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Related Party Transactions and Investments in Non-Consolidated Entities | 12 Months Ended
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Dec. 31, 2013
Related Party Transactions and Investments in Non-Consolidated Entities |
Related Party Transactions and Investments in Non-Consolidated Entities | 4. Related Party Transactions and Investments in Non-Consolidated Entities Investment in Sponsored REITs At December 31, 2013, the Company held an interest in 14 Sponsored REITs, all of which were fully syndicated. At December 31, 2012, the Company held an interest in 15 Sponsored REITs, all of which were fully syndicated. At December 31, 2011, the Company held an interest in 16 Sponsored REITs, all of which were fully syndicated. The Company 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 December 2013, the property owned by FSP 505 Waterford Corp. (“505 Waterford”), a Sponsored REIT, was sold and, thereafter, 505 Waterford declared and issued a liquidating distribution for its preferred shareholders. The Company held a mortgage loan secured by the property owned by 505 Waterford in the principal amount of $2,350,000, which was repaid from the proceeds of the sale. 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. In connection with its common stock ownership of Phoenix Tower, the Company received $10,000 on September 30, 2013. As of December 31, 2013, the Company held a beneficial interest in the Phoenix Tower liquidating trust in the amount of approximately $14,000, which is included in other assets in the accompanying consolidated balance sheet. The table below shows the Company’s income and expenses from Sponsored REITs syndicated in 2011. There were no syndications of Sponsored REITs in 2013 or 2012. Management fees of $6,000 for the year ended December 31, 2011, and interest expense related to the Company’s mortgages on properties owned by this entity of $197,000 for the year ended December 31, 2011, are eliminated in consolidation.
|  | Year Ended December 31, |
(in thousands) |  | 2011 |
Operating Data: |  |  |
Rental revenues |  | $ | 1,482 |
Operating and maintenance expenses |  | 480 |
Depreciation and amortization |  | 610 |
Interest expense |  | 197 |
Interest income |  | — |
|  | $ | 195 |
Equity in earnings (losses) of investment in non-consolidated REITs: The following table includes equity in earnings (losses) of investments in non-consolidated REITs:
|  | Year Ended December 31, |
(in thousands) |  | 2013 |  | 2012 |  | 2011 |
Equity in earnings of Sponsored REITs |  | $ | — |  | $ | — |  | $ | 1,696 |
Equity in earnings (losses) of Phoenix Tower |  | — |  | 1,618 |  | (14 | )
Equity in earnings (losses) of East Wacker |  | (1,021 | ) | 670 |  | 2,137 |
Equity in earnings (losses) of Grand Boulevard |  | (337 | ) | (255 | ) | (134 | )
|  | $ | (1,358 | ) | $ | 2,033 |  | $ | 3,685 |
Equity in earnings of investments in Sponsored REITs is derived from the Company’s share of income 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 (losses) of Phoenix Tower were 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 acquisition fees of $300,000 that were excluded). On December 20, 2012, the property owned by Phoenix Tower was sold at a gain, which is included in equity in earnings of non-consolidated REITs on the consolidated statements of income. 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 earnings 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 following table includes distributions received from non-consolidated REITs:
|  | Year Ended December 31, |
(in thousands) |  | 2013 |  | 2012 |  | 2011 |
Distributions from Sponsored REITs |  | $ | — |  | $ | — |  | $ | 1,337 |
Distributions from Phoenix Tower |  | — |  | 173 |  | 130 |
Distributions from East Wacker |  | — |  | 2,489 |  | 3,319 |
Distributions from Grand Boulevard |  | 107 |  | 148 |  | 270 |
|  | $ | 107 |  | $ | 2,810 |  | $ | 5,056 |
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 in the future of Sponsored REITs. However, 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 includes the operations of the 15 Sponsored REITs the Company held an interest in during the year and the 14 Sponsored REITS the Company held an interest in as of December 31, 2013. On December 6, 2013, the property owned by 505 Waterford was sold. On December 20, 2012, the property owned by Phoenix Tower was sold. The operating data below for 2012 includes operations of the 15 Sponsored REITs the Company held an interest in as of December 31, 2012. The operating data below for 2011 includes operations of the 16 Sponsored REITs the Company held an interest in as of December 31, 2011. Summarized financial information for the Sponsored REITs is as follows:
|  | December 31, |  | December 31, |
(in thousands) |  | 2013 |  | 2012 |
Balance Sheet Data (unaudited): |  |  |  |  |
Real estate, net |  | $ | 642,105 |  | $ | 659,655 |
Other assets |  | 187,494 |  | 156,785 |
Total liabilities |  | (321,099 | ) | (316,311 | )
Shareholders’ equity |  | $ | 508,500 |  | $ | 500,129 |
|  | For the Year Ended |
|  | December 31, |
(in thousands) |  | 2013 |  | 2012 |  | 2011 |
Operating Data (unaudited): |  |  |  |  |  |  |
Rental revenues |  | $ | 93,608 |  | $ | 109,676 |  | $ | 111,417 |
Other revenues |  | 68 |  | 115 |  | 90 |
Operating and maintenance expenses |  | (48,718 | ) | (56,621 | ) | (55,672 | )
Selling, general and administrative |  | — |  | — |  | (604 | )
Depreciation and amortization |  | (31,450 | ) | (35,143 | ) | (33,909 | )
Interest expense |  | (13,752 | ) | (17,357 | ) | (17,180 | )
Gain on sale, less applicable income tax |  | 5,851 |  | 36,610 |  | — |
Net income |  | $ | 5,607 |  | $ | 37,280 |  | $ | 4,142 |
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 $1,078,000, $1,149,000 and $958,000 for the years ended December 31, 2013, 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 was repaid in July 2012 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. That 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 $301,000 at the time of the closing of the mortgage loan with a fixed interest rate 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 its 2011 Revolver or previous revolving lines 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 December 31, 2013 and 2012. The following is a summary of the Sponsored REIT Loans outstanding as of December 31, 2013:
|  |  |  |  |  | Maximum |  | Amount |  |  |  |  |  | Interest |
(dollars in thousands) |  |  |  | Maturity |  | Amount |  | Drawn at |  | Interest |  | Draw |  | Rate at |
Sponsored REIT |  | Location |  | Date |  | of Loan |  | 31-Dec-13 |  | Rate (1) |  | Fee (2) |  | 31-Dec-13 |
Secured revolving lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Highland Place I Corp. |  | Centennial, CO |  | 31-Dec-14 |  | $ | 5,500 |  | $ | 1,825 |  | L+4.4 | % | 0.5 | % | 4.57 | %
FSP Satellite Place Corp. |  | Duluth, GA |  | 31-Mar-14 |  | 5,500 |  | 5,500 |  | L+4.4 | % | 0.5 | % | 4.57 | %
FSP 1441 Main Street Corp. |  | Columbia, SC |  | 31-Mar-14 |  | 10,800 |  | 9,000 |  | L+4.4 | % | 0.5 | % | 4.57 | %
FSP Galleria North Corp. |  | Dallas, TX |  | 30-Jan-15 |  | 15,000 |  | 12,880 |  | L+5.0 | % | 0.5 | % | 5.17 | %
Secured construction loan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP 385 Interlocken Development Corp. |  | Broomfield, CO |  | 30-Apr-14 |  | 42,000 |  | 37,541 |  | L+4.4 | % | n/a |  | 4.57 | %
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 | %
|  |  |  |  |  | $ | 111,800 |  | $ | 99,746 |  |  |  |  |  |  |
(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 $5,568,000, $9,798,000, and $3,087,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

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