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 March 31, 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.)
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 [X] No [ ]
As of the date of this Report, the Registrant has outstanding 1,901,236 units of
limited partnership interest ("Operating Partnership Units").
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
See following pages
<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
Statements of Cash Flows F-4-F-5
Notes to Financial Statements F-6-F-14
F-1
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Rental Apartments:
Land $ 1,178,693 $ 1,178,693
Depreciable property 6,189,095 6,189,095
----------- -----------
7,367,788 7,367,788
Less accumulated depreciation 1,488,141 1,453,177
----------- -----------
5,879,647 5,914,611
Investments in Partnerships 893,130 930,970
Cash and Cash Equivalents 47,850 27,552
Restricted Cash 80,786 52,089
Reimbursed Administrative Expenses Receivable, Affiliates 23,558 36,997
Other Receivables -- 3,724
Due from Baron Capital Trust 276,085 296,010
Advances to Affiliates -- 5,141
Other Property and Equipment 137,055 134,981
Other Assets 187,930 188,692
----------- -----------
$ 7,526,041 $ 7,590,767
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 4,263,480 $ 4,278,117
Accounts payable and accrued liabilities 1,031,342 1,078,353
Note payable 100,000 100,000
Notes payable, affiliates 52,000 50,000
Capital lease obligation 42,369 42,369
Security deposits 43,066 40,308
----------- -----------
Total liabilities 5,532,257 5,589,147
----------- -----------
Partners' Capital:
General partner; issued and outstanding, 19,155 and 18,962 partnership units (35,069) (33,362)
Limited partners; issued and outstanding, 1,896,316 and 1,877,246
partnership units, of which 1,202,160 units are subject to escrow restrictions 2,028,853 2,034,982
----------- -----------
Total partners' capital 1,993,784 2,001,620
----------- -----------
$ 7,526,041 $ 7,590,767
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
Revenues:
Property:
Rental $ 267,668 $ 257,350
Equity in net loss of unconsolidated partnership (37,840) (3,426)
Interest and other income 25,540 41,036
--------- ---------
255,368 294,960
--------- ---------
Real Estate Expenses:
Depreciation 40,825 36,453
Interest 85,459 73,186
Repairs and maintenance 25,809 17,476
Personnel 3,110 29,040
Property taxes 19,904 20,596
Property insurance 5,360 7,206
Utilities 13,374 11,551
Other 5,675 9,214
--------- ---------
199,516 204,722
--------- ---------
Administrative Expenses:
Personnel, including officer's compensation 159,618 272,661
Professional services 161,120 44,335
Other (40,000) 42,948
--------- ---------
280,738 359,944
--------- ---------
Total expenses 480,254 564,666
--------- ---------
Net Loss $(224,886) $(269,706)
========= =========
Net Loss Per Partnership Unit $ (0.12) $ (0.16)
========= =========
See notes to condensed consolidated financial statements.
F-3
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(224,886) $(269,706)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 37,840 3,426
Credit for estimated fair value of services performed by officer 54,250 --
Depreciation 40,825 36,453
Changes in operating assets and liabilities:
(Increase) decrease in operating assets:
Other receivables 3,724 (988)
Due from Baron Capital Trust -- 87,496
Reimbursed administrative expenses receivable 13,439 --
Other assets 762 22,920
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities (47,011) (96,418)
Security deposits 2,758 --
Other liabilities -- 2,529
--------- ---------
Net cash used by operating activities (118,299) (214,288)
--------- ---------
Cash Flows from Investing Activities:
Investments in partnerships -- (673,000)
Purchases of other property and equipment (7,935) (1,514)
Repayment of advances to affiliates 25,066 --
Increase in restricted cash (28,697) --
--------- ---------
Net cash used in investing activities (11,566) (674,514)
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Financing Activities:
Partners' capital contributions 162,800 849,000
Proceeds from notes payable, affiliates 2,000 --
Payments on mortgages payable (14,637) (9,908)
--------- ---------
Net cash provided by financing activities 150,163 839,092
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 20,298 (49,710)
Cash and Cash Equivalents, Beginning 27,552 123,103
--------- ---------
Cash and Cash Equivalents, Ending $ 47,850 $ 73,393
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 85,459 $ 73,186
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated balance sheet as of March 31, 2000, the
condensed consolidated statements of operations for the three months
ended March 31, 2000 and 1999 and the condensed consolidated statements
of cash flows for the three months ended March 31, 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 March 31, 2000 and for
the period presented, have been made.
