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 quarter period ended June 30, 2002
--------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -------------------
Commission file number 000-13754
---------
MAXUS REALTY TRUST, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Missouri 43-1339136
--------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
104 Armour, North Kansas City, Missouri 64116
- --------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Trust's telephone number, including area code (816) 303-4500
---------------------
Indicate by check mark whether the Trust (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Trust was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------- -------
State the number of shares outstanding of the Trust's sole class of common
equity, $1.00 par value common stock, as of August 14, 2002: 1,224,000.
1
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXUS REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2002 December 31,
(Unaudited) 2001
ASSETS:
Investment property
Land $ 2,997,000 2,997,000
Buildings and improvements 39,212,000 39,102,000
Personal property 1,592,000 1,363,000
------------ ------------
43,801,000 43,462,000
Less accumulated depreciation (7,978,000) (7,173,000)
------------ ------------
Total investment property 35,823,000 36,289,000
Cash 984,000 884,000
Accounts receivable 436,000 397,000
Prepaid expenses and other assets 194,000 248,000
Deferred expenses, less accumulated amortization 596,000 611,000
------------ ------------
Total assets $ 38,033,000 38,429,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Mortgage notes payable $ 23,647,000 23,784,000
Line of credit 1,385,000 1,150,000
Accounts payable, prepaid rent, and accrued expenses 503,000 643,000
Real estate taxes payable 279,000 201,000
Refundable tenant deposits 244,000 235,000
------------ -----------
Total liabilities 26,058,000 26,013,000
------------ -----------
Shareholders' equity:
Common stock, $1 par value: authorized 5,000,000 shares
1,224,000 and 1,222,000 shares issued and outstanding
at June 30, 2002 and December 31, 2001, respectively 1,224,000 1,220,000
Additional paid-in-capital 17,138,000 17,087,000
Distributions in excess of accumulated earnings (6,387,000) (5,891,000)
----------- ------------
Total shareholders' equity 11,975,000 12,416,000
----------- ------------
$ 38,033,000 38,429,000
============ ============
See accompanying notes to consolidated financial statements.
3
MAXUS REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
Income
Revenues:
Rental $ 1,680,000 775,000 3,365,000 1,628,000
Other 134,000 58,000 295,000 120,000
----------- --------- ---------- ----------
Total revenues 1,814,000 833,000 3,660,000 1,748,000
----------- --------- ---------- ----------
Expenses:
Depreciation and amortization 436,000 181,000 845,000 396,000
Repairs and maintenance, including common
area maintenance 287,000 138,000 525,000 287,000
Real estate taxes 158,000 106,000 317,000 231,000
Interest 414,000 132,000 829,000 273,000
Professional fees 53,000 38,000 134,000 88,000
General and administrative 128,000 52,000 269,000 95,000
Utilities 106,000 83,000 227,000 193,000
Property management fees - related parties 99,000 31,000 178,000 62,000
Other operating expenses 123,000 31,000 221,000 52,000
---------- --------- ---------- ----------
Total expenses 1,804,000 792,000 3,545,000 1,677,000
---------- --------- ---------- ----------
Income before gain on sale 10,000 41,000 115,000 71,000
Gain on sale of Franklin Park --- 1,138,000 --- 1,138,000
---------- --------- ---------- ----------
Net income $ 10,000 1,179,000 115,000 1,209,000
========== ========= ========== ==========
Per share data (basic and diluted):
Net income before gain on sale $ .01 .04 .09 .07
Gain on sale of Franklin Park --- 1.09 --- 1.09
---------- --------- ---------- ---------
Total $ .01 1.13 .09 1.16
========== ========= ========== =========
Distributions paid in current year $ .25 .20 .50 .36
========== ========= ========== =========
Weighted average shares outstanding 1,222,000 1,040,000 1,221,000 1,040,000
=========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
4
MAXUS REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2002 2001
Cash flows from operating activities:
Net income $ 115,000 1,209,000
Adjustments to reconcile net income to net
cash used in operating activities:
Gain on sale of Franklin Park --- (1,138,000)
Depreciation and amortization 845,000 396,000
Changes in accounts affecting operations:
Accounts receivable (39,000) (17,000)
Prepaid expenses, other assets and deferred expenses 54,000 28,000
Accounts payable and other liabilities (80,000) (329,000)
Refundable tenant deposits 9,000 (6,000)
-------- ----------
