UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ended ______________to________________
Commission file number 333-55753
Baron Capital Properties, L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 31-1584691
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7826 Cooper Road, Cincinnati, Ohio 45242
(Address of principal executive offices)
(513) 984-5001
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [_] No [X]
As of the date of this Report, the Registrant has outstanding 3,909,347 units of
limited partnership interest ("Operating Partnership Units").
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
See following pages
2
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets F-2
Statements of Operations F-3
Statement of Partners' Capital F-4
Statement of Cash Flows F-5
Notes to Financial Statement F-6 - F-15
F-1
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
June 30, 2000
ASSETS
June 30, December 31,
2000 1999
---- ----
Assets: (Unaudited)
Rental Apartments:
Land $ 7,318,862 $ 1,178,693
Depreciable property 32,249,572 6,189,095
------------ ------------
39,568,434 7,367,788
Less accumulated depreciation (6,414,750) (1,453,177)
------------ ------------
33,153,684 5,914,611
Investment In Partnerships 4,277,247 930,970
Cash and Cash Equivalents 124,166 27,552
Restricted Cash 762,969 52,089
Accrued Interest Receivable, Affiliate 1,338,564 36,997
Other Receivables 113,798 3,724
Due from Baron Capital Trust 305,998 296,010
Advances to Affiliates 6,230,192 5,141
Other Property and Equipment 281,221 134,981
Other Assets 802,953 188,692
------------ ------------
$ 47,390,789 $ 7,590,767
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable 25,203,107 4,278,117
Accounts payable and accrued liabilities 1,909,297 1,078,353
Note payable 190,000 100,000
Notes payable, affiliates 3,778,779 50,000
Capital lease obligation 40,775 42,369
Security deposits 227,067 40,308
------------ ------------
Total liabilities 31,349,026 5,589,147
------------ ------------
Commitments, Contingencies, Subsequent Events
and Other Matters -- --
Minority Partners 536,900 --
------------ ------------
Partners' Capital:
General Partner; issued and outstanding, 39,488 and 18,962 as of June 30, 2000
and December 31, 1999 respectively,
partnership units (129,590) (33,362)
Limited Partners; issued and outstanding,
3,909,347 and 1,877,246 as
of June 30, 2000 and December 31, 1999
respectively, partnership units of which
757,746 are subject to escrow restrictions 15,634,453 2,034,982
------------ ------------
Total partners' capital 15,504,863 2,001,620
------------ ------------
$ 47,390,789 $ 7,590,767
============ ============
See notes to consolidated financial statements.
F-2
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and
Six Months Ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
Six Six Three Three
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Property:
Rental $ 1,744,414 $ 512,133 $ 1,477,091 $ 254,783
Equity in net loss of unconsolidated partnership (78,994) (29,093) (41,154) (25,667)
Interest and other income 368,479 79,140 342,939 38,104
------------ ------------ ------------ ------------
2,033,899 562,180 1,778,876 267,220
------------ ------------ ------------ ------------
Real Estate Expenses:
Depreciation 319,217 72,907 278,392 36,454
Interest 660,580 144,491 575,121 71,305
Repairs and maintenance 237,806 37,726 211,997 20,250
Personnel 440,451 57,471 423,779 28,431
Property Taxes 151,027 41,276 131,123 20,680
Property Insurance 38,030 10,718 32,670 3,512
Utilities 185,657 29,601 172,283 18,050
Other 209,751 131,570 203,891 122,356
------------ ------------ ------------ ------------
2,242,519 525,760 2,029,256 321,038
------------ ------------ ------------ ------------
Administrative Expenses:
Personnel, including officers' compensation 535,461 369,372 375,843 96,711
Professional services 249,539 244,663 88,419 33,169
Other 283,950 68,068 306,446 25,120
------------ ------------ ------------ ------------
1,068,950 682,103 770,708 155,000
------------ ------------ ------------ ------------
Provision for Property Impairment 8,356,638 -- 8,356,638 --
------------ ------------ ------------ ------------
Total expenses 11,668,107 1,207,863 11,156,602 476,038
------------ ------------ ------------ ------------
Net Loss $ (9,634,208) $ (645,683) $ (9,377,726) $ (208,818)
============ ============ ============ ============
Net Loss per Unit Basic and Diluted $ (3.39) $ (0.36) $ (2.47) $ (0.11)
============ ============ ============ ============
Weighted Average Number of Units Outstanding 2,841,809 1,787,878 3,789,877 1,836,939
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BARON CAPITAL PROPERTIES, L. P.