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 condensed 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. The
results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the operating results for the full year.
Organization
Baron Capital Properties, L.P. (the "Partnership" or the "Operating
Partnership"), a Delaware limited partnership, is the operating
partnership 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.
In its proposed exchange offering, the Partnership intends to issue up
to 2,500,000 units of limited partnership interest ("Units") in exchange
for limited partnership interests owned by limited partners in real
estate limited partnerships which own direct or indirect equity or debt
interests in residential apartment properties. Holders of Units will
have the right, exercisable at any time following the offering, to
exchange all or a portion of their units into an equivalent number of
Common Shares of beneficial interest in the Trust, subject to certain
conditions described below.
The Trust, as General Partner of the Partnership, is authorized to cause
the Partnership to issue additional limited partnership interests 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 Unitholders into an equivalent number of Common Shares of 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)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Organization (Continued)
In exchange for a cash capital contribution 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 exchange offering and the cash public
offering being made by the Trust, 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. However, for 1999 and 1998, the Partnership incurred
net losses of $2,641,250 and $1,108,870 and negative cash flows from
operations of $555,711 and $955,156, respectively, and for the first
quarter of 2000 had a net loss of $224,886 and has limited liquid
resources as of March 31, 2000. The auditors' report for the year ended
December 31, 1999 was modified 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 continue to raise capital through its Cash
Offering, which has been extended to May 31, 2000 and also intends
to make additional public or private offerings of common shares
and/or Operating Partnership units within the 12 month period
following the commencement of the proposed Exchange Offering, whose
registration became effective on November 9, 1999.
o The Partnership intends to continue to acquire rental properties
using proceeds from the Trust's Cash Offering and in the Exchange
Offering described in Note 5. 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
F-7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. BASIS OF PRESENTATION (Continued)
the Trust and Operating Partnership will also depend upon the pace and
price at which they can acquire and improve additional property
interests.
See Note 7 regarding the completion of the Exchange Offering on April 7,
2000 under which 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. COMMITMENTS AND CONTINGENCIES
Officers' Compensation
A founder of the Trust and the Partnership serves as Chief Executive
Officer of the Trust, the Partnership and the managing shareholder of
the Trust. He has agreed to serve as Chief Executive Officer for the
first year in exchange for compensation in the form of common shares of
the Trust or Units of the Operating Partnership in an amount not to
exceed 25,000 shares or units, as applicable, to be determined by the
Executive Compensation Committee 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 the first quarter of 1999 and 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 $54,250 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 quarters of 1999 and 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.
F-8
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. COMMITMENTS AND CONTINGENCIES (Continued)
Officers' Compensation (Continued)
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 4. 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 was $296,010
as of December 31, 1999 and March 31, 2000.
Reimbursed Administrative Expenses
The Partnership shares certain administrative expenses with a number of
other partnerships that are related to the Partnership by means of a
common person who is the sole stockholder and officer of the general
partner of these partnerships and an officer of the general partner of
the Partnership. These administrative expenses are allocated as
described below, and the allocated expenses are reimbursed to the
Partnership by these other partnerships. The allocation of the costs was
determined based upon an analysis of those administrative costs directly
associated with or reasonably allocated to the activities of each
entity. Personnel costs were allocated based upon estimates of the time
devoted by individual employees to each entity's activities on a monthly
basis. Other administrative costs were allocated on a direct basis to
the extent practicable, and the balance on a pro rata basis. In the
opinion of management, the method used to allocate costs to all of the
entities was considered to be reasonable under the circumstances.
During the three months ended March 31, 2000 and 1999, the Partnership
was reimbursed approximately $206,174 and $196,000, respectively, for
administrative expenses, which have been presented as reductions of the
specific related category of administrative expenses in the accompanying
financial statements.
F-9
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. PARTNERS' CAPITAL
Partners' Capital Contributions
During the three months ended March 31, 2000, the Partnership issued
19,070 units of limited partnership interest to the Trust at $7.65 per
unit based upon net proceeds of $145,800 from the Cash Offering.
In addition, the Partnership issued to the Trust 193 general partner
units during the three months ended March 31, 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
The Partnership has filed a registration statement on Form S-4 with the
Securities and Exchange Commission covering up to 2,500,000 units of
limited partnership interest ("Units") to be registered under the
Securities Act of 1933, as amended (the "Act") ("Exchange Offering").
