UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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 0-15465
Banyan Strategic Realty Trust
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 36-3375345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2625 Butterfield Road, Suite 101N
Oak Brook, IL 60523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (630) 218-7250
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest
(Title of Class)
Indicate by check mark whether the Registrant (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
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [ X ]. NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Shares of beneficial interest outstanding as of February 28, 2002:
15,496,806. The aggregate market value of the Registrant's shares of
beneficial interest held by non-affiliates on such date was $7,025,000.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index located on page 58 of sequentially numbered pages.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . 5
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND
RELATED SHAREHOLDER MATTERS. . . . . . . . . . . . . 9
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . 46
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . 46
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . 48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . 54
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS . . . . . . . . . . . . . . . . 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 56
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 57
PART I
ITEM 1. BUSINESS
Certain statements in this Annual Report that are not historical in
fact constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are
based on our current expectations, estimates and projections. These
statements are not a guaranty of future performance. Without limiting the
foregoing, words such as "believes," "intends," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements
which are subject to a number of risks and uncertainties, including, among
other things:
. general real estate investment risks;
. resolution of existing litigation;
. inability to collect interest and principal on notes
receivable;
. condition of the United States economy in general and its
impact on real estate operations and values in particular;
. political instability and the costs resulting therefrom,
particularly in light of the events of September 11, 2001;
. failure to sell our remaining properties on terms beneficial
to the Trust, if at all;
. potential inadequacy of our cash reserves;
. increases in interest rates;
. adverse consequences of failure to qualify as a REIT;
. possible environmental liabilities;
. potential delisting of our shares by Nasdaq; and
. failure or inability to comply with or effectuate the Plan
of Termination and Liquidation.
Actual results could differ materially from those projected in these
forward-looking statements. See "Managements's Discussion and Analysis of
Financial Condition and Results of Operations -Risk Factors" for a more
complete discussion.
GENERAL
We are a self-administered infinite life real estate investment trust
("REIT"), organized as a Massachusetts business trust. On January 5, 2001,
we adopted a Plan of Termination and Liquidation (the "Plan")under which
our Trust will be dissolved, the obligations of the Trust will be paid,
appropriate reserves will be taken and the net proceeds will be distributed
to our shareholders.
On May 17, 2001, we sold 24 of our 27 properties (representing 85% of
our portfolio) to affiliates of Denholtz Management Corporation
("Denholtz") for a total sales price of $185.25 million, of which $3
million was in the form of unsecured promissory notes and the remainder was
in cash, pursuant to a Purchase and Sale Agreement dated January 8, 2001 as
amended on March 30, 2001, April 9, 2001 and May 11, 2001 (the "Purchase
and Sale Agreement"). The notes bear interest at 12 percent per annum,
require monthly payment of interest only and mature on June 30, 2002. As
of December 31, 2001, Denholtz has repaid approximately $0.7 million of
principal on the notes. In addition, Denholtz paid the cost of all
prepayment penalties and assumption fees related to the Trust's mortgage
debt on the properties purchased. The Trust realized net gains on
disposition of investment in real estate (net of minority interest of
approximately $6.4 million) of approximately $25.8 million.
The following table shows cash flows for the year ended December 31,
2001.
(in thousands)
Gross sales proceeds $ 185,250
Repayment of mortgage loans payable (93,061)
Closing prorations and closing costs (4,850)
Purchase money notes (3,000)
----------
Net proceeds from sale 84,339
Release of restricted cash upon repayment
of debt 2,345
Escrow for post closing adjustments (1,500)
Distributions to minority interests (8,698)
Liquidating distributions to
shareholders at $4.95 per share (76,708)
Receipt of principal and interest
on employees' notes 2,867
Receipt of principal on notes receivables 736
Receipt of forfeited earnest money 1,000
----------
Net cash available from sale of
properties and related transactions 4,381
Increase in operating cash (net of
distribution to minority interest
of $422 and other distributions to
shareholders of $610) 719
----------
Net change in cash and
cash equivalents 5,100
Cash and cash equivalents as of
January 1, 2001 2,393
----------
Cash and cash equivalents as of
December 31, 2001 $ 7,493
==========
As of December 31, 2001, we owned interests in three properties:
University Square Business Center in Huntsville, Alabama, 6901 Riverport
Drive in Louisville, Kentucky and Northlake Tower Shopping Center in
Atlanta, Georgia. Subsequent to the first closing and prior to December 3,
2001, in accordance with the Purchase and Sale Agreement, we were
contractually obliged to sell University Square Business Center to Denholtz
and were permitted to sell the Riverport property and the Northlake Tower
Shopping Center to third parties or to "put" these properties to Denholtz
at agreed upon prices. The sum of $1 million was held in escrow to secure
Denholtz's performance under these deferred closings.
On December 3, 2001, Denholtz notified us in writing that it no longer
intended to acquire University Square as required under the contract and we
received $1 million in forfeited earnest money that was recorded as income
in the fourth quarter. The forfeiture of the University Square earnest
money also extinguished our right to "put" our other two properties to
Denholtz. We are currently marketing all three properties for sale and hope
to dispose of them before the end of 2002. On February 19, 2002, we
executed a contract to sell our Riverport property and on March 1, 2002, we
executed a contract to sell our University Square property (see discussion
below). We continue to manage these properties in order to maximize their
value for our shareholders. Since the adoption of our Plan of Termination
and Liquidation, the condition of the United States economy in general and
the real estate markets in which our properties are located, in particular,
has weakened. Accordingly, there can be no assurance, in light of these
unforeseen market developments, that we will be able to complete our Plan
of Termination and Liquidation within the time period previously projected
or that we will achieve sales prices for our properties sufficient to allow
us to make distributions in the amount previously anticipated.
On February 21, 2002, we signed a contract to sell our Riverport
property for a gross purchase price of $6.05 million. The purchaser under
the contract is an entity to be formed by Daniel Smith. Mr. Smith, or
entities owned or controlled by him, was a joint venture partner with us on
our Woodcrest property and also managed our Commerce Center and Fountain
Square properties. The contract is subject to a 60-day inspection period
during which the purchaser can terminate the contract without penalty. The
purchaser can also terminate the contract if he is unable to obtain, within
sixty days, suitable financing for the purchase. If the sale is
consummated, we expect to realize net sales proceeds of approximately $2.15
million in the second quarter of 2002.
On March 1, 2002, we signed a contract to sell our University Square
property for a gross purchase price of $8.45 million. The purchaser under
the contract is USBC, LLC, an Alabama limited liability company, whose
principals include Alan C. Jenkins and Joel L. Teglia. Mr. Jenkins is a
principal in Inter South Properties, Inc., the current manager of the
University Square property. Mr. Teglia is our Executive Vice President and
Chief Financial Officer. Mr. Teglia recused himself from all of our
deliberations regarding the sale of University Square. The contract is
subject to a 60-day financing period during which the purchaser can
terminate the contract without penalty if it is unable to obtain approval
to assume the existing first mortgage financing. If the purchaser is
unable to obtain the requisite approval within 60 days, it can, at its
option, request an additional 30 days to meet this condition. If the
purchaser is unable to obtain approval, it has the right to cancel the
contract without penalty. If the sale is consummated, we expect to realize
net sales proceeds of approximately $3.7 million in the second quarter of
2002.
On March 14, 2002, we acquired the interests of our partner, M & J
Wilkow, Ltd., in our Northlake Tower Shopping Center property for a gross
purchase price of $1.3 million. Prior to sale, M & J Wilkow had an 18.1%
interest in the property's cash flow and a 28.1% interest in its capital
proceeds.
BUSINESS
Although we are currently operating in accordance with our Plan of
Termination and Liquidation and are working to complete the sale of our
remaining real estate assets, we continue to focus on maintaining the value
of our portfolio. In order to do so, we seek to manage carefully our
assets to maximize the cash flow generated by, and the long term value of,
our properties. To achieve this objective, we develop an annual operating
plan for each property which focuses on increasing property revenue
through:
. increased occupancy and/or higher rents;
. negotiating leases containing base rental increases;
. emphasizing tenant satisfaction; and
. controlling operating expenses.
In addition to our real estate operations, we are also involved in
litigation with our president, Mr. Leonard G. Levine, whom we placed on
suspension and leave as of August 14, 2000. The litigation will determine
whether we acted within our legal rights when we placed Mr. Levine on
suspension and leave, pending a determination that we have and had just
cause for terminating his employment. Please refer to "Item 3 - LEGAL
PROCEEDINGS" below for details regarding this litigation.
On November 30, 2001, we announced that our Board of Trustees had
determined that pursuit of our pending litigation against Mr. Levine will
be the primary focus of our liquidation strategy going forward. A trial is
anticipated in the fourth quarter of 2002 or the first quarter of 2003.
Including costs, fees and potential damages, the suit and Mr. Levine's
counterclaim involve more than $2 million. In view of the amounts at stake
in the Levine litigation, and based upon our assessment of the likelihood
of success, our Board has determined to postpone complete dissolution of
the Trust until after the litigation has run its course. We believe the
adoption of this strategy allows our shareholders to obtain the full
benefit of the anticipated result of this litigation and may have the added
value of allowing the real estate markets to recover as we await the
outcome. We intend to continue our policy of making liquidating
distributions when, and as often as, circumstances permit.
OTHER INFORMATION
Our business and real estate property operations are not seasonal and
they compete on the basis of rental rates and property operations with
similar types of properties in the vicinities in which our properties are
located.
We have no real property investments located outside of the United
States. We do not segregate revenue or assets by geographic region, since,
in management's view, such a presentation would not be significant to an
understanding of our business or financial results taken as a whole.
We have nine employees, four of whom serve as executive officers.
We review and monitor compliance with federal, state and local
provisions which have been enacted or adopted regulating the discharge of
material into the environment, or otherwise relating to the protection of
the environment. For the year ended December 31, 2001, we did not incur
any material capital expenditures for environmental control facilities nor
do we anticipate making any such expenditures for the year ending
December 31, 2002.
<table>
ITEM 2. PROPERTIES
As of December 31, 2001, we owned interests, directly or indirectly through our wholly owned subsidiaries, in
the properties set forth in the table below:
<caption>
BANYAN STRATEGIC REALTY TRUST
PORTFOLIO SUMMARY
December 31, 2001
Scheduled Lease
Expirations
Occu- ----------------------------------
Date Square pancy After
Acquired Footage % 2002 2003 2004 2004 Description (a)
-------- ------- ----- ----- ---- ---- ----- ---------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
FLEX/INDUSTRIAL
- ---------------
6901 Riverport Leasehold interest
Drive pursuant to bond
Louisville, KY 11/19/96 322,100 55% 0% 0% 55% 0% financing and owner-
ship of improvements
OFFICE
- ------
University Square Fee ownership of
Business Center land and improve-
Huntsville, AL 8/26/97 184,700 88% 25% 9% 26% 28% ments
RETAIL
- ------
Leasehold interest
pursuant to a ground
lease and ownership of
Northlake improvements (through
Tower Shopping a 1% General and 80.9%
Center Limited Partner
Atlanta, GA 7/28/95 321,600 97% 7% 14% 11% 65% interest) in a joint
------- ---- ---- ---- ---- ---- venture (b) (c)
Portfolio
Total 828,400 79% 8% 7% 31% 33%
======= ==== ==== ==== ==== ====
<fn>
- --------------------
(a) Reference is made to Schedule III "Consolidated Real Estate and Accumulated Depreciation" filed with this
annual report for additional description of these real property investments.
(b) In all of our partnerships, we are the managing general partner and retain sole authority over all
significant decisions.
(c) The stated percentages represent our voting rights, not necessarily the economics of the venture. According
to the partnership agreement, prior to distributing cash flow from operations, our 80.9% and 1% partnership
interests receive an annual 12% preferred return on their respective net capital contributed to the
partnership. Then, our joint venture partner receives a 12% preferred return on the net capital which it
has contributed. Then, cash flow from operations is distributed pro-rata based on each partner's respective
ownership interest. Cash proceeds from either the sale or refinancing of the partnership property will be
used: (i) to pay any of our unpaid preferred returns; (ii) to return net capital contributed by all
partners; (iii) to pay any of the venture partner's unpaid preferred returns and (iv) to distribute the
remaining cash based on ownership interests until we have received an overall return of 15% on our invested
capital. Then, we will receive 71.9% of the excess cash and the balance will be paid to the joint venture
partner.
</table>
ITEM 3. LEGAL PROCEEDINGS
On August 14, 2000, the Trust exercised its rights under the Trust's
employment agreement with Mr. Leonard G. Levine by suspending him and
placing him on leave from his position as president. Simultaneously, the
Trust initiated an arbitration proceeding as required under the employment
agreement. On October 5, 2000, Mr. Levine filed an action in the Circuit
Court of Cook County, Illinois asking the court to terminate the
arbitration proceedings by reason of improper forum. On October 18, 2000,
the Trust filed a lawsuit against Mr. Levine in the Circuit Court of Cook
County, Illinois. The Trust's complaint alleges violations of Mr. Levine's
duty of loyalty owed to the Trust.
On December 6, 2000, Mr. Levine and the Trust, through their
respective attorneys, agreed to dismiss the arbitration action and Mr.
Levine's lawsuit challenging the arbitration and further agreed to resolve
all issues under Mr. Levine's employment contract within the Trust's
lawsuit against Mr. Levine in the Circuit Court of Cook County (the
"Employment Litigation").
On January 19, 2001, Mr. Levine filed an answer, affirmative defenses
and counterclaim in the Employment Litigation. The pleading generally
denies that Mr. Levine breached his fiduciary duties, raises various
defenses and seeks a judgment in favor of Mr. Levine and against the Trust
on the counterclaim for money damages and also seeks a reinstatement to
active employment status. Discovery in this case has commenced and is
continuing.
On May 2, 2001, Mr. Levine presented a motion for partial judgment on
the pleadings, which was denied at a hearing on July 19, 2001. The Trust
filed a Third Amended Complaint on September 6, 2001, seeking, among other
things, $300,000 in compensatory damages and $3 million in punitive damages
against Mr. Levine in connection with various alleged breaches of fiduciary
duty. The factual bases underlying the Third Amended Complaint include
allegations that (i) Mr Levine caused the Trust to pay on his account or
reimburse him for expenses that were not reasonable, ordinary and necessary
business expenses; (ii) during negotiations between the Trust and The Oak
Realty Group, Inc. (an entity solely owned by Mr. Levine) Mr. Levine
attempted to pressure the Trust into accepting Oak's offer to acquire the
Trust by revealing to one of the trustees that Oak had entered into certain
confidentiality and exclusivity agreements which had the effect of
excluding potential purchasers and/or capital providers from purchasing or
providing financing to a potential purchaser of the Trust, except through
Oak; (iii) Mr. Levine's failure to disclose to our Board of Trustees a
prior pattern and practice of obtaining unauthorized expense reimbursements
allows the Board to rescind Mr. Levine's 1999 Employment Contract and
legally estops Mr. Levine from obtaining any benefits under that contract
and (iv) Mr. Levine's prosecution of a shareholder derivative action from
January to April of 2001, which action was resolved by summary judgment in
favor of the Trust, amounts to a separate breach of fiduciary duty by
Mr. Levine. Mr. Levine has answered all counts.
On May 7, 2001, the Trust amended its answer to Mr. Levine's
counterclaim in the Employment Litigation to add several affirmative
defenses based upon Mr. Levine's breaches of his fiduciary duty of loyalty.
The maximum potential liability in connection with Mr. Levine's contract
(inclusive of incentives but exclusive of base salary) is estimated to be
approximately $1.8 million. During the pendency of the litigation, we
continue to pay a base salary to Mr. Levine. We are seeking recovery of
these payments, among other recoveries, in the litigation.
A case management conference in the Employment Litigation was held on
October 18, 2001. Judge Richard A. Siebel of the Circuit Court of Cook
County ordered: (i) all written fact discovery must be concluded by
January 31, 2002; (ii) all non-expert depositions must be concluded by
April 30, 2002; and (iii) a further status hearing for the purpose of
setting a date for the close of discovery will be held on May 17, 2002.