CONSOLIDATED
STATEMENTS OF PARTNERS' CAPITAL
For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
General Partner Limited Partners
--------------- ----------------
Units Amount Units Amount Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Partners' Capital, December 31, 1999 18,962 $ (33,362) 1,877,246 $ 2,034,982 $ 2,001,620
Capital Contributions - Trust 273 26,990 230,118 230,118
Net loss -- (97,315) -- (9,536,893) (9,634,208)
Credit for estimated fair value of services
performed by officer -- 1,087 -- 107,163 108,250
Exchange Units issued net, (see Note 6,
Exchange Offering) 24,742 -- 2,449,525 22,799,083 22,799,083
Adjustment officer escrow (4,489) -- (444,414) -- --
------------ ------------ ------------ ------------ ------------
Partners' Capital, June 30, 2000 (Unaudited) 39,488 $ (129,590) 3,909,347 $ 15,634,453 $ 15,504,863
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(9,634,208) $ (645,683)
Adjustments to reconcile net loss to net cash
used by operating activities:
Provision for officer's compensation 108,250 --
Depreciation 319,217 94,721
Equity in net loss of unconsolidated partnership 78,994 29,093
Recognition of Provision for Impairment 8,356,638
(Increase) Decrease in operating assets:
Other receivables (110,074) 35,801
Reimbursed administrative expenses receivable 36,997 38,476
Other assets 122,343 (51,102)
Increase (Decrease) in operating liabilities:
Accounts payable and accrued liabilities 94,341 236,672
Security deposits 186,758 (840)
----------- -----------
Net cash used by operating activities (440,744) (262,862)
----------- -----------
Cash Flows from Investing Activities:
Investment in partnerships 9,318 (885,000)
Cash distributions from partnerships 357,260 27,000
Purchases of other property and equipment (146,240) (1,514)
Increase in Restricted Cash (40,664) (113,166)
Advances to affiliates 27,109 249,914
----------- -----------
Net cash provided by (used in) investing activities 206,783 (722,766)
----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions 230,118 1,074,000
Distributions paid -- (65,000)
Proceeds from mortgage financing -- 273,499
Proceeds from notes payable affiliates 89,141 (275,000)
Proceeds from note payable 90,000 --
Payments on mortgages payable (77,090) (22,141)
Payments on capital lease obligation (1,594) --
Other -- 20,000
----------- -----------
Net cash provided by financing activities 330,575 1,005,358
----------- -----------
Net Increase in Cash and Cash Equivalents 96,614 19,730
Cash and Cash Equivalents, Beginning 27,552 77,724
----------- -----------
Cash and Cash Equivalents, Ending $ 124,166 $ 97,454
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 660,580 $ 144,491
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated balance sheet as of June 30, 2000, the consolidated
statements of operations for the six and three months ended June 30,
2000 and 1999, the statement of partners' capital for the six months
ended June 30, 2000, and the consolidated statements of cash flows for
the six months ended June 30, 2000 and 1999 have been prepared by the
Partnership's management. In the opinion of management, all adjustments
(which include reclassifications and normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at June 30, 2000 and for the period presented,
have been made. The results of operations for the three and six months
ended June 30, 2000 are not necessarily indicative of the operating
results for the full year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the Partnership's financial statements and notes thereto included in the
Partnership's December 31, 1999 Form 10-KSB.
Organization
Baron Capital Properties, L.P. (the "Partnership" or the "Operating
Partnership"), a Delaware limited partnership, is the operating partner
of Baron Capital Trust (the "Trust"). Together with the Trust, the
Partnership constitutes a real estate company which has been organized
to indirectly acquire equity interests in existing residential
apartment properties located in the United States and to provide or
acquire debt financing secured by mortgages on such types of property.
The Partnership, with the Trust, intends to acquire, own, operate,
manage and improve residential apartment properties for long-term
ownership, and thereby seek to maximize current and long-term income
and the value of its assets.
The Trust, as General Partner of the Partnership, is authorized to
cause the Partnership to issue additional limited partnership interests
("Units") in the Partnership for any purpose of the Partnership at any
time to such persons and on such terms and conditions as may be
determined by the Trust in its sole and absolute discretion. Since
Units are exchangeable by unit holders into an equivalent number of
common shares of beneficial interest ("Common Shares") in the Trust,
the maximum number of Units that may be issued by the Partnership is
limited to the number of authorized shares of the Trust, which is
25,000,000, less shares issued by the Trust directly, excluding Common
Shares issued in exchanges of Units for Common Shares.
F-6
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As described below, in exchange for a cash capital contribution and
other consideration paid to the Partnership in 1998, the founders,
Gregory K. McGrath and Robert S. Geiger (the "Original Investors"), were
issued an amount of Units which are exchangeable (subject to certain
escrow restrictions) for a total of 19% of the Common Shares of the
Trust (up to 1,202,160 Common Shares) outstanding after the completion
of the Partnership's Exchange Offering described further below and the
cash public offering completed by the Trust in May 2000, on a fully
diluted basis assuming that all then outstanding Units (other than those
owned by the Trust) have been exchanged into an equivalent number of
Common Shares.
The Partnership commenced operations on February 3, 1998, at which time
it received an initial limited partnership capital contribution.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which assume
that the Partnership will continue on a going concern basis, including
the realization of assets and liquidation of liabilities in the ordinary
course of business. For six months ended June 30, 2000 and the year
ended December 31, 1999 the Partnership incurred net losses of
$9,634,208 and $2,641,250 and negative cash flows from operations of
$440,744 and $555,711. The auditors' report for the year ended December
31, 1999 was qualified to express substantial doubt as to the
Partnership's ability to continue as a going concern.
Management's plans to continue its operations and become profitable
encompass the following:
o The Trust plans to attempt to raise capital through additional
public or private offerings of Common Shares and/or Operating
Partnership Units within the next 12 months.
o The Partnership intends to continue to acquire rental properties
with proceeds from any future public or private offering of
Common Shares and/or Partnership Units. The operating results of
the Trust and the Operating Partnership will depend primarily
upon income from the residential apartment properties in which
they directly or indirectly acquire an equity or Subordinate
Mortgage Interest. Operating results in respect of equity
interests will be substantially influenced by the demand and
supply of residential apartment units in their primary market
and sub-markets, and operating expense levels. Operating results
in respect of mortgage and other debt interests will depend upon
interest income, including, in certain cases, participation
interest, whose payment will depend upon the operating
performance, sale or refinancing of the underlying properties.
The operating results of the Trust and Operating Partnership
will also depend upon the pace and price at which they can
acquire and improve additional property interests.
o The Partnership intends to review its entire portfolio of
properties to determine the potential for restructuring and
refinancing various first mortgage loans and to evaluate certain
properties for possible sale due to recent performance that
negatively impacts overall operating results. The Partnership
will also explore possible business combinations with other
apartment owners to facilitate continued growth.
F-7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
o The Partnership will also negotiate with the firms who are owed
accounts payable for services performed in connection with the
Exchange Offering in order to extend payment terms and, where
possible, to reduce the amounts due.
See Note 6 regarding the completion of the Exchange Offering on April 7,
2000 under which the Trust, through the Operating Partnership, acquired
additional interests in residential apartment properties.
