-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RylFX/ACREM8hj5UP/hZbeGDtemH4dOWtXLaWbUdj52nP3IARzLb0HIwcJEtoh6K tGqBe8O37ZAZokNTLb4BlA== 0001005477-01-502293.txt : 20020413 0001005477-01-502293.hdr.sgml : 20020413 ACCESSION NUMBER: 0001005477-01-502293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN STREET PARTNERS LP CENTRAL INDEX KEY: 0001031316 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042724223 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-32615 FILM NUMBER: 1816889 BUSINESS ADDRESS: STREET 1: 401 EDGEWATER PL STREET 2: STE 200 CITY: WAKEFIELD STATE: MA ZIP: 01880 BUSINESS PHONE: 7815571300 MAIL ADDRESS: STREET 1: 401 EDGEWATER PLACE STREET 2: STE 200 CITY: WAKEFIELD STATE: MA ZIP: 01880 10-Q 1 d01-35422.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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 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 |X| NO |_| 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 September 30, 2001 Table of Contents Part I. Financial Information Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000 and for the nine months ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows for the nine months ended September 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 (Unaudited)
September 30, December 31, (in thousands) 2001 2000 ======================================================================================================================== (Restated) Assets: Real estate investments, at cost: Land $ 39,557 $ 39,994 Buildings and improvements 152,934 152,999 Fixtures and equipment 1,164 995 - ------------------------------------------------------------------------------------------------------------------------ 193,655 193,988 Less accumulated depreciation 16,279 12,917 - ------------------------------------------------------------------------------------------------------------------------ Real estate investments, net 177,376 181,071 Cash and cash equivalents 21,775 13,718 Restricted cash 507 499 Marketable securities 1,095 5,322 Investment in unconsolidated joint ventures 15,799 16,734 Tenant rent receivables, net of allowance for doubtful accounts of $210 in 2001 and $10 in 2000 938 1,238 Prepaid expenses and other assets 1,064 1,038 Office computers and furniture, net of accumulated depreciation of $174 in 2001 and $142 in 2000 423 303 - ------------------------------------------------------------------------------------------------------------------------ Total assets $218,977 $219,923 ======================================================================================================================== Liabilities and Partners' Capital Liabilities: Bank note payable $ 15,682 $ 16,500 Accounts payable and accrued expenses 4,990 2,281 Tenant security deposits 507 499 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 21,179 19,280 - ------------------------------------------------------------------------------------------------------------------------ Minority interests in consolidated subsidiaries - 63 - ------------------------------------------------------------------------------------------------------------------------ Partners' capital (deficit): Limited partners, 23,637,748 in 2001 and 23,486,096 in 2000 units issued and outstanding 201,460 204,067 General partner, 948,499 units issued and outstanding in 2001 and 2000 (3,662) (3,487) - ------------------------------------------------------------------------------------------------------------------------ Total partners' capital 197,798 200,580 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities and partners' capital $218,977 $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 Nine Months Ended Ended September 30, September 30, ---------------------- ------------------- (in thousands, except per partnership unit amounts) 2001 2000 2001 2000 ======================================================================================================================== (Restated) (Restated) Revenues: Rental income $ 6,915 $ 6,300 $20,234 $19,060 Investment services income 4,070 3,956 16,172 3,956 Interest and other income 317 513 1,179 917 - ------------------------------------------------------------------------------------------------------------------------ Total revenues 11,302 10,769 37,585 23,933 - ------------------------------------------------------------------------------------------------------------------------ Expenses: Selling, general and administrative 2,919 1,438 9,622 6,521 Other real estate operating expenses 1,941 1,572 5,374 4,535 Depreciation and amortization 1,193 1,171 3,572 3,401 Real estate taxes and insurance 919 688 2,335 2,032 Interest expense 247 288 641 783 Minority interests - 1,107 40 2,629 - ------------------------------------------------------------------------------------------------------------------------ Total expenses 7,219 6,264 21,584 19,901 - ------------------------------------------------------------------------------------------------------------------------ Net income $ 4,083 $ 4,505 $16,001 $ 4,032 ======================================================================================================================== Allocation of net income to: Limited Partners $ 3,925 $ 4,257 $15,380 $ 3,809 General Partner 158 248 621 223 - ------------------------------------------------------------------------------------------------------------------------ $ 4,083 $ 4,505 $16,001 $ 4,032 ======================================================================================================================== Basic and diluted net income per limited and general partnership unit $ 0.17 $ 0.26 $ 0.65 $ 0.24 ========================================================================================================================
