NOTES TO CONSOLIDATED FINANCIAL INFORMATION
FOR THE THREE MONTHS END MARCH 31, 2013
(Tabular amounts in thousands, except share and per share amounts)
1. Organization and Description of Business
The terms “Thomas Properties”, “TPG”, “us”, “we”, “our” and "the Company" as used in this report refer to Thomas Properties Group, Inc. together with our Operating Partnership, Thomas Properties Group, L.P. (the “Operating Partnership”).
We own, manage, lease, acquire and develop real estate, consisting primarily of office properties and related parking garages, located in Southern California; Sacramento, California; Philadelphia, Pennsylvania; Northern Virginia; Houston, Texas and Austin, Texas.
We were incorporated in the State of Delaware on March 9, 2004. On October 13, 2004, we completed our initial public offering. Our operations are carried on through our Operating Partnership of which we are the sole general partner. The Operating Partnership holds our direct and indirect interests in real estate properties, and it carries on our investment advisory, property management, leasing and real estate development operations. As of
March 31, 2013
, we held a
78.7%
interest in the Operating Partnership which we consolidate, as we have control over the major decisions of the Operating Partnership.
As of
March 31, 2013
, we were invested in the following real estate properties:
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Property
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Type
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Location
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Consolidated properties:
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One Commerce Square
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High-rise office
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Philadelphia Central Business District, Pennsylvania (“PCBD”)
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Two Commerce Square
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High-rise office
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PCBD
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Murano
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Residential condominiums held for sale
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PCBD
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Four Points Centre (1)
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Suburban office; Undeveloped land; Office/Retail/Research and Development/Hotel/ Residential
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Austin, Texas
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Campus El Segundo (2)
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Developable land; Site infrastructure complete; Office/Retail/ Research and Development/Hotel
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El Segundo, California
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Unconsolidated properties:
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TPG/CalSTRS, LLC (“TPG/CalSTRS”):
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City National Plaza
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High-rise office
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Los Angeles Central Business District, California
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San Felipe Plaza
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High-rise office
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Houston, Texas
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CityWestPlace
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Suburban office and undeveloped land
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Houston, Texas
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Reflections I
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Suburban office
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Reston, Virginia
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Reflections II
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Suburban office
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Reston, Virginia
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Fair Oaks Plaza
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Suburban office
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Fairfax, Virginia
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TPG/CalSTRS Austin, LLC:
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San Jacinto Center
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High-rise office
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Austin Central Business District, Texas, (“ACBD”)
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Frost Bank Tower
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High-rise office
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ACBD
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One Congress Plaza
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High-rise office
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ACBD
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One American Center
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High-rise office
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ACBD
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300 West 6th Street
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High-rise office
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ACBD
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2121 Market Street (3)
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Residential and retail
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PCBD
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_______________
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(1)
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Certain undeveloped land parcels are being targeted for sale.
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(2)
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Subsequent to
March 31, 2013
, the Company sold the remaining
23.9
acres of land including athletic facility naming rights and a building previously used as a marketing center. The Company has no further ownership interest in
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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Campus El Segundo. As of
March 31, 2013
and
December 31, 2012
, Campus El Segundo is reflected in
Assets associated with land held for sale
on our
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(3)
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consolidated balance sheets.
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(4)
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The Company has a
1%
limited partnership interest in 2121 Market Street. See Note 3.
Unconsolidated Real Estate Entities
for further details.
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The City National Plaza property includes an off-site garage that provides parking for City National Plaza and other properties. The office properties typically include on-site parking, retail and storage space.
As of
March 31, 2013
, we wholly own both Four Points Centre and Campus El Segundo.
In
March 2013
,
TPG/CalSTRS Austin, LLC, completed the sale of Westech 360, Park Centre and Great Hills Plaza, in suburban Austin, Texas. The properties were unencumbered by debt. The sales price for the properties was
$76.0 million
, which after closing adjustments and prorations, resulted in net proceeds to TPG/CalSTRS Austin, LLC of
$73.1 million
. TPG’s share of the net proceeds of
$24.4 million
was received subsequent to March 31, 2013.
We have the responsibility for the day-to-day operations of the California Environmental Protection Agency (“CalEPA”) building, but have no ownership interest in the property. We provide investment advisory services for the California State Teachers' Retirement System (“CalSTRS”) with respect to
two
properties that are wholly owned by CalSTRS— 800 South Hope Street (Los Angeles, CA) and 1835 Market Street (Philadelphia, PA). In addition, we provide property management, leasing and development services to 800 South Hope Street and 1835 Market Street; and the properties owned by the TPG/CalSTRS and TPG/CalSTRS Austin, LLC joint ventures.
Two
properties that we previously managed, wholly owned by an affiliate of Lehman Brothers Inc., 816 Congress and Austin Centre, both in Austin, TX, were sold subsequent to
March 31, 2013
.
2. Summary of Significant Accounting Policies
Interim Financial Data
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP may have been condensed or omitted pursuant to SEC rules and regulations, although we believe that the disclosures are adequate to make their presentation not misleading. The accompanying unaudited financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth therein. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ended
December 31, 2013
. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended
December 31, 2012
.
The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions are subjective and affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Principles of Consolidation
We evaluate each entity to determine if the entity is deemed a variable interest entity ("VIE"), and if the Company is the primary beneficiary of the VIE based on whether the Company has both (i) the power to direct those matters that most significantly impact the activities of the VIE and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements. When an entity is not deemed to be a VIE, the Company considers the provisions of the accounting standards to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs and controlled by the Company and in which the limited partners neither have the ability to dissolve the entity or remove the Company without cause nor any substantive participating rights.
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We continuously reassess our determination of whether an entity is a VIE and who the primary beneficiary is, and whether or not the limited partners in an entity have substantive rights, more particularly if certain events occur that are likely to cause a change in the original determinations. There have been no changes during the
three months ended March 31, 2013
in previous conclusions about whether an entity qualifies as a VIE or whether we are the primary beneficiary of any previously identified VIE.
The equity method of accounting is utilized to account for investments in real estate entities that are VIEs and of which the Company is not deemed to be the primary beneficiary and entities that are non-VIEs which the Company does not control, but over which the Company has the ability to exercise significant influence. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
The
25%
preferred equity interests in One Commerce Square and Two Commerce Square (beginning December 2010), owned by Brandywine Operating Partnership LP ("Brandywine") are reflected under the "Noncontrolling Interests" caption on our consolidated balance sheets. Our interest in these two partnerships is a variable interest, which we consolidate because we are considered to be the primary beneficiary.
We also consolidate our Murano residential condominium project which we control. Our unaffiliated partner's interest is reflected in our consolidated balance sheets under the "Noncontrolling Interests" caption. Our partner has a stated ownership interest of
27%
. After full repayment of the Murano mortgage loan, which has a balance of
$3.3 million
at
March 31, 2013
, net proceeds from the project will be distributed, to the extent available, based on an order of preferences described in the partnership agreement. The Company anticipates that we will receive distributions, if any, in excess of our stated
73%
ownership interest according to these distribution preferences.
Refer to Note 3 for discussion of TPG/CalSTRS, TPG/CalSTRS Austin, LLC, and the
TPG-Austin Portfolio Syndication Partners JV LP (
Austin Joint Venture Predecessor"), which were determined to be variable interest entities for which we are not considered the primary beneficiary for the periods presented herein.
The
33.3%
equity interest in TPG Austin Partner, LLC owned by Madison International Realty ("Madison") is reflected under the "Noncontrolling Interests" caption on our consolidated balance sheets. We consolidate this entity, which has a
50%
interest in TPG/CalSTRS Austin, LLC, and which is further discussed in Note 3, because we have control.