Net cash provided by operating activities 904,000 143,000
-------- ----------
Cash flows from investing activities:
Capital expenditures (339,000) (510,000)
Proceeds from sale of Franklin Park, net --- 4,346,000
-------- ----------
Net cash provided by (used in) investing activities (339,000) 3,836,000
-------- ----------
Cash flows from financing activities:
Principal payments on mortgage notes payable (137,000) (446,000)
Net proceeds from line of credit 227,000 ---
Issuance of common stock 55,000 ---
Distributions paid to stockholders (610,000) (374,000)
-------- ----------
Net cash used in financing activities (465,000) (820,000)
-------- ----------
Net increase in cash 100,000 3,159,000
Cash, beginning of period 884,000 817,000
--------- ----------
Cash, end of period $ 984,000 3,976,000
========= ==========
Supplemental disclosure of cash flow information -
cash paid during the six-month period for interest $ 829,000 232,000
========= ==========
See accompanying notes to consolidated financial statements
5
MAXUS REALTY TRUST, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001
(1) Summary of Significant Accounting Policies
Refer to the financial statements of Maxus Realty Trust, Inc. (the "Trust" or
"Registrant") for the year ended December 31, 2001, which are contained in the
Trust's Annual Report on Form 10-KSB, for a description of the accounting
policies, which have been continued without change. Also, refer to the footnotes
to those statements for additional details of the Trust's financial condition.
The details in those notes have not changed except as a result of normal
transactions in the interim. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and changes in financial position
at June 30, 2002 and for all periods presented have been made. The results for
the three-month and six month periods ended June 30, 2002 are not necessarily
indicative of the results which may be expected for the entire year.
(2) Segment Reporting
The Trust has adopted SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information, which establishes standards for the way that public
business enterprises report information about operating segments in financial
statements, as well as related disclosures about products and services,
geographic areas, and major customers.
The Trust has two reportable operating segments--apartments and commercial
buildings. The Trust's management evaluates the performance of each segment
based on profit or loss from operations before allocation of general and
administrative expenses, unusual and extraordinary items, and interest. The
accounting policies of the segments are the same as those of the Trust.
Following is information for each segment for the three months ended June 30,
2002 and 2001:
Commercial Corporate
June 30, 2002 Apartments buildings and other Total
- -------------- ---------- --------- --------- ------
(in thousands)
Total revenues $ 1,230,000 584,000 --- 1,814,000
Net income (loss) (36,000) 102,000 (56,000) 10,000
Capital expenditures 186,000 --- --- 186,000
Depreciation and amortization 290,000 146,000 --- 436,000
Interest expense 306,000 108,000 --- 414,000
June 30, 2001
- -------------
Total revenues $ 152,000 665,000 16,000 833,000
Net income (loss) before
gain on sale (39,000) 96,000 (16,000) 41,000
Capital expenditures 144,000 13,000 --- 157,000
Depreciation and amortization 35,000 142,000 4,000 181,000
Interest expense 35,000 97,000 --- 132,000
6
(2) Segment Reporting - Continued
Following is information for each segment for the six months ended June 30, 2002
and 2001:
Commercial Corporate
June 30, 2002 Apartments buildings and other Total
- -------------- ---------- --------- --------- ------
(in thousands)
Total revenues $ 2,530,000 1,130,000 --- 3,660,000
Net income (loss) 61,000 201,000 (147,000) 115,000
Capital expenditures 289,000 50,000 --- 339,000
Depreciation and amortization 577,000 268,000 --- 845,000
Interest expense 616,000 213,000 --- 829,000
Assets 27,610,000 10,415,000 8,000 38,033,000
June 30, 2001
Total revenues $ 305,000 1,426,000 17,000 1,748,000
Income (loss) before gain on sale (79,000) 225,000 (75,000) 71,000
Capital expenditures 265,000 245,000 --- 510,000
Depreciation and amortization 68,000 320,000 8,000 396,000
Interest expense 73,000 200,000 --- 273,000
Assets 3,202,000 10,689,000 3,605,000 17,496,000
(3) Property Acquisitions and Disposition
Reference is made to Note 1 of Notes to Financial Statements incorporated by
reference in the Trust's Annual Report on Form 10-KSB for a description of
properties acquired and disposed of in 2001. Several properties were acquired in
2001 and one property was sold in May 2001. The table below presents the pro