See accompanying notes to consolidated financial statements. 4 Franklin Street Partners Limited Partnership and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, --------------------- (in thousands) 2001 2000 ========================================================================================================================== (Restated) Cash flows from operating activities: Net income $ 16,001 $ 4,032 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,572 3,401 Partnership units issued as compensation 1,744 2,300 Gain on sale of land (11) (149) Minority interests 40 2,629 Changes in operating assets and liabilities: Restricted cash (8) (10) Prepaid expenses (47) 33 Tenant rent receivables 300 (197) Investment in real estate - - Deposits and other assets (157) (800) Accounts payable and accrued expenses 2,709 (1,246) Tenant security deposits 8 10 - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 24,151 10,003 - -------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Change in investment in unconsolidated joint ventures 935 (33,229) Purchase of property and equipment (257) (10,014) Proceeds received on sale of land 449 1,076 Sale of marketable securities 4,227 - - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities 5,354 (42,167) - -------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Distributions to partners (20,527) (14,424) Distributions to minority interest holders (103) (37) Borrowings from/(repayments to) bank note payable (818) 8,378 Capital contributions from partners - 39,829 - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities (21,448) 33,746 - -------------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 8,057 1,582 Cash and cash equivalents, beginning of period 13,718 18,519 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 21,775 $ 20,101 ========================================================================================================================== Supplemental disclosure of cash flow information: Non-cash investing and financing activities: Issuance of limited partner units in connection with January 2000 merger - 2,437
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. Through June 30, 2001 the Partnership owned a 99% interest in FSP Investments LLC ("FSP Investments") and a 99% interest in FSP Property Management LLC ("FSP Property Management"). 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. 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 controlling general partner interest in each of the Sponsored Partnerships. The mergers were tax-free reorganizations 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 purchase. See the following note on Restatement. Restatement In December 2001, the Partnership restate its previously reported consolidated financial statements for the year ended December 31, 2000, 1999 and 1998 to reflect certain adjustments related to the Partnership's 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 following tables summarize the impact to the amounts previously reported: Nine Months Ended September 30, 2000 ------------------ (In thousands) Previously Reported Adjustments Restated ---------- ----------- -------- Total Revenues $23,933 $ -- $23,933 Total operating expenses 17,194 78 17,272 Minority interests 34 2,595 2,629 ------- ------- ------- Total expenses 17,228 2,673 19,901 Net income $ 6,705 $(2,673) $ 4,032 ------- ------- ------- Net income per general and limited partnership unit $ 0.29 $ (0.05) $ 0.24 ------- ------- ------- 6 Franklin Street Partners Limited Partnership Notes to Consolidated Financial Statements (Unaudited) Restatement (continued) Three Months Ended September 30, 2000 ------------------ (In thousands) Previously Reported Adjustments Restated ---------- ----------- -------- Total Revenues $10,769 $ -- $10,769 Total operating expenses 5,057 100 5,157 Minority interests 8 1,099 1,107 ------- ------- ------- Total expenses 5,065 1,199 6,264 Net income $ 5,704 $(1,199) $ 4,505 ------- ------- ------- Net income per general and limited partnership unit $ 0.23 $ 0.03 $ 0.26 ------- ------- ------- 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 September 30, 2001 and 2000. These adjustments are of a normal and recurring nature. Operating results for the three and nine months ended September 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"). 7 Franklin Street Partners Limited Partnership Notes to Consolidated Financial Statements (Unaudited) 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. 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 presentation. 8 Franklin Street Partners Limited Partnership Notes to Consolidated Financial Statements (Unaudited) 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 September 30, 2001 and 2000. The denominator used for calculating basic and diluted net income per unit is as follows:
For the For the Three Months Nine Months Ended Ended September 30, September 30, ---------------------- ------------------- 2001 2000 2001 2000 ========================================================================================================================= (Restated) (Restated) Weighted average number of units outstanding: Limited partners 23,637,748 16,281,380 23,538,745 16,204,713 General partner 948,499 948,499 948,499 948,499 - ------------------------------------------------------------------------------------------------------------------------- 24,586,247 17,229,879 24,487,244 17,153,212 =========================================================================================================================
Business Segments Segment operating results are measured and assessed based on a performance measure known as Funds From Operations ("FFO"). The Partnership defines FFO (which differs from the NAREIT definition) as net income (computed in accordance with generally accepted accounting principles) plus depreciation and amortization and certain other non-cash expenses. Other real estate companies may have a different definition of FFO. 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 nine months ended September 30, 2001: Total revenues $ 20,654 $17,193 $ 37,847 $(262) $ 37,585 Total expenses (13,306) (8,670) (21,976) 392 (21,584) Depreciation and amortization 3,670 32 3,702 (130) 3,572 Non-cash expenses - 1,744 1,744 - 1,744 - ------------------------------------------------------------------------------------------------------------------------- FFO $ 11,018 $10,299 $ 21,317 $ - $ 21,317 =========================================================================================================================