Included in
total assets
on TPG's consolidated balance sheets are the following assets for each listed investment in which a noncontrolling interest is held by an unaffiliated partner. The assets of each listed entity can only be used to settle the liabilities of that entity as follows (in thousands):
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March 31,
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December 31,
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2013
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2012
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One Commerce Square
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$
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138,163
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$
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133,987
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Two Commerce Square
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149,763
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142,436
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Murano
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34,624
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37,687
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TPG Austin Partner, LLC
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107,191
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106,031
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$
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429,741
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$
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420,141
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Impairment of Long-Lived Assets
We assess whether there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Assets held for sale are reported at the lower of the carrying amount or fair value, less costs to sell. We record the Murano condominium units at the lower of carrying amount or estimated fair value as the condominium units meet the held for sale criteria of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360, “Property, Plant, and Equipment.”
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We use the equity method of accounting to account for investments in real estate entities over which we have significant influence, but not control over major decisions. In these situations, the unit of account for measurement purposes is the equity investment and not the real estate. Accordingly, if our joint venture investments meet the other-than-temporary criteria of FASB ASC 323, “Investments—Equity Method and Joint Ventures”, we would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of our investment.
We recorded an impairment of
$0.8 million
related to Campus El Segundo for the
three months ended March 31, 2013
to reduce the book value of the property to estimated net sales proceeds. Subsequent to
March 31, 2013
, the Company sold the remaining
23.9
acres of land including athletic facility naming rights and a building previously used as a marketing center. The Company has no further ownership interest in Campus El Segundo. We did not record an impairment for any real estate assets or equity investments during the
three months ended March 31, 2012
.
Dispositions
In
January and March 2013
, TPG completed the sale of certain land parcels totaling
17.5
acres and
27.9
acres, respectively, at Four Points Centre in Austin, Texas, for
$4.9 million
and
$6.4 million
, respectively. TPG received net proceeds from these two transactions of
$1.1 million
(after a
$3.7 million
paydown of the Four Points Centre mortgage debt) and
$2.7 million
(after a
$3.1 million
pay down of the loan), respectively.
In
March 2013
, TPG/CalSTRS Austin, LLC, an unconsolidated real estate entity in which TPG holds an effective ownership interest of
33.3%
, completed the sale of Westech 360, Park Centre and Great Hills Plaza, in suburban Austin, Texas. The properties were unencumbered by debt. The sales price for the properties was
$76.0 million
, which after closing adjustments and prorations, resulted in net proceeds to TPG/CalSTRS Austin, LLC of
$73.1 million
. TPG’s share of the net proceeds of
$24.4 million
was received subsequent to March 31, 2013.
Development Activities
Costs associated with the development and construction of a real estate project are capitalized on our consolidated balance sheets. In addition, interest, loan fees, real estate taxes, and general and administrative expenses that are directly associated with and incremental to our development activities and other costs are capitalized during the period in which activities necessary to get the property ready for its intended use are in progress, including the pre-development and lease-up phases. Once the development and construction of the building shell is completed, the costs capitalized to construction in progress are transferred to operating properties. Cumulative capitalized interest as of
March 31, 2013
and
December 31, 2012
, is
$5.7 million
and
$6.8 million
, respectively. There was
no
interest capitalized for the
three months ended March 31, 2013
and
2012
.
Revenue Recognition - Condominium Sales
We have one high-rise condominium project, Murano, for which we use the deposit method of accounting to recognize sales revenue and costs. Under the provisions of FASB ASC 360-20, “Property, Plant and Equipment” subsection “Real Estate and Sales”, revenue and costs for projects are recognized when all parties are bound by the terms of the contract, all consideration has been exchanged, any permanent financing for which the seller is responsible has been arranged and all conditions precedent to closing have been performed. This results in profit from the sale of condominium units recognized at the point of settlement as compared to the point of sale. Revenue is recognized on the contract price of individual units. Total estimated costs, net of impairment charges, are allocated to individual units which have closed on a relative value basis. Total estimated revenue and construction costs are reviewed periodically, and any change is applied to current and future periods.
Earnings (Loss) Per Share
The computation of basic income (loss) per share is based on net income (loss) and the weighted average number of shares of our common stock outstanding during the period. The computation of diluted income (loss) per share includes the assumed exercise of outstanding stock options and the effect of the vesting of restricted stock and incentive units that have been granted to employees in connection with stock based compensation, all calculated using the treasury stock method. In accordance with FASB ASC 260-10-45, “Earnings Per Share”, the Company's unvested restricted stock and unvested incentive units are considered to be participating securities and are included in the computation of earnings per share to calculate a two class earnings per share. We only present the earnings per share attributable to the common shareholders. See Note 5 - Income (Loss) Per Share and Dividends Declared.
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Recent Accounting Pronouncements
Changes to U.S. generally accepted accounting principles (“GAAP”) are established by the FASB in the form of accounting standards updates (ASUs) to the FASB's Accounting Standards Codification. We consider the applicability and impact of all ASUs. Newly issued ASUs not listed below are expected to have no impact on our consolidated financial position and results of operations, because either the ASU is not applicable or the impact is expected to be immaterial.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation for unconsolidated real estate entities and for activity associated with real estate held for disposition.
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3.
|
Unconsolidated Real Estate Entities
|
The unconsolidated real estate entities include our share of the entities that own 2121 Market Street, the TPG/CalSTRS properties, TPG/CalSTRS Austin, LLC properties and the Austin Portfolio Joint Venture Predecessor properties. TPG/CalSTRS owns the following properties as of
March 31, 2013
:
•
City National Plaza (acquired January 2003)
•
Reflections I (acquired October 2004)
•
Reflections II (acquired October 2004)
•
San Felipe Plaza (acquired August 2005)
•
CityWestPlace land (acquired June 2006)
•
CityWestPlace (acquired June 2006)
•
Fair Oaks Plaza (acquired January 2007)
TPG Austin Partner, LLC, a limited liability company formed in
September 2012
by TPG and Madison, owns a
50%
interest in TPG/CalSTRS Austin, LLC, which owns the following properties that were acquired from Austin Joint Venture Predecessor:
•
San Jacinto Center (acquired
September 2012
)
•
Frost Bank Tower (acquired
September 2012
)
•
One Congress Plaza (acquired
September 2012
)
•
One American Center (acquired
September 2012
)
•
300 West 6th Street (acquired
September 2012
)
•
Park Centre (acquired
September 2012
, sold March 2013)
•
Great Hills Plaza (acquired
September 2012
, sold March 2013)
•
Westech 360 I-IV (acquired
September 2012
, sold March 2013)
The following properties were sold by the Austin Joint Venture Predecessor in
July 2012
prior to the transaction with TPG/CalSTRS Austin, LLC:
•
Research Park Plaza I & II (acquired June 2007, disposed of
July 2012
)
•
Stonebridge Plaza II (acquired June 2007, disposed of
July 2012
)
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of the applicable partnership and limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and allocation formulas as described in the partnership and limited liability company agreements. Following are the stated ownership percentages, prior to any preferred or special allocations, as of
March 31, 2013
.
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2121 Market Street
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1.0%
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TPG/CalSTRS Austin, LLC (1)
|
50.0%
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TPG/CalSTRS:
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City National Plaza
|
7.9%
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All properties, excluding City National Plaza
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25.0%
|
(1) TPG Austin Partner, LLC, a limited liability company owned by TPG and Madison, a noncontrolling interest partner, owns
50%
of TPG/CalSTRS Austin, LLC. The effective ownership of TPG and Madison in the underlying
five
properties of TPG/CalSTRS Austin, LLC is
33.3%
and
16.7%
, respectively.
