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Related Party Transactions and Investments in Non-Consolidated Entities | 9 Months Ended
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Sep. 30, 2012
Related Party Transactions and Investments in Non-Consolidated Entities |
Related Party Transactions and Investments in Non-Consolidated Entities |
2. Related Party Transactions and Investments in Non-Consolidated Entities Investment in Sponsored REITs: At September 30, 2012, the Company held an interest in 16 Sponsored REITs, all of which were fully syndicated, and the Company no longer derives economic benefits or risks from the common stock interest that is retained in them. One entity was not fully syndicated at September 30, 2011, which was FSP Union Centre Corp. The Company holds a non-controlling preferred stock investment in three of these Sponsored REITs, FSP Phoenix Tower Corp. (“Phoenix Tower”), FSP 303 East Wacker Drive Corp. (“East Wacker”) and FSP Grand Boulevard Corp. (“Grand Boulevard”), from which it continues to derive economic benefits and risks. Equity in earnings of investment in non-consolidated REITs: The following table includes equity in earnings of investments in non-consolidated REITs:
|  | Nine Months Ended |
|  | September 30, |
(in thousands) |  | 2012 |  | 2011 |
Equity in earnings of Sponsored REITs |  | $ | - |  | $ | 1,020 |
Equity in earnings (loss) of Phoenix Tower |  | 48 |  | (16) |
Equity in earnings of East Wacker |  | 1,197 |  | 1,739 |
Equity in loss of Grand Boulevard |  | (184) |  | (36) |
|  | $ | 1,061 |  | $ | 2,707 |
Equity in earnings of investments in Sponsored REITs is derived from the Company’s share of income (loss) following the commencement of syndication of Sponsored REITs. Following the commencement of syndication the Company exercises influence over, but does not control these entities, and investments are accounted for using the equity method. Equity in earnings (loss) of Phoenix Tower is derived from the Company’s preferred stock investment in the entity. In September 2006, the Company purchased 48 preferred shares or 4.6% of the outstanding preferred shares of Phoenix Tower for $4,116,000 (which represented $4,800,000 at the offering price net of commissions of $384,000 and fees of $300,000 that were excluded). Equity in earnings of East Wacker is derived from the Company’s preferred stock investment in the entity. In December 2007, the Company purchased 965.75 preferred shares or 43.7% of the outstanding preferred shares of East Wacker for $82,813,000 (which represented $96,575,000 at the offering price net of commissions of $7,726,000, loan fees of $5,553,000 and acquisition fees of $483,000 that were excluded). Equity in loss of Grand Boulevard is derived from the Company’s preferred stock investment in the entity. In May 2009, the Company purchased 175.5 preferred shares or 27.0% of the outstanding preferred shares of Grand Boulevard for $15,049,000 (which represented $17,550,000 at the offering price net of commissions of $1,404,000, loan fees of $1,009,000 and acquisition fees of $88,000 that were excluded). The Company recorded distributions of $2,733,000 and $4,086,000 from non-consolidated REITs during the nine months ended September 30, 2012 and 2011, respectively. Non-consolidated REITs: The Company has in the past acquired by merger entities similar to the Sponsored REITs. The Company’s business model for growth includes the potential acquisition, by merger or otherwise, of Sponsored REITs. The Company has no legal or any other enforceable obligation to acquire or to offer to acquire any Sponsored REIT. In addition, any offer (and the related terms and conditions) that might be made in the future to acquire any Sponsored REIT would require the approval of the boards of directors of the Company and the Sponsored REIT and the approval of the shareholders of the Sponsored REIT. The operating data below for 2012 and 2011 includes operations of the 16 Sponsored REITs the Company held an interest in as of September 30, 2012 and 2011, respectively. At September 30, 2012, December 31, 2011 and September 30, 2011, the Company had ownership interests in 16 Sponsored REITs. Summarized financial information for these Sponsored REITs is as follows:
|  | September 30, |  | December 31, |
(in thousands) |  | 2012 |  | 2011 |
Balance Sheet Data (unaudited): |  |  |  |  |
Real estate, net |  | $ | 742,573 |  | $ | 755,825 |
Other assets |  | 168,346 |  | 135,658 |
Total liabilities |  | (332,137) |  | (293,326) |
Shareholders’ equity |  | $ | 578,782 |  | $ | 598,157 |
|  | For the Nine Months Ended |
|  | September 30, |
(in thousands) |  | 2012 |  | 2011 |
Operating Data (unaudited): |  |  |  |  |
Rental revenues |  | $ | 83,933 |  | $ | 83,754 |
Other revenues |  | 93 |  | 52 |
Operating and maintenance expenses |  | (42,134) |  | (41,132) |
Selling, general and administrative |  | - |  | (787) |
Depreciation and amortization |  | (26,452) |  | (24,988) |
Interest expense |  | (13,633) |  | (12,754) |
Net income |  | $ | 1,807 |  | $ | 4,145 |