9 Franklin Street Partners Limited Partnership Notes to Consolidated Financial Statements (Unaudited) Business Segments (continued) For the nine months ended September 30, 2000 (Restated): Total revenues $ 20,728 $ 9,314 $ 30,042 $(6,109) $ 23,933 Total expenses (14,337) (6,560) (20,897) 996 (19,901) Depreciation and amortization 3,490 22 3,512 (111) 3,401 Non-cash expenses - 2,300 2,300 - 2,300 - ------------------------------------------------------------------------------------------------------------------------- FFO $ 9,881 $ 5,076 $ 14,957 $(5,224) $ 9,733 =========================================================================================================================
Non-cash expenses of $1,744,000 and $2,300,000 for the nine months ended September 30, 2001 and 2000, respectively, are comprised of equity-based compensation charges. The following table is a summary of other financial information by business segment (in thousands): Rental Investment Operations Services Total ================================================================================ September 30, 2001: Capital expenditures $ 105 $ 152 $ 257 Total assets $212,292 $6,685 $218,977 September 30, 2000: Capital expenditures $ 12,141 $ 79 $ 12,220 Total assets (Restated) $230,490 $3,452 $233,942 Cash Distributions 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 Third quarter of 2001 .29 7,087 - --------------------------------------------------------------- $20,527 =============================================================== 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 cash distribution of approximately $7,087,000 for the second quarter of 2001 was declared and paid in the third quarter 2001. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Consolidated Statements of Operations contained in the financial statements, including trends which might appear, should not be taken as indicative of future operations. This discussion may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to vary from those projected. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that the Partnership's forward-looking statements involve risks and uncertainty, including without limitation, changes in economic conditions in the markets in which the Partnership owns properties, the impact of the events of September 11, 2001, risks of a lessening of demand for the types of real estate owned by the Partnership, changes in government regulations, changes in or termination of contracts relating to its property management business, and expenditures that cannot be anticipated such as utility rate and usage increases, unanticipated repairs, additional staffing, insurance increases and real estate tax valuation reassessments. As described in the notes to the financial statements, the Partnership has restated its consolidated financial statements. Historically, real estate has been subject to a wide range of cyclical economic conditions, which affect various real estate sectors and geographic regions with differing intensities at different times. In 2001, many regions of the United States have experienced varying degrees of economic recession; and the tragic events of September 11, 2001 may have accelerated certain trends, such as the cost of obtaining sufficient property and liability insurance coverage and short-term interest rates. The Partnership believes, however, that these tragic events should not have a material effect on the Partnership's portfolio, given the Partnership's property types and the geographic regions in which the Partnership is located. The Partnership will continue to review its business strategy and does not anticipate any changes in strategy or material effects in financial performance. The following table summarizes property wholly owned by the Partnership: September 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 11 Results of Operations The following table shows the Partnership's financial data as a percentage of total revenues for the three months ended September 30, 2001 and 2000 and for the nine months ended September 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 nine For the three For the nine months ended months ended months ended months ended September 30, September 30, September 30, September 30, ---------------- -------------- --------------- ---------------- 2001 2000 2001 2000 2001 and 2000 2001 and 2000 ---- ---- ---- ---- ------------- ---------------- (Restated) (Restated) (Restated) (Restated) Revenues: Rental income 61% 58% 54% 80% $ 615 $ 1,174 Syndication and commission income 36 37 43 16 114 12,216 Interest and other income 3 5 3 4 (196) 262 --- --- --- --- ----- ------- Total revenues 100 100 100 100 533 13,652 --- --- --- --- ----- -------
12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Expenses: Selling, general and administrative 26 13 26 27 1,481 3,101 Other real estate operating expenses 17 15 14 19 369 839 Depreciation and amortization 11 11 9 14 22 171 Real estate taxes and insurance 8 6 6 9 231 303 Interest expense 2 3 2 3 (41) (142) Minority interest 0 10 0 11 (1,107) (2,589) -- -- -- -- ------- ------- Total expenses 64 58 57 83 955 1,683 -- -- -- -- ------- ------- Net income 36% 42% 43% 17% $ (422) $11,969 == == == == ======= =======
The Partnership's net income for the three months ended September 30, 2001 was $4.1 million reflecting a decrease of $0.4 million over the net income of $4.5 million during the comparable period in 2000. This decrease in net income resulted primarily from increased non-cash compensation expenses in 2000 compared to 2001. The Partnership's net income for the nine months ended September 30, 2001 was $16.4 million reflecting an increase of $9.7 million over the net income of $6.7 million during the comparable period in 2000. This increase in net income resulted primarily from increased investment service income related to the syndication of Sponsored REITs in 2001. Revenues Total revenues during the three months ended September 30, 2001 increased by $533 thousand or 100% compared to the three months ended September 30, 2000. Total revenues increased $13.7 million or 100%, to $37.6 million for the nine months ended September 30, 2001, as compared to $23.9 