We review the facts and circumstances of each distribution from unconsolidated entities to determine how to classify it on the consolidated statements of cash flows. Distributions received from unconsolidated entities that represent returns on the Company's investment are reported as cash flows from operating activities, consistent with ASC 230-10-45-16. Cash distributions from unconsolidated entities that represent returns of the Company's investment are reported as cash flows from investing activities, consistent with ASC 230-10-45-12.
Distributions are deemed to be returns on the Company's investment, and recorded as operating inflows, unless the cumulative distributions exceed the cumulative equity in earnings recognized by the Company. The excess distributions are deemed to be returns of the investment and are classified as investing cash flows. Distributions received in excess of cumulative contributions are deemed a return on investment and classified as operating cash flows.
We evaluated unconsolidated investments with negative carrying amounts to determine if the equity method of accounting is still appropriate, consistent with ASC 323-10-35-19 through 26. The Company's investment in 2121 Market Street has a negative carrying amount of
$0.3 million
as of
March 31, 2013
and
December 31, 2012
. The Company reduced its investment balance below zero due to the receipt of distributions and recording of our share of investee losses in excess of our investment, because we have guaranteed up to a maximum of
$14.0 million
of 2121 Market Street's outstanding mortgage loan. In
December 2012
, we redeemed a
49%
interest in 2121 Market Street and retained a
1%
limited partnership interest, which is accounted for on the cost method of accounting.
With respect to the Company's investment in TPG/CalSTRS, we had negative carrying amounts as of
March 31, 2013
and
December 31, 2012
, of approximately
$10.6 million
and
$9.8 million
, respectively. The Company has committed to fund tenant improvements, other capital improvements, debt repayment or debt repurchase of properties owned by TPG/CalSTRS up to
$10.9 million
as of
March 31, 2013
and
December 31, 2012
. In addition, the Company has committed to fund temporary operating cash shortfalls, not more frequently than once a month, up to
$1.25 million
in the aggregate for all the TPG/CalSTRS properties.
[space intentionally left blank]
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Investments in unconsolidated real estate entities as of
March 31, 2013
and December 31,
2012
are as follows (in thousands):
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March 31,
2013
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|
December 31,
2012
|
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ASSETS:
|
|
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TPG/CalSTRS Austin, LLC
|
$
|
107,374
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|
|
$
|
106,210
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|
Total reflected in investments in unconsolidated real estate entities
|
107,374
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106,210
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LIABILITIES:
|
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TPG/CalSTRS
|
(10,602
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)
|
|
(9,808
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)
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2121 Market Street
|
(276
|
)
|
|
(276
|
)
|
|
Total reflected in losses and distributions in excess of investments in unconsolidated
real estate entities
|
(10,878
|
)
|
|
(10,084
|
)
|
|
Net investments in unconsolidated real estate entities
|
$
|
96,496
|
|
|
$
|
96,126
|
|
The following is a summary of the net investments in unconsolidated real estate entities for the
three months ended March 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
Net investment balance, December 31, 2012
|
$
|
96,126
|
|
|
Contributions
|
4,000
|
|
|
Equity in net income (loss) of unconsolidated real estate entities
|
(2,756
|
)
|
|
Distributions
|
(874
|
)
|
|
Net investment balance, March 31, 2013
|
$
|
96,496
|
|
TPG/CalSTRS was formed to acquire office properties on a nationwide basis classified as moderate risk (core plus) and high risk (value add) properties. Core plus properties consist of under-performing properties that we believe can be brought to market potential through improved management. Value-add properties are characterized by unstable net operating income for an extended period of time, occupancy less than
90%
and/or physical or management problems which we believe can be positively impacted by introduction of new capital and/or management.
The total capital commitment to TPG/CalSTRS was
$511.7 million
as of
March 31, 2013
, of which approximately
$2.9 million
and
$10.9 million
was unfunded by CalSTRS and us, respectively.
A buy-sell provision may be exercised by either CalSTRS or us. Under this provision, the initiating party sets a price for its interest in TPG/CalSTRS, and the other party has a specified time to elect to either buy the initiating party's interest or to sell its own interest to the initiating party. Upon the occurrence of certain events, CalSTRS also has a buy-out option to purchase our interest in TPG/CalSTRS. The buyout price is based upon a
3%
discount to the appraised fair market value.
In
March 2013
, TPG/CalSTRS Austin, LLC, completed the sale of Westech 360, Park Centre and Great Hills Plaza, in suburban Austin, Texas. The properties were unencumbered by debt. The sales price for the properties was
$76.0 million
, which after closing adjustments and prorations, resulted in net proceeds to TPG/CalSTRS Austin, LLC of
$73.1 million
. TPG’s share of the net proceeds was
$24.4 million
.
The TPG/CalSTRS joint venture is deemed to be a variable interest entity for which we are not considered to be the primary beneficiary. CalSTRS and TPG acting together are considered to have the power to direct the activities of the joint venture that most significantly impact the joint venture economic performance and therefore neither TPG nor CalSTRS is considered to be the primary beneficiary. We determined the key activities that drive the economic performance of the joint venture to be (1) the acquisition and development of real estate (including capital improvements), (2) financing, and (3) leasing. In connection with these key activities, the TPG/CalSTRS venture agreement requires unanimous approval by the two members.
In connection with TPG/CalSTRS Austin, LLC, TPG Austin Partner, LLC is not considered to be the primary beneficiary due to the fact that the power to direct the activities of the limited liability company is shared with CalSTRS such that no one
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
party has the power to direct the activities that most significantly impact the limited liability company's economic performance. In connection with TPG/CalSTRS Austin, LLC, we determined the key activities that drive the economic performance to be (1) the acquisition and development of real estate (including capital improvements), (2) financing, and (3) leasing. In connection with these key activities, TPG/CalSTRS Austin, LLC agreement requires either unanimous or majority approval of decisions by the respective partners.
As of
March 31, 2013
, our total maximum exposure to loss to TPG/CalSTRS and the TPG/CalSTRS Austin, LLC is:
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|
(1)
|
Our net equity investment in the various properties controlled by TPG/CalSTRS and TPG/CalSTRS Austin, LLC as of
March 31, 2013
, was
$96.5 million
, as presented earlier in this note.
|
|
|
|
|
(2)
|
The potential loss of future fee revenues which we earn in connection with the management and leasing agreements with the various properties controlled by the respective limited liability companies. We earn fee revenues in connection with those management and leasing agreements for services such as property management, leasing, asset management and property development. The management and leasing agreements with the various properties generally expire on an annual basis and are automatically renewed for successive periods of one year each, unless we elect not to renew the agreements. As of
March 31, 2013
, we had total receivables of
$1.0 million
and
$0.7 million
related to TPG/CalSTRS and the TPG/CalSTRS Austin, LLC, respectively.
|
|
|
|
|
(3)
|
Unfunded capital commitments to the TPG/CalSTRS was
$10.9 million
as of
March 31, 2013
.
|
|
|
|
|
(4)
|
TPG/CalSTRS Austin, LLC owns the
five
Austin properties and TPG, together with Madison, have an unfunded capital commitment of approximately
$10.4 million
. Of that amount, TPG's unfunded capital commitment is approximately
$6.9 million
or
66.67%
as of
March 31, 2013
.
|
[space intentionally left blank]
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Following is the combined balance sheets of our unconsolidated real estate entities as of
March 31, 2013
and
December 31, 2012
.