In view of these matters, realization of a major portion of the assets
in the accompanying consolidated balance sheet is dependent upon the
continued operations of the Partnership, which in turn is dependent upon
the Partnership's ability to meet its capital and financing
requirements, and the success of its future operations. Management
believes that the actions presently being taken by the Partnership
provide the opportunity for the Partnership to continue as a going
concern. However, there can be no assurance that management will be
successful in the implementation of its plans to raise adequate amounts
of capital or that future operations will become profitable. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which has been deferred by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, and amended by the
issuance in June 2000 of SFAS 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133. SFAS 133 requires that every derivative instrument be
recorded on the balance sheet as an asset or liability measured at its
fair value and that changes in the fair value of derivative instruments
be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after
June 15, 2000.
Historically, the Operating Partnership has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Operating Partnership does not expect adoption of the
new standard on January 1, 2001 to affect its financial statements.
F-8
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. COMMITMENTS AND CONTINGENCIES
Officers' Compensation
A founder of the Trust and the Partnership serves as Chief Executive
Officer of the Trust and President of the managing shareholder of the
Trust. He agreed to serve as Chief Executive Officer of the Trust for
the first year in exchange for compensation in the form of Common
Shares or Units in an amount not to exceed 25,000 Common Shares or
Units, as applicable, to be determined by the Executive Compensation
Committee of the Board of the Trust based upon his performance, in
addition to benefits and eligibility for participation in any option
plan and bonus incentive compensation plan which may be implemented by
the Partnership. During 1999, and the first and second quarters of
2000 no shares of the Trust or units of the Partnership were issued to
the Chief Executive Officer as compensation. However, in order to
reflect all appropriate administrative expenses of the Partnership, a
provision of $108,250 has been made in the accompanying financial
statements for the estimated fair value of the services rendered by
the Chief Executive Officer for the first two quarters of 2000. This
amount has been charged to the compensation expense, with a
corresponding credit to partners' capital. These estimates of the fair
value of such services were determined by management based upon an
analysis of compensation paid to chief executive officers of a number
of comparable real estate investment trusts. Compensation and benefits
for the Chief Executive Officer are determined annually by the
Executive Compensation Committee of the Board of the Trust.
The other founder of the Trust and Partnership serves as the Chief
Operating Officer of the Trust, the Partnership and the managing
shareholder of the Trust. His initial annual salary has been set at
$100,000, in addition to benefits, and eligibility for participation
in any common share option plan and bonus incentive compensation plan,
which may be implemented by the Partnership.
NOTE 5. RELATED PARTY TRANSACTIONS
Intercompany Line
The Partnership has an intercompany line with the Trust, its general
partner. The intercompany loan is due on demand and is non-interest
bearing. The balance outstanding on the intercompany line as of June
30, 2000 was $305,998 and $296,010 as of December 31, 1999.
Accrued Interest Receivable, Affiliates
Certain of the Exchange Partnerships acquired by the Operating
Partnership in the Exchange Offering hold subordinated notes due from
limited partnerships controlled by Mr. McGrath. See "Note 6. Partners'
Capital." These debt instruments have varying interest rates and the
interest is accrued and/or paid on a monthly basis. As of June 30,
2000 the Operating Partnership was due $1,338,564 on these notes.
F-9
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. PARTNERS' CAPITAL
Partners' Capital Contributions
During the six months ended June 30, 2000, the Partnership issued
26,990 Units of limited partner interest to the Trust at $8.53 per
unit based upon net proceeds of $230,118.
In addition, the Partnership issued to the Trust 25,015 general
partner Units during the six months ended June 30, 2000 as an
allocation to adjust the general partner interest to 1% of the total
outstanding Partnership Units. This issuance has been treated as an
allocation of the capital contributions by the Trust, and no value has
been ascribed to these general partner Units for accounting purposes.
Exchange Offering
In April 2000, pursuant to a registration statement on Form S-4, the
Operating Partnership completed an exchange offering (the "Exchange
Offering") under which it acquired additional interests in residential
apartment properties. In the Exchange Offering, the Operating
Partnership issued 2,449,525 registered Operating Partnership Units
(with an initial assigned value of $24,495,249) in exchange for
substantially all outstanding units of limited partnership interest
owned by individual limited partners ("Exchange Limited Partners") in
23 limited partnerships (the "Exchange Partnerships"), which directly
or indirectly own equity and/or debt interests in one or more of 26
residential apartment properties located in the southeast and mid-west
United States. Prior to the completion of the Exchange Offering, the
Exchange Partnerships were managed by corporate general partners (the
"Corporate General Partners"), which were controlled by Gregory K.
McGrath, who is the Chief Executive Officer of the Trust, a principal
unitholder of the Operating Partnership, and the President, sole
stockholder and sole director of the Managing Shareholder of the
Trust.
Following the completion of the Exchange Offering, the Exchange
Partnerships continue to own the same property interests they owned
prior to the offering; substantially all of the limited partnership
interests in the 23 Exchange Partnership are owned by the Operating
Partnership; Mr. McGrath, for nominal consideration, assigned to the
Trust all of the equity stock in 18 of the Corporate General Partners
and granted to the Board of the Trust a management proxy coupled with
an interest to vote the shares of the remaining five Corporate General
Partners; the Corporate General Partner of each of the Exchange
Partnerships has assigned to the Operating Partnership all of its
economic interest in the Exchange Partnerships and; Mr. McGrath has
caused each Corporate General Partner to waive its right to receive
from its Exchange Partnership any ongoing fees, effective upon
completion of the Exchange Offering. As a result of the foregoing, the
Operating Partnership (and indirectly the Trust) own substantially all
of the economic interest represented by the equity and debt interests
owned by the Exchange Partnerships and control management of such
partnerships.