Judge Siebel's October 18, 2001 scheduling order was modified as a result
of a motion brought by Mr. Levine on January 31, 2002. The revised
schedule calls for: (i) the conclusion of all written fact discovery by
March 31, 2002; (ii) the conclusion of all non-expert depositions by June
30, 2002; and (iii) a further status hearing on May 17, 2002.
On December 17, 2001, we filed a motion for partial summary judgment
in the Employment Litigation. This motion seeks a ruling by the court that
the Trust had "just cause" to terminate Mr. Levine's employment contract at
the time we placed Mr. Levine on suspension on August 14, 2000. The motion
is currently being briefed by the parties and is scheduled for hearing on
April 4, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust held its 2000 Meeting of Shareholders on January 30, 2002.
There were two proposals considered at the Meeting:
PROPOSAL #1 was to elect four trustees;
PROPOSAL #2 was to ratify the selection of Ernst & Young, LLP as our
independent accountants for 2001;
PROPOSAL #1
FOR WITHHELD
---------- --------
SLATE OF TRUSTEES ELECTED
Walter E. Auch, Sr. 10,841,958 96,988
Daniel Levinson 10,857,992 80,954
Stephen M. Peck 10,859,178 79,768
L.G. Schafran 10,853,135 85,811
(All elected)
FOR AGAINST ABSTAIN
---------- ------- -------
PROPOSAL #2 10,821,586 60,885 56,475
(Carried)
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES AND RELATED SHAREHOLDER MATTERS
Our shares are included for quotation on the NASDAQ National Market
(symbol - BSRTS). On February 14, 2002, we were notified by Nasdaq that
because our shares of beneficial interest had traded below the minimum of
$1.00 per share for the prior thirty consecutive trading days, we now face
delisting if the bid price of our shares of beneficial interest does not
close at $1.00 or more per share for ten or more consecutive trading days
between February 14, 2002 and May 15, 2002. Our shares would be delisted,
subject to our right of appeal. We are currently looking into alternatives
in order to provide a market for the exchange of our shares.
The table below shows the quarterly high and low bid prices reported
by NASDAQ and the amount of cash distributions we paid per share for the
years ended December 31, 2001 and 2000.
2001
----
Quarter Share Per Share Declaration
Ended Price Distributions Date
- ------- ----- ------------- -----------
3/31 High $5.94 $ --
Low $5.31
6/30 High $5.85 $4.75 5/30/01
Low $1.04
9/30 High $1.19 $0.20 9/13/01
Low $0.91
12/31 High $1.04 $ --
Low $0.59
2000
----
Quarter Share Per Share Declaration
Ended Price Distributions Date
- ------- ----- ------------- -----------
3/31 High $6.00 $0.12 4/5/00
Low $5.25
6/30 High $6.06 $0.12 7/14/00
Low $5.13
9/30 High $6.00 $0.12 10/16/00
Low $5.06
12/31 High $5.75 $0.03 1/19/01
Low $5.13
During 2001 and 2000, we paid distributions to common shareholders
equal to $4.98 and $0.48 per share, respectively. All of 2001
distributions and a total of $0.12 per share in 2000 represented a return
of capital to common shareholders. During 2001 and 2000, we also paid
distributions to preferred shareholders of $2.93 and $9.51 per share,
respectively.
Our ability to make future distributions to our shareholders is
dependent upon, among other things:
. the timing of and our success in completing the sale of our
real estate assets pursuant to our Plan of Termination and
Liquidation.
. resolution of existing litigation;
. sustaining the operating performance of our existing real
estate investments through scheduled increases in base rents
under existing leases and through general improvement in the
real estate markets where our properties are located; and
. our level of operating expenses;
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors" for a more complete discussion.
As of February 28, 2002, there were 3,032 record holders of shares of
beneficial interest.
<table>
ITEM 6. SELECTED FINANCIAL DATA (1)
<caption>
For the years ended December 31,
--------------------------------------------------------------------
2001 (2) 2000 1999 1998 1997
-------- -------- -------- -------- --------
(amounts in thousands, except per share data)
<s> <c> <c> <c> <c> <c>
Operating Data:
Revenues. . . . . . . . . . . . $ 20,653 $ 37,796 $ 41,716 $ 39,416 $ 28,785
Expenses:
Interest. . . . . . . . . . . . 4,566 9,180 11,558 9,778 6,447
Depreciation and amortization . 3,211 7,215 6,942 5,484 4,213
Property operating. . . . . . . 7,126 12,314 13,601 13,449 10,689
General and administrative. . . 4,103 5,971 4,496 4,614 4,315
Provision for asset impairment. 2,658 -- -- -- --
Recovery of losses on loans,
notes and interest receivable (970) -- -- -- (161)
-------- -------- -------- -------- --------
Total expenses. . . . . . 20,694 34,680 36,597 33,325 25,503
-------- -------- -------- -------- --------
Income (loss) before minority
interest, income from operations
of real estate venture, net gains
and extraordinary item (3). . . (41) 3,116 5,119 6,091 3,282
Minority interest . . . . . . . . (358) (491) (538) (572) (590)
Income from operations of real
estate venture. . . . . . . . . -- -- -- -- 37
Net gains and extraordinary item. 25,771 (42) 3,906 (141) 817
-------- -------- -------- -------- --------
Net income. . . . . . . . . . . . 25,372 2,583 8,487 5,378 3,546
Less Income Available to
Preferred Shares. . . . . . . . (181) (585) -- -- --
-------- -------- -------- -------- --------
Net Income Available to
Common Shares (4) . . . . . . . $ 25,191 $ 1,998 $ 8,487 $ 5,378 $ 3,546
======== ======== ======== ======== ========
Basic Earnings Available to
Common Shares per weighted-average
Common Share:
Income before net gains and
extraordinary item . . . . . . $ -- $ 0.14 $ 0.34 $ 0.41 $ 0.24
======== ======== ======== ======== ========
Net income. . . . . . . . . . . $ 1.68 $ 0.14 $ 0.63 $ 0.40 $ 0.32
======== ======== ======== ======== ========
For the years ended December 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(amounts in thousands, except per share data)
Diluted Earnings Available to
Common Shares per weighted-average
Common Share:
Income before net gains and
extraordinary item . . . . . . $ -- $ 0.14 $ 0.34 $ 0.40 $ 0.24
======== ======== ======== ======== ========
Net income. . . . . . . . . . . $ 1.68 $ 0.14 $ 0.63 $ 0.39 $ 0.32
======== ======== ======== ======== ========
Balance Sheet Data:
Investment in real estate, net. . $ 28,423 $184,175 $183,844 $209,409 $149,386
Total assets. . . . . . . . . . . 41,393 196,057 206,647 222,590 159,634
Loans and bonds payable . . . . . 25,455 119,652 132,681 151,648 92,118
Shareholders' equity. . . . . . . 12,359 67,350 65,295 62,434 62,315
Number of property interests owned 3 27 27 32 22
Weighted average
number of shares. . . . . . . . 15,497 14,183 13,469 13,308 11,150
Cash distributions per share of
beneficial interest . . . . . . $ 4.98 $ 0.48 $ 0.48 $ 0.46 $ 0.40
======== ======== ======== ======== ========
<fn>
- ------------
(1) You should read the above selected financial data in conjunction with the consolidated financial statements
and the related notes appearing elsewhere in this annual report.
(2) As a result of the adoption of the Plan, we began reporting on the liquidation basis of accounting effective
for the quarter ended March 31, 2001. Therefore, operations for the year ended December 31, 2001 are reported on
the Consolidated Statement of Changes in Net Assets in Liquidation while the operations for the years ended
December 31, 2000, 1999, 1998 and 1997 are reported on a going concern basis on the Consolidated Statement of
Operations. The Statement of Changes in Net Assets in Liquidation differs from the Statement of Operations in
that we no longer amortize deferred financing fees and leasing commissions and we no longer record straight line
rental income. We do, however, deduct leasing commissions in the computation of Operating Income. As a result of
these differences, the results for the year ended December 31, 2001 are not comparable to the results for the
years ended December 31, 2000, 1999, 1998 and 1997.
(3) Net gains include gain on disposition of investment in real estate, loss on disposition of investment in
real estate venture and gain on disposition of partnership interest.
(4) For the year ended December 31, 2001 amount represents changes in Net Assets in Liquidation before
distributions to shareholders.
</table>
<table>
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly changes in net assets in liquidation for the year ended
December 31, 2001.
<caption>
2001
For the three months ended:
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------ ------------
(Amounts in thousands)
<s> <c> <c> <c> <c>
Net Assets in Liquidation at
Beginning of the Quarter $ 64,214 65,365 18,103 14,334
Net Gains on Disposition of Investment
in Real Estate Held for Sale (Net of
Minority Interest of $6,445) -- 25,771 -- --
Interest Income on Employees' Notes 18 107 -- 10
Interest Income on Cash and Cash Equivalents 49 418 157 135
Forfeited Earnest Money -- -- -- 1,000
Operating Income (Loss) 2,509 960 (328) (177)
Provision for Asset Impairment -- -- -- (2,658)
Recovery of Losses on Loans, Notes and
Interest Receivable 870 -- -- 100
Depreciation (1,616) (981) (308) (306)
Minority Interest in Consolidated Partnerships (153) 101 (227) (79)
Issuance of Shares 54 1 36 --
Distributions Paid and Payable to Shareholders (580) (73,639) (3,099) --
-------- -------- -------- --------
Net Assets in Liquidation at
End of the Quarter $ 65,365 18,103 14,334 12,359
======== ======== ======== ========
The following is a summary of the quarterly results of operations for the year ended December 31, 2000.
2000
For the three months ended:
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ------------ ------------ ------------
(Amounts in thousands, except per share data)
Total Revenue $ 9,350 $ 9,460 $ 9,285 $ 9,701
Operating Expenses (8,040) (8,118) (9,742) (8,780)
-------- -------- -------- --------
Operating Income (Loss) 1,310 1,342 (457) 921
Minority Interest in Consolidated
Partnerships (126) (147) (130) (88)
-------- -------- -------- --------
Income (Loss) before Net Gains and
Extraordinary Item 1,184 1,195 (587) 833
Extraordinary Item (42) -- -- --
-------- -------- -------- --------
Net Income (Loss) 1,142 1,195 (587) 833
Less Income Available to Preferred Shares (123) (153) (155) (154)
-------- -------- -------- --------
Net Income Available to Common Shares $ 1,019 $ 1,042 $ (742) $ 679
======== ======== ======== ========
Basic and Diluted Earnings Available
to Common Shares per weighted-average
Common Share:
Income (Loss) before Net Gains and
Extraordinary Item $ 0.07 $ 0.07 $ (0.05) $ 0.05
======== ======== ======== ========
Net Income (Loss) $ 0.07 $ 0.07 $ (0.05) $ 0.05
======== ======== ======== ========
</table>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
We are a self-administered infinite life real estate investment trust
("REIT"), organized as a Massachusetts business trust. On January 5, 2001,
we adopted a Plan of Termination and Liquidation (the "Plan") under which
our Trust will be dissolved, the obligations of the Trust will be paid,
appropriate reserves will be taken and the net proceeds will be distributed
to our shareholders.
On May 17, 2001, we sold 24 of our 27 properties for a total sales
price of $185.25 million, and realized net gains on disposition of
investment in real estate (net of minority interest of approximately $6.4
million) of approximately $25.8 million. At December 31, 2001, we owned
individually or, in the case of our retail center, through a joint venture:
. one office property totaling 184,700 rentable square feet;
. one flex industrial property totaling 322,100 rentable square
feet;
. one retail center which contains 321,600 rentable square feet.
We did not acquire or sell any properties during the year ended
December 31, 2000. During the year ended December 31, 1999, we sold four
apartment complexes containing 864 units and one flex industrial property
totaling 182,300 rentable square feet.
RESULTS OF OPERATIONS
As a result of the adoption of the Plan, we began reporting on the
liquidation basis of accounting effective for the quarter ended March 31,
2001. Therefore, operations for the year ended December 31, 2001 are
reported on the Consolidated Statement of Changes in Net Assets in
Liquidation while the operations for the years ended December 31, 2000 and
1999 are reported on a going concern basis on the Consolidated Statement of
Operations. The Statement of Changes in Net Assets in Liquidation differs
from the Statement of Operations in that we no longer amortize deferred
financing fees and leasing commissions and we no longer record straight
line rental income. We do, however, deduct leasing commissions in the
computation of Operating Income. As a result of these differences, the
results for the year ended December 31, 2001 are not comparable to the
results for the years ended December 31, 2000 and 1999.
Prior to reporting the operating activity for the year ended
December 31, 2001, we adjusted our Shareholders' Equity as of December 31,
2000 as reported on a going concern basis to the liquidation basis of
accounting. As a result, we recorded an adjustment of approximately $5.5
million related to the write off of certain intangible assets, specifically
leasing commissions, deferred financing fees and straight line rents
receivable, that were included in our total assets as of December 31, 2000.
In addition, we recorded a charge of approximately $0.8 million for costs
related to the liquidation and termination of the Trust and reclassed
approximately $3.1 million of employees' notes from shareholders' equity to
assets.
COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO YEAR ENDED DECEMBER 31, 2000
For the year ended December 31, 2001, our Net Assets in Liquidation
decreased by approximately $51.8 million from approximately $64.2 million
at December 31, 2000 to approximately $12.4 million at December 31, 2001.
This decrease was primarily due to total distributions paid to shareholders
of approximately $77.3 million including our initial liquidating
distribution to shareholders of $4.75 per share or approximately $73.6
million and our second liquidating distribution of $0.20 per share or
approximately $3.0 million. Offsetting this decrease were gains on
disposition of investment in real estate (net of minority interest of
approximately $6.4 million) of $25.8 million, operating income in the
amount of approximately $3.0 million, receipt of forfeited earnest money of
$1.0 million, recovery of losses on loans, notes and interest receivable of
approximately $1.0 million and interest income on cash and cash equivalents
of approximately $0.8 million, reduced by depreciation expense of
approximately $3.2 million and valuation allowance of approximately $2.7
million. We recorded a provision for asset impairment in order to write
down the net carrying value of our Riverport property to reflect the sale
price agreed to in the sale agreement that we executed on February 20,
2002. The recovery of losses on loans, notes and interest receivable of
approximately $1.0 million represents cash received in respect of our
interest in a liquidating trust established for the benefit of the
unsecured creditors of VMS Realty Partners and its affiliates. Our
interest in this liquidating trust had previously been accorded no value in
our financial statements.
For the year ended December 31, 2000, we reported Net Income Available
to Common Shares of approximately $2.0 million. Because of the differences
between the liquidation basis of accounting and the going concern basis of
accounting described above, this amount is not comparable to the changes in
net assets in liquidation as reported for the year ended December 31, 2001.
As of December 31, 2001, 21% of our leasable square footage was vacant
and during 2002, leases for approximately eight percent (8%) of our
leasable square footage will expire. Although vacancy may increase
temporarily, at most of our properties we believe that this lease "roll-
over" is routine and the underlying space will be released at market rental
rates to either the existing or new tenants. Our most significant vacancy
is at 6901 Riverport Drive where a tenant occupying approximately 145,000
square feet or 45% of this property's space vacated on July 31, 2000. We
are in the process of marketing this space but have not secured a new
tenant. Our total revenues may continue to be adversely affected if the
space remains vacant.
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999
During the year ended December 31, 2000 and 1999 our income before
minority interest, net gains and extraordinary item totaled approximately
$3.1 million and approximately $5.1 million, respectively. Our total
revenue decreased by approximately $3.9 million or 9.4% to approximately
$37.8 million from approximately $41.7 million, due to a decrease in the
number of properties that we own and a decrease in total occupancy. This
decrease in total revenues was partially offset by a decrease in total
operating expenses, which include property operating, repairs and
maintenance, real estate taxes, and ground lease expenses; and a decrease
in interest expense. However, the decrease in total operating expenses and
interest expense in 2000 was partially negated by severance and termination
costs in the amount of approximately $1.9 million related to an employee
severance and retention policy (see Severance and Termination Costs below).
On a "same-store" basis (comparing the results of operations of the
properties owned during the entire year ended December 31, 2000 with the
results of the same properties owned during the entire year ended
December 31, 1999), total revenue increased by approximately $0.5 million
due to an increase in rental rates.