Summarized Unconsolidated Real Estate Entities Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
(Unaudited)
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
Investments in real estate, net
|
$
|
1,487,739
|
|
|
$
|
1,497,828
|
|
|
Receivables including deferred rents, net
|
68,314
|
|
|
66,491
|
|
|
Deferred leasing and loan costs, net
|
122,037
|
|
|
128,623
|
|
|
Other assets
|
118,301
|
|
|
51,329
|
|
|
Assets associated with discontinued operations
|
365
|
|
|
74,957
|
|
|
Total assets
|
$
|
1,796,756
|
|
|
$
|
1,819,228
|
|
|
LIABILITIES AND OWNERS’ EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgage loans
|
$
|
1,375,408
|
|
|
$
|
1,376,343
|
|
|
Acquired below market leases, net
|
29,912
|
|
|
32,075
|
|
|
Prepaid rent and deferred revenue
|
7,378
|
|
|
6,030
|
|
|
Accounts and interest payable and other liabilities
|
46,619
|
|
|
62,036
|
|
|
Liabilities associated with discontinued operations
|
506
|
|
|
4,735
|
|
|
Total liabilities
|
1,459,823
|
|
|
1,481,219
|
|
|
Owners’ equity:
|
|
|
|
|
Thomas Properties
|
100,978
|
|
|
100,451
|
|
|
Other owners
|
235,955
|
|
|
237,558
|
|
|
Total owners’ equity
|
336,933
|
|
|
338,009
|
|
|
Total liabilities and owners’ equity
|
$
|
1,796,756
|
|
|
$
|
1,819,228
|
|
Following is the combined statements of operations of our unconsolidated real estate entities for the three months ended
March 31, 2013
and
2012
(in thousands) (unaudited):
Summarized Unconsolidated Real Estate Entities Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2013
|
|
2012
|
|
Revenues
|
$
|
65,717
|
|
|
$
|
65,034
|
|
|
Expenses:
|
|
|
|
|
Property operating and maintenance
|
24,232
|
|
|
25,603
|
|
|
Real estate and other taxes
|
8,470
|
|
|
7,972
|
|
|
Interest expense
|
20,323
|
|
|
25,242
|
|
|
Depreciation and amortization
|
23,398
|
|
|
21,845
|
|
|
Total expenses
|
76,423
|
|
|
80,662
|
|
|
Income (loss) from continuing operations
|
(10,706
|
)
|
|
(15,628
|
)
|
|
Gain (loss) on disposition of real estate
|
(6
|
)
|
|
—
|
|
|
Discontinued operations:
|
|
|
|
|
Net income (loss) from discontinued operations before gains on
disposition of real estate and gain on extinguishment on debt
and impairment loss
|
392
|
|
|
733
|
|
|
Gain (loss) on disposition of real estate
|
1,301
|
|
|
(38
|
)
|
|
Income (loss) from discontinued operations
|
1,693
|
|
|
695
|
|
|
Net income (loss)
|
$
|
(9,019
|
)
|
|
$
|
(14,933
|
)
|
|
Thomas Properties’ share of net income (loss)
|
$
|
(3,473
|
)
|
|
$
|
(1,218
|
)
|
|
Intercompany eliminations
|
717
|
|
|
1,196
|
|
|
TPGI's share of equity in net income (loss) of unconsolidated real
estate entities
|
$
|
(2,756
|
)
|
|
$
|
(22
|
)
|
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Included in the preceding summarized balance sheets as of
March 31, 2013
and
December 31, 2012
, are the following balance sheets of TPG/CalSTRS, LLC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
(unaudited)
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
Investments in real estate, net
|
$
|
753,261
|
|
|
$
|
759,512
|
|
|
Receivables including deferred rents, net
|
63,545
|
|
|
63,881
|
|
|
Investments in unconsolidated real estate entities
|
638
|
|
|
659
|
|
|
Deferred leasing and loan costs, net
|
50,000
|
|
|
51,273
|
|
|
Other assets
|
30,194
|
|
|
28,347
|
|
|
Assets associated with real estate held for disposition
|
106
|
|
|
116
|
|
|
Total assets
|
$
|
897,744
|
|
|
$
|
903,788
|
|
|
LIABILITIES AND MEMBERS’ EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgage loans
|
$
|
746,842
|
|
|
$
|
747,610
|
|
|
Accounts and interest payable and other liabilities
|
30,241
|
|
|
32,182
|
|
|
Liabilities associated with real estate held for disposition
|
25
|
|
|
25
|
|
|
Total liabilities
|
777,108
|
|
|
779,817
|
|
|
Members’ equity:
|
|
|
|
|
Thomas Properties
|
(6,213
|
)
|
|
(5,580
|
)
|
|
CalSTRS
|
126,849
|
|
|
129,551
|
|
|
Total members’ equity
|
120,636
|
|
|
123,971
|
|
|
Total liabilities and members’ equity
|
$
|
897,744
|
|
|
$
|
903,788
|
|
Included in the preceding summarized balance sheet as of
March 31, 2013
and
December 31, 2012
are the following balance sheet of TPG/CalSTRS Austin, LLC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
|
(unaudited)
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
Investments in real estate, net
|
$
|
734,479
|
|
|
$
|
738,316
|
|
|
Real estate held for sale
|
—
|
|
|
74,182
|
|
|
Receivables including deferred rents, net
|
4,769
|
|
|
2,611
|
|
|
Deferred leasing costs, net
|
72,037
|
|
|
77,350
|
|
|
Other assets
|
85,405
|
|
|
20,361
|
|
|
Assets associated with discontinued operations
|
257
|
|
|
557
|
|
|
Total assets
|
$
|
896,947
|
|
|
$
|
913,377
|
|
|
LIABILITIES AND MEMBERS’ EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgage loans
|
$
|
628,567
|
|
|
$
|
628,733
|
|
|
Accounts and interest payable and other liabilities
|
27,293
|
|
|
39,869
|
|
|
Acquired below market leases, net
|
26,356
|
|
|
28,148
|
|
|
Liabilities associated with discontinued operations
|
348
|
|
|
4,566
|
|
|
Total liabilities
|
682,564
|
|
|
701,316
|
|
|
Members' equity
|
214,383
|
|
|
212,061
|
|
|
Total liabilities and members’ equity
|
$
|
896,947
|
|
|
$
|
913,377
|
|
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Following is summarized financial information by real estate entity for the
three months ended March 31, 2013
and
2012
(in thousands) (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2013
|
|
|
TPG/
CalSTRS,
LLC
|
|
TPG/ CalSTRS Austin, LLC
|
|
Austin Portfolio Joint Venture Predecessor
|
|
Eliminations
|
|
Total
|
|
Revenues
|
$
|
41,630
|
|
|
$
|
24,087
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65,717
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
18,081
|
|
|
6,147
|
|
|
4
|
|
|
—
|
|
|
24,232
|
|
|
Real estate and other taxes
|
4,252
|
|
|
4,221
|
|
|
(3
|
)
|
|
—
|
|
|
8,470
|
|
|
Interest expense
|
11,025
|
|
|
9,298
|
|
|
—
|
|
|
—
|
|
|
20,323
|
|
|
Depreciation and amortization
|
11,597
|
|
|
11,801
|
|
|
—
|
|
|
—
|
|
|
23,398
|
|
|
Total expenses
|
44,955
|
|
|
31,467
|
|
|
1
|
|
|
—
|
|
|
76,423
|
|
|
Income (loss) from continuing operations
|
(3,325
|
)
|
|
(7,380
|
)
|
|
(1
|
)
|
|
—
|
|
|
(10,706
|
)
|
|
Equity in net income (loss) of unconsolidated real estate
entities
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Gain (loss) on disposition of real estate
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations before gains
on disposition of real estate and gain on extinguishment
on debt and impairment loss
|
(2
|
)
|
|
401
|
|
|
(7
|
)
|
|
—
|
|
|
392
|
|
|
Gain (loss) on disposition of real estate