F-10
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Exchange Offering expired on April 7, 2000. Under the terms of the
Exchange Offering, Exchange Limited Partners in a particular Exchange
Partnership were entitled to participate in the offering only if limited
partners holding at least 90% of the units of limited partnership
interest in that partnership affirmatively elected to accept the
offering. Exchange Limited Partners holding approximately 97.4% of the
outstanding units of limited partnership in such partnerships accepted
the offering, and each of the Exchange Partnerships exceeded the 90%
requirement. As a result, following the completion of the Exchange
Offering, the limited partnership interests of nine Exchange
Partnerships are owned entirely by the Operating Partnership (in the
case of nine Exchange Partnership in which all Exchange Limited Partners
accepted the offering) and substantially all of the limited partnership
interests in the other 14 Exchange Partnerships are owned by the
Operating Partnership, with the remaining limited partnership interests
being retained by Exchange Limited Partners who elected not to accept
the offering or failed to respond to the offering.
Operating Partnership Limited Partnership Units
In connection with the formation of the Trust and the Operating
Partnership, their two founders (the "Original Investors") each
subscribed for 601,080 Units of limited partnership interest in the
Operating Partnership (a total of 1,202,160 Units). In consideration for
the Units subscribed for by them, the Original Investors made a $100,000
capital contribution to the Operating Partnership. The number of Units
subscribed for by the Original Investors represented 19% of the maximum
Common Shares that would have been outstanding following the completion
of the Cash Offering and the Exchange Offering, assuming that the Trust
had sold all Common Shares offered in the Cash Offering and that the
Operating Partnership had issued the maximum number of Units (2,500,000)
offered in the Exchange Offering, calculated on a fully diluted basis
assuming all then outstanding Units (other than those acquired by the
Trust) had been exchanged into an equivalent number of Common Shares.
The Original Investors deposited the Units subscribed for by them into a
security escrow account for six to nine years, subject to earlier
release under certain conditions.
The subscription agreement entered into by the Original Investors
provided that if, as of May 31, 2000, the number of Units subscribed for
by the Original Investors represents a percentage greater than 19% of
the then outstanding Common Shares, calculated on a fully diluted basis,
each of the Original Investors would be required to return any excess
Units to the Operating Partnership for cancellation. Therefore, as of
May 31, 2000, an adjustment, reducing the number of Units held in escrow
by 444,414, is necessary to accurately reflect the number of Units held
by the Original Investors.
The fair value of the Units issued to the Original Investors amounted to
$100,000, based upon a determination made by the Independent Trustees of
the Trust as of the date of subscription for these Units (February 3,
1998). The determination of the fair value took into consideration that
at the time of the subscription for the Units, the Trust and the
Operating Partnership were development stage companies, with no cash or
other significant tangible assets, operating history or revenue and no
certainty of successful offerings or future operations; the founders had
at risk their initial capital contributions plus certain additional
unreimbursed advances to cover certain offering and operating expenses;
the founders have significant experience and developed know-how critical
to the success of the Trust and the Operating Partnership; and the
founders' Units are
F-11
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
subject to significant transfer restrictions. The Operating Partnership
has accounted for the Units as being issued and outstanding, but subject
to escrow restrictions, in the accompanying consolidated financial
statements, and has included the Units as outstanding in determining the
weighted average shares outstanding for purposes of calculating net loss
per partnership unit in the accompanying consolidated financial
statements. Because the release of the Units from escrow is not
dependent upon the achievement of any specified level of profits, the
release of the Units from escrow is not considered to be compensatory
and, accordingly, no accounting measurement will be given to the release
of the Units from escrow.
Under the subscription agreement, the Original Investors agreed to waive
future administrative fees for managing Exchange Partnerships which
participated in the Exchange Offering; agreed to assign to the Operating
Partnership the right to receive all residual economic rights
attributable to the general partner interests in the Exchange
Partnerships; and, in order to permit management by the Operating
Partnership of the properties owned by the Exchange Partnerships, caused
the Exchange Partnerships to cancel the partnerships' prior property
management agreements and agreed to forego the right to have a property
management firm controlled by the Original Investors assume the property
management role in respect of properties in which the Trust or the
Operating Partnership invest.
Following the Exchange Offering, the Operating Partnership controls all
of the Exchange Partnerships by virtue of its ownership of substantially
all of the limited partnership interests therein, which provides the
Operating Partnership the ability to remove the general partner under
the provisions of the limited partnership agreement pertaining to each
Exchange Partnership that authorize limited partners holding over 50% of
total partnership interest to remove the general partner.
Distributions
There were no distributions in the six months ended June 30, 2000.
NOTE 7. NET LOSS PER UNIT
The Partnership computes per unit data in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share."
SFAS 128 requires dual presentation of basic and diluted earnings per
share on the face of the income statement.
Basic net loss per unit equals net loss divided by the weighted average
units outstanding during the year. The computation of diluted net loss
per unit that includes dilutive limited partnership unit equivalents in
the weighted average units outstanding has not been presented, as it is
anti-dilutive for both the three and six months ended June 30, 2000 and
1999.
The components used in calculating basic net loss per unit are as
follows:
F-12
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Weighted
Average Loss
Net Loss Units Per Unit
-------- --------- --------
Three Months Ended June 30, 2000 $(9,377,726) 3,789,877 $(2.47)
Three Months Ended June 30, 1999 $(208,818) 1,836,939 $(0.11)
Six Months Ended June 30, 2000 $(9,634,208) 2,841,809 $(3.39)
Six Months Ended June 30, 1999 $(645,683) 1,787,878 $(0.36)
NOTE 8. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma condensed consolidated statements of operation
have been prepared assuming that the Exchange Offering had been fully
subscribed as of January 1, 2000.
The pro forma information is not necessarily indicative of what the
Operating Partnership's results of operations would have been assuming
the completion of the described transaction at the beginning of the
period indicated, nor does it purport to project the Operating
Partnership's results of operations for any future period.