Our total expenses decreased by approximately $1.9 million to
approximately $34.7 million from approximately $36.6 million in 1999. This
decrease is due to a decrease in the number of properties that we own,
partially offset by approximately $1.9 million in severance and termination
costs that we incurred in 2000. Our total operating expenses which include
property operating, repairs and maintenance, real estate taxes, and ground
lease decreased by approximately $1.3 million to approximately $12.3
million from approximately $13.6 million in 1999. On the "same-store"
basis, our total operating expenses increased by approximately $0.7 million
or 6.0%. Interest expense decreased by approximately $2.4 million to
approximately $9.2 million from approximately $11.6 million primarily due
to a reduction in the amounts borrowed as a result of the 1999 property
dispositions and the conversion of our unsecured loan to Series A
convertible preferred shares in January 2000.
SEVERANCE AND TERMINATION COSTS
In September 2000, we adopted an employee severance and retention
program. We have since terminated certain employees and will continue to
review our staffing needs in the future. The total expenses for the year
ended December 31, 2000 include a charge of approximately $1.9 million for
this program. These costs include a charge of approximately $0.3 million
for base compensation payable to Mr. Leonard G. Levine from August 14, 2000
through December 31, 2001 under the terms of his employment agreement.
Subsequent to September 30, 2000, we entered into employment agreements
with Messrs. Schafran, Higgins and Teglia, and into separation agreements
with Messrs. Hansen and Schmidt. Pursuant to these separation agreements
and Mr. Teglia's new employment agreement, we paid a total of approximately
$0.8 million in severance and termination costs in the fourth quarter of
2000. These costs are included in the $1.9 million severance and
termination costs discussed above. An additional amount of approximately
$0.6 million was accrued under the program for the year ended December 31,
2001.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, our total assets (liquidation basis) were
approximately $41.4 million, a decrease of approximately $154.7 million
from total assets at December 31, 2000 (going concern basis) of
approximately $196.1 million. Our liabilities totaled approximately $29.0
million at December 31, 2001, a decrease of approximately $97.4 million
from approximately $126.4 million at December 31, 2000. At December 31,
2001 our net assets in liquidation (liquidation basis) were approximately
$12.4 million compared to shareholders equity (going concern basis) of
approximately $67.4 million at December 31, 2000, a decrease of
approximately $55.0 million. The significant decreases in total assets and
total liabilities are primarily due to the sale of 24 of our 27 properties
on May 17, 2001, distributions paid to shareholders in the amount of
approximately $77.3 million, distributions to minority interest of
approximately $8.7 million and to the write off of leasing commissions,
deferred financing fees and straight line rents receivable in the aggregate
amount of approximately $5.5 million upon adoption of the liquidation basis
of accounting effective as of the first quarter of 2001. See "Results of
Operations", above, for the discussion regarding the decrease of net assets
in liquidation and the differences between the liquidation basis of
accounting and the going concern basis of accounting.
Cash and cash equivalents consist of cash and short-term investments.
Our cash and cash equivalents balance increased by approximately $5.1
million to approximately $7.5 million at December 31, 2001 from
approximately $2.4 million at December 31, 2000. The increase in total
cash and cash equivalents was due primarily to our receipt of net proceeds
from the sale of 24 of our 27 properties less distributions to
shareholders.
During the year ended December 31, 2000, our operating activities
provided net cash of approximately $9.4 million. We used approximately
$6.1 million in investing activities to make capital improvements at our
various properties net of proceeds from restricted cash. During the year
ended December 31, 2000, our financing activities used approximately $14.0
million of cash primarily to make principal payments on mortgage loans and
on an unsecured loan payable of approximately $17.4 million and to pay
distributions to shareholders of approximately $7.4 million offset by
approximately $10.5 million of proceeds from loans payable.
Having made two liquidating distributions, we have established
unrestricted cash reserves of $7.5 million and restricted cash held in
escrow for post closing adjustments of $1.5 million. We project that these
reserves will be sufficient to cover the net costs of operating the Trust
through its anticipated final liquidation, liquidation costs and contingent
liabilities related to pending litigation.
Because Denholtz defaulted on its obligation to purchase our
University Square property in December of 2001, it forfeited to us $1
million in earnest money. All of Denholtz's obligations to purchase and
our obligations to sell our remaining properties were extinguished at that
time. We are now attempting to market and sell the properties to other
parties. However, since the adoption of our Plan of Termination and
Liquidation, the condition of the United States economy in general and the
real estate markets in which our properties are located, in particular, has
weakened. Accordingly, there can be no assurance, in light of these
unforeseen market developments, that we will be able to complete our Plan
of Termination and Liquidation within the time period previously projected
or that we will achieve sales prices for our properties sufficient to allow
us to make the distributions in the amount previously anticipated. We will
endeavor to distribute amounts in excess of reserves to our shareholders as
additional assets are sold or as contingent liabilities are reduced or
eliminated.
FINANCINGS:
On May 1, 2000, we entered into a loan agreement with LaSalle Bank
National Association (the "LaSalle Loan") which provided for a loan in the
amount of $12.1 million, which we could draw in four installments. The
amount of $8.5 million was drawn on May 1, 2000. An additional $2 million
was drawn on October 30, 2000. The loan, which was collateralized by our
Johns Creek Office and Industrial Park and Technology Park properties, bore
interest at a variable rate equal to LIBOR plus 2.2% and was payable
monthly. The loan principal was pre-payable without penalty and matured on
May 31, 2001. On May 17, 2001, we repaid the loan with the proceeds from
sale of our properties.
On October 8, 1999, we entered into a loan agreement with LaSalle Bank
N.A. in the amount of $7.8 million. The loan, which was collateralized by
the Trust's Lexington Business Center property, bore interest at a variable
rate equal to LIBOR plus 2% and was payable monthly. The loan principal
was pre-payable without penalty and had an initial maturity date of May 31,
2000. We had two options to extend the term of the loan for one year each
at the same interest rate by paying a fee of $19,500 for each extension.
We exercised our first option to extend the term of the loan until May 31,
2001. On May 17, 2001, we repaid the loan with the proceeds from sale of
our properties.
During the third quarter of 1998, we borrowed $7.4 million under a
convertible term loan agreement entered into with a group of lenders in
October 1997. On January 20, 2000, we paid conversion fee of $37,000 (0.5%
of the outstanding loan balance) and we repaid approximately $1.2 million
of the convertible term loan. The remaining balance of approximately $6.2
million was converted into 61,572 Series A convertible preferred shares at
a conversion rate of $100 per share and on April 17, 2001, these preferred
shares were further converted into 1,195,574 common shares at a conversion
rate of $5.15 per share.
RISK FACTORS
FACTORS PERTAINING TO PLAN OF TERMINATION AND LIQUIDATION
WE MAY BE UNABLE TO ACHIEVE SALE PRICES FOR REMAINING PROPERTIES
EQUIVALENT TO PRICES CONTRACTED IN THE PURCHASE AND SALE AGREEMENT. As a
result of Denholtz's failure to purchase University Square Business Center
and forfeiture to us of $1 million in earnest money, we are marketing all
of our properties for sale to other parties. Since entering into the
agreement with Denholtz, and the adoption of our Plan of Termination and
Liquidation, the condition of the United States economy in general and the
real estate markets in which our properties are located, in particular, has
weakened. Accordingly, there can be no assurance, in light of these
unforeseen market developments, that we will be able to complete our Plan
of Termination and Liquidation within the time period previously projected
or that we will achieve sales prices for our properties sufficient to allow
us to make the distributions in the amount previously anticipated.
WE MAY BE UNABLE TO COMPLETE LIQUIDATION IN A TIMELY MANNER. Our
failure to sell our remaining properties in a timely manner increases the
risk that we will make distributions pursuant to the Plan after the second
anniversary of its adoption. Any distributions made after January 5, 2003
will not qualify for the dividends paid deduction thereby potentially
subjecting us to tax on our net income and net gains from dispositions to
the extent that they are not reduced by our net operating loss
carryforward. See, "We Might Fail to Qualify as a REIT," below.
OUR SHARES MAY EXPERIENCE A DECREASE IN LIQUIDITY. As we sell our
assets and distribute proceeds, our market capitalization and "float" will
diminish and market interest in our shares by the investment community may
diminish, thereby reducing or effectively eliminating the market demand and
liquidity for our shares, which would adversely affect the market price for
our shares. Furthermore, on February 14, 2002, we were notified by Nasdaq
that because our shares of beneficial interest have traded below the
minimum of $1.00 per share for the prior thirty consecutive trading days,
our shares may be delisted if the bid price of our shares of beneficial
interest does not close at $1.00 or more per share for ten or more
consecutive trading days between February 14, 2002 and May 15, 2002.
Should we be delisted, we may not be able to provide alternatives in order
to maintain a market for the exchange of our shares.
WE MAY ABANDON THE PLAN. Our Trustees may abandon, modify or
terminate the Plan at any time in their discretion. In the event the Plan
is abandoned at a time when we are significantly reduced in size, certain
operating risks will increase, as will the risk that our share price will
trade at a greater discount to the perceived underlying value of our real
estate holdings.
THE OUTCOME OF PENDING LITIGATION WILL AFFECT THE TIMING AND AMOUNT OF
DISTRIBUTIONS THAT WE WILL MAKE TO OUR SHAREHOLDERS. On November 30, 2001,
we announced that our Board of Trustees determined that completion of our
pending litigation against Mr. Levine, our suspended president and chief
executive officer, will be the primary focus of our liquidation strategy
going forward. Including costs, fees and potential damages, the suit and
Mr. Levine's counterclaim involve amounts in excess of $2 million. We
cannot predict with any certainty either the outcome of the pending
litigation or the timing of its ultimate resolution. The outcome of the
pending litigation will impact the amount of liquidating distributions that
we will ultimately pay to our shareholders. The timing of the ultimate
resolution of the pending litigation will affect the timing of future
liquidating distributions as well as our ability to complete our
liquidation in a timely manner. For a description of the pending
litigation with Mr. Levine, see "Item 3 - Legal Proceedings." For a
description of the risks associated with failing to qualify as a REIT and
failing to complete our liquidation in a timely manner, see "We Might Fail
To Qualify As a REIT" and "We May Be Unable To Complete Liquidation In A
Timely Manner" hereunder.
WE DEPEND ON A SMALL NUMBER OF KEY PERSONNEL. Our success depends, in
part, on the efforts of our principal executive officers, particularly
Messrs. Schafran, Higgins and Teglia. Although we have entered into
employment contracts with each of these individuals, the loss of their
services could have an adverse effect upon our operations.
RISKS ASSOCIATED WITH OWNING AND OPERATING REAL ESTATE
WE COMPETE FOR TENANTS. All of our office and flex industrial
properties are located in highly-developed areas that include other office
and flex industrial properties. Some of these properties are newer or
better located than our properties. Further, our competitors may have
greater resources than we do, which could allow them to reduce rents to a
level that is not profitable for us. We may also be required to spend
money upgrading or renovating our properties to make them attractive to
both existing and potential tenants thus increasing our expenses and
reducing our cash resources. The number of properties or other companies
that compete in our market areas could have a material effect upon:
. our ability to lease space at our properties;
. the amount of rent that we can charge on new leases or
renewals; and
. the dollar amount of tenant improvements or leasing commissions
required to lease a property.
WE OWN PROPERTIES IN A LIMITED NUMBER OF MARKETS. Our properties are
located in Atlanta, Georgia, Huntsville, Alabama, and Louisville, Kentucky.
Our ability to maintain or increase our revenues or to generate revenues
that exceed our operating expenses is affected by economic conditions in
these markets. Like other real estate markets, these markets have
experienced economic downturns in the past and will likely experience
downturns in the future. Layoffs or downsizing, industry slowdowns,
changing demographics, increases in the supply of property or reduced
demand for office or flex industrial space may decrease our revenues or
increase our operating expenses or both.
LEASES ON APPROXIMATELY 8% OF OUR RENTABLE SQUARE FEET EXPIRE DURING
2002 AND 21% OF OUR RENTABLE SQUARE FOOTAGE WAS VACANT AS OF DECEMBER 31,
2001. As leases expire, we may not be able to renew or re-lease space at
rates comparable to or better than the rates contained in the expiring
leases. Leases on approximately 8% of our rentable square feet will expire
prior to December 31, 2002. If we fail to renew or re-lease space at rates
that are at least comparable to the rates on expiring leases, the revenues
generated by our properties will decline. Further, we may have to spend
significant sums of money to renew or re-lease space covered by expiring
leases, potentially reducing the amount of money that we have available to
distribute to you or to use for other purposes.
OUR TENANTS MAY NOT PAY THEIR RENT OR MAY DECLARE BANKRUPTCY. We
derive substantially all of our operating revenue from leasing space at our
properties. Our ability to make distributions to you may be negatively
affected if tenants leasing a significant percentage of our rentable square
feet fail to pay their rent or if we are unable to profitably lease space.
We may experience substantial delays and incur significant expenses
enforcing our rights against tenants who do not pay their rent. A tenant
may also seek the protection of the bankruptcy laws and delay making rental
payments to us or actually reject or terminate its lease under those laws.
Even if a tenant did not seek the protection of the bankruptcy laws, the
tenant may from time to time experience a downturn in its business which
may weaken its financial condition and its ability to make rental payments
to us when due.
WE ARE REQUIRED TO COMPLY WITH VARIOUS LAWS AND REGULATIONS. As an
owner of property, we are required to comply with a variety of federal,
state and local laws. Complying with these laws and regulations may
increase our operating expenses and reduce our profits. For example, we
are required to comply with laws and regulations that impose liability on a
property owner for the costs of removing or remediating certain hazardous
materials released on a property. We are subject to these laws even if we
are not aware of, or responsible for, releasing these materials. These
laws or regulations may also restrict the way that we can use a property or
the type of business which may be operated on the property. Further, if we
fail to comply with these laws or regulations by, for example, failing to
properly remediate a release of hazardous material, we may not be able to
sell the affected property or borrow money using the property as collateral
for a loan. We may also be required to pay money to individuals who are
injured due to the presence of hazardous materials on our property.
Although we are not aware of any hazardous materials at our properties,
these materials may exist and the cost of removing or remediating them may
be material and could adversely impact the value of the property affected.
We may also be required to pay the cost of removing or remediating
hazardous materials from a disposal or treatment facility to which we may
have shipped hazardous or toxic substances even if we never owned or
operated the disposal or treatment facility. Our properties must also
comply with the Americans with Disabilities Act. This act establishes
certain standards related to access to and use of properties by disabled
persons. We may be required, for example, to remove any barriers to
access. If we fail to comply, the U.S. government may fine us or we may be
required to pay damages to a disabled person. Complying with these
requirements may increase our expenses and changes in these requirements
may result in unexpected expenses.
OUR OBJECTIVES MAY CONFLICT WITH THOSE OF OUR JOINT VENTURE PARTNER.
We own one of our properties, or approximately 39% of our rentable square
footage, through a controlling interest in joint venture with a third
party. Investments in joint ventures which own properties may involve
risks that are not otherwise present when we wholly own the property
directly or through one of our subsidiaries. For example, our co-venturer
may file for bankruptcy protection or may have economic or business
interests or goals which are inconsistent with our goals or interests.
Further, although we own a controlling interest in this venture and have
authority over major decisions such as the sale or refinancing of the
property, we owe fiduciary duties to our partner that may cause us to take
actions we otherwise would not have taken.
WE MAY NOT HAVE ENOUGH INSURANCE. We carry comprehensive liability,
fire, flood, earthquake, extended coverage and rental loss policies that
insure us against losses at our properties with policy specifications and
insurance limits that we believe are reasonable. There are certain types
of losses, for example acts of terrorism or environmental, that we may
decide not to insure against since the cost of insuring for the loss is not
economical. In establishing our insurance strategy, we use our discretion
in determining the amount of coverage, the limits on this coverage and the
deductibles that apply to the coverage in an attempt to balance the amount
of insurance that we purchase and the cost of that insurance. We may,
however, suffer losses that exceed our insurance coverage. Further,
inflation, changes in building codes and ordinances or other factors such
as environmental laws may make it too expensive to repair or replace a
property that has been damaged or destroyed, even if covered by insurance.