|
—
|
|
|
1,301
|
|
|
—
|
|
|
—
|
|
|
1,301
|
|
|
Income (loss) from discontinued operations
|
(2
|
)
|
|
1,702
|
|
|
(7
|
)
|
|
—
|
|
|
1,693
|
|
|
Net income (loss)
|
$
|
(3,335
|
)
|
|
$
|
(5,678
|
)
|
|
$
|
(8
|
)
|
|
$
|
2
|
|
|
$
|
(9,019
|
)
|
|
Thomas Properties’ share of net income (loss)
|
$
|
(633
|
)
|
|
$
|
(2,839
|
)
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(3,473
|
)
|
|
Intercompany eliminations
|
|
717
|
|
|
TPGI's share of equity in net income (loss) of unconsolidated real estate entities
|
|
$
|
(2,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2012
|
|
|
2121 Market
Street
|
|
TPG/
CalSTRS,
LLC
|
|
Austin Portfolio Joint Venture Predecessor
|
|
Eliminations
|
|
Total
|
|
Revenues
|
$
|
—
|
|
|
$
|
41,331
|
|
|
$
|
23,703
|
|
|
$
|
—
|
|
|
$
|
65,034
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
—
|
|
|
18,510
|
|
|
7,699
|
|
|
(606
|
)
|
|
25,603
|
|
|
Real estate and other taxes
|
—
|
|
|
3,950
|
|
|
4,022
|
|
|
—
|
|
|
7,972
|
|
|
Interest expense
|
—
|
|
|
11,424
|
|
|
14,519
|
|
|
(701
|
)
|
|
25,242
|
|
|
Depreciation and amortization
|
—
|
|
|
11,606
|
|
|
10,239
|
|
|
—
|
|
|
21,845
|
|
|
Total expenses
|
—
|
|
|
45,490
|
|
|
36,479
|
|
|
(1,307
|
)
|
|
80,662
|
|
|
Income (loss) from continuing operations
|
—
|
|
|
(4,159
|
)
|
|
(12,776
|
)
|
|
1,307
|
|
|
(15,628
|
)
|
|
Equity in net income (loss) of unconsolidated real estate
entities
|
—
|
|
|
(2,411
|
)
|
|
—
|
|
|
2,411
|
|
|
—
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations before gains
on disposition of real estate and gain on extinguishment
on debt and impairment loss
|
2
|
|
|
220
|
|
|
511
|
|
|
—
|
|
|
733
|
|
|
Gain (loss) on disposition of real estate
|
—
|
|
|
(38
|
)
|
|
—
|
|
|
—
|
|
|
(38
|
)
|
|
Income (loss) from discontinued operations
|
2
|
|
|
182
|
|
|
511
|
|
|
—
|
|
|
695
|
|
|
Net income (loss)
|
$
|
2
|
|
|
$
|
(6,388
|
)
|
|
$
|
(12,265
|
)
|
|
$
|
3,718
|
|
|
$
|
(14,933
|
)
|
|
Thomas Properties’ share of net income (loss)
|
$
|
1
|
|
|
$
|
(452
|
)
|
|
$
|
(767
|
)
|
|
$
|
—
|
|
|
$
|
(1,218
|
)
|
|
Intercompany eliminations
|
|
1,196
|
|
|
TPGI's share of equity in net income (loss) of unconsolidated real estate entities
|
|
$
|
(22
|
)
|
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Following is a reconciliation of our share of owners’ equity of the unconsolidated real estate entities as shown above to amounts recorded by us as of
March 31, 2013
and
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
Our share of owners’ equity recorded by unconsolidated real estate entities
|
$
|
100,978
|
|
|
$
|
100,451
|
|
|
Intercompany eliminations and other adjustments
|
(4,482
|
)
|
|
(4,325
|
)
|
|
Investments in unconsolidated real estate entities
|
$
|
96,496
|
|
|
$
|
96,126
|
|
4. Mortgage Loans
A summary of the outstanding mortgage loans as of
March 31, 2013
and
December 31, 2012
is as follows (in thousands). None of these loans are recourse to us, except that we have guaranteed the Campus El Segundo mortgage loan (see footnote 3 below), partially guaranteed the Four Points Centre mortgage loan, under which our liability is currently limited to a maximum of
$10.0 million
, and provided a limited guaranty for the Murano mortgage loan. See footnote 5 to the table below for further details regarding the Murano limited guaranty. In connection with some of the loans listed in the table below, our operating partnership is subject to customary non-recourse carve out obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Debt
|
|
Maturity Date
|
|
Maturity Date
at End of
Extension
Options
|
|
Mortgage Loan
|
|
Interest Rate at March 31, 2013
|
|
As of March 31, 2013
|
|
As of December 31, 2012
|
|
|
One Commerce Square (1)
|
|
5.67%
|
|
$
|
126,409
|
|
|
$
|
126,869
|
|
|
1/6/2016
|
|
1/6/2016
|
|
Two Commerce Square (2)
|
|
3.96%
|
|
112,000
|
|
|
106,612
|
|
|
4/5/2023
|
|
4/5/2023
|
|
Campus El Segundo (3)
|
|
LIBOR +
|
3.75%
|
|
14,500
|
|
|
14,500
|
|
|
10/31/2013
|
|
10/31/2014
|
|
Four Points Centre (4)
|
|
LIBOR +
|
3.50%
|
|
21,581
|
|
|
26,453
|
|
|
7/31/2014
|
|
7/31/2015
|
|
Murano (5)
|
|
LIBOR +
|
3.75%
|
|
3,314
|
|
|
6,941
|
|
|
12/15/2013
|
|
12/15/2013
|
|
Total mortgage loans
|
|
$
|
277,804
|
|
|
$
|
281,375
|
|
|
|
|
|
The 30 day LIBOR rate for the loans above was
0.20%
at
March 31, 2013
.
______________________
|
|
|
|
(1)
|
The mortgage loan may be defeased, and is subject to yield maintenance payments for any prepayments prior to
October 2015
.
|
|
|
|
|
(2)
|
On
March 8, 2013
, we entered into a loan agreement with a lender for a new mortgage on Two Commerce Square in the amount of
$112.0 million
. The loan has a fixed interest rate of
3.96%
for a
ten
year term. The expiring loan which had an outstanding balance of
$106.5 million
as of
March 8, 2013
, was paid off at par. The new mortgage loan is subject to interest only payments through
March 5, 2018
, and thereafter, principal and interest payments are due based on a thirty-year amortization schedule. The loan may be defeased, and is subject to yield maintenance payments for any prepayments prior to the maturity date.
|
|
|
|
|
(3)
|
The interest rate as of
March 31, 2013
, was
4.00%
per annum. We have guaranteed this loan. We agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of
March 31, 2013
. As of
March 31, 2013
, the loan is shown as
“obligations associated with land held for sale”
on the consolidated balance sheets. The prior period amounts have been reclassified to conform to the current year presentation. Subsequent to
March 31, 2013
, the Company sold the remaining
23.9
acres of land and related assets, and paid off the mortgage loan balance in full.
|
|
|
|
|
(4)
|
The interest rate as of
March 31, 2013
was
3.75%
per annum. As of
March 31, 2013
,
$2.2 million
was available to be drawn to fund tenant improvement costs and certain other project costs related to
two
office buildings. The loan has
a
one
-year extension option at our election subject to certain conditions. The option to extend is subject to (1) a loan-to-value ratio and a minimum appraised land ratio of
62.5%
, and (2) the adjusted net operating income of the property and improvements as a percentage of the outstanding principal balance must be at least
10.0%
. If the loan-to-value ratio or the minimum debt yield is not met, we can pay down the principal balance in an amount sufficient to satisfy the requirement.
|
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The debt yield is calculated by dividing the net operating income of the property by the outstanding principal balance of the loan.
