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Related Party Transactions and Investments in Non-Consolidated Entities | 9 Months Ended
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Sep. 30, 2013
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, 2013, the Company held a common stock interest in 15 Sponsored REITs, from which it no longer derives economic benefits or risks. The Company also holds a non-controlling preferred stock investment in two of these Sponsored REITs, 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. In September 2006, the Company purchased 48 preferred shares or 4.6% of the outstanding preferred shares of one of its Sponsored REITs, FSP Phoenix Tower Corp (“Phoenix Tower”). On December 20, 2012, the property owned by Phoenix Tower was sold and, thereafter, Phoenix Tower declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $4,862,000. The Company received $4,752,000 on January 4, 2013 and $96,000 on September 30, 2013. As of September 30, 2013, the Company held a beneficial interest in the Phoenix Tower liquidating trust in the amount of $14,000, which is included in other assets in the accompanying consolidated balance sheet. In connection with its common stock ownership of Phoenix Tower, the Company received $10,000 on September 30, 2013. Equity in earnings (losses) of investment in non-consolidated REITs: The following table includes equity in earnings (losses) of investments in non-consolidated REITs:
|  | Nine Months Ended |
|  | September 30, |
(in thousands) |  | 2013 |  | 2012 |
Equity in earnings of Phoenix Tower |  | $ | — |  | $ | 48 |
Equity in earnings (loss) of East Wacker |  | (572 | ) | 1,197 |
Equity in loss of Grand Boulevard |  | (242 | ) | (184 | )
|  | $ | (814 | ) | $ | 1,061 |
Equity in earnings of investments in non-consolidated REITs is derived from the Company’s share of income (loss) in the operations of those entities. The Company exercises influence over, but does not control these entities, and investments are accounted for using the equity method. Equity in earnings of Phoenix Tower was derived from the Company’s preferred stock investment in the entity. On December 20, 2012, the property owned by Phoenix Tower was sold and the Company’s share of the gain was $1,582,000. Equity in earnings (loss) 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 $81,000 and $2,733,000 from non-consolidated REITs during the nine months ended September 30, 2013 and 2012, 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 2013 and 2012 includes operations of the 15 and 16 Sponsored REITs the Company held an interest in as of September 30, 2013 and 2012, respectively. At September 30, 2013, December 31, 2012 and September 30, 2012, the Company had ownership interests in 15, 15 and 16 Sponsored REITs, respectively. Summarized financial information for these Sponsored REITs is as follows:
|  | September 30, |  | December 31, |
(in thousands) |  | 2013 |  | 2012 |
Balance Sheet Data (unaudited): |  |  |  |  |
Real estate, net |  | $ | 694,469 |  | $ | 659,655 |
Other assets |  | 164,153 |  | 156,785 |
Total liabilities |  | (322,608 | ) | (316,311 | )
Shareholders’ equity |  | $ | 536,014 |  | $ | 500,129 |
|  | For the Nine Months Ended |
|  | September 30, |
(in thousands) |  | 2013 |  | 2012 |
Operating Data (unaudited): |  |  |  |  |
Rental revenues |  | $ | 70,427 |  | $ | 83,933 |
Other revenues |  | 52 |  | 93 |
Operating and maintenance expenses |  | (36,395 | ) | (42,134 | )
Depreciation and amortization |  | (23,638 | ) | (26,452 | )
Interest expense |  | (10,261 | ) | (13,633 | )
Net income |  | $ | 185 |  | $ | 1,807 |
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 $794,000 and $847,000 for the nine months ended September 30, 2013 and 2012, 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 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. The following is a summary of the Sponsored REIT Loans outstanding as of September 30, 2013: (dollars in thousands)
|  |  |  |  |  | Maximum |  | Amount |  |  |  |  |  | Interest |
|  |  |  | Maturity |  | Amount |  | Drawn at |  | Interest |  | Draw |  | Rate at |
Sponsored REIT |  | Location |  | Date |  | of Loan |  | 30-Sep-13 |  | Rate (1) |  | Fee (2) |  | 30-Sep-13 |
Secured revolving lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Highland Place I Corp. |  | Centennial, CO |  | 31-Dec-13 |  | $ | 5,500 |  | $ | 1,575 |  | L+4.4% |  | 0.5 | % | 4.58 | %
FSP Satellite Place Corp. |  | Duluth, GA |  | 31-Mar-14 |  | 5,500 |  | 5,500 |  | L+4.4% |  | 0.5 | % | 4.58 | %
FSP 1441 Main Street Corp. |  | Columbia, SC |  | 31-Mar-14 |  | 10,800 |  | 9,000 |  | L+4.4% |  | 0.5 | % | 4.58 | %
FSP 505 Waterford Corp. |  | Plymouth, MN |  | 30-Nov-13 |  | 7,000 |  | 2,350 |  | L+4.4% |  | 0.5 | % | 4.58 | %
FSP Galleria North Corp. |  | Dallas, TX |  | 30-Jan-15 |  | 15,000 |  | 9,880 |  | L+5.0% |  | 0.5 | % | 5.18 | %
Secured construction loan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP 385 Interlocken Development Corp. |  | Broomfield, CO |  | 30-Apr-14 |  | 42,000 |  | 37,541 |  | L+4.4% |  | n/a |  | 4.58 | %
Mortgage loan secured by property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Energy Tower I Corp. (3) |  | Houston, TX |  | 5-Jul-14 |  | 33,000 |  | 33,000 |  | 6.41% |  | n/a |  | 6.41 | %
|  |  |  |  |  | $ | 118,800 |  | $ | 98,846 |  |  |  |  |  |  |
(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) 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 Sponsored REIT Loans of approximately $4,135,000 and $8,299,000 for the nine months ended September 30, 2013 and 2012, respectively.

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