PROPERTY TAXES MAY INCREASE. We are required to pay taxes based on
the assessed value of our properties as determined by various taxing
authorities such as state or local governments. These taxing authorities
may increase the tax rate imposed on a property or may reassess property
value, either of which would increase our operating expenses.
WE OFTEN NEED TO BORROW MONEY TO FINANCE OUR BUSINESS. Our ability to
internally fund our capital needs is limited since we must distribute at
least 95% of our net taxable income (excluding net capital gains) to our
shareholders to qualify as a REIT. Consequently, we often borrow money to
fund our operating or capital needs, and may borrow monies to satisfy the
95% distribution requirement. The documents which govern how we may
conduct our business do not limit the amount of money that we may borrow.
Borrowing money to fund operating or capital needs exposes us to various
risks. For example, our properties may not generate enough cash to pay the
principal and interest obligations on our loans or we may violate a loan
covenant that results in the lender accelerating the maturity date of a
loan. As of December 31, 2001, we owed a total of approximately $25.5
million, secured by mortgages on certain of our properties. If we fail to
make timely payments on our loans, including those cases where a lender has
accelerated the maturity date due to a violation of a loan covenant, the
lenders could foreclose on the properties securing their loans and we could
lose our entire investment in those properties. Once a loan becomes due,
we must either pay the remaining balance or borrow additional money to pay
off the maturing loan. We may not, however, be able to obtain a new loan,
or the terms of the new loan, such as the interest rate or payment
schedule, may not be as favorable as the terms of the maturing loan. Thus,
we may be forced to sell a property at an unfavorable price to pay off the
maturing loan or agree to less favorable loan terms.
We occasionally enter into loans where the interest rate may
fluctuate. As of December 31, 2001, we owed approximately $3.9 million
that bore interest at variable rates. We may borrow additional amounts
that bear interest at variable rates. If interest rates increase, the
amount of interest that we are required to pay on these borrowings will
also increase. Any such increase would increase our operating expenses.
THIRD PARTIES MAY BE DISCOURAGED FROM MAKING ACQUISITION OR OTHER
PROPOSALS THAT MAY BE IN YOUR BEST INTERESTS. Under our Declaration, no
single person or group of persons (an entity is considered a person) may
own more than 9.9% of our outstanding common shares. The employment
contracts we have with each of our senior executives may require us, in
certain circumstances, to make payments to these individuals if a "change
of control" occurs. These provisions may prevent or discourage a third
party from making a tender offer or other business combination proposal
such as a merger, even if such a proposal would be in the best interest of
our shareholders.
WE MIGHT FAIL TO QUALIFY AS A REIT. If we fail to qualify as a REIT,
we would not be allowed to deduct amounts distributed to our shareholders
in computing our taxable income and would incur substantially greater
expenses for taxes and would have less money available to distribute to
you. We would also be subject to federal income tax at regular corporate
rates as well as potentially the alternative minimum tax. Unless we
satisfied some exception, we could not elect to be taxed as a REIT for the
four taxable years following the year during which we were disqualified.
We may fail to qualify as a REIT if, among other things:
. less than 75% of the value of our total assets consists of real
estate assets, cash and government securities at the close of
each fiscal quarter;
. more than 5% of the value of our assets consists of securities
of any one issuer or we hold more than 10% of the outstanding
voting securities (subsequent to January 1, 2001, 10% of the
value of the securities) of any one issuer at the close of each
fiscal quarter;
. less than 75% of our gross income is generated from rents from
real property, interest on obligations secured by mortgages,
gain from the sale of property, and certain other property
related revenue sources; or
. we fail to distribute at least 95% (subsequent to January 1,
2001, 90%) of our "REIT taxable income" to our shareholders.
If we fail to distribute enough money to satisfy the REIT
requirements, we may also have to pay a non-deductible excise tax. This tax
is equal to 4% of the amount in any year that our distributions are less
than the sum of 85% of our ordinary income in the current year plus 95% of
our net income from capital gains in the current year plus 100% of the
taxable income that we did not distribute in prior years.
SUBSEQUENT EVENT - Purchase of Northlake Partnership Interest and Denholtz
Settlement [ to be updated ]
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not engage in any hedge transaction or in the ownership of any
derivative financial instruments. To mitigate the impact of fluctuations
in interest rates, we generally maintained over 70% of our debt as fixed
rate in nature by borrowing on a long-term basis.
As of December 31, 2001, we had approximately $25.5 million of
outstanding long-term debt, of which $3.9 million bears interest at
variable rates. As of December 31, 2001, the weighted-average interest
rate on this variable rate debt was 3.46%. If interest rates on this
variable rate debt were to increase one percentage point (1%), interest
expense would increase by $39,000 on an annual basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BANYAN STRATEGIC REALTY TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors 25
Consolidated Statement of Net Assets in Liquidation
(Liquidation Basis), December 31, 2001 26
Consolidated Statement of Changes in Net Assets
in Liquidation for the year ended December 31, 2001 27
Consolidated Balance Sheet, December 31, 2000 28
Consolidated Statements of Income For the Years Ended
December 31, 2000 and 1999 29
Consolidated Statements of Shareholders' Equity For the
Years Ended December 31, 2000 and 1999 30
Consolidated Statements of Cash Flows For the
Years Ended December 31, 2000 and 1999 31
Notes to Consolidated Financial Statements 33
Schedule
--------
Consolidated Real Estate and
Accumulated Depreciation III
SCHEDULES NOT FILED:
All schedules other than those indicated in the above index are
omitted since the required information is not present or is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the consolidated financial statements
and notes thereto.
REPORT OF INDEPENDENT AUDITORS
THE SHAREHOLDERS
BANYAN STRATEGIC REALTY TRUST
We have audited the accompanying consolidated balance sheet of Banyan
Strategic Realty Trust as of December 31, 2000 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
two years in the period then ended. In addition, we have audited the
consolidated statement of net assets in liquidation as of December 31,
2001, and the related consolidated statement of changes in net assets in
liquidation for the year then ended. Our audits also included the
financial statement schedule listed in the index at Item 8. These
financial statements and schedule are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, on January 5, 2001, the Trustees adopted a
Plan of Termination and Liquidation under which the Trust will be
dissolved. As a result, the Trust has changed its basis of accounting from
a going concern to a liquidation basis effective January 1, 2001.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Banyan Strategic Realty Trust at December 31, 2000, and the consolidated
results of its operations and its cash flows for each of the two years in
the period then ended and its consolidated net assets in liquidation at
December 31, 2001 and consolidated changes in net assets in liquidation for
the year then ended, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
March 5, 2002, except for the last paragraph of Note 1,
as to which the date is March 14, 2002.
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS)
DECEMBER 31, 2001
(Dollars in thousands)
ASSETS
- ------
Investment in Real Estate Held for Sale:
Land. . . . . . . . . . . . . . . . . . . . . . . $ 3,137
Building. . . . . . . . . . . . . . . . . . . . . 28,066
Building Improvements . . . . . . . . . . . . . . 2,984
----------
34,187
Less: Accumulated Depreciation . . . . . . . . . (5,764)
----------
28,423
----------
Cash and Cash Equivalents . . . . . . . . . . . . . 7,493
Restricted Cash - Capital Improvements. . . . . . . 212
Restricted Cash - Other . . . . . . . . . . . . . . 2,095
Interest and Accounts Receivable. . . . . . . . . . 212
Employees' Notes. . . . . . . . . . . . . . . . . . 412
Notes Receivable. . . . . . . . . . . . . . . . . . 2,264
Other Assets. . . . . . . . . . . . . . . . . . . . 282
----------
Total Assets. . . . . . . . . . . . . . . . . . . . $ 41,393
==========
LIABILITIES
- -----------
Mortgage Loans Payable. . . . . . . . . . . . . . . $ 21,555
Bonds Payable . . . . . . . . . . . . . . . . . . . 3,900
Accrued Severance and Termination Costs . . . . . . 2,018
Accounts Payable and Accrued Expenses . . . . . . . 1,218
Accrued Real Estate Taxes . . . . . . . . . . . . . 23
Accrued Interest Payable. . . . . . . . . . . . . . 148
Unearned Revenue. . . . . . . . . . . . . . . . . . 85
Security Deposits . . . . . . . . . . . . . . . . . 87
----------
Total Liabilities . . . . . . . . . . . . . . . . . 29,034
----------
Net Assets in Liquidation . . . . . . . . . . . . . $ 12,359
==========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS)
FOR THE YEAR ENDED DECEMBER 31, 2001
(Dollars in thousands)
Shareholders' Equity at January 1, 2001
(Going concern basis) . . . . . . . . . . . . . . . . $ 67,350
Adjustments to Liquidation Basis:
Liquidation and Termination Costs . . . . . . . . . . (810)
Elimination of Intangible Assets and Deferred Charges (5,470)
Reclassification of Employees' Notes. . . . . . . . . 3,144
--------
Net Assets in Liquidation at January 1, 2001. . . . . . 64,214
Net Gains on Disposition of Investment in
Real Estate Held for Sale (Net of Minority
Interest of $6,445) . . . . . . . . . . . . . . . . . 25,771
Interest Income on Employees' Notes . . . . . . . . . . 135
Interest Income on Cash and Cash Equivalents. . . . . . 759
Forfeited Earnest Money . . . . . . . . . . . . . . . . 1,000
Operating Income. . . . . . . . . . . . . . . . . . . . 2,964
Provision for Asset Impairment. . . . . . . . . . . . . (2,658)
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . . 970
Depreciation. . . . . . . . . . . . . . . . . . . . . . (3,211)
Minority Interest in Consolidated Partnerships. . . . . (358)
Issuance of Shares. . . . . . . . . . . . . . . . . . . 91
Distributions Paid to Shareholders. . . . . . . . . . . (77,318)
--------
Net Assets in Liquidation at December 31, 2001. . . . . $ 12,359
========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
(Dollars in Thousands)
ASSETS
- ------
Investment in Real Estate Held for Sale, at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . $ 36,445
Building. . . . . . . . . . . . . . . . . . . . . 148,608
Building Improvements . . . . . . . . . . . . . . 20,633
----------
205,686
Less: Accumulated Depreciation. . . . . . . . . . (21,511)
----------
184,175
----------
Cash and Cash Equivalents . . . . . . . . . . . . . 2,393
Restricted Cash - Capital Improvements. . . . . . . 1,200
Restricted Cash - Other . . . . . . . . . . . . . . 1,178
Interest and Accounts Receivable. . . . . . . . . . 1,344
Deferred Financing Costs (Net of Accumulated
Amortization of $1,620) . . . . . . . . . . . . . 1,219
Other Assets. . . . . . . . . . . . . . . . . . . . 4,548
----------
Total Assets. . . . . . . . . . . . . . . . . . . . $ 196,057
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities
Mortgage Loans Payable. . . . . . . . . . . . . . . $ 115,452
Bonds Payable . . . . . . . . . . . . . . . . . . . 4,200
Unsecured Loan Payable. . . . . . . . . . . . . . . --
Accounts Payable and Accrued Expenses . . . . . . . 3,147
Accrued Real Estate Taxes Payable . . . . . . . . . 898
Accrued Interest Payable. . . . . . . . . . . . . . 676
Unearned Revenue. . . . . . . . . . . . . . . . . . 578
Security Deposits . . . . . . . . . . . . . . . . . 1,439
----------
Total Liabilities . . . . . . . . . . . . . . . . . 126,390
----------
Minority Interest in Consolidated Partnerships. . . 2,317
Shareholders' Equity
Series A Non-Voting Convertible Preferred Shares,
No Par Value, 200,000 Shares Authorized,
61,572 Shares Issued and Outstanding. . . . . . . 6,157
Shares of Beneficial Interest, No Par Value,
Unlimited Authorization; 15,805,289 Shares
Issued. . . . . . . . . . . . . . . . . . . . . . 124,559
Accumulated Deficit . . . . . . . . . . . . . . . . (52,856)
Employees' Notes. . . . . . . . . . . . . . . . . . (3,144)
Treasury Shares at Cost, 1,522,649 Shares . . . . . (7,366)
----------
Total Shareholders' Equity. . . . . . . . . . . . . 67,350
----------
Total Liabilities and Shareholders' Equity. . . . . $ 196,057
==========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
2000 1999
-------- --------
REVENUE
Rental Income . . . . . . . . . . . . . . $ 32,744 $ 36,705
Operating Cost Reimbursement. . . . . . . 3,961 3,635
Miscellaneous Tenant Income . . . . . . . 437 1,187
Income on Investments and Other Income. . 654 189
-------- --------
Total Revenue . . . . . . . . . . . . . . . 37,796 41,716
-------- --------
EXPENSES
Property Operating. . . . . . . . . . . . 4,587 5,392
Repairs and Maintenance . . . . . . . . . 3,979 4,318
Real Estate Taxes . . . . . . . . . . . . 2,823 2,957
Interest. . . . . . . . . . . . . . . . . 9,180 11,558
Ground Lease. . . . . . . . . . . . . . . 925 934
Depreciation and Amortization . . . . . . 6,923 6,629
General and Administrative. . . . . . . . 4,098 4,496
Amortization of Deferred Financing Costs. 292 313
Severance and Termination Costs . . . . . 1,873 --
-------- --------
Total Expenses. . . . . . . . . . . . . . . 34,680 36,597
-------- --------
Income Before Minority Interest, Net Gains
and Extraordinary Item. . . . . . . . . . 3,116 5,119
Minority Interest in Consolidated
Partnerships. . . . . . . . . . . . . . . (491) (538)
-------- --------
Income Before Net Gains and Extraordinary
Item. . . . . . . . . . . . . . . . . . . 2,625 4,581
Net Gains on Disposition of Investments
in Real Estate. . . . . . . . . . . . . . -- 4,089
-------- --------
Income Before Extraordinary Item . . . . . 2,625 8,670
Extraordinary Item, Net of Minority
Interest of $25 in 1998 . . . . . . . . . (42) (183)
-------- --------
Net Income. . . . . . . . . . . . . . . . . 2,583 8,487
Less Income Allocated to Preferred Shares . (585) --
-------- --------
Net Income Available to Common Shares . . . $ 1,998 $ 8,487
======== ========
Basic Earnings Available to Common Shares
per weighted-average Common Share:
Income before Net Gains and Extraordinary
Item. . . . . . . . . . . . . . . . . . $ 0.14 $ 0.34
======== ========
Net Income. . . . . . . . . . . . . . . . $ 0.14 $ 0.63
======== ========
Diluted Earnings Available to Common Shares
per weighted-average Common Share:
Income before Net Gains and Extraordinary
Item. . . . . . . . . . . . . . . . . . $ 0.14 $ 0.34
======== ========
Net Income. . . . . . . . . . . . . . . . $ 0.14 $ 0.63
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
<table>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<caption>
Series A Non-Voting
Convertible Shares of
Preferred Shares Beneficial Interest Accumu-
---------------------------------------- lated Employees' Treasury
Shares Amount Shares Amount Deficit Notes Shares Total
-------- ------------------ -------- -------- --------- -------- --------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Shareholders' Equity,
January 1, 1999. . . . . -- -- 14,912,495 $119,872 (50,072) -- (7,366) 62,434
Issuance of Shares,
net of issuance costs. . -- -- 161,422 835 -- -- -- 835
Net Income. . . . . . . . -- -- -- -- 8,487 -- -- 8,487
Distributions Paid. . . . -- -- -- -- (6,461) -- -- (6,461)
-------- ------------------ -------- -------- -------- -------- --------
Shareholders' Equity,
December 31, 1999. . . . -- -- 15,073,917 120,707 (48,046) -- (7,366) 65,295
Issuance of Shares,
net of issuance costs. . 61,572 6,157 731,372 3,852 -- -- -- 10,009
Employees' Notes,
net of repayments. . . . -- -- -- -- -- (3,144) -- (3,144)
Net Income. . . . . . . . -- -- -- -- 2,583 -- -- 2,583
Common Distributions Paid -- -- -- -- (6,808) -- -- (6,808)
Preferred Distributions
Paid . . . . . . . . . . -- -- -- -- (585) -- -- (585)
-------- ------------------ -------- -------- -------- -------- --------
Shareholders' Equity,
December 31, 2000. . . . 61,572 $ 6,15715,805,289 $124,559 $(52,856) $ (3,144) $ (7,366) $ 67,350
======== ================== ======== ======== ======== ======== ========
<fn>
The accompanying notes are an integral part of the consolidated financial statements.