Beginning in
August 2014
, we are required to pay down the loan balance by
$42,000
each month. As of
March 31, 2013
, the property had a net operating loss. We have guaranteed completion of the tenant improvements and
46.5%
of the outstanding principal balance and interest payable on the loan, which results in a maximum guarantee of
$10.0 million
as of
March 31, 2013
. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of
March 31, 2013
. We have also provided additional collateral of fully entitled unimproved land, which is immediately adjacent to the office buildings.
During the first quarter of 2013, we sold certain land parcels at Four Points Centre, resulting in paydowns of
$6.9 million
on the loan. The remaining collateral of fully entitled unimproved land adjacent to the office buildings is approximately
19.9
acres.
|
|
|
|
(5)
|
The interest rate as of
March 31, 2013
was
4.00%
per annum and the loan matures on
December 15, 2013
. Repayment of this loan is being made with proceeds from the sales of condominium units. TPG gave the lender a limited guaranty which (i) guarantees repayment of the loan in the event of certain bankruptcy events affecting the borrower, (ii) guarantees payment of the lender's damages from customary “bad boy” actions of the borrower or TPG (such as fraud, physical waste of the property, misappropriation of funds and similar bad acts); and (iii) guarantees payment of the amount, if any, by which the loan balance at the time exceeds
80.0%
of the bulk sale value of the collateral upon an acceleration of the loan triggered by a borrower default. Based on
two
units that have settled subsequent to
March 31, 2013
, and
two
additional units scheduled to settle in the second quarter of
2013
, we expect the loan will be reduced to approximately
$1.4 million
.
|
The loan agreements for One Commerce Square and Two Commerce Square require that all receipts collected from these properties be deposited in lockbox accounts under the control of the lenders to fund reserves such as capital improvements, taxes, insurance, leasing commissions, debt service and operating expenditures. Included in restricted cash on our consolidated balance sheets at
March 31, 2013
and
December 31, 2012
, are lockbox, reserve funds and/or security deposits as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
One Commerce Square
|
$
|
2,720
|
|
|
$
|
5,245
|
|
|
Two Commerce Square
|
1,865
|
|
|
6,258
|
|
|
Murano
|
111
|
|
|
108
|
|
|
Restricted cash - consolidated properties
|
$
|
4,696
|
|
|
$
|
11,611
|
|
As of
March 31, 2013
, subject to certain extension options exercisable by the Company, principal payments due for the secured outstanding debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Due at
Original Maturity
Date
|
|
Amount Due at
Maturity Date
After Exercise of
Extension Options
|
|
|
2013
|
$
|
19,134
|
|
(1)
|
$
|
4,634
|
|
|
|
2014
|
23,465
|
|
|
16,594
|
|
(1)
|
|
2015
|
1,996
|
|
|
23,367
|
|
|
|
2016
|
121,209
|
|
|
121,209
|
|
|
|
2017
|
—
|
|
|
—
|
|
|
|
Thereafter
|
112,000
|
|
|
112,000
|
|
|
|
|
$
|
277,804
|
|
|
$
|
277,804
|
|
|
(1) Subsequent to March 31, 2013, the Company sold the Campus El Segundo project, and paid off the mortgage loan balance of
$14.5 million
in full. The loan had an
October 31, 2013
maturity date with the ability to extend twelve months to
October 31, 2014
.
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
|
|
|
|
5.
|
Income (Loss) per Share and Dividends Declared
|
Under FASB ASC 260-10-45, "Earnings Per Share", the Company uses the two-class method to calculate earning per share. Basic earnings per share is calculated based on dividends declared on common shares and other participating securities (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends accrued during the respective period. Participating securities, which include restricted stock, incentive units and stock options, are included in the computation of earnings per share pursuant to the two-class method. The undistributed earnings are allocated to all outstanding common shares and participating securities based on the relative percentage of each security to the total number of outstanding securities. Basic earnings per common share and participating securities, including restricted stock, incentive units and stock options, represent the summation of the distributed and undistributed earnings per common share and participating security divided by the total weighted average number of common shares outstanding and the total weighted average number of participating securities outstanding during the respective periods. We only present the earnings per share attributable to the common shareholders.
Net losses, after deducting the dividends to participating securities, are allocated in full to the common shares since the participating security holders do not have an obligation to share in the losses, based on the contractual rights and obligations of the participating securities. Because we incurred losses for the
three months ended March 31, 2013
and
2012
, all potentially dilutive instruments are anti-dilutive and have been excluded from our computation of weighted average dilutive shares outstanding.
Our board of directors declared and paid a quarterly dividend to common stockholders in the
three months ended March 31, 2013
and
2012
of
$0.02
and
$0.015
per common share.
The following is a summary of the elements used in calculating basic and diluted income (loss) per share for the
three months ended March 31, 2013
and
2012
(in thousands except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2013
|
|
2012
|
|
Net income (loss) attributable to common shares
|
$
|
(8,969
|
)
|
|
$
|
(3,120
|
)
|
|
Dividends to participating securities
|
|
|
|
|
Unvested restricted stock
|
—
|
|
|
—
|
|
|
Unvested incentive units
|
—
|
|
|
—
|
|
|
Net income (loss) attributable to common shares, net of dividends to
participating securities
|
$
|
(8,969
|
)
|
|
$
|
(3,120
|
)
|
|
Weighted average common shares outstanding—basic and diluted (1)
|
45,826,728
|
|
|
36,737,276
|
|
|
Income (loss) per share—basic and diluted
|
$
|
(0.20
|
)
|
|
$
|
(0.09
|
)
|
|
Dividends declared per share
|
$
|
0.02
|
|
|
$
|
0.015
|
|
(1) Basic and diluted shares are calculated in accordance with GAAP, and include common shares plus dilutive equity instruments, as appropriate. For the
three months ended March 31, 2013
and
2012
, all potentially dilutive instruments have been excluded from the computation of weighted average dilutive shares outstanding because they were anti-dilutive.
6. Equity
Common Stock and Operating Partnership Units
The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of our common stock vote together as a single class with holders of our limited voting stock on those matters upon which the holders of limited voting stock are entitled to vote. Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably any dividends when, if, and as may be declared by the board of directors out of funds legally available for dividend payments. In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive, conversion, subscription or other rights. There are no redemption or sinking fund provisions applicable to the common stock. An Operating Partnership unit and a share of our common stock have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership. An Operating Partnership unit may be redeemed by the holder in exchange for cash or shares of common stock at our election, on a one-for-one basis. As of
March 31, 2013
and
December 31, 2012
, we held a
78.7%
and
78.7%
interest in the Operating Partnership respectively.
Limited Voting Stock
Each Operating Partnership unit issued in connection with the formation of our Operating Partnership at the time of our initial public offering in 2004 was paired with one share of limited voting stock. Operating Partnership units issued under other circumstances, including upon the conversion of incentive units granted under the Incentive Plan, are not paired with shares of limited voting stock. These shares of limited voting stock are not transferable separate from the limited partnership units they are paired with, and each Operating Partnership unit is redeemable together with one share of limited voting stock by its holder for cash, or, at our election, one share of our common stock. Each share of limited voting stock entitles its holder to one vote on the election of directors, certain extraordinary transactions, including a merger or sale of our Company, and amendments to our certificate of incorporation. Shares of limited voting stock are not entitled to any regular or special dividend payments or other distributions, including any dividends or other distributions declared or paid with respect to shares of our common stock or any other class or series of our stock, and are not entitled to receive any distributions in the event of liquidation or dissolution of our Company. Shares of limited voting stock have no class voting rights, except to the extent required by Delaware law. Any redemption of a unit in our Operating Partnership will be redeemed together with a share of limited voting stock in accordance with the redemption provisions of the Operating Partnership agreement, and the share of limited voting stock will be canceled and not subject to reissuance. As of
March 31, 2013
, there were
12,313,331
limited voting stock outstanding.