<TABLE>
<CAPTION>
Unaudited Pro Forma
Condensed Consolidated
Statements of Operations
For the Six Months ended
June 30, 2000
Statement of
Operations as Pro Forma
of June 30, 2000 Adjustments Pro Forma
---------------- ----------- ---------
<S> <C> <C> <C>
Total Revenues $2,034,000 $1,486,000(1) $3,520,000
Cost and Expenses 3,311,000 1,350,000(2) 4,661,000
Non-Recurring Expense 8,357,000 (8,357,000)(3)
Net Income (loss) ($9,634,000) ($1,141,000)
Weighted Average Number of
Partnership Units 2,841,809 2,841,809
Net Loss Per Unit ($3.39) ($0.40)
</TABLE>
F-13
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Pro Forma Adjustments
The unaudited pro forma condensed consolidated financial statements
represent the acquisition of the Exchange Partnerships, which will be
accounted for under the purchase method of accounting. The Trust has
estimated the adjustments necessary to allocate the aggregate purchase
price over the recorded book value of these partnerships. Such
allocations are subject to final determination based upon valuations
provided by the Trust and other valuations of fair value as if the
acquisitions were effective January 1, 2000. Therefore, the allocations
reflected in the unaudited pro forma condensed consolidated financial
statements may differ from amounts ultimately determined. Differences
between the amounts included herein and the final allocations are not
expected to have a material effect on the unaudited pro forma financial
statements.
Pro forma depreciation for the period ended June 30, 2000 is based upon
assets at fair value at January 1, 2000; primarily based upon 30-year
asset lives.
Summary pro forma adjustments to present comparative per share data
assume that the Exchange Offering had been consummated January 1, 2000
(assumes Units outstanding for entire period). The escrowed Units owned
by the Original Investors are not included in the pro forma computation
of basic loss per share because there is no assurance that the Units
will be released from escrow and their inclusion would be antidilutive.
The pro forma adjustments detailed above are as follows:
1) The Exchange Partnerships provide an additional $1.4 million in
revenue if assumed to have been included from January 1, 2000.
2) The Exchange Partnerships incur an additional $1.35 million in
expenses if assumed to have been included from January 1, 2000.
3) A one-time Provision for Property Impairment of $8.4 million was
recognized at the end of the second quarter to account for the
excess of the exchanged value over the estimated equity value of
the Exchange Partnerships.
NOTE 9. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In April 2000, in connection with the completion of the Exchange
Offering, the Operating Partnership acquired indirect equity interests
in 13 rental properties and subordinated mortgage interests in 10
additional properties through the acquisition of substantially all
partnership interests in the Exchange Partnerships, which own land and
depreciable property, accrued interest, advances, other assets,
mortgages and notes payable, as follows:
F-14
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Land and Depreciable Property $32,474,270
Accrued Interest - Affiliate 1,338,564
Advances to Affiliates 6,048,286
Other Assets 736,604
-----------
Total Assets $40,597,724
Mortgages Payable $19,725,536
Notes Payable - Affiliate 3,639,638
-----------
Total Liabilities $23,365,174
===========
Equity $17,232,550
===========
F-15
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the
Consolidated Financial Statements of Baron Capital Properties, L.P. (the
"Registrant" or the "Operating Partnership") and the Notes thereto. (See
ITEM 1 - FINANCIAL STATEMENTS.)
Forward-looking Statements
This Management's Discussion and Analysis or Plan of Operation and other
sections of this Report contain certain forward-looking statements
within the meaning of the Securities Litigation Reform Act of 1995 that
are based on current expectations, estimates and projections about the
Registrant's business, management's beliefs and assumptions made by
management. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", and variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements due to numerous factors, including, but not limited to those
discussed in this Management's Discussion and Analysis or Plan of
Operation section of this Report, as well as those discussed elsewhere
in this Report and from time to time in the Registrant's other
Securities and Exchange Commission filings and reports. In addition,
such statements could be affected by general domestic and international
economic conditions. The forward-looking statements contained in this
Report speak only as of the date on which they are made, and the
Registrant does not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the
date of this Report.
Results of Operations
The Operating Partnership commenced operations in the first half of
1998. The Operating Partnership and its affiliate, Baron Capital Trust
(the "Trust"), a Delaware business trust, constitute an affiliated real
estate company which has been organized to acquire equity interests in
residential apartment properties located in the United States and/or to
provide or acquire mortgage loans secured by such types of property. The
Operating Partnership conducts all of the Trust's real estate operations
and holds all direct or indirect property interests acquired.
The Trust is the sole general partner of the Operating Partnership, and,
in such capacity, the Trust controls the activities of the Operating
Partnership. The Trust has elected to be taxed as a real estate
investment trust for federal income tax purposes. The Trust is managed
by Baron Advisors, Inc., a Delaware corporation (the "Managing
Shareholder").
3
<PAGE>
In May 1998, pursuant to a registration statement on Form SB-2, the
Trust commenced a public offering of 2,500,000 common shares of
beneficial interest ("Trust Common Shares" or "Common Shares") at an
offering price of $10.00 per share (maximum proceeds of $25,000,000)
("Cash Offering"). In the Cash Offering, which expired on May 31, 2000,
the Trust sold 702,076 Common Shares, for total cash proceeds of
$7,020,763. The Trust has contributed to the Operating Partnership the
net cash proceeds from the issuance of Common Shares in exchange for an
equivalent number of units of limited partnership interest in the
Operating Partnership ("Operating Partnership Units" or "Units"). As of
December 15, 2000, the Trust also owned 546,786 Operating Partnership
Units, representing approximately 14.0% of the then outstanding Units.
The Operating Partnership has acquired substantially all the beneficial
interests in 16 residential apartment properties, including the
Heatherwood I Apartments (67 studio, one bedroom and two bedroom units
located in Kissimmee, Florida) in June 1998; Crystal Court II Apartments
(80 studio, one bedroom and two bedroom units located in Lakeland,
Florida) in July 1998; and Riverwalk Apartments (50 two bedroom units
located in New Smyrna, Florida) and 13 properties acquired as part of
the Exchange Offering (discussed below). In July 1998 the Operating
Partnership also acquired a minority limited partnership interest in 13
real estate limited partnerships then managed by affiliates of Gregory
K. McGrath (a founder and Chief Executive Officer of the Trust and
founder of the Operating Partnership), including certain of the Exchange
Partnerships which participated in the Exchange Offering and which are
now managed by the Trust.