</table>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . $ 2,583 $ 8,487
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Extraordinary Item, Net of Minority
Interest. . . . . . . . . . . . . . . . 42 183
Net Gains on Disposition of Investments
in Real Estate. . . . . . . . . . . . . -- (4,089)
Depreciation and Amortization . . . . . . 7,215 6,942
Minority Interest in Consolidated
Partnerships. . . . . . . . . . . . . . 491 538
Net Change In:
Restricted Cash - Other . . . . . . . . (7) 78
Interest and Accounts Receivable. . . . (158) 287
Other Assets. . . . . . . . . . . . . . (1,096) (1,684)
Accounts Payable and Accrued Expenses . 380 147
Accrued Interest Payable. . . . . . . . 61 (21)
Accrued Real Estate Taxes Payable . . . (10) (59)
Unearned Revenue. . . . . . . . . . . . (344) 207
Security Deposits . . . . . . . . . . . 236 (172)
-------- --------
Net Cash Provided By Operating Activities . 9,393 10,844
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Sale of Investments in
Real Estate . . . . . . . . . . . . . . -- 13,655
Additions to Investment in Real Estate. . (6,422) (5,984)
Restricted Cash - Capital Improvements. . 297 (90)
-------- --------
Net Cash Provided By (Used In)
Investing Activities. . . . . . . . . . . (6,125) 7,581
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Loans Payable . . . . . . . 10,500 9,285
Distributions To Minority Partners. . . . (430) (431)
Deferred Financing Costs. . . . . . . . . (159) (117)
Payment of Preferred Shares Issuance Costs (30) --
Repayment of Employees' Notes . . . . . . 94 --
Principal Payments on Mortgage Loans,
Bonds Payable and Unsecured Loan Payable (17,372) (12,116)
Distributions Paid to Shareholders. . . . (6,808) (6,461)
Payment of Preferred Distributions. . . . (585) --
Prepayment Penalties on Early
Extinguishment of Debt. . . . . . . . . (6) (54)
Shares Issued, Net of Issuance Costs. . . 824 835
-------- --------
Net Cash Used In Financing Activities . . . (13,972) (9,059)
-------- --------
Net Increase (Decrease) In Cash and
Cash Equivalents. . . . . . . . . . . . . (10,704) 9,366
Cash and Cash Equivalents
at Beginning of Year. . . . . . . . . . . 13,097 3,731
-------- --------
Cash and Cash Equivalents at End of Year. . $ 2,393 $ 13,097
======== ========
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
2000 1999
-------- --------
Supplemental Information:
Interest Paid During the Year . . . . . . $ 9,119 $ 11,579
======== ========
Non-Cash Financing Activities:
Real estate conveyed in exchange for
release of mortgage indebtedness. . . . $ -- $ 16,136
======== ========
Preferred Share Debt Conversion . . . . . $ 6,157 $ --
======== ========
Employees' Notes. . . . . . . . . . . . . $ 3,238 $ --
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. LIQUIDATION OF THE TRUST
On January 5, 2001, the Trustees adopted a Plan of Termination and
Liquidation under which, the Trust will be dissolved, the obligations of
the Trust will be paid, appropriate reserves will be taken and the net
proceeds will be distributed to the shareholders.
On May 17, 2001, the Trust sold 24 of its 27 properties (representing
85% of the portfolio) to affiliates of Denholtz Management Corporation
("Denholtz") for a total sales price of $185,250, of which $3,000 was in
the form of unsecured promissory notes and the remainder was in cash,
pursuant to a Purchase and Sale Agreement dated January 8, 2001 as amended
on March 30, 2001, April 9, 2001 and May 11, 2001. The notes bear interest
at 12 percent per annum, require monthly payment of interest only and
mature on June 30, 2002. As of December 31, 2001, Denholtz repaid $736 in
principal. In addition, Denholtz paid the cost of all prepayment penalties
and assumption fees related to the Trust's mortgage debt secured by the
properties that were sold. The Trust realized net gains on disposition of
investment in real estate (net of minority interest of $6,445) of $25,771.
The following table shows cash flows for the year ended December 31,
2001.
Gross sales proceeds $ 185,250
Repayment of mortgage loans payable (93,061)
Closing prorations and closing costs (4,850)
Purchase money notes (3,000)
----------
Net proceeds from sale 84,339
Release of restricted cash upon repayment
of debt 2,345
Escrow for post closing adjustments (1,500)
Distributions to minority interests (8,698)
Liquidating distributions to
shareholders at $4.95 per share (76,708)
Receipt of principal and interest
on employees' notes 2,867
Receipt of principal on notes receivables 736
Receipt of forfeited earnest money 1,000
----------
Net cash available from sale of
properties and related transactions 4,381
Increase in operating cash (net of
distribution to minority interest
of $422 and other distribution to
shareholders of $610) 719
----------
Net change in cash and
cash equivalents 5,100
Cash and cash equivalents as of
January 1, 2001 2,393
----------
Cash and cash equivalents as of
December 31, 2001 $ 7,493
==========
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of December 31, 2001, the Trust owned interests in three
properties: University Square Business Center in Huntsville, Alabama, 6901
Riverport Drive in Louisville, Kentucky and Northlake Tower Shopping
Center in Atlanta, Georgia. Subsequent to the first closing and prior to
December 3, 2001, in accordance with the Purchase and Sale Agreement, the
Trust was contractually obliged to sell University Square Business Center
to Denholtz and was permitted to sell the Riverport property and the
Northlake Tower Shopping Center to third parties or to "put" these
properties to Denholtz at agreed upon prices. The sum of $1,000 was held in
escrow to secure Denholtz's performance under these deferred closings.
On December 3, 2001, Denholtz notified the Trust in writing that it no
longer intended to acquire University Square as required under the
contract. The Trust received $1,000 in forfeited earnest money that was
recorded as income in the fourth quarter. The forfeiture of the University
Square earnest money also extinguished the Trust's right to "put" the other
two properties to Denholtz. The Trust is currently marketing all three
properties for sale.
During the fourth quarter of 2001, the Trust recorded a Provision for
Asset Impairment in the amount of $2,658 related to its Louisville,
Kentucky property. On February 20, 2002, the Trust entered into a contract
to sell its Louisville, Kentucky property for a gross purchase price of
$6,050. The purchase contract contains a 60-day inspection period during
which the purchaser may terminate the contract without penalty.
Additionally, the contract is also subject to the ability of the purchaser
to obtain, within sixty days, suitable financing (as determined in the
purchaser's sole discretion) for the contemplated purchase. Prior to the
valuation adjustment, the Trust's net carrying value for this property was
$8,408.
The purchaser has the right to attempt to assume the existing
industrial revenue bond financing or to seek new financing. If the
purchaser cannot obtain suitable financing within sixty days, the purchaser
can terminate the contract without penalty. Closing must take place within
sixty days of the end of the inspection period (i.e. on or prior to
June 21, 2002).
On March 1, 2002 the Trust signed a contract to sell the University
Square property for a gross purchase price of $8.45 million. A member of
the purchasing group includes the Trust's Chief Financial Officer. The
contract is subject to a 60-day financing period during which the purchaser
can terminate the contract without penalty if it is unable to obtain
approval to assume the existing first mortgage financing. If the purchaser
is unable to obtain the requisite approval within 60 days, it can, at its
option, request an additional 30 days to meet this condition. If the
purchaser is unable to obtain approval, it has the right to cancel the
contract without penalty. If the sale is consummated, the Trust expects to
realize net sales proceeds of approximately $3.7 million in the second
quarter of 2002.
On March 14, 2002, the Trust acquired the interests of its partner, M
& J Wilkow, Ltd., in the Northlake Tower Shopping Center property for a
gross purchase price of $1,300. Prior to sale, M & J Wilkow had an 18.1%
interest in the property's cash flow and a 28.1% interest in its capital
proceeds.
2. ORGANIZATION AND DESCRIPTION OF BUSINESS
Banyan Strategic Realty Trust (the "Trust") was organized in 1986 as a
business trust under the laws of the Commonwealth of Massachusetts. The
business of the Trust is the ownership and operation of real estate
properties. At December 31, 2000, the Trust owned twenty-seven properties
located principally in the Midwest and Southeast United States. See Note 8
for information with respect to the Trust's business segments.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
As a result of the Plan of Termination and Liquidation, the Trust
changed its basis of accounting from the going concern to the liquidation
basis effective January 1, 2001. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable values and
liabilities are stated at their estimated settlement amounts.
The valuation of assets and liabilities requires many estimates and
assumptions and there are substantial uncertainties in carrying out the
provisions of the Plan of Termination and Liquidation. The actual value of
the liquidating distributions will depend upon a variety of factors
including, among others, the proceeds from the sale of the Trust's assets
and the payment of all of the Trust's liabilities.
The accompanying consolidated financial statements include the
accounts of the Trust, its wholly-owned subsidiaries and its controlled
Partnerships. All intercompany balances and transactions have been
eliminated in consolidation.
INVESTMENT IN REAL ESTATE
Depreciation of buildings is computed using the straight-line method
over the estimated useful lives of the assets, generally 40 years.
Depreciation of tenant improvements is computed using the straight-line
method over the shorter of the lease term or useful life. For the years
ended December 31, 2001, 2000 and 1999, depreciation expense amounted to
$3,211, $6,091 and $5,982, respectively. Repairs and maintenance are
charged to expense when incurred.
The Trust recognizes impairment losses for its properties when
indicators of impairment are present and a property's expected undiscounted
cash flows are not sufficient to recover the property's carrying amount.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" which is effective for fiscal years
beginning after December 15, 2001. Application of the provisions of this
Statement are not expected to affect the net assets in liquidation of the
Trust.
The Trust classifies its real estate properties as held for sale when
its Board of Trustees has authorized the sale and an active program to find
a buyer has been initiated. The Trust classified all of its properties as
held for sale as of December 31, 2001 and 2000.
DEFERRED FINANCING COSTS
Deferred financing costs were amortized in 2000 and 1999 over the term
of the related loans.
REVENUE RECOGNITION
Minimum rentals were recognized on a straight-line basis in 2000 and
1999 over the term of the related leases. Additional rents in the form of
operating expense reimbursements for common area maintenance expenses and
real estate taxes are recognized in the period in which the related
expenses are incurred.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Trust believes the carrying amount of its financial instruments
approximates fair value at December 31, 2001 and 2000, because (i) the
fixed rates on mortgage loans payable are comparable to rates currently
offered in the market, (ii) the rates on the line of credit and bonds
payable are variable and the terms are comparable to those currently
offered in the market and (iii) the maturities of the Trust's cash
equivalents are relatively short.
INCOME TAXES
For the years ended December 31, 2001, 2000 and 1999, the Trust
elected or will elect to be treated as a real estate investment trust
("REIT") under Internal Revenue Code Sections 856-860. In order to
qualify, the Trust is required to distribute at least 95% of its "REIT"
taxable income to shareholders, meet asset and income tests and comply with
certain other requirements.
As of December 31, 2001, Investment in Real Estate has a gross and net
basis of $37,460 and $31,696, respectively, for income tax purposes.
As of December 31, 2001, the Trust has a net operating loss carry-
forward of $16,029 which will expire in 2006 ($7,787), 2008 ($789), and
2012 ($7,453).
CASH EQUIVALENTS
The Trust considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents amounts held in escrow for post closing
adjustments related to the Denholtz sale, future redemption of a portion of
the Bonds Payable and amounts held by lenders to provide for future real
estate tax expenditures and tenant improvements, utility deposits and
security deposits. Certain of these amounts may be reduced upon the
fulfillment of certain conditions.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
2000 1999
---------- -----------
Numerator:
Income Available to Common Shares
Before Net Gains and Extra-
ordinary Item . . . . . . . . . . $ 2,040 $ 4,581
Net Gains (a) . . . . . . . . . . . -- 4,089
Extraordinary Item, Net of
Minority Interest . . . . . . . . (42) (183)
---------- ----------
Net Income Available to
Common Shares . . . . . . . $ 1,998 $ 8,487
========== ==========
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2000 1999
---------- -----------
Denominator:
Denominator for basic earnings per
weighted-average shares . . . . . 14,182,800 13,468,514
Effect of dilutive securities:
Employee stock options. . . . . . 4,717 6,558
Convertible debt. . . . . . . . . -- --
---------- -----------
Dilutive potential common shares. . 4,717 6,558
Denominator for diluted
earnings per share-adjusted
weighted-average shares and
assumed conversions . . . . 14,187,517 13,475,072
========== ===========
Basic Earnings Available to Common
Shares Per weighted-average Common
Share:
Income before Net Gains and
Extraordinary Item. . . . . . . . $ 0.14 $ 0.34
Net Gains (a) . . . . . . . . . . . -- 0.30
Extraordinary Item, Net of
Minority Interest . . . . . . . . -- (0.01)
---------- -----------
Net Income. . . . . . . . . . $ 0.14 $ 0.63
========== ===========
Diluted Earnings Available to Common
Shares Per weighted-average Common
Share:
Income before Net Gains and
Extraordinary Item. . . . . . . . $ 0.14 $ 0.34
Net Gains (a) . . . . . . . . . . . -- 0.30
Extraordinary Item, Net of
Minority Interest . . . . . . . . -- (0.01)
---------- -----------
Net Income. . . . . . . . . . $ 0.14 $ 0.63
========== ===========
(a) Net gains include gain on disposition of investment in real estate.
For purposes of the computation of diluted earnings per share, options
to purchase common shares at $6.375 per share that were outstanding during
2000 and 1999 were not included in the 2000 and 1999 computation because
the options' exercise price was greater than the average market price of
the common shares and, therefore, the effect would be antidilutive.
The effect of conversion of $7,400 of convertible debt was not
included in the calculations since the effect was antidilutive.
For additional information relating to convertible debt and employee
stock options, see notes 5 and 10.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. LONG-TERM DEBT
The Trust's long-term debt consists of the following at December 31,
2001 and 2000:
2001 2000
--------------------- ----------------------
Weighted Weighted
Average Average
Interest Interest
Balance Rate Balance Rate
--------- -------- --------- --------
Mortgage loans. . $ 21,555 7.91% $115,452 7.66%
Bonds . . . . . . 3,900 3.46% 4,200 6.07%
-------- ----- -------- -----
Total collatera-
lized debt . . . $ 25,455 7.24% $119,652 7.61%
======== ===== ======== =====
Mortgage loans of $21,555 had fixed interest rates that ranged from
7.64% to 8.89% at December 31, 2001. Bonds payable consist of variable
rate tax exempt revenue bonds which bear interest equal to 3.46% at
December 31, 2001. Substantially all of the mortgage loans and bonds
contain prepayment penalties. During 2000 and 1999, the Trust recognized
extraordinary losses of $42 and $183, respectively, related to prepayments
on refinanced debt and the writeoff of unamortized financing costs.
Substantially all of the Trust's real estate is pledged as collateral for
the mortgage loans and bonds.
During 1998, the Trust borrowed $7.4 million pursuant to its $20
million 1997 Convertible Term Loan Agreement for an unsecured convertible
term loan (the "Unsecured Loan"). On January 20, 2000, the Trust repaid
$1,243 of the Unsecured Loan and the remaining balance of $6,157 was
converted into 61,572 Series A convertible preferred shares and on April
27, 2001 these preferred shares were further converted into 1,195,574
common shares at a conversion price of $5.15 per share. The Series A
convertible preferred shares paid quarterly preferred dividends at rate of
10% per annum. Prior to conversion, the Unsecured Loan bore interest at an
annual interest rate of 12% payable quarterly and the Trust was required to
pay an annual fee equal to 2% of the amount outstanding on October 14, of
each year.
