UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002.
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-15465
BANYAN STRATEGIC REALTY TRUST
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 36-3375345
- ----------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
2625 Butterfield Road, Suite 101 N
Oak Brook, Illinois 60523
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (630) 218-7250
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 [ ].
Shares of beneficial interest outstanding
as of October 25, 2002: 15,496,806
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANYAN STRATEGIC REALTY TRUST
Consolidated Statements of Net Assets in Liquidation
(Liquidation Basis)
September 30, 2002 and December 31, 2001
(Unaudited)
(Dollars in thousands)
September 30, December 31,
2002 2001
------------- -----------
ASSETS
- ------
Investment in Real Estate Held for Sale:
Land. . . . . . . . . . . . . . . . . . $ -- $ 3,137
Building. . . . . . . . . . . . . . . . 18,429 28,066
Building Improvements . . . . . . . . . 1,095 2,984
---------- ----------
19,524 34,187
Less: Accumulated Depreciation. . . . . (3,164) (5,764)
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16,360 28,423
---------- ----------
Cash and Cash Equivalents . . . . . . . . 6,132 7,493
Restricted Cash - Capital Improvements. . 269 212
Restricted Cash - Other . . . . . . . . . 166 2,095
Interest and Accounts Receivable. . . . . 152 212
Employees' Notes, Net of Allowance for
Uncollectible Accounts of $40 at
September 30, 2002) . . . . . . . . . . 107 412
Notes Receivable. . . . . . . . . . . . . -- 2,264
Other Assets. . . . . . . . . . . . . . . 214 282
---------- ----------
Total Assets. . . . . . . . . . . . . . . $ 23,400 $ 41,393
========== ==========
LIABILITIES
- -----------
Mortgage Loans Payable. . . . . . . . . . $ 16,731 $ 21,555
Bonds Payable . . . . . . . . . . . . . . -- 3,900
Accrued Severance and Termination Costs . 2,581 2,018
Accounts Payable and Accrued Expenses . . 471 1,218
Accrued Real Estate Taxes . . . . . . . . 96 23
Accrued Interest Payable. . . . . . . . . 107 148
Unearned Revenue. . . . . . . . . . . . . 6 85
Security Deposits . . . . . . . . . . . . 46 87
---------- ----------
Total Liabilities . . . . . . . . . . . . 20,038 29,034
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Net Assets in Liquidation . . . . . . . . $ 3,362 $ 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 Nine Months Ended September 30, 2002
(Unaudited)
(Dollars in thousands)
Net Assets in Liquidation at December 31, 2001. . . . . $ 12,359
Net Gains on Disposition of Investment in
Real Estate Held for Sale . . . . . . . . . . . . . . 178
Interest Income on Employees' Notes . . . . . . . . . . 18
Interest Income on Cash and Cash Equivalents. . . . . . 233
Operating Loss. . . . . . . . . . . . . . . . . . . . . (1,682)
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . . 80
Minority Interest in Consolidated Partnership . . . . . (76)
Distributions to Shareholders . . . . . . . . . . . . . (7,748)
--------
Net Assets in Liquidation at September 30, 2002 . . . . $ 3,362
========
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 Three Months Ended September 30, 2002
(Unaudited)
(Dollars in thousands)
Net Assets in Liquidation at June 30, 2002. . . . . . . $ 3,981
Interest Income on Employees' Notes . . . . . . . . . . 2
Interest Income on Cash and Cash Equivalents. . . . . . 32
Operating Loss. . . . . . . . . . . . . . . . . . . . . (653)
--------
Net Assets in Liquidation at September 30, 2002 . . . . $ 3,362
========
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 Nine Months Ended September 30, 2001
(Unaudited)
(Dollars in thousands)
Shareholders' Equity at December 31, 2000
(Going concern basis) . . . . . . . . . . . . . . . . $ 67,350
Adjustments to Liquidation Basis:
Liquidation and Termination Costs . . . . . . . . . . (810)
Elimination of Intangible Assets. . . . . . . . . . . (5,470)
Reclassification of Employees' Notes. . . . . . . . . 3,144
--------
Net Assets in Liquidation at December 31, 2000. . . . . 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 . . . . . . . . . . 125
Interest Income on Cash and Cash Equivalents. . . . . . 624