It is proposed that these units would be exchanged for units of limited
partnership interest in 23 limited partnerships (the "Exchange
Partnerships"), which directly or indirectly own equity and/or mortgage
interests in one or more residential apartment properties. The Exchange
Partnerships are managed by corporate general partners who are
affiliated with one of the founders of the Partnership, who is the sole
stockholder and director of the Managing Shareholder of the Partnership.
This registration statement was declared effective on November 9, 1999,
and the Exchange Offering commenced shortly thereafter.
The number of Units being offered in exchange for the limited
partnership interests in the Exchange Partnerships will be based on
appraisals prepared by qualified and licensed independent appraisal
firms for each underlying residential apartment property. For purposes
of the Exchange Offering, each Unit has been arbitrarily assigned an
initial value of $10, which corresponds to the offering price of each
Trust Common Share currently being offered to the public pursuant to the
Cash Offering. The value of each Unit and Common Share outstanding will
be substantially identical since Unit holders, including recipients of
Units in the Exchange Offering, will be entitled to exchange all or a
portion of their Units at any time and from time to time for an
equivalent number of Trust Common Shares, 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
shares in the Trust, subject to the Trust's right to cash out any holder
of Units who requests an exchange and subject to certain other
exceptions. To facilitate such exchanges of Units into Common Shares,
2,500,000 Common Shares (in addition to the 2,500,000 Common Shares
being offered by the Trust in the Cash Offering) have been registered
with the Commission.
F-10
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. PARTNERS' CAPITAL (Continued)
Exchange Offering (Continued)
See Note 7 regarding the completion of the Exchange Offering on April 7,
2000 under which the Operating Partnership acquired additional interests
in residential apartment properties.
As its initial investment targets in the Exchange Offering, the
Partnership is offering to acquire equity and/or subordinated mortgage
interests in 26 properties (the "Exchange Properties") directly or
indirectly owned by the 23 Exchange Partnerships. The Partnership will
acquire interests in a particular property and/or mortgages by acquiring
from limited partners their units of limited partnership interest in the
respective Exchange Partnership. Each of the Exchange Partnerships
directly or indirectly owns equity and/or mortgage interests in one or
more properties. Certain of the Exchange Partnerships directly or
indirectly own equity interests in 16 properties, which consist of an
aggregate of 1,012 residential units (comprised of studio, one, two,
three and four bedroom units). Certain of the Exchange Partnerships
directly or indirectly own mortgage interests in 10 properties, which
consist of an aggregate of 813 existing residential units (studio and
one and two bedroom units) and 168 units (two and three bedroom units)
under development. Of the Exchange Properties, 21 properties are located
in Florida, three properties in Ohio and one property each in Georgia
and Indiana.
Partnership Limited Partnership Units
In connection with the formation of the Trust and the Partnership, the
Original Investors each subscribed for 601,080 limited partnership units
of the 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 Partnership. If the Cash Offering and the
Exchange Offering are fully subscribed, those Units would represent 19%
of the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Partnership of 2,500,000 of its Units for
units of limited partnership interest in real estate limited
partnerships (including any exchange pursuant to the Exchange Offering),
calculated on a fully diluted basis assuming all then outstanding Units
(other than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares. If, however, as of May 31, 2000, the
Cash Offering and/or the Exchange Offering has been completed and the
number of Units subscribed for by each Original Investment represents a
percentage greater than 19% of the then outstanding Common Shares,
calculated on a fully diluted basis assuming that all then outstanding
Units (other than those acquired by the Trust) have been exchanged into
an equivalent number of Common Shares, each Original Investor has agreed
to return any excess Units to the Partnership for cancellation. The
Original Investors have deposited Units subscribed for by them into a
security escrow account for six to nine years, subject to earlier
release under certain conditions.
F-11
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. PARTNERS' CAPITAL (Continued)
Partnership Limited Partnership Units (Continued)
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
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 Partnership; and the founders' units
are subject to significant transfer restrictions. The 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 share on an as-converted basis. 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 participating Exchange
Partnerships; agreed to assign to the Partnership the right to receive
all residual economic rights attributable to the general partner
interests in participating Exchange Partnerships; and, in order to
permit management of the Exchange Properties by the Partnership, caused
the Exchange Partnerships to cancel the 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 Partnership
invest.