forma results of operations of the Trust as if the acquisitions and sale of
investment properties had occurred at January 1, 2001 (unaudited):
Three Months Ended: Six Months Ended:
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
(actual) (actual)
Total revenue $1,814,000 1,885,000 3,660,000 3,710,000
Depreciation and amortization 436,000 426,000 845,000 849,000
Repairs and maintenance, including
common area maintenance 287,000 234,000 525,000 452,000
Real estate taxes 158,000 150,000 317,000 299,000
Interest 414,000 424,000 829,000 856,000
Property management fees 99,000 81,000 178,000 160,000
General and administrative 128,000 205,000 269,000 410,000
Other 282,000 289,000 582,000 607,000
--------- ---------- ----------- ---------
Total expenses 1,804,000 1,809,000 3,545,000 3,633,000
Net income $ 10,000 76,000 115,000 77,000
========= ========== =========== =========
Net income per share $ .01 0.07 0.09 0.07
========= ========== =========== =========
This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the transactions had actually occurred at
the beginning of 2001, and is not intended to be a projection of future results.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
This 10-QSB contains forward-looking information (as defined in the Private
Securities Litigation Reform Act of 1995) that involves risk and uncertainty,
including trends in the real estate investment market, projected leasing and
sales, and future prospects for the Trust. Actual results could differ
materially from those contemplated by such statements.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts reported in the accompanying Consolidated
Financial Statements. The most significant assumptions and estimates relate to
revenue recognition, depreciable lives of investment property and the valuation
of investment property. Application of these assumptions requires the exercise
of judgment as to future uncertainties and, as a result, actual results could
differ from these estimates.
Revenue Recognition
Lease agreements are accounted for as operating leases, and rentals from such
leases are reported as revenues ratably over the terms of the leases. The
recognition of scheduled rent increases on a straight-line basis results in
recognition of a receivable.
Investment Property Useful Lives
The Trust is required to make subjective assessments as to the useful lives of
its properties for the purposes of determining the amount of depreciation to
reflect on an annual basis with respect to those properties. These assessments
have a direct impact on the Trust's net income.
Buildings and improvements are depreciated over their estimated useful lives of
27.5 to 35 years using the straight-line method. Tenant improvements are
depreciated over the term of the lease on a straight-line basis. Personal
property is depreciated over its estimated useful life ranging from 5 to 7 years
using the straight-line method.
Impairment of Investment Property Values
The Trust is required to make subjective assessments as to whether there are
impairments in the value of its investment properties. Management's estimates of
impairment in the value of investment properties have a direct impact on the
Trust's net income.
Effective January 1, 2002, the Trust applies Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, for the recognition and measurement of impairment of
long-lived assets to be held and used and assets to be disposed of. Management
reviews each property for impairment whenever events or changes in circumstances
indicate that the carrying value of a property may not be recoverable.
DESCRIPTION OF BUSINESS
The Trust invests in income-producing real properties, primarily apartments and
commercial buildings. The Trust's portfolio is comprised of:
SQUARE
FEET/
PROPERTY # UNITS TYPE LOCATION PURCHASE DATE
Atrium Business Center 89,000 Multi-Tenant Bloomington, MN March, 1985
(the "Atrium") Office
Applied Communications, Inc. 70,000 Single Tenant Omaha, NE January, 1986
("ACI") Office
8
Forest Park Apartments 110 Apartments Kansas City, MO August, 2000
("Forest Park")
(f.k.a. North Winn)
King's Court Apartments 82 Apartments Olathe, KS August, 2001
N/A
("King's Court")
Chalet Apartments - I and II 234 Apartments Topeka, KS September, 2001
("Chalet")
The Landings Apartments 154 Apartments Little Rock, AR September, 2001
(the "Landings")
Barrington Hills Apartments 232 Apartments Little Rock, AR November, 2001
("Barrington Hills")
Forest Park, the Landings, Chalet and Barrington Hills are owned by the
following limited liability companies that are directly owned by the Registrant:
North Winn Acquisition, L.L.C., Landings Acquisition, L.L.C., Chalet I
Acquisition, L.L.C., Chalet II Acquisition, L.L.C. and Barrington Hills
Acquisition, L.L.C.