Operating Income. . . . . . . . . . . . . . . . . . . . 3,141
Recovery of Losses on Loans, Notes and
Interest Receivable . . . . . . . . . . . . . . . . . 870
Depreciation. . . . . . . . . . . . . . . . . . . . . . (2,905)
Minority Interest in Consolidated Partnerships. . . . . (279)
Issuance of Shares. . . . . . . . . . . . . . . . . . . 91
Distributions Paid to Shareholders. . . . . . . . . . . (77,318)
--------
Net Assets in Liquidation at September 30, 2001 . . . . $ 14,334
========
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 Three Months Ended September 30, 2001
(Unaudited)
(Dollars in thousands)
Net Assets in Liquidation at June 30, 2001. . . . . . . $ 18,103
Interest Income on Cash and Cash Equivalents. . . . . . 157
Operating Loss. . . . . . . . . . . . . . . . . . . . . (328)
Depreciation. . . . . . . . . . . . . . . . . . . . . . (308)
Minority Interest in Consolidated Partnerships. . . . . (227)
Issuance of Shares. . . . . . . . . . . . . . . . . . . 36
Distributions Payable to Shareholders . . . . . . . . . (3,099)
--------
Net Assets in Liquidation at September 30, 2001 . . . . $ 14,334
========
The accompanying notes are an integral part
of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
Notes to Consolidated Financial Statements
September 30, 2002
(Unaudited)
(Dollars in thousands, except per share data)
1. FINANCIAL STATEMENT PRESENTATION
Readers of this quarterly report should refer to Banyan Strategic
Realty Trust's (the "Trust") audited consolidated financial statements for
the year ended December 31, 2001 which are included in the Trust's 2001
Form 10-K, as certain footnote disclosures which would substantially
duplicate those contained in such audited statements have been omitted from
this report.
2. LIQUIDATION OF THE TRUST
On January 5, 2001, the Trustees adopted a Plan of Termination and
Liquidation (the "Plan") 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. The Trust
adopted the liquidation basis of accounting effective January 1, 2001.
The Plan authorizes the Trust's Board of Trustees to create a
liquidating trust to facilitate dissolution, if in the Trustees' judgment,
it appears that the Trust will not be able to satisfy all of its legal
obligations within two years of the adoption of the Plan. In August of
2002, the Trustees determined that it is unlikely that the Trust will be
able to complete the liquidation and distribute all remaining proceeds to
its shareholders by January 5, 2003. In an effort to reduce costs and
maximize the final distribution to the shareholders, the Trustees have
decided to dissolve the Trust on December 31, 2002 and to transfer all of
the then remaining assets and liabilities into a liquidating trust.
In order to reduce the costs associated with operating as a
liquidating trust, the Trust has submitted a written request for "no-
action" relief to the Securities and Exchange Commission. The Trust
requested relief from, among other things, the following: (i) registration
of the issuance of the beneficial interests of the liquidating trust under
the Securities Act of 1933; as amended and (ii) any requirement that the
liquidating trust file current reports and audited financial statements
under the Securities Exchange Act of 1934, as amended. If the Trust is
unable to obtain all of the relief requested in the "no-action" request in
a timely manner, the Board may reassess its initial decision to transfer
the Trust's assets and liabilities into a liquidating trust.
If the requested "no action" relief is granted, or if the trustees
otherwise determine to do so, even without the no-action relief, all of the
Trust's remaining assets and liabilities will be transferred to a
liquidating trust on December 31, 2002 and trading in the Trust's common
shares of beneficial interest will cease. The Trust's current shareholders
will, without any required action on their part, receive an equivalent
interest in the liquidating trust upon its formation, and the Trust will
simultaneously cease its existence. Beneficial interests in the
liquidating trust will not be represented by certificates and will be non-
transferable, except by death or operation of law.