Incentive Partnership Units
We have issued a total of
1,377,714
incentive units as of
March 31, 2013
to certain executives. Incentive units represent a profits interest in the Operating Partnership and generally will be treated as regular Operating Partnership units in the Operating Partnership and rank pari passu with the Operating Partnership units as to payment of distributions, including distributions of assets upon liquidation. Incentive units are subject to vesting, forfeiture and additional restrictions on transfer as may be determined by us as general partner of the Operating Partnership. The holder of an incentive unit has the right to convert all or a part of his vested incentive units into Operating Partnership units, but only to the extent of the incentive units’ economic capital account balance. As general partner, we may also cause any number of vested incentive units to be converted into Operating Partnership units to the extent of the incentive units’ economic capital account balance. We had
46,303,321
shares of common stock and
12,313,331
Operating Partnership units outstanding as of
March 31, 2013
, and
224,100
vested incentive units outstanding which were issued under our Incentive Plan. The share of the Company owned by the Operating Partnership unit holders is reflected as a separate component under the "Noncontrolling Interests" caption in the equity section of our consolidated balance sheets.
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock Compensation
We adopted the 2004 Equity Incentive Plan of Thomas Properties Group, Inc. as amended, (the “Incentive Plan”) effective upon the closing of our initial public offering and amended it in May 2007 and June 2008 to increase the shares reserved under the plan. The Incentive Plan provides incentives to our employees and is designed to attract, reward and retain personnel. We may issue up to
3,361,906
shares as either stock option awards, restricted stock awards or incentive unit awards of which
234,768
, remain available for grant as of
March 31, 2013
(see table below for details). In addition, under our Non-Employee Directors Restricted Stock Plan (“the Non-Employee Directors Plan”) a total of
60,000
shares are reserved for grant, of which
29,065
remain available for grant.
|
|
|
|
|
|
|
|
March 31, 2013
|
|
Total awards authorized for issuance
|
3,361,906
|
|
|
Less:
|
|
|
Incentive unit grants
|
1,377,714
|
|
|
Restricted stock grants
|
1,345,107
|
|
|
Stock option awards, net of forfeitures
|
404,317
|
|
|
Awards available for grant
|
234,768
|
|
For more information on our stock incentive plan, please refer to the notes to the consolidated financial statements in our
2012
Annual Report on Form 10-K, which was filed with the SEC on
March 11, 2013
, and our proxy statement, which was filed with the SEC on
April 30, 2013
.
On
January 27, 2013
and
February 1, 2012
, we granted
176,840
and
199,999
restricted shares, respectively, of which
fifty
percent vest based on stock performance and had a total grant date fair market value of approximately
$0.3 million
and
$0.2 million
, respectively. The other
fifty
percent are discretionary vesting shares based on goals determined by the Compensation Committee of the Board of Directors, which are currently reserved and will be considered granted and fully expensed upon vesting.
During first quarter of
2013
,
37,189
incentive units and
207,801
restricted shares, subject to stock performance, vested. During
February 2013
,
18,594
incentive units and
128,897
restricted shares, subject to discretionary vesting, were approved for vesting by the Compensation Committee.
Phantom Shares
During 2011, a Phantom Share Plan was approved by the compensation committee of the board of directors and adopted by the full board of directors. The purpose of the Plan is to reward and retain senior executive officers of the Company. This Plan is an incentive award plan that pays cash or, if the stockholders of the Company approve and authorize the issuance of additional shares, common stock. Generally, the recipient must still be employed with the Company to receive the cash or stock. Each phantom share award vests upon the earlier of (i) ratably, one-third on each anniversary of the grant date, subject to achievement of (x) with respect to
50%
of each award, a Company stock appreciation target rate of up to
12%
pro-rated, and (y) with respect to
50%
of each award, other goals determined by the Compensation Committee, in each case only to the extent that at or after such time the Company's stockholders have approved the issuance of sufficient shares of common stock under the Company's 2004 Equity Incentive Plan, as amended, or any successor thereto, to settle awards under the Plan in common stock, and (ii) the
fifth
anniversary of the grant date, subject to such grantee's continued employment with the Company and achievement of the Company and other goals.
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a summary of the phantom shares outstanding as of
March 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
Shares Granted
|
|
Grant Date Fair Value
(in thousands)
|
|
March 16, 2011
|
677,933
|
|
|
$
|
1,034
|
|
|
February 1, 2012
|
437,950
|
|
|
$
|
946
|
|
|
January 27, 2013
|
626,977
|
|
|
$
|
1,477
|
|
|
Total
|
1,742,860
|
|
|
|
We have determined these grants should be treated as liability awards rather than equity awards in accordance with ASC 718 "Compensation - Stock Compensation", and as such, the obligation is reflected in the accounts payable and other liabilities caption on our consolidated balance sheet.
Compensation Expense
We recognized non-cash compensation expense and the related income tax benefit for the amortization of restricted stock and phantom stock grant expense as well as the remeasurement of the phantom stock awards at fair value for the
three months ended
March 31, 2013
and
2012
as follows (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2013
|
|
2012
|
|
Restricted Stock :
|
|
|
|
|
Compensation expense
|
$
|
715
|
|
|
$
|
375
|
|
|
Income tax benefit
|
278
|
|
|
149
|
|
|
|
|
|
|
|
Phantom Shares:
|
|
|
|
|
Compensation expense
|
$
|
144
|
|
|
$
|
188
|
|
|
Income tax benefit
|
56
|
|
|
74
|
|
For the
three months ended
March 31, 2013
and
2012
, a full valuation allowance was recorded against the income tax benefit.
Noncontrolling Interests
Noncontrolling interests on our consolidated balance sheets relate primarily to the partnership and incentive units in the Operating Partnership that are not owned by the Company. In conjunction with the formation of the Company, certain persons and entities contributing interests in properties to the Operating Partnership received Operating Partnership units. In addition, certain employees of the Operating Partnership have received incentive units in connection with services rendered or to be rendered to the Operating Partnership. Limited partners who have been issued incentive units have the right to require the Operating Partnership to redeem part or all of their incentive units upon vesting of the incentive units, if applicable. The Company may elect to acquire those incentive units in exchange for shares of the Company’s common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events, or pay cash based upon the fair market value of an equivalent number of shares of the Company’s common stock at the time of redemption.
The redemption value of the
224,100
outstanding incentive units at
March 31, 2013
was approximately
$1.1 million
based on the closing price of the Company’s common stock of
$5.13
per share as of
March 31, 2013
.
A charge is recorded each period to the consolidated statements of income (loss) for the noncontrolling interests' proportionate share of the Company's net income (loss).