During 1998 and 1999, the Trust acquired a total of 40% of the limited
partnership interests in Alexandria Development, L.P. (the "Alexandria
Partnership"), which owns Alexandria Apartments, a 168-unit residential
apartment property under construction in Alexandria, Kentucky. As of
June 30, 2000, 112 of the 168 residential units (approximately 67%) had
been completed and were in the rent-up stage. Of the completed units,
107 units have been rented. In September 2000, the Alexandria
Partnership entered into an agreement to sell the Alexandria Property in
exchange for $510,000 cash, record title to 20 acres of undeveloped
property located in Vero Beach, and the assumption by the contemplated
purchaser of the existing first mortgage loan secured by a first
mortgage on the Alexandria Property with a principal balance as of
October 31, 2000 of $8,650,000. If the sale, which is subject to certain
closing conditions, is completed, the Operating Partnership will receive
40% of the net proceeds and other consideration payable to the
Alexandria Partnership.
In September 1998, the Trust entered into an agreement with three real
estate development companies (Brentwood at Southgate, Ltd., Burlington
Residential, Ltd. and The Shoppes at Burlington, Ltd.) to acquire two
luxury residential apartment properties in the development stage upon
the completion of construction. The three development companies are
controlled by Mr. McGrath. One of the residential properties has been
sold to a third party with the Trust's consent. The remaining property
is scheduled to have a total of 396 units, comprised of one, two and
three
4
<PAGE>
bedroom/one or two bathroom apartments. Construction of the property
(the "Burgundy Hills Property"), located in Florence, Kentucky (part of
the Cincinnati metropolitan area), is expected to be completed by the
end of the first quarter of 2004. The Trust has a right of first
negotiation to purchase the property from the development company upon
completion and a right of first refusal to purchase the property on the
same terms offered by a third party. The purchase price is expected to
be approximately $30,000,000. It is contemplated that a significant
portion of that amount would be covered by first mortgage financing. At
the current time the Trust does not have adequate resources to close on
the transaction and it is uncertain whether the Trust will have adequate
resources to complete the transaction upon completion of construction.
In connection with the transaction, the Trust (along with its Chief
Executive Officer) agreed to co-guarantee up to 35% (or approximately
$6,000,000) of existing long-term construction financing provided by
KeyBank National Association ("KeyBank") in respect of the Burgundy
Hills Property. As of December 15, 2000, approximately $5,300,000 of the
loan had been drawn down, resulting in outstanding guarantees of
approximately $1,900,000. The interest rate on the construction loan is
KeyBank's prime rate (currently 9.25%) or the LIBOR rate plus 2%. The
Trust also agreed that, if the loan is not repaid prior to the
expiration of the guarantee, it would either buy out the bank's position
on the entire amount of the construction loan or arrange for a third
party to do so.
In September 2000, the Trust received notice from counsel to KeyBank
that Burlington Residential, Ltd. ("Borrower"), the owner and developer
of the Burgundy Hills Property, had defaulted on its loan for failure to
pay current interest due and meet certain equity requirements and
covenants under the loan agreement, adverse changes in the financial
conditions of the Borrower and the Trust, and the Trust's failure to
meet certain tangible net worth tests set forth in the loan agreements.
KeyBank has indicated that it was exercising its right to accelerate the
loan. According to Mr. McGrath, KeyBank agreed to forego further action
for at least 60 days while the parties attempted to reach an
arrangement. The extension expired in November 2000 and, according to
Mr. McGrath, is currently being extended on a month-to-month basis. The
Borrower paid down the outstanding accrued interest and a portion of the
principal and is currently negotiating a new long-term construction
facility with another institutional lender to replace the KeyBank loan.
The Borrower anticipates completion of the refinancing in the first
quarter of 2001.
In addition, in April 2000, pursuant to a registration statement on Form
S-4, the Operating Partnership completed an exchange offering (the
"Exchange Offering") under which it acquired additional interests in
residential apartment properties. In the Exchange Offering, the
Operating Partnership issued 2,449,525 registered Units (with an initial
assigned value of $24,495,249) in exchange for substantially all
outstanding units of limited partnership interest owned by individual
limited partners ("Exchange Limited Partners") in 23 limited
partnerships (the "Exchange Partnerships"). The
5
<PAGE>
Exchange Partnerships directly or indirectly own equity and/or debt
interests in one or more of 26 residential apartment properties (the
"Exchange Properties") located in the southeast and mid-west United
States.
Holders of Operating Partnership Units (other than the Trust) are
entitled to exchange all or a portion of their Units at any time and
from time to time for an equivalent number of Common Shares of the
Trust, so long as the exchange would not cause the exchanging party to
own (taking into account certain ownership attribution rules) in excess
of 5% of the then outstanding Common Shares, subject to the Trust's
right to cash out any holder of Units who requests an exchange and
subject to certain other exceptions.
Prior to the completion of the Exchange Offering, the Exchange
Partnerships were managed by corporate general partners (the "Corporate
General Partners"), which were controlled by Mr. McGrath.
Following the completion of the Exchange Offering, the Exchange
Partnerships continue to own the same property interests they owned
prior to the offering; substantially all of the limited partnership
interests in the 23 Exchange Partnership are owned by the Operating
Partnership; Mr. McGrath, for nominal consideration, assigned to the
Trust all of the equity stock in 18 of the Corporate General Partners
and granted to the Board of the Trust a management proxy coupled with an
interest to vote the shares of the remaining five Corporate General
Partners; the Corporate General Partner of each of the Exchange
Partnerships assigned to the Operating Partnership all of its economic
interest in the partnership; and Mr. McGrath caused each Corporate
General Partner to waive its right to receive from its Exchange
Partnership any ongoing fees, effective upon completion of the exchange.