Maxus Properties, Inc., an affiliate of the Registrant, provides property
management services for each of the Trust's real properties.
LIQUIDITY AND CAPITAL RESOURCES
Cash on hand as of June 30, 2002, was $984,000, an increase of $100,000 from
December 31, 2001. Net cash provided by operating activities increased $761,000
to $904,000 for the six-month period ended June 30, 2002 as compared to the
six-month period ended June 30, 2001, due principally to higher net income in
2002 which also reflected higher noncash depreciation expense. Net cash used in
investing activities was $339,000 for capital expenditures. Net cash used in
financing activities was $465,000, including distributions paid totaling
$610,000.
Contractual Obligations and Commercial Commitments
Balance at Interest Due
June 30, 2002 Rate
The Atrium* $ 1,385,000 4.75% November, 2002
ACI $ 4,219,000 8.63% August 1, 2010
Forest Park $ 1,941,000 4.91% September 1, 2007
King's Court $ 2,209,000 5.69% November 1, 2026
Chalet I $ 4,069,000 6.59% October 1, 2008
Chalet II $ 1,535,000 6.535% October 1, 2008
9
The Landings $ 3,803,000 7.66% September 1, 2007
Barrington Hills $ 5,871,000 6.035% July 1, 2029
-----------
Total $ 25,032,000
===========
* The line of credit secured by the Atrium is due November 2002. The available
balance on the line of credit is $165,000. Management expects to examine the
options available at the time of expiration and either pay down the line of
credit before November 2002 or extend the terms of the line of credit, as
appropriate. Management does not anticipate difficulty in extending the terms of
the line of credit if appropriate.
Reference is also made to Note 2 of Notes to Financial Statements incorporated
by reference in the Trust's Annual Report on Form 10-KSB for a description of
mortgage indebtedness secured by the Trust's real property investments. The
Trust does not utilize any off balance sheet financing or leasing transactions
of any kind.
Management believes the Trust's current cash position and the properties'
ability to provide operating cash flow should enable the Trust to fund
anticipated operating and capital expenditures in 2002. At Barrington Hills, the
Trust anticipates capital expenditures of approximately $300,000 in connection
with a fire in 2001, and has incurred substantially all of these costs through
June 30, 2002. This amount has been reimbursed by insurance proceeds. The Atrium
was 76% occupied at June 30, 2002. If occupancy increases, or tenants renew
their leases, which expire in 2002, the Trust could incur material tenant
improvement costs during 2002. Except for the items mentioned, management does
not anticipate any material capital operating expenditures in 2002. However, the
Trust will continue to evaluate opportunities for the acquisition of investment
properties and may incur material capital expenditures in connection with these
acquisition opportunities.
Effective January 1, 2002, the lease with the tenant occupying 100% of the ACI
building was amended and the tenant now provides or contracts for operation and
management of the premises and is responsible for payment of all operating and
utility expenses. The Trust is no longer responsible for these expenses,
resulting in a decrease in expenses. In addition, rental rates have been
decreased in an amount approximately equal to the decrease in anticipated
expenses. In 2002, rent from the ACI building will decrease by approximately
$171,000 due to the lease amendment.
Management does not believe the risk of changes in operations that would
adversely impact cash flow from operating activities is a material risk. As
leases expire, they are expected to be replaced or renewed in the normal course
of business over a reasonable period of time. The Atrium has leases that expire
in 2002 for 17,000 square feet and $298,000 in revenue and leases that expire in
2003 for 29,000 square feet and $536,000 in revenue.