On October 12, 2001, the Trust entered into an Amendment to
Substituted, Amended and Restated Reimbursement Agreement with the issuer
of the Letter of Credit (the "LOC Bank") collateralizing the bonds payable
related to the Riverport property. This amendment primarily extended for a
period of one year, the term of the letter of credit which otherwise would
have expired on December 1, 2001. On that same date, the Trust deposited
$300 with the LOC Bank which was used to make the mandatory bond redemption
payment scheduled for December 1, 2001. The Trust additionally agreed to
pay the LOC Bank $500 to be utilized to further redeem additional
outstanding bonds payable over and above any otherwise scheduled redemption
payments, upon its receipt of the $1,000 earnest money deposit in
connection with the Denholtz contract. As of December 31, 2001, the $500
was held in restricted cash by the trustee of the bonds and was utilized to
redeem bonds on February 1, 2002.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The principal balance of the Trust's long-term debt at December 31,
2001, is scheduled to be repaid as follows:
2002 . . . . . . . . . . . . $ 1,102
2003 . . . . . . . . . . . . 627
2004 . . . . . . . . . . . . 654
2005 . . . . . . . . . . . . 683
2006 . . . . . . . . . . . . 715
Thereafter . . . . . . . . . 21,674
-------
$25,455
=======
6. BUSINESS SEGMENTS
As of December 31, 2001, the Trust's only operating segment was the
disposal of its remaining properties. During 2000 and 1999, the Trust
owned and operated real estate properties located principally in the
Midwest and Southeast United States. The Trust had three operating
segments corresponding to the three property types comprising its real
estate assets: flex/industrial, office and retail. As of December 31,
2000, the flex/industrial segment was comprised of twelve complexes with
long-term leases to approximately 180 tenants; the office segment was
comprised of fourteen office sites with long-term leases to approximately
270 tenants; and the retail segment was comprised of one retail center with
long-term leases to approximately 50 tenants. As of December 31, 1999, the
flex/industrial segment was comprised of thirteen complexes, the office
segment was comprised of fourteen office sites and the retail segment was
comprised of one retail center. Prior to the sale of the Oklahoma
Apartment Portfolio in December 1999, a fourth segment - the residential
segment - was comprised of four apartment complexes with 864 units. During
2000 and 1999, the Trust's long-term tenants were in a variety of
businesses and no individual tenant was significant to the Trust's business
when considered as a whole.
Information by business segments is set forth below:
2000 1999
-------- --------
Revenue
Flex/Industrial . . . . . . . . . $ 11,205 $ 11,416
Office. . . . . . . . . . . . . . 21,313 21,264
Residential . . . . . . . . . . . -- 4,168
Retail. . . . . . . . . . . . . . 4,705 4,771
Corporate/Other . . . . . . . . . 573 97
-------- --------
$ 37,796 $ 41,716
======== ========
Income (loss) before net gains and
extraordinary item
Flex/Industrial . . . . . . . . . $ 2,857 $ 2,518
Office. . . . . . . . . . . . . . 4,686 5,177
Residential . . . . . . . . . . . -- 688
Retail. . . . . . . . . . . . . . 576 736
Corporate/Other . . . . . . . . . (5,494) (4,538)
-------- --------
$ 2,625 $ 4,581
======== ========
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2000 1999
-------- --------
Total Assets
Flex/Industrial . . . . . . . . . $ 69,176 $ 69,279
Office. . . . . . . . . . . . . . 107,151 105,756
Residential . . . . . . . . . . . -- --
Retail. . . . . . . . . . . . . . 17,444 18,125
Corporate/Other . . . . . . . . . 2,286 13,487
-------- --------
$196,057 $206,647
======== ========
Depreciation and amortization
Flex/Industrial . . . . . . . . . $ 2,366 $ 2,252
Office. . . . . . . . . . . . . . 3,984 3,287
Residential . . . . . . . . . . . -- 552
Retail. . . . . . . . . . . . . . 573 538
Corporate/Other . . . . . . . . . -- --
-------- --------
$ 6,923 $ 6,629
======== ========
Interest expense
Flex/Industrial . . . . . . . . . $ 2,954 $ 3,557
Office. . . . . . . . . . . . . . 4,914 5,540
Residential . . . . . . . . . . . -- 1,136
Retail. . . . . . . . . . . . . . 1,312 1,325
Corporate/Other . . . . . . . . . -- --
-------- --------
$ 9,180 $ 11,558
======== ========
Additions to Investment in
Real Estate
Flex/Industrial . . . . . . . . . $ 1,906 $ 2,364
Office. . . . . . . . . . . . . . 4,473 3,257
Residential . . . . . . . . . . . -- 278
Retail. . . . . . . . . . . . . . 43 85
Corporate/Other . . . . . . . . . -- --
-------- --------
$ 6,422 $ 5,984
======== ========
7. TRANSACTIONS WITH AFFILIATES
During the first eight months of 2000 and the year ended December 31,
1999, the Trust paid no salary to, but purchased legal services from an
executive officer of the Trust. Fees for legal services totaled $246 and
$331, respectively. The executive paid no rent, as such, to the Trust for
the use of office space or equipment but granted the Trust a discount equal
to approximately 20% compared to rates charged to third parties for all
time billed to the Trust by the executive and his employees. The executive
also reimbursed the Trust for the cost of two full time and certain part
time employees. As of September 1, 2000, this executive signed an
employment agreement whereby he became a full time employee of the Trust.
8. DISTRIBUTIONS PAID AND PAYABLE
To qualify as a REIT, the Trust must distribute at least 95% of its
"REIT Taxable Income" to shareholders. For 1999, net operating losses of
$2,923 were utilized in meeting this requirement. A portion of the
distributions paid during the subsequent year may be allocable to taxable
income earned in the prior year.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Trust has determined the shareholders' treatment for federal
income tax purposes to be as follows:
2001 2000 1999
------- ------- -------
Ordinary income. . . . . . . . $ -- $ 5,652 $ 2,562
Long-term capital gain . . . . -- -- 3,899
Return of capital. . . . . . . 77,318 1,741 --
------- ------- -------
$77,318 $ 7,393 $ 6,461
======= ======= =======
9. LEASES
MINIMUM RENTALS UNDER OPERATING LEASES
The Trust receives rental income from the rental of retail, office and
flex/industrial space under operating leases. The following is the minimum
future base rentals (excluding amounts representing executory costs such as
taxes, maintenance and insurance) on operating leases for the Trust's
flex/industrial, office and retail projects held at December 31, 2001:
2002 . . . . . . $ 5,713
2003 . . . . . . 5,116
2004 . . . . . . 3,873
2005 . . . . . . 2,310
2006 . . . . . . 1,681
Thereafter . . . 7,001
-------
$25,694
=======
No single tenant at the Trust's operating properties produced ten
percent or more of total income from property operating activities during
2001.
The Trust is subject to the usual business risks regarding the
collection of the above-mentioned rentals.
GROUND LEASE
The Trust owns a leasehold interest in a shopping center in Atlanta,
Georgia. The lease expires in 2067. The ground lease requires annual
lease payments of $600 through October 4, 2007 plus 7% of total annual
gross rental income commencing when gross rental income exceeds $2,000 from
the operations of the shopping center. The ground lease also requires that
the Trust pay property operating expenses, including real estate taxes.
The base rent is reset in 2007 based upon a market rent within a
contractually defined range.
10. STOCK OPTIONS
As of December 31, 2001, the Trust had a stock option plan under which
options for 18,000 shares were outstanding and exercisable at a weighted
average exercise price per share of $5.486. On January 30, 2002, the
Trust's board of directors approved terminating the stock option plan. In
connection with the termination, the outstanding options were surrendered
for a cash payment of $11.
In 1999, holders of stock options were given the opportunity to
exercise all their vested options with the proceeds of a loan from the
Trust. Each loan was non-recourse, collateralized by the shares acquired,
and required interest at an annual rate of 6.5%. Of the approximately
$3,200 borrowed, $412 remains outstanding at December 31, 2001.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN
The Trust has established the Trust's Distribution Reinvestment and
Share Purchase Plan (the "DRIP Plan"). The DRIP Plan allows shareholders
of the Trust to: (i) automatically reinvest the cash distributions on all,
or part, of shares registered in their name; and (ii) make cash investments
of not more than $120 per calendar year. Shares purchased under the DRIP
Plan will be issued directly by the Trust at either: (i) 97% of the average
closing sales price of the shares as reported on the NASDAQ National Market
on the last five business days preceding the relevant investment date in
the case of reinvested cash distributions; or (ii) 100% of the
aforementioned average closing price in the case of cash investments. For
the years ended December 31, 2001, 2000 and 1999, the Trust issued 9,923,
149,367 and 161,422 shares of beneficial interest under the DRIP Plan and
received total proceeds of $55, $797 and $835, respectively. The Trust
does not permit the reinvestment of liquidating distributions.
12. SEVERANCE AND TERMINATION COSTS
In September 2000, the Trust adopted an employee severance and
retention program. The Trust has since terminated certain employees and
will continue to review its staffing needs in the future in consideration
of the adoption of the Plan of Termination and Liquidation (see Note 1).
The accompanying consolidated financial statements for the year ended
December 31, 2000 include a charge of approximately $1,900 related to the
severance and retention program. These severance and termination costs
include a charge of approximately $300 related to base compensation payable
to Mr. Leonard Levine from August 14, 2000 through December 31, 2001 under
the terms of his employment agreement (see Note 13). An additional $613
was accrued under the program for the year ended December 31, 2001.
13. LITIGATION
On August 14, 2000, the Trust exercised its rights under the Trust's
employment agreement with Mr. Leonard G. Levine by suspending him and
placing him on leave from his position as president. Simultaneously, the
Trust initiated an arbitration proceeding as required under the employment
agreement. On October 5, 2000, Mr. Levine filed an action in the Circuit
Court of Cook County, Illinois asking the court to terminate the
arbitration proceedings by reason of improper forum. On October 18, 2000,
the Trust filed a lawsuit against Mr. Levine in the Circuit Court of Cook
County, Illinois. The Trust's complaint alleges violations of Mr. Levine's
duty of loyalty owed to the Trust.
On December 6, 2000, Mr. Levine and the Trust, through their
respective attorneys, agreed to dismiss the arbitration action and Mr.
Levine's lawsuit challenging the arbitration and further agreed to resolve
all issues under Mr. Levine's employment contract within the Trust's
lawsuit against Mr. Levine in the Circuit Court of Cook County (the
"Employment Litigation").
On January 19, 2001, Mr. Levine filed an answer affirmative defenses
and counterclaim in the Employment Litigation. The pleading generally
denies that Mr. Levine breached his fiduciary duties, raises various
defenses and seeks a judgment in favor of Mr. Levine and against the Trust
on the counterclaim, for money damages and also seeks a reinstatement to
active employment status. Discovery in this case has commenced and is
continuing.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On May 2, 2001, Mr. Levine presented a motion for partial judgment on
the pleadings, which was denied at a hearing on July 19, 2001. The Trust
filed a Third Amended Complaint on September 6, 2001, seeking, among other
things, $300 in compensatory damages and $3,000 in punitive damages against
Mr. Levine in connection with various alleged breaches of fiduciary duty.
The factual bases underlying the Third Amended Complaint include
allegations that (i) Mr Levine caused the Trust to pay on his account or
reimburse him for expenses that were not reasonable, ordinary and necessary
business expenses; (ii) during negotiations between the Trust and The Oak
Realty Group, Inc. (an entity solely owned by Mr. Levine) Mr. Levine
attempted to pressure the Trust into accepting Oak's offer to acquire the
Trust by revealing to one of the trustees that Oak had entered into certain
confidentiality and exclusivity agreements which had the effect of
excluding potential purchasers and/or capital providers from purchasing or
providing financing to a potential purchaser of the Trust, except through
Oak; (iii) Mr. Levine's failure to disclose to the Board of Trustees a
prior pattern and practice of obtaining unauthorized expense reimbursements
allows the Board to rescind Mr. Levine's 1999 Employment Contract and
legally estops Mr. Levine from obtaining any benefits under that contract
and (iv) Mr. Levine's prosecution of a shareholder derivative action from
January to April of 2001, which action was resolved by summary judgment in
favor of the Trust, amounts to a separate breach of fiduciary duty by
Mr. Levine. Mr. Levine has answered all counts.
On May 7, 2001, the Trust amended its answer to Mr. Levine's
counterclaim in the Employment Litigation to add several affirmative
defenses based upon Mr. Levine's breaches of his fiduciary duty of loyalty.
The maximum potential liability in connection with Mr. Levine's contract
(inclusive of incentives but exclusive of base salary) is estimated to be
approximately $1.8 million. During the pendency of the litigation through
December 31, 2001, the Trust continued to pay a base salary to Mr. Levine.
The Trust is seeking recovery of these payments, among other recoveries, in
the litigation.
A case management conference in the Employment Litigation was held on
October 18, 2001. Judge Siebel of the Circuit Court of Cook County
ordered: (i) all written fact discovery must be concluded by January 31,
2002; (ii) all non-expert depositions must be concluded by April 30, 2002;
and (iii) a further status hearing for the purpose of setting a date for
the close of discovery will be held on May 17, 2002. Judge Siebel's
October 18, 2001 scheduling order was modified as a result of a motion
brought by Mr. Levine on January 31, 2002. The revised schedule calls for:
(i) the conclusion of all written fact discovery by March 31, 2002; (ii)
the conclusion of all non-expert depositions by June 30, 2002; and (iii) a
further status hearing on May 17, 2002.
On December 17, 2001, the Trust filed a motion for partial summary
judgment in the Employment Litigation. This motion seeks a ruling by the
court that the Trust had "just cause" to terminate Mr. Levine's employment
contract at the time the Trust placed Mr. Levine on suspension on August
14, 2000. The motion is currently being briefed by the parties and is
scheduled for hearing on April 4, 2002.
The Trust is also involved in various litigation arising in the
ordinary course of business. It is management's opinion that the defense
of these matters and the potential liability are adequately protected by
insurance coverage. Although the final outcome of these matters cannot be
determined, based on the facts presently known, it is management's opinion
that the final resolution of these matters will not have an adverse effect
on the Trust's net assets in liquidation.
SUBSEQUENT EVENT - Purchase of Northlake Partnership Interest and Denholtz
Settlement [ to be updated ]
<table>
SCHEDULE III
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
<caption>
Costs
Capitalized
Initial costs Subsequent Gross Amount at which Carried
to the Trust to Acquisition at December 31, 2001 (a)(b)(c)
----------------------------------------------------------------------------
Building Building Building Accumu-
Property & Location/ & & & lated
Date of Construction/ Improve- Improve- Improve- Deprecia-
Date Acquired Land ments Land ments Land ments Total tion
- ------------------ ----------- ----------- ------ --------- ---------- ----------- ----------- ----------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Northlake Tower
Shopping Center
Atlanta, GA
1983-1984
7/28/95 $ -- $ 17,144 $ -- $ 1,096 $ -- $ 18,240 $ 18,240 $ 3,164
6901 Riverport
Drive
Louisville, KY
1985
11/19/96 1,750 8,242 -- (3,177)(d) 1,750 5,065 6,815 1,065
University Square
Business Center
Huntsville, AL
1984-1987
8/26/97 1,387 5,950 -- 1,795 1,387 7,745 9,132 1,535
------- -------- ----- -------- -------- -------- -------- --------
$ 3,137 $ 31,366 $ -- $ (286) $ 3,137 $ 31,050 $ 34,187 $ 5,764
======= ======== ===== ======== ======== ======== ======== ========
<fn>
- --------------------
(a) The aggregate cost of the above real estate at December 31, 2001 for Federal income tax purposes is
$37,460. For further details regarding encumbrances on the Trust's properties see Note 5, Long-Term
Debt.
(b) Reconciliation of real estate owned:
</table>
<table>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
<caption>
2001 2000 1999
-------- -------- --------
<s> <c> <c> <c>
Balance at Beginning of Year. . . . . . . . $205,686 $199,264 $220,808
Sale of Property and Provision for
Asset Impairment (1). . . . . . . . . . . (172,750) -- (27,528)
Additions During Year . . . . . . . . . . . 1,251 6,422 5,984
-------- -------- --------
Balance at End of Year. . . . . . . . . . . $ 34,187 $205,686 $199,264
======== ======== ========
<fn>
(1) In connection with the sale of Quantum Business Center and the Oklahoma apartment portfolio,
the Trust transferred $135 of net operating assets in 1999.