Management fees and interest income from loans: Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancelable with 30 days notice. Asset management fee income from non-consolidated entities amounted to approximately $847,000 and $715,000 for the nine months ended September 30, 2012 and 2011, respectively. From time to time the Company may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. The Company anticipates that each Sponsored REIT Loan will be repaid at maturity or earlier from long term financings of the underlying properties, cash flows from the underlying properties or some other capital event. Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two to three years. Except for the mortgage loan with a revolving line of credit component which bore interest at a fixed rate and a mortgage loan which bears interest at a fixed rate, advances under each Sponsored REIT Loan bear interest at a rate equal to the 30-day LIBOR rate plus an agreed upon amount of basis points and most advances also require a 50 basis point draw fee. In December 2011, the Company received a loan fee of $762,000 at the time of the closing of the mortgage loan with a revolving line of credit component. In March 2012, a $300,000 fee was collected in connection with a $30 million draw from the revolving line of credit component. The loan was repaid in full during July 2012 and also included a 0.49% fee collected of $520,000. In July 2012, the Company received a loan fee of $300,630 at the time of the closing of the mortgage loan and a 0.98% fee will be collected on all amounts repaid under the loan. Prior to terminating the activities of its investment banking segment in December 2011, the Company typically made an acquisition loan (“Acquisition Loans”) to each newly-formed Sponsored REIT which was secured by a mortgage on the borrower’s real estate. These loans enabled Sponsored REITs to acquire their respective properties prior to the consummation of the offerings of their equity interests. The Company anticipated that each Acquisition Loan would be repaid at maturity, or earlier, from the proceeds of the Sponsored REIT’s equity offering. Each Acquisition Loan had an original term of two years and bore interest at approximately the same rate paid by FSP Corp. for borrowings under the 2011 Revolver or previous revolving line of credit. The Company made one Acquisition Loan for the syndication of FSP Union Centre Corp. during 2011, which was repaid on October 20, 2011. There were no Acquisition Loans outstanding at September 30, 2012 or December 31, 2011. The following is a summary of the Sponsored REIT Loans outstanding as of September 30, 2012:
(dollars in thousands) |  |  |  |  |  | Maximum |  | Amount |  |  |  |  |  | Interest |
|  |  |  | Maturity |  | Amount |  | Drawn at |  | Interest |  | Draw |  | Rate at |
Sponsored REIT |  | Location |  | Date |  | of Loan |  | 30-Sep-12 |  | Rate (1) |  | Fee (2) |  | 30-Sep-12 |
Secured revolving lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Highland Place I Corp. (3) |  | Centennial, CO |  | 31-Dec-12 |  | $ | 5,500 |  | $ | 1,125 |  | L+4.4% |  | 0.5% |  | 4.63% |
FSP Satellite Place Corp. (4) |  | Duluth, GA |  | 31-Mar-13 |  | 5,500 |  | 5,500 |  | L+4.4% |  | 0.5% |  | 4.63% |
FSP 1441 Main Street Corp.(4) (a) |  | Columbia, SC |  | 31-Mar-13 |  | 10,800 |  | 8,000 |  | L+4.4% |  | 0.5% |  | 4.63% |
FSP 505 Waterford Corp. (4) |  | Plymouth, MN |  | 30-Nov-12 |  | 7,000 |  | 2,350 |  | L+4.4% |  | 0.5% |  | 4.63% |
FSP Phoenix Tower Corp. (4) (b) |  | Houston, TX |  | 30-Nov-12 |  | 15,000 |  | 15,000 |  | L+4.4% |  | 0.5% |  | 4.63% |
FSP Galleria North Corp. (e) |  | Dallas, TX |  | 30-Jan-15 |  | 15,000 |  | 5,720 |  | L+5.0% |  | 0.5% |  | 5.23% |
Secured construction loan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP 385 Interlocken |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Development Corp. (4) (c) (d) |  | Broomfield, CO |  | 30-Apr-13 |  | 42,000 |  | 37,541 |  | L+4.4% |  | n/a |  | 4.63% |
Mortgage loan secured by property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Energy Tower Corp. (5) (f) |  | Houston, TX |  | 5-Jul-14 |  | 33,000 |  | 33,000 |  | 6.41% |  | n/a |  | 6.41% |
|  |  |  |  |  | $ | 133,800 |  | $ | 108,236 |  |  |  |  |  |  |
(1) The interest rate is 30-day LIBOR rate plus the additional rate indicated, otherwise a fixed rate. (2) The draw fee is a percentage of each new advance, and is paid at the time of each new draw. (3) Effective January 1, 2011 and February 1, 2011, the interest rate was 30-day LIBOR plus 3% and effective March 1, 2011 became LIBOR plus 4.4% until maturity. Effective January 31, 2011, any future draws will require a draw fee in an amount equal to 0.5%. (4) Effective January 1, 2011 through March 30, 2011, the interest rate was 30-day LIBOR plus 3%. (a) The borrower is FSP 1441 Main Street LLC, a wholly-owned subsidiary. (b) The borrower is FSP Phoenix Tower Limited Partnership, a wholly-owned subsidiary. (c) The borrower is FSP 385 Interlocken LLC, a wholly-owned subsidiary. (d) The borrower paid a commitment fee of $210,000 at loan origination in March 2009. (e) The borrower is FSP Galleria North Limited Partnership, a wholly-owned subsidiary. (f) The borrower is FSP Energy Tower I Limited Partnership, a wholly-owned subsidiary. (5) The loan has a secured fixed mortgage amount of $33,000,000. A loan fee of $300,630 was paid at the time of closing and funding of the loan on July 5, 2012. The borrower is required to pay the Company an exit fee in the amount of 0.982% of the principal repayment amount. The Company recognized interest income and fees from the Acquisition Loan and Sponsored REIT Loans of approximately $8,299,000 and $2,280,000 for the nine months ended September 30, 2012 and 2011, respectively.

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