The Board of Trustees voted to approve the listing of the Atrium, and
subsequently a listing agreement was entered into on the Atrium. The current
market may not support the listing price, and no guarantee can be made as to
whether or not the sale of this asset will occur in the near future.
Insurance
Industry wide, insurance rates continue to rise. The Trust expects increases on
all renewals of insurance as they come due, due to a continuing tightening of
risk underwriting. Upon renewal of their insurance policies in 2002, Forest Park
had an increase of 20%, and King's Court had an increase of 14%. Chalet,
Barrington Hills, Landings, Kings Court and Forest Park all have insurance
policies that will be renewed in the third quarter of 2002. ACI and the Atrium
have insurance that will be renewed in the fourth quarter of 2002.
RESULTS OF OPERATIONS
The results of operations for the Trust's properties for the three and six
months ended June 30, 2002 and 2001 are detailed in the schedule below.
10
Funds from Operations
The white paper on Funds from Operations approved by the board of governors of
NAREIT defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures are calculated to reflect Funds from Operations on the same
basis. In 1999, NAREIT clarified the definition of Funds from Operations to
include non-recurring events, except for those that are defined as
"extraordinary items" under GAAP and gains and losses from sales of depreciable
operating property. In 2002, NAREIT clarified that Funds from Operations related
to assets held for sale, sold or otherwise transferred and included in results
of discontinued operations should continue to be included in consolidated Funds
from Operations.
The Trust computes Funds from Operations in accordance with the guidelines
established by the white paper, which may differ from the methodology for
calculating Funds from Operations utilized by other equity REITs, and,
accordingly, may not be comparable to such other REITs. Funds from Operations do
not represent amounts available for management's discretionary use because of
needed capital replacement or expansion, debt service obligations, distributions
or other commitments and uncertainties. Funds from Operations should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Trust's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Trust's liquidity, nor is it indicative of funds available to fund the Trust's
cash needs including its ability to make distributions. The Trust believes Funds
from Operations is helpful to investors as a measure of the performance of the
Trust because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an understanding
of the ability of the Trust to incur and service debt and make capital
expenditures. In the table below, Revenue, Expenses, Net Income and Depreciation
and Amortization were determined in accordance with GAAP. The addition of
Depreciation and Amortization to Net Income results in Funds from Operations,
which is not determined in accordance with GAAP. Administrative expenses and
income of the Parent are excluded.
Funds from Operations
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
Revenue $ 1,814,000 817,000 3,660,000 1,731,000
Expenses 1,748,000 760,000 3,398,000 1,585,000
--------- -------- --------- ---------
Net Income before gain on sale 66,000 57,000 262,000 146,000
Depreciation and Amortization 436,000 177,000 845,000 388,000
--------- -------- --------- ---------
Funds from Operations $ 502,000 234,000 1,107,000 534,000
========= ======== ========= =========
Comparison of Consolidated Results
For the three and six month periods ended June 30, 2002 the Trust's consolidated
revenues were $1,814,000 and $3,660,000, respectively. Revenues increased
$981,000 (117.8%) and $1,912,000 (109.4%) for the three and six-month periods
ended June 30, 2002 as compared to the same periods ended June 30, 2001. The
increase in consolidated revenue is attributable to the additions of King's
Court, the Landings, Chalet and Barrington Hills, contributing $164,000,
$244,000, $359,000 and $279,000, respectively in revenue for the three month
period ending June 30, 2002 and $316,000, $484,000, $717,000 and $655,000,
respectively for the six month period ended June 30, 2002. The increase in
consolidated revenue was offset by a decrease in revenue for the three and six
month periods ended June 30, 2002 of $21,000 and $128,000, respectively, due to
the sale of Franklin Park in May 2001 and a net decrease in revenues of $30,000
for the three month period and $116,000 for the six month period, respectively
at the ACI building, the Atrium and Forest Park; with $68,000 and $137,000 of
this net decrease for the three and six month periods ended June 30, 2002 the
result of the lease amendment at the ACI building in January of 2002. Under the
new lease the tenant now provides or contracts for operation and management of
the premises and is responsible for payment of all operating and utility
expenses. In addition, rental rates have been decreased in an amount
approximately equal to the decrease in anticipated expenses.