million for the nine months ended September 30, 2000. Income from rental operations was $20.2 million for the nine months ended September 30, 2001 compared to $19.1 million for the nine months ended September 30, 2000. The increase in rental income of $1.1 million, or (26%), compared to the nine months ended September 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 vacancies of approximately $170 thousand; The increase in investment services (syndication and commission) income of $114 thousand and $12.2 million for the three months and nine months ended September 30, 2001, respectively, compared to the same periods in 2000, is attributable to the syndication of three Sponsored REITs in 2001. The Partnership syndicated three Sponsored Partnerships during the nine months ended September 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 ($196) thousand and $262 thousand for the three months and nine months ended September 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 $2.0 million or 15% and $4.0 million or (15%) for the three months and nine months ended September 30, 2001, respectively, compared to the same periods in 2000. The increase in selling, general and administrative expenses of $2.9 million or (2%), compared to the nine months ended September 30, 2000, is attributable to: o increased broker commissions and related costs of approximately $1.7 million; 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Expenses (continued) 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 $839 thousand or (5%), compared to the nine months ended September 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 September 30, 2001; and o increased other costs of $270 thousand. The increase of depreciation and amortization expenses of $171 thousand or 5% in 2001 compared to the nine months ended September 30, 2000 is attributable to the change to purchase accounting for the mergers in 2000. The increase in real estate taxes and insurance expenses of $303 thousand or (15%) for the nine months ended September 30, 2001, compared to the nine months ended September 30, 2000 is primarily attributable to a general increase in real estate taxes. The decrease in interest expense of $142 thousand or 18% for the nine months ended September 30, 2001, compared to the nine months ended September 30, 2000, is primarily attributable to the decrease in outstanding debt balances during 2001 compared to 2000, and a decrease in interest rates during 2001 compared to 2002. The decrease in minority interest of $2.6 million or 99% for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 is attributable to the change to purchase accounting for the mergers. Liquidity and Capital Resources Cash and cash equivalents were $21.8 million and $13.7 million at September 30, 2001 and December 31, 2000, respectively. This 59% increase of $8.1 million is attributable to $24.1 million provided by operating activities and $5.4 million provided by investing activities partially offset by $21.4 million used by financing activities. Operating Activities The Partnership's cash provided by operating activities of $24.1 million is primarily attributable to: o $21.3 million from operations, after addback of $4.9 million from non-cash expenses, primarily depreciation, amortization, and non-cash compensation; o $2.7 million from the increase in accounts payable and accrued expenses, and o $0.1 million from the net change in other operating assets and liabilities. Investing Activities The Partnership's cash provided by investing activities of $5.4 million is primarily attributable to: o $4.2 million from the sale of marketable securities; o $16.7 million from the proceeds of the sale of real estate investments partially offset by the purchase of other real estate investments of $15.8 million; and o $0.2 million provided by the proceeds from the sale of excess land partially offset by the purchase of other property and equipment. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Financing Activities The Partnership's cash used for financing activities of $21.4 million is attributable to: o $20.6 million cash distributions to partners and minority interests; o $0.8 million of net repayments under the line of credit facility. 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 $140 million and compliance with other various debt and income ratios. The Partnership was in compliance with all covenants as of September 30, 2001. The Partnership had borrowings under its revolving credit facility of $15,682,000 as of September 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 is subject to various legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Partnership believes that the final disposition of such matters will not have a material adverse effect on the financial position or results of operations of the Partnership. 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 September 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 unusual expenses or major capital improvements. 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 September 30, 2001 of approximately $7.0 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 unusual expenses and capital improvements, in addition to normal operating expenses. 15 Item 3. Quantitative and Qualitative Disclosures about Market Risk The Partnership was not a party to derivative commodity investments at or during the year ended December 31, 2000 or during the nine months ended September 30, 2001. The Partnership borrows 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 Partnership under its line of credit. Therefore, the Company believes that it has mitigated its interest rate risk with respect to its borrowings. 16 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 filed a report on Form 8-K with the Securities and Exchange Commission October 11, 2001, reporting on Item 4, "Changes in Registrant's Certifying Accountant". 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Franklin Street Partners Limited Partnership December 17, 2001 FSP General Partner LLC its General Partner By: /s/ George J. Carter ------------------------------- Managing Member and President 18 -----END PRIVACY-ENHANCED MESSAGE-----