As a result of the foregoing, the Operating Partnership (and indirectly
the Trust) own substantially all of the economic interest represented by
the equity and debt interests owned by the Exchange Partnerships and
control management of such partnerships.
Certain of the Exchange Partnerships own direct or indirect equity
interests in 16 Exchange Properties which consist of an aggregate of
1,012 residential units (comprised of studio and one, two, three and
four-bedroom units). Certain of the Exchange Partnerships own direct or
indirect mortgage interests in 10 Exchange Properties, which consist of
an aggregate of 813 existing residential units (studio and one and two
bedroom) and 168 units (two and three bedroom) under development. Of the
Exchange Properties, 21 properties are located in Florida, three
properties in Ohio and one property each in Georgia and Indiana.
Consolidated Balance Sheet as of June 30, 2000 Compared to December 31,
1999
Due to the completion of the Exchange Offering the balance sheet for the
Operating Partnership reflects large increases in assets, liabilities
and partners' capital. During the six months ended June 30, 2000, total
assets increased to $47.4 million while liabilities increased to $31.3
million. As mentioned above the Exchange Offering
6
<PAGE>
increased the number of properties in which the Operating Partnership
indirectly owns an equity and/or mortgage interest by adding 26 Exchange
Properties. The Operating Partnership now has rental apartment assets in
excess of $39.6 million, which are subject to $25.2 million in first
mortgage debt.
Partners' capital increased to $15.5 million due to the issuance in the
Exchange Offering of more than 2.4 million Units with an initial
assigned value of $24.5 million reduced by a one-time write off charge
of $1.7 million (which represents any unamortized loan costs recorded on
the Exchange Partnerships books that were in place at the time of the
Exchange Offering from the syndication of the prior partnership
structure) and a net loss for the six months ended June 30, 2000 of $9.6
million.
Operations for the Six Months Ended June 30, 2000 Compared to Six Months
Ended June 30, 1999
Revenues, real estate expenses and administrative expenses all increased
substantially for the six months ended June 30, 2000 in comparison to
the six months ended June 30, 1999 due to the completion of the Exchange
Offering mentioned above and the addition of the 26 Exchange Properties
and their related operating costs.
The Operating Partnership recognized a one-time charge of $8.4 million
to operations as a Provision for Property Impairment. This provision is
the result of writing off the excess of the exchanged value of the
Exchange Partnerships over the estimated equity value of the Exchange
Properties. The equity value is calculated by reducing the appraised
value of the Exchange Properties by any mortgages or interest payables
due on the Exchange Properties.
Liquidity and Capital Resources
Net cash used in operating activities in the six months ended June 30,
2000 was ($440,744) compared to ($262,862) in the six months ended June
30, 1999. The change is due to the recognition of additional net loss
over the six months ended June 30, 1999 offset by increases in certain
liabilities and decreases in certain assets.
Net cash provided by investing activities in the six months ended June
30, 2000 was $206,783 compared to net cash used in investing activities
of ($722,766) in the six months ended June 30, 1999. The increase in
cash for 2000 was due primarily to an increase in cash distributions
from the Exchange Partnerships and a decrease in investments in
partnerships.
Net cash provided by financing activities for the six months ended June
30, 2000 was $330,575 compared to $1,005,358 for 1999. The decrease in
cash was due to a decrease in partners' capital contributions with the
expiration of the Cash Offering in May, 2000.
7
<PAGE>
The Operating Partnership paid $660,580 towards mortgage and other
interest during the six months ended June 30, 2000 compared to $144,491
in the six months ended June 30, 1999 due to the addition of the
Exchange Properties and increase in mortgage debt.
Since inception, the Trust has contributed to the Operating Partnership
net cash proceeds of $5,467,858 from the issuance of Common Shares in
the Cash Offering in exchange for an equivalent number of Units in the
Operating Partnership. Approximately $230,000 of such amount was
contributed in the first six months of 2000. The Trust is the sole
general partner of the Operating Partnership and, as of December 15,
2000, owned 546,786 Operating Partnership Units, representing
approximately 14.0% of the then outstanding Units.
Because of the net loss of $2,641,250 incurred by the Operating
Partnership in the period ended December 31, 1999, and the $975,305 in
accounts payable owed to professionals in connection with the Exchange
Offering as of December 31, 1999, and its limited liquid resources as of
December 31, 1999, the Operating Partnership's independent auditors
qualified their auditors' report to reflect a going concern contingency.
The completion in April 2000 of the Exchange Offering described above
has completed the first effort, in the opinion of management, to
provided the critical mass necessary for profitable operations. The
Trust is negotiating with the firms who are owed accounts payable in
order to extend payment terms and, where possible, reduce the amounts
due. Distributions will be made by the Operating Partnership as cash
flow allows, but will be negatively impacted until the open accounts
payable are reduced. Management does not anticipate that the Operating
Partnership will make distributions to its unit holders for the next
several quarters.
The Trust and the Operating Partnership intend to use securities of the
Trust and the Operating Partnership (including Common Shares and Units),
proceeds from future sales of such securities, and available operating
cash flow and financing from other sources to acquire interests in
additional residential apartment properties or interests in other
partnerships substantially all of whose assets consist of residential
apartment property interests, and payment of applicable fees and
expenses.
The operating results of the Trust and the Operating Partnership will
depend primarily upon income from the residential apartment properties
in which they directly or indirectly own or acquire an equity or debt
interest. Operating results in respect of equity interests will be
substantially influenced by the demand for and supply of residential
apartment units in their primary market and sub-markets, and operating
expense levels. Operating results in respect of mortgage and other debt
interests will depend upon interest income, including, in certain cases,
participation interest, whose payment will depend upon the operating
performance, sale or refinancing of the underlying properties. The
operating results of the Trust and the Operating
8
<PAGE>
Partnership will also depend upon the pace and price at which they can
acquire and improve additional property interests.