11
For the three and six month periods ended June 30, 2002 the Trust's consolidated
expenses were $1,804,000 and $3,545,000, respectively. Expenses increased
$1,012,000 (127.7%) and $1,868,000 (111.4%) for the three and six-month periods
ended June 30, 2002 as compared to the same periods ended June 30, 2001. The
increase in consolidated expenses is attributable to the additions of King's
Court, the Landings, Chalet and Barrington Hills, resulting in $151,000,
$259,000, $359,000 and $362,000, respectively in expenses for the three-month
period ended June 30, 2002 and $293,000, $483,000, $682,000 and $696,000,
respectively in expenses for the six month periods ended June 30, 2002. This
increase was offset by a decrease in expenses for the three and six month
periods ended June 30, 2002 of $47,000 and $145,000, respectively, due to the
sale of Franklin Park and a decrease of $73,000 for the three month period, and
$198,000 for the six month period, in total expenses at the ACI building, the
Atrium and Forest Park due primarily to the change in lease on ACI mentioned
above, offset by an increase in professional fees of $53,000 for the six month
period ended June 30, 2002.
The net income for the three and six month periods ended June 30, 2002 was
$10,000 or $.01 per share and $115,000 or $.09 per share, respectively. The net
income for the three and six month periods ended June 30, 2001 was $1,179,000 or
$1.13 per share and $1,209,000 or $1.16 per share, each of which included
$1,138,000 or $1.09 per share due to the gain on sale of Franklin Park.
Cash flow provided by operating activities was $904,000 for the six-month period
ended June 30, 2002 compared to $143,000 in 2001. The increase in cash flow
provided by operating activities was due primarily to an increase in net income
(before gain on sale) of $173,000 along with an increase in non-cash expenses of
depreciation and amortization of $449,000. Cash flow used in investing
activities was $339,000 for the six-month period ended June 30, 2002 compared to
cash provided by investing activities of $3,836,000 in 2001. The decrease in
cash flow used in investing activities was due primarily to the proceeds from
the sale of Franklin Park in May 2001 of $4,346,000, offset by a decrease in
capital expenditures of $171,000. The 2001 capital expenditures were related to
tenant improvements at the ACI building, which were completed and paid in 2001.
Cash flow used in financing activities was $465,000 for the six-month period
ended June 30, 2002 compared to $820,000 in 2001. The cash flow used in
financing activities primarily consisted of the distributions of $.25 per share
($610,000) paid in March and June 2002, offset by net proceeds from the line of
credit of $227,000.
Occupancy
The occupancy levels at June 30 were as follows:
OCCUPANCY LEVELS AT JUNE 30,
2002 2001
The Atrium 76% 86%
ACI 100% 100%
Forest Park 99% 91%
King's Court 96% N/A
Chalet 94% N/A
The Landings 94% N/A
Barrington Hills 87% N/A
During the quarter ended June 30, 2002, the occupancy level at the Atrium
increased from 74% at December 31, 2001 to 76%. No tenants renewed their leases.
One tenant moved in which occupied 2,340 square feet. One tenant occupying 2,774
square feet vacated during the quarter ended June 30, 2002. The property has one
major tenant occupying 16% of the building. The lease for this tenant expires in
December 2003.
The ACI building has a single tenant occupying 100% of the building. The lease
was amended effective January 1, 2002 and expires in August 2008.
12
CONTINGENCIES
The Trust's multi-tenant office building located in Bloomington, Minnesota has
been classified in the Minneapolis Airport Commission's (the "MAC") Safety Zone
A in the expansion of the Minneapolis Airport. The expansion runway is
anticipated to be completed in late 2004. The MAC began buying out impacted
buildings during 1999. Safety Zone A is adjacent to the Federal Aviation
Authority's runway protection zone. The Trust will monitor the increased noise
from the new runway to determine any impact on future leasing of the building.
If the Trust determines there is a negative impact, the Trust intends to
petition the MAC to buy the building.