After the exchange with the limited partners and assignment of economic
rights of the general partner, the Partnership will control the
participating Exchange Partnerships by virtue of its ownership of at
least 90% of the limited partnership interests therein, which will
provide the Partnership the ability to remove the general partner under
the provisions of the limited partnership agreements that limited
partners holding over 50% of total partnership interest have the right
to remove the general partner.
Based upon the total Common Shares outstanding as of March 31, 2000, the
Original Investors would be entitled to exchange their limited
partnership units for a net amount of 162,826 Common Shares.
F-12
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. 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 months ended March 31, 2000 and 1999.
The components used in calculating basic net loss per unit are as
follows:
Weighted
Average Loss
Net Loss Units Per Unit
-------- ----- --------
Three Months Ended March 31, 2000 $( 224,886) 1,902,854 $(.12)
========= ========= =====
Three Months Ended March 31, 1999 $( 269,706) 1,720,263 $(.16)
========= ========= =====
NOTE 7. COMPLETION OF 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 2,434,274 registered Operating Partnership Units
(with an initial assigned value of $24,342,740) 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, sole stockholder and 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 partnership; 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. As a result of the foregoing, the Operating Partnership owns
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-13
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. COMPLETION OF EXCHANGE OFFERING (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.
F-14
<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.
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"). The Cash Offering is
3
<PAGE>
scheduled to terminate on May 31, 2000. The Trust has contributed and
will continue to contribute to the Operating Partnership the net cash
proceeds from the issuance of Common Shares in exchange for an
equivalent number of Operating Partnership Units. As of May 12, 2000,
the Trust had sold and/or issued to the public 699,066 Common Shares,
and the Trust intends to continue to sell Common Shares through the
termination of the Cash Offering. As of that date, the Trust owned
699,076 Operating Partnership Units, representing approximately 37 %
of the then outstanding Units.
The Trust, indirectly through the Operating Partnership, intends to
acquire, own, operate, manage and improve residential apartment
property interests for long-term ownership, and thereby to seek to
maximize current and long-term income and the value of its assets. The
Operating Partnership started acquiring interests in properties
including the entire limited partnership interests in 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) in September 1998. In July 1998 it
acquired a limited partnership interest in 13 real estate limited
partnerships managed by affiliates of Gregory K. McGrath (a founder
and Chief Executive Officer of the Trust and the Operating
Partnership).
During 1998 and 1999, the Trust acquired limited partnership interests
in Alexandria Apartments which totaled 40% as of December 31, 1999 and
remained unchanged as of March 31, 2000. The Alexandria Apartments are
a 168-unit residential apartment property under construction in
Alexandria, Kentucky. Ninety-six of the 168 residential units
(approximately 57%) have been completed as of March 31, 2000 and are
in the rent-up stage. Eighty-seven of the completed units have been
rented. The Trust has also entered into an agreement under which,
subject to certain conditions, it will acquire two residential
apartment properties (totaling 652 units) under development in
Burlington and Louisville, Kentucky upon completion of construction.
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 2,434,274 registered units of limited
partnership interest in the Operating Partnership ("Operating
Partnership Units" or "Units") (with an initial assigned value of
$24,342,740) 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 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
4
<PAGE>
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.
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.
Operations for the Quarter Ended March 31, 2000 Compared to Quarter
Ended March 31, 1999 and Consolidated Balance Sheets as of March 31,
2000 Compared to December 31, 1999
Total Assets for the Operating Partnership at March 31, 2000 were
$7,526,041, representing a 1% decrease in Total Assets of $64,726
compared to December 31, 1999. The decrease was principally due to
depreciation. Total Liabilities for the Operating Partnership at March
31, 2000 were $5,532,257, representing a 1% decrease in Total
Liabilities of $56,890 compared to December 31, 1999. This decrease
resulted principally from reductions in accounts payable. Partners'
Capital for the Operating Partnership at March 31, 2000 was
$1,993,784, representing a less than 1% decrease in Partners' Capital
of $7,836 compared to December 31, 1999. The decrease was principally
due to the net loss of $224,886 for the quarter.