The target metropolitan markets and sub-markets have benefited in recent
periods from demographic trends (including population and job growth)
which increase the demand for residential apartment units, while
financing constraints (specifically, reduced availability of development
capital) have limited new construction to levels significantly below
construction activity in prior years. Consequently, rental rates for
residential apartment units have increased at or above the inflation
rate for the last two years and are expected to continue to experience
such increases for the next 18 months based on market statistics made
available to management of the Operating Partnership in terms of
occupancy rates, supply, demographic factors, job growth rates and
recent rental trends. Expense levels also influence operating results,
and rental expenses (other than real estate taxes) for residential
apartment properties have generally increased at approximately the rate
of inflation for the past three years and are expected to increase at
the rate of inflation for the next 18 months. Changes in interest rates
are not expected to materially impact operations, because the majority
of the real estate mortgages have fixed interest rates, as do all of the
inter-company loans.
The Operating Partnership believes that known trends, events or
uncertainties that will or are reasonably likely to affect the
short-term and long-term liquidity and current and future prospects of
the Trust and the Operating Partnership include the performance of the
economy and the building of new apartment communities. Although the
Operating Partnership cannot reliably predict the effects of these
trends, events and uncertainties on the property investments of the
Trust and the Operating Partnership as a whole, some of the reasonably
anticipated effects might include downward pressure on rental rates and
occupancy levels.
Generally, there are no seasonal aspects of the operations of the Trust
or the Operating Partnership that might have a material effect on their
financial conditions or results of operation. However, for the last 36
months, one 60-unit student housing property owned by one of the
Exchange Partnerships involved in the Exchange Offering has had an
average occupancy rate of 88% for nine months of the year and 61% for
the remaining three months of the year.
Subject to the foregoing discussion, management believes that the Trust
and the Operating Partnership have the ability to satisfy their cash
requirements for the foreseeable future. However, management of the
Operating Partnership believes that it will be necessary to raise
additional capital during the next 12 months to make acquisitions and to
meet management's revenue and cash flow goals. The Trust and the
Operating Partnership intend to investigate making an additional public
or private offering of Common Shares and/or Units during the next 12
months.
As part of the ongoing operations of the Operating Partnership,
management is reviewing the entire portfolio of properties to determine
the potential for restructuring
9
<PAGE>
or refinancing various first mortgage loans. Additionally, properties
whose recent performance has materially negatively impacted the
Operating Partnership's operating results are being evaluated for
possible sale. Certain of these properties have been listed for sale.
The Trust is also in discussions with other apartment owners, and is
exploring business combinations that will bring it economies of scale
and the size it needs for listing its Common Shares on a recognized
securities exchange. Additional size would also give the Operating
Partnership the operating margin necessary to support its valuable
management team that is believed necessary for its long-term growth.
The Trust and the Operating Partnership expect no material change in the
number of employees over the next 12 months.
In an effort to increase profitability, the Operating Partnership has
also entered into agreements with WaKuL, Inc. (formerly Rapid Transmit
Technology, Inc.), a provider of integrated communications services to
owners, property managers and residents of residential apartment
properties, including discounted local and long distance phone service,
digital cable TV, high speed Internet access, monitored security
systems, utility sub-metering and various property management services.
WaKuL will provide these services at no capital cost to the Operating
Partnership, and has entered into revenue sharing relationships with the
Operating Partnership. (WaKuL is an affiliate of the Operating
Partnership by virtue of the overlapping management and ownership
capacities in the Trust, the Operating Partnership and WaKuL of Gregory
K. McGrath, a founder of the Trust, the Operating Partnership and
Wakul.) The WaKuL services are expected to provide the Operating
Partnership's properties with a significant marketing advantage over its
competitors, and to provide significant rental and other revenues that
the properties otherwise would not have generated.
Year 2000
The computer systems of the Trust and the Operating Partnership have
been tested for year 2000 problems and the Trust and the Operating
Partnership believe that such systems are year 2000 compatible. The
Trust and the Operating Partnership have not experienced any material
year 2000 problems so far in 2000. It is possible, however, that the
computer systems of the Trust and the Operating Partnership and certain
computer systems or software products of their suppliers could
experience year 2000 problems and that such problems could adversely
affect them. With respect to their own computer systems, the Trust and
the Operating Partnership have upgraded their principal operating
computer software to the most recent available revision sold by their
software supplier, which software the supplier has represented to be
year 2000 compliant. The Trust and the Operating Partnership believe
that such upgrade will solve any year 2000 problems that could affect
their operating software. The failure to identify and solve all year
2000 problems affecting their business could have an adverse effect on
the business, financial condition and results of operations of the Trust
and the Operating Partnership.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant is a claimant in the Georgia Pacific class action
lawsuit. It is not a party to any other legal proceeding.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)
Exhibit Number Description
-------------- -----------
3.1 Certificate of Limited Partnership of the
Registrant (incorporated herein by reference to
Exhibit 3.1 to the Form S-4 Registration
Statement of the Registrant filed with the
Securities and Exchange Commission on June 2,
1998).
3.2 Agreement of Limited Partnership of Baron
Capital Properties, L.P. dated as of May 15,
1998 (incorporated herein by reference to
Exhibit 10.6 to Amendment No. 3 to the Form SB-2
Registration Statement of Baron Capital Trust
filed with the Securities and Exchange
Commission on May 15, 1998 (Registration No.
333-35063)).
27 Financial Data Schedule
(b) The Registrant did not file any Current Reports on Form 8-K during the
quarter for which this Report is filed.
11
<PAGE>
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
December 20, 2000
BARON CAPITAL PROPERTIES, L.P.
By: Baron Capital Trust, General Partner
By: /s/ Gregory K. McGrath
------------------------------------
Gregory K. McGrath
Chief Executive Officer
By: /s/ Mark L. Wilson
------------------------------------
Mark L. Wilson
Chief Financial Officer
12