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 earnings or financial
position of the Trust.
3. PROPERTY DISPOSITIONS
On May 17, 2001, the Trust sold 24 of its 27 properties for a total
sales price of $185,250. 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. M&J Wilkow had an
18.1% interest in the property's cash flow and a 28.1% interest in its
capital proceeds.
On April 1, 2002, the Trust sold its University Square Business Center
located in Huntsville, Alabama for a total sales price of $8,450. The
purchaser is USBC, LLC, an Alabama limited liability company, whose
principals include Alan C. Jenkins and Joel L. Teglia. Mr. Jenkins is a
principal in InterSouth Properties, Inc., the Trust's former contract
manager of the property, and Mr. Teglia is the Executive Vice President and
Chief Financial Officer of the Trust. Mr. Teglia recused himself from all
of the Trust's deliberations concerning the sale of University Square. The
net sales proceeds, after repayment of the first mortgage on the property,
adjustment for unfinished tenant improvements, sales commissions,
prorations and closing costs, were $3,312. In addition, USBC, LLC paid the
prepayment penalty of $732 associated with the payoff of the first
mortgage.
On May 1, 2002, the Trust sold its 6901 Riverport Drive in Louisville,
Kentucky for a total sales price of $5,652 to Riverport LLC and Riverport
Group, LLC. The principals of these entities included Daniel Smith. Mr.
Smith, or entities owned or controlled by him, was previously the Trust's
joint venture partner on the Woodcrest property in Tallahassee, Florida and
also managed the Commerce Center property in Sarasota, Florida and the
Fountain Square property in Tampa, Florida. The net sales proceeds, after
repayment of the bond indebtedness, sales commission, prorations and
closing costs were $2,116.
On October 15, 2002, the Trust sold its Northlake Tower Shopping
Center in Atlanta, Georgia for a total sales price of $20,390 to Northlake
Festival, LLC. The net sales proceeds, after crediting the purchaser for
the outstanding balance on the first mortgage, and after deducting sales
commissions, prorations and closing costs, were $3,241.
4. DISTRIBUTIONS
On July 15, 2002, the Trust distributed $0.20 per share to
shareholders of record as of July 1, 2002. This distribution was included
in the Trust's total liabilities as of June 30, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Certain statements in this quarterly 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:
. resolution of existing litigation;
. potential inadequacy of our cash reserves;
. adverse consequences of failure to qualify as a REIT;
. inability to obtain "no action" relief from the Securities and
Exchange Commission in conjunction with the transfer of our
assets and liabilities to a liquidating trust; 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" in the annual
report on Form 10-K for the year ended December 31, 2001 for a more
complete discussion.
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.
The Plan authorizes our Board of Trustees to create a liquidating
trust to facilitate dissolution, if in the Trustees' judgment, it appears
that we will not be able to satisfy all of our legal obligations within two
years of the adoption of the Plan. In August of 2002, our Trustees
determined that it is unlikely that we will be able to discharge all such
obligations by January 5, 2003. In an effort to reduce costs and maximize
the final distribution to the shareholders, the Trustees have decided to
dissolve the Trust on December 31, 2002 and to transfer all of its then
remaining assets and liabilities into a liquidating trust.
In order to reduce the costs associated with operating as a
liquidating trust, we have submitted a written request for "no-action"
relief to the Securities and Exchange Commission. We requested relief
from, among other things, the following: (i) registration of the issuance
of the beneficial interests of the liquidating trust under the Securities
Act of 1933; as amended and (ii) any requirement that the liquidating trust
file current reports and audited financial statements under the Securities
Exchange Act of 1934, as amended. If we are unable to obtain all of the
relief requested in the "no-action" request in a timely manner, the Board
may reassess its initial decision to transfer Banyan's assets and
liabilities into a liquidating trust.
