenues Thousands of Dollars
---------------------------------- ------------------------------
For the three For the six For the three For the six
months ended months ended months ended months ended
June 30, June 30, June 30, June 30,
-------------- ------------ ------------- -------------
2001 2000 2001 2000 2001 and 2000 2001 and 2000
---- ---- ---- ---- ------------- -------------
Revenues:
Rental income 51% 97% 51% 97% $ 269 $ 559
Syndication and
commission income 47 0 46 0 6,349 12,102
Interest and other income 2 3 3 3 118 458
---- ---- ---- ---- -------- ----------
Total revenues 100 100 100 100 6,736 13,119
---- ---- ---- ---- -------- ----------
Expenses:
Selling, general and
administrative 26 40 25 40 765 1,353
Other real estate operating
expenses 15 23 13 23 474 470
Depreciation and amortization 8 17 9 17 2 194
Real estate taxes and insurance 5 10 5 10 48 72
Interest expense 2 2 2 4 101 (101)
Minority interest 0 16 0 12 (1,092) (1,483)
---- ---- ---- ---- -------- ----------
Total expenses 56 108 54 106 298 505
---- ---- ---- ---- -------- ----------
Net income 44% (8)% 46% (6)% $ 6,438 $ 12,614
==== ==== ==== ==== ======== ==========
The Partnership's net income for the three months ended June 30, 2001 was $5.9
million reflecting an increase of $6.4 million over the net loss of $522
thousand during the comparable period in 2000. The Partnership's net income for
the six months ended June 30, 2001 was $11.9 million reflecting an increase of
$12.6 million over the net loss of $696 thousand during the comparable period in
2000. The increase in net income during the 2001 periods compared to 2000
resulted primarily from increased investment service income related to the
syndication of Sponsored REIT's in 2001.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Revenues
Total revenues during the three months ended June 30, 2001 increased by $6.7
million or 100% compared to the three months ended June 30, 2000. Total revenues
increased $13.1 million or 99%, to $26.3 million for the six months ended June
30, 2001, as compared to $13.2 million for the six months ended June 30, 2000.
Income from rental operations was $13.3 million for the six months ended June
30, 2001 compared to $12.8 million for the six months ended June 30, 2000.
The increase in rental income of $559 thousand, or 4.4%, compared to the six
months ended June 30, 2000, is attributable to:
o the acquisition of one commercial property in 2000, which generated
revenue for a full year in 2001 compared with a partial year in 2000,
resulting in $300 thousand in additional revenue;
o the increase in rents for one property of approximately $425 thousand;
o the net increase in other rents of about $305 thousand less vacancies and
delinquencies of approximately $170 thousand;
o offset by increased delinquencies in one property of approximately $300
thousand, substantially all of which occurred during the quarter ended
June 30, 2001.
The increase in investment services (syndication and commission) income of $6.3
million and $12.1 million for the three months and six months ended June 30,
2001, respectively, compared to the same periods in 2000, is attributable to the
syndication of three Sponsored REIT's in 2001. The Partnership syndicated three
Sponsored Partnerships during the six months ended June 30, 2000 and generated
syndication and commission fees of $6.0 million; however, these fees are
eliminated in the consolidated results.
The increase in interest and other income of $118 thousand and $458 thousand for
the three months and six months ended June 30, 2001, respectively, compared to
the same periods in 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 $0.3 million or 4% and $0.5 million or 4% for the three
months and six months ended June 30, 2001, respectively, compared to the same
periods in 2000.
The increase in selling, general and administrative expenses of $1.4 million or
26%, compared to the six months ended June 30, 2000, is attributable to:
o increased broker commissions and related costs of approximately $1.7
million;
o increased professional fees of approximately $115 thousand;
o increased other costs of approximately $120 thousand;
o offset by decreased payroll and related expenses of approximately $535
thousand.
The increase in other real estate operating expenses of $470 thousand or 16%,
compared to the six months ended June 30, 2000, is primarily attributable to:
o an increase in the allowance for bad debts of $200 thousand, all of which
occurred during the quarter ended June 30, 2001; and
o increased other costs of $270 thousand.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Expenses (continued)
The increase in depreciation and amortization expenses of $0.2 million or 9% in
2001 compared to depreciation and amortization expenses for the three months and
six months ended June 30, 2000 is primarily attributable to an increase in
depreciable assets as a result of the October 2000 merger.