Revenues for the Operating Partnership in the quarter ended March 31,
2000 were $255,368, representing a 13% decrease in Revenues of $39,592
compared to the quarter ended March 31, 1999. Real Estate Expenses for
the properties owned by the Operating Partnership in the quarter ended
March 31, 2000 were $199,516, representing a 3% decrease in Real
Estate Expenses of $5,206 compared to the quarter ended March 31,
1999. The decrease in Revenues and Real Estate Expenses was
principally due to increased equity in the loss of Alexandria
Apartments, which is accounted for on the equity method, and decreased
personnel costs, respectively. Administrative Expenses in the quarter
ended March 31, 2000 were $280,738, representing a 22 % decrease in
Administrative Expenses of $79,206 compared to the quarter ended March
31, 1999. The decrease in Administrative Expenses was principally due
to reduced personnel costs, offset by an increase in professional
services.
5
<PAGE>
Liquidity and Capital Resources
Net Cash Used by Operating Activities in the quarter ended March 31,
2000 was $118,299, representing a 45% decrease in Net Cash Used by
Operating Activities of $95,989 compared to the quarter ended March
31, 1999. The decrease in Net Cash Used by Operating Activities was
principally due to lower reductions in accounts payable and not
incurring any amounts due from Baron Capital Trust. Net Cash Used in
Investing Activities in the quarter ended March 31, 2000 was $11,566,
representing a 98% decrease in Net Cash Used by Investing Activities
of $662,948 compared to the quarter ended March 31, 1999. The decrease
in Net Cash Used by Investing Activities was principally due to
investments made in the Alexandria Apartments during the first quarter
of 1999 which were not repeated in the quarter ended March 31, 2000.
Cash Flow from Financing Activities in the quarter ended March 31,
2000 was $150,163, representing a 82% decrease in Cash Flow from
Financing Activities of $ 688,929 compared to the quarter ended March
31, 1999. The decrease in Cash Flow from Financing Activities was
principally due to reduced sales of common shares in the Trust's Cash
Offering.
The Operating Partnership expects to continue receiving Partners'
capital contributions under the Trust's Cash Offering pursuant to its
current prospectus dated June 11, 1999, as it may be amended or
supplemented, until the termination date of the offering, presently
scheduled to be May 31, 2000. As of May 12, 2000, the Operating
Partnership has received Partners' capital contributions of
$5,400,540. The Operating Partnership will use the future net cash
proceeds of the Cash Offering, unissued units of limited partnership
interest in the Operating Partnership or a combination of net cash
proceeds and unissued units to acquire interests in 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.
Because of the net losses of $2,641,250 and $1,108,870 in 1999 and
1998, respectively; the $975,305 in accounts payable owed to
professionals in connection with the Exchange Offering as of December
31, 1999, and the limited liquid resources as of December 31, 1999,
the Operating Partnership's independent auditors included an
explanatory paragraph in their auditors' report to reflect a going
concern contingency. The completion in April 2000 of the Exchange
Offering described above has, in the opinion of management, provided
the critical mass necessary for profitable operations. The Operating
Partnership is negotiating with the firms who are owed accounts
payable, and expects to receive extended payment terms and possible
reductions of the amounts due. Distributions will be made by the
Operating Partnership as cash flow allows, but will be negatively
impacted as the open accounts payable are reduced.
The Trust and the Operating Partnership intend to continue to acquire
similar property interests using proceeds from the Trust's Cash
Offering, securities of the Trust and
6
<PAGE>
the Operating Partnership, including Common Shares and Units, and
available operating cash flow and financing from other sources.
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
subordinated mortgage 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 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 which 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 which 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
7
<PAGE>
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, the Trust will
continue the Cash Offering through May 31, 2000, subject to extension,
and it will also be necessary to raise additional capital during the
12-month period following the completion of the Cash Offering 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
within the 12-month period following the completion of the Cash
Offering.
The Trust and the Operating Partnership expect no material change in
the number of employees over the next 12 months.
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 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.
8
<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 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.
9
<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.
May 19, 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
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Baron
Capital Properties, L.P.'s financial statements for the three months ended March
31, 2000 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 128,636
<SECURITIES> 0
<RECEIVABLES> 299,643
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 428,279
<PP&E> 7,504,843
<DEPRECIATION> (1,488,141)
<TOTAL-ASSETS> 7,526,041
<CURRENT-LIABILITIES> 1,174,408
<BONDS> 4,357,849
0
0
<COMMON> 0
<OTHER-SE> 1,993,784
<TOTAL-LIABILITY-AND-EQUITY> 7,526,041
<SALES> 0
<TOTAL-REVENUES> 255,368
<CGS> 0
<TOTAL-COSTS> 255,368
<OTHER-EXPENSES> 199,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (224,886)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (224,886)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