(c) Depreciation expense is computed using the straight line method. Rates used in the determination of
depreciation are based upon the estimated useful life of the asset, primarily 40 years.
</table>
<table>
<caption>
2001 2000 1999
-------- -------- --------
<s> <c> <c> <c>
Reconciliation of Accumulated Depreciation:
Beginning of Year . . . . . . . . . . . . . $ 21,511 $ 15,420 $ 11,399
Depreciation Expense. . . . . . . . . . . . 3,211 6,091 5,982
Sale of Property. . . . . . . . . . . . . . (18,958) -- (1,961)
-------- -------- --------
Balance at End of Year. . . . . . . . . . . $ 5,764 $ 21,511 $ 15,420
======== ======== ========
(d) Includes provision for asset impairment in 2001.
</table>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the accountants
on any matter of accounting principles, practices or financial statement
disclosure.
PART III
ITEM 10. OUR TRUSTEES AND EXECUTIVE OFFICERS
The trustees and executive officers of the Trust are as follows:
Walter E. Auch, Sr. Trustee
Daniel Levinson Trustee
Stephen M. Peck Trustee
L.G. Schafran Interim President/
Chief Executive Officer and Trustee
Leonard G. Levine President
Robert G. Higgins First Vice President/
Chief Operating Officer
and General Counsel
Joel L. Teglia Executive Vice President/
Chief Financial Officer
Christopher J. Swieca Vice President, Chief Governance
and Administrative Officer and
Secretary
WALTER E. AUCH, SR. Mr. Auch, age 80, has served as an independent
trustee since 1986. Mr. Auch served as the chairman and chief executive
officer of the Chicago Board of Options Exchange from 1979 to 1986. Prior
to that time, Mr. Auch was executive vice president, director and a member
of the executive committee of PaineWebber. Mr. Auch is a director of Smith
Barney Concert Series Funds, Smith Barney Trak Fund, The Brinson Partners
Funds, the Nicholas Applegate Funds, and Semele Group, Inc. and a trustee
of Hillsdale College and the Arizona Heart Institute.
DANIEL LEVINSON. Mr. Levinson, age 44, has served as an independent
trustee since 1999 and currently serves as Principal of Berchwood Partners,
LLC. From January 2000 until March 2001, Mr. Levinson served as chief
financial officer for the Oracle Investment Management Inc. From 1993 to
1999, Mr. Levinson was employed by Morgens Waterfall, Vintadis and Company,
Inc. as its chief financial officer and specialized in the management and
workout of real estate and other investments in its investment funds.
Before working at Morgens, Mr. Levinson was a vice president at Sentinel
Real Estate Corporation, an institutional real estate investment manager.
Prior to joining Sentinel in 1988, Mr. Levinson was at KPMG Peat Marwick
for over six years. Mr. Levinson is a certified public accountant and a
member of the American Institute of Certified Public Accountants.
STEPHEN M. PECK. Mr. Peck, age 66, has served as an independent
trustee since 1999 and is currently a Partner of Torrey Funds, LLC. Mr.
Peck is a director of Fresenius Medical Care, Canarc Resources, Cancer
Advisors , Boston Life Sciences, Advance Auto Parts and OFFIT Investment
Funds. He is also a member of the Advisory Board of Brown Simpson Asset
Management. Mr. Peck serves as Chairman of the Board of Trustees of Mount
Sinai Hospital and Mount Sinai School of Medicine. He also serves as a
member of the Board of Trustees of The Jewish Theological Seminary.
L.G. SCHAFRAN. Mr. Schafran, age 63, has served as a trustee since
1999 and as our interim president and chief executive officer since
August 14, 2000. He is currently chairman of our board and has been a
Managing General Partner at L.G. Schafran & Associates since 1984. Mr.
Schafran is a director of Tarragon Realty Investors, Inc. (f/k/a National
Income Realty Trust), PubliCARD, Inc. (f/k/a Publicker Industries, Inc.),
Vertex Interactive and chairman of the board of Delta-Omega Technologies,
Inc. Mr. Schafran served as a director of Capsure Holdings Inc. from 1986
to 1997, OXIGENE, Inc. from 1993 to 1996, Glasstech, Inc. from 1995 to
1997, Dart Group Corporation from 1993 to 1997, Kasper A.S.L., Ltd. from
1997 to 2000 and COMSAT Corporation from 1994 to 2000.
ROBERT G. HIGGINS. Mr. Higgins, age 50, has served as our vice
president and general counsel since 1992 and as secretary from 1995 to
2000. Effective December 14, 2000, Mr. Higgins became our first vice
president, general counsel, chief operating officer and assistant
secretary. Mr. Higgins received a B.A. degree in government from the
University of Notre Dame and a law degree from Loyola University of
Chicago. Mr. Higgins concentrates his practice in the areas of real estate
development, finance, acquisition, land use, sales, lending and general
corporate business practice. Mr. Higgins previously served as vice
president, general counsel and secretary of Legend Properties, Inc. (f/k/a
Banyan Mortgage Investment Fund), Banyan Short Term Income Trust and Semele
Group, Inc. (f/k/a Banyan Strategic Land Fund II) (collectively, the
"Banyan Funds")and is currently serving in the same position for BSRT
Management Corp. Mr. Higgins is admitted to the bar in the States of
Illinois, Minnesota and Texas and also practices law as a sole
practitioner.
JOEL L. TEGLIA. Mr. Teglia, age 40, has served as our vice president
and chief financial officer since 1994. Effective December 14, 2000, Mr.
Teglia became our executive vice president and chief financial officer.
Previously he served as vice president and chief financial officer of each
of the Banyan Funds and is currently serving in the same position for BSRT
Management Corp. Prior to his appointment, Mr. Teglia provided various
services to us in his capacity as controller for BSRT Management Corp.
(f/k/a Banyan Management Corp.), a position that he held from 1991 to 1994.
Mr. Teglia received a B.A. degree in accounting from the University of
Notre Dame and is a certified public accountant.
CHRISTOPHER J. SWIECA. Mr. Swieca, age 42, has been our assistant
secretary since 1994. Effective December 14, 2000, Mr. Swieca became a
vice president and our chief governance and administrative officer and
secretary. Mr. Swieca received his B.A. degree in political science from
Loyola University of Chicago and currently serves as president of the
American Society of Corporate Secretaries ("ASCS"), Chicago Chapter and has
previously served terms as vice president, treasurer and has been an
advisory committee member since 1998. Mr. Swieca is an active member of
the ASCS and has served on several national committees including the
NASDAQ-AMEX Advisory Committee and is a Corporate Outreach Advisory Board
Member, Loyola University Chicago, Center for Ethics and Social Justice
formally the Center for Business Ethics. Mr. Swieca is involved in Mr.
Higgins' practice and has served as assistant secretary of the Banyan Funds
and BSRT Management Corp.
LEONARD G. LEVINE. Mr. Levine, age 55, has been our president and
chief executive officer since 1990. On August 14, 2000, we suspended Mr.
Levine from his duties as president and chief executive officer. Please
refer to Item 3. - Legal Proceedings for a discussion of litigation pending
against Mr. Levine. Mr. Levine also served as a trustee of ours from
September, 1986 until February 1990 and again from 1998 to 2000.
Mr. Levine received a bachelors of science/bachelors of arts degree in
accounting from Roosevelt University and a masters degree in taxation from
DePaul University. Mr. Levine previously served as president of the Banyan
Funds. Mr. Levine is a certified public accountant and a licensed real
estate broker.
ITEM 11. COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS
A. INDEPENDENT TRUSTEE COMPENSATION
Each independent trustee is paid an annual fee of $20,000, payable
quarterly, plus $1,000 for each board or committee meeting attended in
person and $500 an hour for each board or committee meeting held by
telephonic conference call. We also reimburse each independent trustee for
out-of-pocket expenses incurred in attending board meetings. Each person
serving as an independent trustee is awarded an option to purchase 2,000 of
our common shares ten days after each annual meeting. All options granted
to the independent trustees vested and became exercisable in the following
installments: (1) fifty percent (50%) on the first anniversary of the
grant; and (2) fifty percent (50%) on the second anniversary of the grant.
Following the 2000 annual meeting, the Trust's board of trustees
approved terminating the Trust's Stock Option Program. In connection with
terminating the Program, each trustee surrendered any unexercised vested
options, which were granted under the Program in consideration for a cash
payment equal to the surrender value of the options. As a result, Mr. Auch
received $5,375 in exchange for his vested options; Mr. Levinson received
$2,125, Mr. Peck received $2,125 and Mr. Schafran (who had received options
under the Program prior to his appointment as chief executive officer and
interim president) received $1,125.
B. EXECUTIVE COMPENSATION
This table shows compensation paid to L.G. Schafran, our interim chief
executive officer, Leonard G. Levine, our suspended president and chief
executive officer, and our next three most highly compensated executive
officers during the last three years ended December 31, 2001.
<table>
<caption>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------- ----------------------------------
AWARDS PAYOUTS
----------------------- -------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR (2)($) ($) ($) ($) SARS(#) ($) ($) (4)
- -------- ---- ------ ----- ------------ ---------- ---------- ------- ------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
L. G. Schafran,
Interim President and
Chief Executive
Officer . . . . . . . 2001 $200,000 $ 0
2000 $ 73,077 $ 0
Leonard G. Levine,
President and
Chief Executive Officer
(Suspended August 14,
2000)(1)(3) . . . . . 2001 $213,727 $ 0
2000 $215,100 $ 0
1999 $212,217 $101,471
Robert G. Higgins
First Vice President,
Chief Operating
Officer and
General Counsel (5) . 2001 $275,000 $150,000
2000 $ 80,000 $ 0
Joel L. Teglia
Executive Vice President
and Chief Financial
Officer . . . . . . . 2001 $200,000 $ 36,000
2000 $152,942 $ 0 $204,765
1999 $143,208 $ 30,000
Christopher J. Swieca
Vice President,
Chief Governance and
Administrative Officer
and Secretary (5) . . 2001 $156,940 $ 45,000
2000 $ 45,240 $ 20,000
<fn>
(1) As of the fiscal year ended December 31, 2001, Mr. Levine owned 862,504 shares of beneficial interest,
512,504 of which he is restricted from transferring except in compliance with the registration requirements
of federal and state securities laws and 350,000 of which are pledged as collateral for his employee stock
loan. The value of these shares as of December 31, 2001, without any discount for the transfer restrictions
was $646,878.
(2) Includes the lesser of 3% of base compensation or $4,800 which was contributed by us to each employee's
401(k) plan. For 1999, due to timing of our bi-weekly pay periods, salary paid includes 1999 salary plus
1/26th of 1998's salary.
(3) On August 14, 2000, we exercised our rights under our employment agreement with Mr. Levine, by suspending
him and placing him on leave from his position as president. To replace Mr. Levine, our board of trustees
has appointed L. G. Schafran to the position of interim president and chief executive officer. Mr. Schafran
was also elected to the position of chairman of the board of trustees on October 13, 2000.
(4) Represents severance payment in settlement of Mr. Teglia's employment agreement dated December 31, 1998.
The total amount include a 2000 bonus payment of $26,765.
(5) The 2000 amounts represent payments from September 1, 2000 to December 31, 2000.
</table>
EMPLOYMENT AGREEMENTS.
MR. LEVINE. We entered into an employment agreement with Mr. Levine
on March 11, 1998, although the agreement became effective retroactively as
of October 1, 1997. The term of this agreement expired on December 31,
2001. On December 14, 1999 we entered into an agreement that would revise
the Trust's employment relationship with Mr. Levine upon a "Triggering
Event" (see below) and would provide for certain rights upon liquidation of
the Trust and the immediate vesting of all outstanding options. Under the
1997 agreement, we agreed to pay Mr. Levine a base salary equal to $200,000
per year through December 31, 1999 increasing to $210,000 per year during
the last two years of the agreement. The 1997 agreement also grants Mr.
Levine the ability to earn annual incentive compensation equal to 62.5% of
the base salary each year, provided that we achieve certain predetermined
levels of "funds from operations" increased by .03 for each one percentage
point that our actual per share "funds from operations" exceed the target
and decreased (but not below zero) by .04 for each one percentage point our
actual per share "funds from operations" is below the target amount.
The 1997 agreement also granted Mr. Levine options to purchase 350,000
shares at an exercise price equal to $5.50 per share. Mr. Levine exercised
all of the options on January 12, 2000. The 1997 agreement also requires
us to provide Mr. Levine with both life and disability insurance benefits
during the term of the agreement, as well as all non-wage benefits we
provide generally to our other salaried employees.
Mr. Levine's 1999 agreement contains provisions that require us to
make certain payments to him upon the occurrence of a "Triggering Event"
which is defined as:
. the date that a Plan of Liquidation of the Trust becomes effective;
. the date on which we sell all or substantially all of our assets;
. the date we merge or enter into a business combination with another
entity if, among other things, we are not the surviving entity; or
. the members of the existing board fail to constitute a majority of
the board.
The 1997 and 1999 agreements also give us the right to terminate or
suspend Mr. Levine under certain circumstances. On August 14, 2000, we
suspended Mr. Levine pursuant to our employment agreement with him and have
filed a lawsuit alleging that Mr. Levine breached certain fiduciary duties
owed to us and that he committed intentional acts that caused material
damage to our business or properties. Pending a final ruling by a court,
we will comply with the employment agreement including the compensation
provisions. To replace Mr. Levine, our board of trustees appointed L.G.
Schafran to the position of interim president and chief executive officer.
MR. SCHAFRAN. On August 14, 2000, following the suspension of Mr.
Levine, we engaged Mr. Schafran to become our interim president and chief
executive officer. On October 26, 2000, we entered into an employment
agreement with Mr. Schafran, the term of which was scheduled to end on
February 13, 2002. On February 14, 2002, we and Mr. Schafran executed an
amendment to Mr. Schafran's employment agreement extending its term until
our final liquidation and dissolution.
Under the original agreement we paid Mr. Schafran an annual base
salary of $200,000. No incentive bonus was earned or paid under the
original contract. Additionally, in lieu of the incentive bonus, Mr.
Schafran could have received an early completion bonus equal to $300,000 if
our shareholders received distributions greater than $6.00 per share on or
before December 31, 2000. The early completion bonus would have been
reduced to $225,000 if our shareholders receive distributions greater than
$6.00 per share after December 31, 2000 but on or before March 31, 2001.
Neither of the early completion bonuses was achieved.
Pursuant to the first amendment to Mr. Schafran's contract, we no
longer pay him a salary. Instead we compensate Mr. Schafran at the rate of
$300 per hour for services rendered to us. In addition, we reimburse Mr.
Schafran for his reasonable business expenses (including health insurance
premiums).
MR. HIGGINS. Effective September 1, 2000, we entered into an
employment agreement with Mr. Higgins whereby he became our first vice
president, general counsel and chief operating officer until October 31,
2002. Mr. Higgins' employment agreement may be terminated prior to its
expiration as follows: (1) by us for "cause"; (2) by us upon 60 days prior
written notice; (3) by our complete dissolution and liquidation; (4) by Mr.
Higgins' death or disability; or (5) voluntarily by Mr. Higgins. Under the
agreement, Mr. Higgins becomes our full-time employee, however, he is
allowed to perform legal services for clients. Mr. Higgins' initial base
salary is $260,000 with automatic 5% increases on January 1, 2001 and 2002.
Unless we terminate Mr. Higgins' employment for "cause" or Mr. Higgins
terminates it voluntarily, upon expiration of the term of the agreement, we
will pay Mr. Higgins a severance payment of one year's salary and a bonus
equal to 50% of the aggregate amount of base salary Mr. Higgins earned from
November 1, 2000 to the end of the agreement. "Cause" is defined in the
agreement as: (1) conduct amounting to fraud or wilful misconduct, (2) any
material act of dishonesty, (3) the conviction of Mr. Higgins of a felony
crime, and (4) a material breach of the agreement by Mr. Higgins which
remains uncured for a period of five business days following notice of such
breach. Additionally, Mr. Higgins may terminate the agreement if: (A) the
members of our board as of the date of the agreement fail to constitute a
majority of the board; (B) our shareholders adopt a plan of liquidation
without our board's approval or recommendation; (C) we sell all of our real
estate properties or business; (D) we combine with another entity and our
shareholders immediately prior to the combination fail to retain a majority
of the voting securities of the surviving entity; (E) any person or entity
becomes the beneficial owner of a majority of our voting shares; (F) we
relocate our executive offices to a location in excess of 100 miles outside
of the Chicago Loop area; (G) we breach the agreement in a material respect
which we fail to cure within five business days of notice of such breach;
and (H) a material diminution of Higgins' duties, responsibilities or
authority occurs.