The increase in real estate taxes and insurance expenses of $72 thousand or 5.4%
for the six months ended June 30, 2001, compared to the six months ended June
30, 2000 is primarily attributable to a general increase in real estate taxes.
The decrease in interest expense of $101 thousand or 20% for the six months
ended June 30, 2001, compared to the six months ended June 30, 2000, is
primarily attributable to the decrease in outstanding debt balances during 2001
compared to 2000.
The decrease in minority interest expense of $1.5 million for the six months
ended June 30, 2001 compared to the minority interest for the six months ended
June 30, 2000 is primarily attributable to the October 2000 merger.
Liquidity and Capital Resources
Cash and cash equivalents were $22.3 million and $13.7 million at June 30, 2001
and December 31, 2000, respectively. This 25.9% increase of $8.6 million is
attributable to $17.5 million provided by operating activities and $21.1 million
provided by investing activities partially offset by $30.0 million used by
financing activities.
Operating Activities
The Partnership's cash provided by operating activities of $17.5 million is
primarily attributable to:
o $14.3 million from operations, after addback of $2.4 million from non cash
expenses, primarily depreciation and amortization;
o $2.7 million from the increase in accounts payable and accrued expenses,
and
o $0.5 million from the net change in other operating assets and
liabilities.
Investing Activities
The Partnership's cash provided by investing activities of $21.1 million is
primarily attributable to:
o $16.5 million from the proceeds of a loan to a related party;
o $4.3 million from the sale of marketable securities; and
o $0.3 million provided by the proceeds from the sale of excess land
partially offset by the purchase of other property and equipment.
Financing Activities
The Partnership's cash used for financing activities of $30.0 million is
attributable to:
o $13.4 million cash distributions to partners;
o $16.5 million of net repayments under the line of credit facility.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
In the near term, liquidity is generated from funds from ongoing real estate
operations and investment services fees and commissions received in connection
with the sale of shares by 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 $53 million. Borrowings under
the loan bear interest at either the bank's base rate or a variable LIBOR rate.
The Partnership uses the unsecured line of credit to provide each newly-formed
Sponsored REIT 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 REIT. The loan is paid
back in full from the capital contributions of each Sponsored REIT'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 $104 million and compliance with other
various debt and income ratios. The Partnership was in compliance with all
covenants as of June 30, 2001.
As part of a syndication of a Sponsored REIT, the Partnership entered into an
agreement whereby the Partnership agreed to purchase a certain additional
property if the owner of the property offered the property for sale. The price
of the property ranges from $15 million to $22 million based upon a formula. The
seller must deliver notice to the Partnership of its intent to sell the property
no later than the end of May 2002. In the event that the Partnership is unable
to syndicate this property the Partnership would have to borrow under its
revolving credit facility.
The Partnership did not have any borrowings under its revolving credit facility
as of June 30, 2001.
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 June 30, 2001, 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, included in cash and cash equivalents, as of June
30, 2001 of approximately $7.2 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 REITs. The Partnership believes that it has adequate funds to cover
extraordinary expenses and capital improvements, in addition to normal operating
expenses.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company was not a party to derivative commodity investments at or during the
year ended December 31, 2000 or during the six months ended June 30, 2001. The
Company's only other financial instruments (as defined by financial Accounting
Standards Board Statement No. 107) are its cash and cash equivalents and
marketable securities for which cost approximates market value.
The Company's only indebtedness consists of draws from time to time upon its
line of credit. These borrowings bear interest at a variable rate. The Company
uses the funds it draws on its line of credit only for the purpose of making
interim mortgage loans to Sponsored REITs. These mortgage loans bear interest at
the same variable rate payable by the Company under its line of credit.
Therefore, the Company believes that it has mitigated its interest rate risk
with respect to its borrowings.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Other Information:
Not applicable.
Item 6. Exhibits and Reports on Form 8 - K:
(a) Exhibits: None;
(b) Reports on Form 8 - K:
The Partnership did not file any report on Form 8-K with the SEC
during the quarter ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to Form 10-Q to be signed on its
behalf by the undersigned, thereunto duly authorized.
Franklin Street Partners Limited Partnership
December 17, 2001 FSP General Partner LLC
its General Partner
By: /s/ George J. Carter
-----------------------------
Managing Member and President
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