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Equity is allocated between controlling and noncontrolling interests as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
Balance, December 31, 2012
|
$
|
175,729
|
|
|
$
|
103,108
|
|
|
$
|
278,837
|
|
|
Net income (loss)
|
(8,969
|
)
|
|
(2,731
|
)
|
|
(11,700
|
)
|
|
Amortization of share-based compensation
|
637
|
|
|
172
|
|
|
809
|
|
|
Dividends
|
(931
|
)
|
|
(246
|
)
|
|
(1,177
|
)
|
|
Contributions from noncontrolling interests
|
—
|
|
|
7,233
|
|
|
7,233
|
|
|
Balance, March 31, 2013
|
$
|
166,466
|
|
|
$
|
107,536
|
|
|
$
|
274,002
|
|
Noncontrolling Interests - Partners in Consolidated Real Estate Entities
Noncontrolling interest - Partners in Consolidated Real Estate Entities represents the proportionate share of equity in the partnerships and limited liability companies listed below held by non-affiliated partners. Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of the applicable partnership and limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and allocation formulas as described in the partnership and limited liability company agreements. Following are the stated ownership percentages of the unaffiliated partners in these consolidated entities, prior to any preferred or special allocations, as of
March 31, 2013
and
December 31, 2012
.
|
|
|
|
|
|
|
Non-Affiliated
Partner Share
|
|
One Commerce Square
|
25.0%
|
|
Two Commerce Square
|
25.0%
|
|
Murano
|
27.0%
|
|
TPG Austin Partner, LLC
|
33.3%
|
7. Income Taxes
All operations are carried on through the Operating Partnership and its subsidiaries. The Operating Partnership is not subject to income tax and all of the taxable income, gains, losses, deductions, and credits are passed through to its partners. However, the Operating Partnership and some of its subsidiaries are subject to income taxes in Texas. We are responsible for our share of the Operating Partnership's taxable income or loss allocated in accordance with the Operating Partnership’s Agreement of Limited Partnership. As of
March 31, 2013
, we held a
78.7%
capital interest in the Operating Partnership. For the
three months ended March 31, 2013
, we were allocated a weighted average of
78.7%
of the income and losses from the Operating Partnership.
Our effective tax rate for the
three months ended March 31, 2013
was
(0.19)%
, compared to the federal statutory rate of
35%
. The difference from the statutory rate is due primarily to income attributable to the non-controlling interests and the valuation allowance related to the Company's deferred tax assets for which no benefit could be provided due to their realization not meeting the "more-likely-than-not" threshold.
In
2007
, an ownership change pursuant to Internal Revenue Code Section 382 (“Section 382”) occurred. The Company's federal and state net operating loss carryforwards in existence at that time were subject to a gross annual limitation of
$9.9 million
. Net operating loss carryforwards generated subsequent to the
2007
deemed ownership change were not subject to the Section 382 limitation. On
June 12, 2012
, as a result of the acquisition of
8,695,653
shares of common stock by affiliates of Madison International Realty, the Company believes a second change in ownership pursuant to Section 382 occurred. Accordingly, as of
June 12, 2012
, the Company’s federal and state net operating loss carryforwards and, potentially, certain post
June 12, 2012
deductions and losses (to the extent such losses are considered recognized built-in losses and to the extent of the company’s net unrealized built-in loss (if any) under Section 382) are subject to an annual Section 382 limitation of approximately
$5.7 million
. As the new annual limitation is less than the previous
$9.9 million
annual limitation imposed on
2007
and prior net operating losses, the new annual limitation of
$5.7 million
is now applied against all federal and state net operating loss carryforwards in existence as of
June 12, 2012
. Net operating losses generated after
June 12, 2012
, are generally not subject to the Section 382 limitation. As of the year ended
December 31, 2012
, the Company anticipates having net
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
operating loss carryforwards of
$54.0 million
for federal purposes and
$48.0 million
for state purposes. The Company’s net operating loss carryforwards are subject to varying expirations from
2020
through
2033
.
FASB ASC 740-10-30-17, “Accounting for Income Taxes,” requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. Future realization of the deferred tax asset is dependent on the reversal of existing taxable temporary differences, carryback potential, tax-planning strategies and on us generating sufficient taxable income in future years. Due to uncertainty of future realization, the Company recorded a valuation allowance on its net deferred tax assets in excess of its liability for unrecognized tax benefits, due to uncertainty of future realization. As such, a net deferred tax asset related solely to uncertain tax positions is included in "other assets" on the Company's balance sheet.
FASB ASC 740-10-25, "Accounting for Income Taxes" subsection "Recognition" clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of
March 31, 2013
, there is
no
interest or penalty associated with unrecognized tax benefits. We do not anticipate any significant increases or decreases in unrecognized tax benefits within the next twelve months.
8. Fair Value of Financial Instruments
Our estimates of the fair value of financial instruments as of
March 31, 2013
were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy consists of three broad levels as follows:
1.
Level 1 Inputs - Quoted prices in active markets for identical assets or liabilities
|
|
|
|
2.
|
Level 2 Inputs - Significant other observable inputs (can include quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as discounts and borrowing rates with similar terms and maturities)
|
|
|
|
|
3.
|
Level 3 Inputs - Significant unobservable inputs (based on an entity's own assumptions, since there is little, if any, related market activity)
|
The carrying amounts for cash and cash equivalents, restricted cash, rent and other receivables, accounts payable and other liabilities approximate fair value due to the short-term nature of these instruments.
The Company uses a discounted cash flow analysis to estimate the fair value of our mortgage loans. The inputs used in preparing the discounted cash flows include actual maturity dates and scheduled interest and principal payments as well as estimates for market loan-to-value ratios and discount rates. The discount rate, which is the most significant input, is estimated based on our knowledge of the market including discussions with market participants. As this input has more attributes of a Level 3 input than a Level 2 input, we classify it as such.
As of
March 31, 2013
and
December 2012
, the book and fair values of our mortgage loans were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
Book Value (1)
|
|
Fair Value
|
|
Book Value (1)
|
|
Fair Value
|
|
Mortgage loans
|
$
|
277,804
|
|
|
$
|
282,144
|
|
|
$
|
281,375
|
|
|
$
|
286,223
|
|
(1) Included in the book value of mortgage loans above is
$14.5 million
related to the Campus El Segundo loan that is shown as
obligations associated with land held for sale
on the consolidated balance sheet. Subsequent to March 31, 2013, the Company sold the Campus El Segundo project, and paid off the mortgage loan balance of
$14.5 million
in full.
THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9. Commitments and Contingencies
Litigation
The Company has been in litigation with a former consultant regarding a claim by the consultant for approximately
$5.1 million
of incentive compensation pursuant to a consulting agreement, which the Company contested and did not pay. Effective
April 10, 2013
, the Company entered into a Settlement Agreement and Mutual General Release with the consultant whereby the Company agreed to pay the consultant
$3.25 million
in total satisfaction of the consultant's claim, within thirty (30) days of the date of the agreement, at which time the parties mutually release all claims against the other and the litigation will be dismissed. This amount has been fully accrued as of
March 31, 2013
.
General
We have been named as a defendant in a number of premises liability claims in the ordinary course of business. We believe that the ultimate resolution of these claims will not have a material adverse effect on our financial position and results of operations.
A mortgage loan secured by a first trust deed on 2121 Market Street is guaranteed by our Operating Partnership, up to a maximum amount of
$14.0 million
expiring in
December 2022
. 2121 Market Street is an unconsolidated real estate entity in which we have a
1.0%
limited partnership interest. See Note 4 for disclosure of guarantees related to our consolidated debt.
Insurance
We maintain general liability insurance with limits of
$200 million
per occurrence and all risk property and rental value insurance with limits of
$1.25 billion
per occurrence (except for a limit of
$600 million
per occurrence for one particular asset grouping), with terrorism limits of
$1.15 billion
per occurrence (except for a limit of
$600 million
per occurrence for one particular asset grouping), and flood insurance with a limit of
$200 million
per occurrence. Our California properties have earthquake insurance with coverage of
$200 million
per occurrence, subject to a deductible in the amount of
5%
of the value of the affected property.
10. Subsequent Event
Subsequent to March 31, 2013, the Company sold the remaining
23.9
acres of land in its Campus El Segundo project, located in the City of El Segundo in the County of Los Angeles, including athletic facility naming rights and a building previously used as a marketing center. The sales pri
ce for the land and related assets was
$48.5 million
. After closing adjustments and prorations, and payment in full of a
$14.5 million
mortgage loan, the Company received net proceeds of
$33.3 million
.