MR. TEGLIA. On November 1, 2000, we entered into a new agreement with
Mr. Teglia whereby he became our executive vice president and chief
financial officer following the annual meeting until October 31, 2002. Mr.
Teglia's agreement may be terminated for the same reasons enumerated in Mr.
Higgins' agreement. Upon execution of the agreement, we paid to Mr. Teglia
a severance payment of $204,765 in settlement of our obligations to him
under his prior employment agreement. Under the new agreement, Mr.
Teglia's initial annual base salary is $181,120, which was increased to
$200,000 on January 1, 2001 and $210,000 on January 1, 2002. Additionally,
unless we terminate Mr. Teglia's employment for "cause" or Mr. Teglia
terminates it voluntarily, upon expiration of the term of the agreement, we
will pay Mr. Teglia a bonus equal to 50% of the aggregate amount of base
salary Mr. Teglia earned during the term of the agreement. The definition
of "cause" in Mr. Teglia's agreement is identical to the definition set
forth in Mr. Higgins' agreement.
STOCK OPTION GRANTS
We did not grant any options to purchase shares of beneficial interest
during the year ended December 31, 2001 to any of our executive officers or
trustees. The table below sets forth the aggregated option exercises and
year-end option value for 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE
---------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---- -----------------------------------------------------
Leonard G. Levine . -- $ -- 0 / 0 $0 / $0
L.G. Schafran . . . -- -- 0 / 0 $0 / $0
Christopher J.
Swieca. . . . . . 3,000 $ 5,037 0 / 0 $0 / $0
Joel L. Teglia. . . 3,335 $ 5,599 0 / 0 $0 / $0
All of the options granted vested on December 13, 1999 because there
occurred a "change in control" as that term was defined in our Executive
and Director Omnibus Stock Option Plan. The "change in control" occurred
because on that date, the members of our board as of the effective date of
the Plan failed to constitute a majority of the members of our board. In
addition, in December 1999, we offered all of our current employees and
advisors who hold options the opportunity to exercise all of the vested but
unexercised options with the proceeds of a loan from us. Each loan is non-
recourse and bears interest at an annual rate of 6.5%. Each person is
required to pledge all shares purchased with the proceeds of the loan to
secure the payment of principal and interest on the loan. We loaned
approximately $3.2 million to these persons. As of December 31, 2001, the
total balance on these loans was $412,000. Future distributions will be
utilized first to pay interest and secondly to amortize the loan balance.
All loans will mature in five years; provided that any person who
terminates his or her employment or whom we terminate is required to repay
the loan and all accrued interest by surrendering the shares securing the
loan or by tendering sufficient funds to pay all amounts owing within one
month of terminating employment. Pursuant to our Severance and Retention
Program for non-contract employees, we have extended the term of any note
made by a terminated employee or will extend the term of any note made by
any other employee we choose to terminate, to the date upon which the last
of these notes comes due.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 28, 2002
regarding the number and percentage of our outstanding common shares
beneficially owned by: (1) each trustee; (2) each executive officer; and
(3) all trustees and executive officers as a group. The table also sets
forth information as of December 31, 2001 with respect to any person known
to us to be the beneficial owner of more than five percent of our
outstanding common shares. Information with respect to Morgens Waterfall
Income Partners, L.P., Kensington Investment Group, Inc., and Magten Asset
Management Corp. listed in the table below, including the notes, is based
solely on copies of statements filed under Section 13(d) or 13(g) of the
Exchange Act, and we have not independently confirmed this information.
Share amounts and percentages shown for each person or entity are adjusted
to give effect to common shares that are not outstanding but may be
acquired by a person or entity upon exercise of all options exercisable by
such entity or person within sixty days of the date of the date hereof.
However, those common shares are not deemed to be outstanding for the
purpose of computing the percentage of outstanding common shares
beneficially owned by any other person.
Amount and
Nature of
Name and Address of Beneficially Percent
Beneficial Owner Owned of Class
- -------------------- --------------- ----------
Morgens Waterfall Income 3,388,075 21.9%
Partners, L.P. (1)
Restart Partners, L.P.
Restart Partners II, L.P.
Restart Partners III, L.P.
Restart Partners IV, L.P.
Restart Partners V, L.P.
Endowment Restart, L.L.C.
10 East 50th Street
New York, NY 10022
Kensington Investment Group, Inc. (2)2,070,456 13.2%
Mellon Bank, N.A. as Trustee for
the General Motors Employees
Domestic Group Pension Trust
350 East 21st Street
New York, New York 10010
Leonard G. Levine, 862,504 5.6%
President (3)
Robert G. Higgins, 41,229 *
First Vice President,
General Counsel,
Chief Operating Officer and
Assistant Secretary (3)
Joel J. Teglia, 37,037 *
Executive Vice President and
Chief Financial Officer (3)
Christopher J. Swieca (3)(4) 17,000 *
Vice President,
Chief Governance and
Administrative Officer, and
Secretary
Amount and
Nature of
Name and Address of Beneficially Percent
Beneficial Owner Owned of Class
- -------------------- --------------- ----------
L.G. Schafran -- *
Walter E. Auch -- *
Daniel Levinson -- *
Steven M. Peck -- *
All Trustees and 957,770 6.2%
Named Executive Officers
of the Trust, as a group
(eight persons)
- --------------------
* less than 1%
(1) Certain affiliates of Morgens Waterfall Income Partners, L.P. have
filed reports with the SEC pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act")
indicating combined ownership of five percent (5%) or more of the
outstanding common shares. As of December 31, 2001, (i) Morgens
Waterfall Income Partners, L.P. owns 137,916 common shares; (ii)
Restart Partners, L.P. owns 437,556 common shares; (iii) Restart
Partners II, L.P. owns 974,496 common shares; (iv) Restart Partners
III, L.P. owns 798,465 common shares; (v) Restart Partners IV, L.P.
owns 504,485 common shares; (vi) Restart Partners V, L.P. owns
166,951 common shares; (vii) Endowment Restart, L.L.C. owns 368,206
common shares. Although John C. Waterfall and Edwin H. Morgens do
not directly own any common shares, each of them may be deemed an
indirect beneficial owner of 3,388,075 common shares by virtue of
their effective control over the operation of each of the affiliated
entities listed above. Furthermore, Morgens Waterfall Capital,
L.L.C. may be deemed an owner of 137,916 common shares by virtue of
its position as general partner of Morgens Waterfall Income Partners,
L.P.
(2) According to filings made with the SEC, Kensington Investment Group,
Inc. ("Kensington") is an investment advisor registered under the
Investment Advisors Act of 1940. Kensington has filed reports with
the SEC pursuant to Section 13(d) of the Exchange Act, indicating
ownership of five percent (5%) or more of the outstanding common
shares. As of December 31, 2001, Kensington has sole dispositive
power over 2,070,456 common shares, and sole voting power over
2,070,456 common shares.
(3) Includes shares purchased on January 12, 2000 pursuant to the
aforementioned employee stock loan program as follows: Mr. Levine,
350,000 shares; Mr. Higgins, 30,335 shares; Mr. Teglia, 29,000
shares; and Mr. Swieca 14,000 shares.
(4) Includes 1,000 shares beneficially owned by each of Mr. Swieca's
children.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 12, 2000, our employees exercised their vested options to
purchase 575,337 of our common shares with the proceeds of loans from us.
See "Compensation of Trustees and Executive Officers" above for details of
the loan program. The table below shows the original amounts outstanding
and the loan balances on December 31, 2000 due from our executive officers
and Adam Levine.
Original Balance at
Name Amount December 31, 2001
- ---- ---------- -----------------
Leonard G. Levine $1,925,000 $ 200,979
Joel L. Teglia $ 170,875 $ 29,431
Robert G. Higgins $ 173,735 $ 25,162
Christopher J. Swieca $ 83,250 $ 15,060
Adam Levine $ 95,493 $ 12,001
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Company are set forth
in this report in Item 8.
(2) Financial Statement Schedule is set forth in this
report in Item 8.
(b) Reports on Form 8-K:
. dated November 30, 2001, filed December 5, 2001 including
Item 7.
(c) Exhibits (see Exhibit Index included elsewhere herein).
(d) None.
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BANYAN STRATEGIC REALTY TRUST
By: /s/ L.G. Schafran Date: March 21, 2002
L.G. Schafran, Interim President
PURSUANT to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ L.G. Schafran Date: March 21, 2002
L.G. Schafran, Interim President
and Trustee
By: /s/ Joel L. Teglia Date: March 21, 2002
Joel L. Teglia, Executive Vice President
and Chief Financial Officer
By: /s/ Walter E. Auch, Sr. Date: March 21, 2002
Walter E. Auch, Sr., Trustee
By: /s/ Daniel Levinson Date: March 21, 2002
Daniel Levinson, Trustee
By: /s/ Stephen M. Peck Date: March 21, 2002
Stephen M. Peck, Trustee
EXHIBIT
INDEX
- -------
2.1 Plan of Termination and Liquidation (1)
3.1 Third Amended and Restated Declaration of Trust dated as of
August 8, 1986, as amended on March 8, 1991, May 1, 1993,
August 12, 1998 and December 13, 1999, including Certificate of
designations, preferences and rights of Series A convertible
preferred shares. (2)
3.2 First Amendment of Third Amended and Restated Declaration of
Trust effective December 13, 1999. (3)
3.3 By-Laws dated March 13, 1996. (4)
3.4 BSRT UPREIT Limited Partnership Limited Partnership Agreement (5)
4.1 Convertible Term Loan Agreement dated as of October 10, 1997
among Banyan Strategic Realty Trust, as Borrower, and the
Entities listed therein, as Lenders. (6)
4.2 First Amendment to Convertible Term Loan Agreement dated as of
March 30, 1998 made by and among Banyan Strategic Realty Trust
and the Entities listed therein, as Lenders. (7)
4.3 Second Amendment to Convertible Term Loan Agreement dated as of
June 26, 1998 made by and among Banyan Strategic Realty Trust and
the Entities listed therein, as Lenders. (8)
4.4 Revolving Credit Agreement dated April 30, 1998 among Banyan
Strategic Realty Trust, as Borrower and the Capital Company of
America, as Lender. (9)
4.5 Loan Agreement dated May 22, 1998 among BSRT Fountain Square
L.L.C., BSRT Phoenix Business Park L.L.C., BSRT Newtown Trust,
BSRT Southlake L.L.C., BSRT Technology Center L.L.C., BSRT
Airways Plaza L.L.C., BSRT Peachtree Pointe L.L.C., BSRT Avalon
Center L.L.C., BSRT Sand Lake Tech Center L.L.C., BSRT Park
Center L.L.C., BSRT Metric Plaza L.L.C., and BSRT University
Corporate Center L.L.C., as Borrower, and the Capital Company of
America, as Lender. (8)
4.6 First Amendment to Loan Agreement dated September 11, 1998 among
BSRT Fountain Square L.L.C., BSRT Phoenix Business Park L.L.C.,
BSRT Newton Trust, BSRT Southlake L.L.C., BSRT Technology Center
L.L.C., BSRT Airways Plaza L.L.C., BSRT Peachtree Pointe L.L.C.,
BSRT Avalon Center L.L.C., BSRT Sand Lake Tech Center L.L.C.,
BSRT Park Center L.L.C., BSRT Metric Plaza L.L.C., and BSRT
University Corporate Center L.L.C., as Borrower, and the Capital
Company of America LLC, as Lender. (10)
4.7 Loan Agreement dated June 22, 1998 between Banyan/Morgan
Wisconsin L.L.C., and Banyan/Morgan Elmhurst L.L.C., as Borrower
and the Capital Company of America, as Lender. (8)
4.8 First Amendment to Loan Agreement dated September 11, 1998
between Banyan/Morgan Wisconsin L.L.C., and Banyan/Morgan
Elmhurst L.L.C., as Borrower and the Capital Company of America
LLC, as Lender. (10)
10.1 Employment Agreement of L.G. Schafran dated October 26, 2000.
(14)
10.2 First Amendment to Employment Agreement of L.G. Schafran dated
February 13, 2002. (15)
EXHIBIT
INDEX
- -------
10.3 Employment Agreement of Leonard G. Levine as of December 14,
1999. (2)
10.4 Employment Agreement of Leonard G. Levine as of October 1, 1997.
(11)
10.5 Employment Agreement of Joel L. Teglia dated November 1, 2000.
(14)
10.6 Employment Agreement of Joel L. Teglia dated December 31, 1998.
(5)
10.7 Employment Agreement of Robert G. Higgins dated September 1,
2000. (14)
10.8 Separation Agreement of Neil Hansen dated October 1, 2000. (14)
10.9 Employment Agreement of Neil Hansen dated December 31, 1998. (5)
10.10 Separation Agreement of Jay Schmidt dated October 1, 2000. (14)
10.11 Employment Agreement of Jay Schmidt dated December 31, 1998. (5)
10.12 1997 Omnibus Stock and Incentive Plan dated July 9, 1997. (12)
10.13 Share Purchase Agreement by and among Banyan Strategic Realty
Trust and the Purchasers listed on the signature page attached
thereto dated as of October 10, 1997. (6)
10.14 Registration Rights Agreement dated as of October 10, 1997
between Banyan Strategic Realty Trust and the Purchasers listed
on the Signature Pages attached thereto. (6)
10.15 Registration Rights Agreement dated as of October 1, 1997 between
Banyan Strategic Realty Trust and Leonard G. Levine. (5)
10.16 Consulting Agreement dated as of February 18, 2000 between CFC
Advisory Services Limited Partnership and Banyan Strategic Realty
Trust. (13)
10.17 Modification to Consulting Agreement dated as of May 31, 2000
between CFC Advisory Services Limited Partnership and Banyan
Strategic Realty Trust. (13)
10.18 Purchase and Sale Agreement dated January 8, 2001. (1)
10.19 First Amendment to Purchase and Sale Agreement dated March 28,
2001. (16)
10.20 Second Amendment to Purchase and Sale Agreement dated April 9,
2001. (17)
10.21 Third Amendment to Purchase and Sale Agreement dated May 11,
2001. (18)
21. Subsidiaries of Banyan Strategic Realty Trust (*)
23. Consent of Independent Auditors (*)
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(*) Filed herewith.
(1) Incorporated by reference from the Trust's Form 8-K dated
January 8, 2001.
(2) Incorporated by reference from the Trust's Form 10-K for
the year ended December 31, 1999.
(3) Incorporated by reference from the Trust's Form 10-Q
dated March 31, 2000.
(4) Incorporated by reference from the Trust's Registration
Statement on Form S-11 (file number 33-4169).
(5) Incorporated by reference from the Trust's Form 10-K for
the year ended December 31, 1998.
(6) Incorporated by reference from the Trust's Form 8-K dated
October 14, 1997.
(7) Incorporated by reference from the Trust's Form 10-K/A
for the year ended December 31, 1997.
(8) Incorporated by reference from the Trust's Form 8-K dated
May 22, 1998.
(9) Incorporated by reference from the Trust's Form 10-Q
dated March 31, 1998.
(10) Incorporated by reference from the Trust's Form 8-K/A-1
dated August 14, 1998.
(11) Incorporated by reference from the Trust's Form 10-K
dated December 31, 1997.
(12) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended June 30, 1997.
(13) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended June 30, 2000.
(14) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended September 30, 2000.
(15) Incorporated by reference from the Trust's Form 8-K dated
February 13, 2002.
(16) Incorporated by reference from the Trust's Form 8-K dated
March 28, 2001.
(17) Incorporated by reference from the Trust's Form 8-K dated
April 9, 2001.
(18) Incorporated by reference from the Trust's Form 10-Q for
the quarter ended March 31, 2001.