If the building continues to be classified in Safety Zone A, it would currently
be classified as nonconforming use. However, the MAC, along with the City of
Bloomington is petitioning the state to lessen the current restrictions in
Safety Zone A. If the MAC is successful, the Trust's building would continue to
be classified as conforming use. Given the preliminary state of the expansion
and the petition, management is unable at this time to determine what impact, if
any, this matter will have on the Trust. However, new regulations should be
available in draft form for review by the Trust in the coming months.
MARKET RISK
The Trust has considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". The Trust had
no holdings of derivative financial or commodity instruments at June 30, 2002.
The Trust does not believe that it has any material exposure to interest rate
risk. The debt on the ACI building is at a fixed rated of 8.63% and matures in
2010; the debt on King's Court is at a fixed rate of 5.69% and matures in 2026;
the debt on the Landings is at a fixed rate of 7.66% and matures in 2007; the
debt on Chalet is at fixed rates of 6.59% and 6.535% and matures in 2008; and
the debt on Barrington Hills is at a fixed rate of 6.035%, is repriced in 2009
and matures in 2029. The debt on Forest Park and the line of credit are each
variable. The current interest rates on Forest Park and the line of credit are
4.91% and 4.75%, respectively. The debt on Forest Park matures in 2007 and the
line of credit matures in November 2002. Management expects to examine the
options available as November approaches with regard to the line of credit.
Management does not anticipate difficulty in extending the terms of the line of
credit if appropriate. A 100 basis point increase in the variable rate debt on
an annual basis would impact net income by approximately $33,000.
INFLATION
The effects of inflation did not have a material impact upon the Trust's
operations in the periods ended June 30, 2001, or in fiscal 2000.
(The remainder of this page left blank intentionally.)
13
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 2002, the Trust held its Annual Meeting of Shareholders.
At the meeting, the only matter voted upon was the election of seven
trustees to serve as the Trust's Board of Trustees. The following
individuals were the nominees of management voted upon and elected by
the shareholders of the Trust at the meeting: David L. Johnson, Monte
McDowell, Danley K. Sheldon, Robert B. Thomson, Steven Rosenberg,
Chris Garlich and W. Robert Kohorst. There were 866,424 votes "for"
Mr. Johnson and 0 votes "withheld." There were 866,312 votes "for"
Mr. McDowell and 0 votes "withheld." There were 866,224 votes "for"
Mr. Sheldon and 0 votes "withheld." There were 866,424 votes "for"
Mr. Thomson and 0 votes "withheld." There were 866,424 votes "for"
Mr. Rosenberg and 0 votes "withheld." There were 866,424 votes "for"
Mr. Garlich and 0 votes "withheld." There were 866,424 votes "for"
Mr. Kohorst and 0 votes "withheld."
ITEM 5. OTHER INFORMATION
On August 8, 2002,the Board of Trustees of the Trust declared a cash
dividend of $0.25 per share payable to the holders of record on
August 31, 2002 of the Trust's $1.00 par value, common stock. The
Board anticipates that the dividend will be paid on September 20,
2002. The Trust's Board of Trustees has reinstated the quarterly cash
dividend and anticipates declaring a $.25 per share cash dividend
each quarter, at least in the near future.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibits Index on Page 16
(b) Reports on Form 8-K
None
14
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Trust has duly caused this report to be signed on its behalf by the undersigned,
there unto duly authorized.
MAXUS REALTY TRUST, INC.
Date: August 14, 2002 By: /s/ Danley K. Sheldon
-----------------
Danley K. Sheldon
President
Chief Executive Officer
By: /s/ John W. Alvey
-----------------
John W. Alvey
Vice President
Chief Financial and Accounting Officer
15
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Incorporation dated June 12, 1984, as amended, are
incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, as filed pursuant to Rule 13a-13 under the Securities
Exchange Act of 1934 (File No. 000-13754).
3.2 Bylaws of the Registrant, as amended, are incorporated by
reference to Exhibit 3.2, to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000, as
filed pursuant to Rule 13a-13 under the Securities Exchange Act
of 1934 (File No. 000-13754).
99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
16