If the requested "no action" relief is granted, or if the trustees
otherwise determine to do so, even without the no-action relief, all of our
remaining assets and liabilities will be transferred to a liquidating trust
on December 31, 2002 and trading in our common shares of beneficial
interest will cease. Our current shareholders will, without any required
action on their part, receive an equivalent interest in the liquidating
trust upon its formation, and the Trust will simultaneously cease its
existence. Beneficial interests in the liquidating trust will not be
represented by certificates and will be non-transferable, except by death
or operation of law. As of October 29, 2002, we extended the expiration
dates of the employment contracts of Mr. Higgins, our First Vice
President/Chief Operating Officer and General Counsel and Mr. Teglia, our
Executive Vice President/Chief Financial Officer from October 31, 2002
until December 31, 2002.
We expect that the liquidating trust will be administered by one or
two liquidating trustees who are currently affiliated with the Trust. We
expect that the liquidating trust will have a three-year term, subject to
extension, if necessary, depending upon the status of the assets of the
trust at the end of the three years. If all of the assets are liquidated
prior to the end of the three-year period, the liquidating trust will
immediately terminate and make a final distribution to its beneficiaries.
We are currently a party to a lawsuit pending in the Circuit Court of
Cook County, Illinois against Banyan's suspended president, Leonard G.
Levine. (See--Other-Litigation below). Our interest in this lawsuit will
be transferred into the liquidating trust if the litigation is not resolved
prior to year end. Alternatively, if this litigation is resolved before
year end, the liquidating trust may not be necessary.
PROPERTY DISPOSITIONS
On May 17, 2001, we sold 24 of our 27 properties to affiliates of
Denholtz Management Corporation ("Denholtz") for a total sales price of
$185.3 million, pursuant to a Purchase and Sale Agreement dated January 8,
2001 as amended on March 30, 2001, April 9, 2001 and May 11, 2001. On
March 14, 2002, we acquired the interests of our partner, M&J Wilkow, Ltd.,
in the Northlake Tower Shopping Center property for a gross purchase price
of $1.3 million.
On April 1, 2002, we sold our University Square Business Center for a
total sales price of $8.5 million. The purchaser was USBC, LLC, an Alabama
limited liability company, whose principals include Alan C. Jenkins and
Joel L. Teglia. Mr. Jenkins is a principal in InterSouth Properties, Inc.,
the former contract manager of the University Square property, and 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 net sales proceeds, after repayment of the first
mortgage on the property, adjustment for unfinished tenant improvements,
sales commission, prorations and closing costs, were approximately $3.3
million. In addition, USBC, LLC paid the prepayment penalty of
approximately $0.7 million associated with the payoff of the first
mortgage.
On May 1, 2002, we sold our 6901 Riverport Drive in Louisville,
Kentucky for a total sales price of approximately $5.7 million to Riverport
LLC and Riverport Group, LLC. The principals of these entities included
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 net sales
proceeds, after repayment of the bond indebtedness, sales commission,
prorations and closing costs were approximately $2.1 million.
On October 15, 2002, we sold our Northlake Tower Shopping Center in
Atlanta, Georgia for a total sales price of approximately $20.4 million to
Northlake Festival, LLC. The net sales proceeds, after crediting the
purchaser for the outstanding balance on the first mortgage, and after
deducting sales commissions, prorations and closing costs, were
approximately $3.2 million.
RESULTS OF OPERATIONS
On January 5, 2001, we adopted a Plan of Termination and Liquidation
under which the Trust will be dissolved. As a result of the adoption of
the Plan, we began reporting on the liquidation basis of accounting
effective for the quarter ending March 31, 2001. Therefore, operations for
the three and nine months ending September 30, 2002 and 2001 are reported
on the Consolidated Statement of Changes in Net Assets in Liquidation. 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.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 TO NINE MONTHS
ENDED SEPTEMBER 30, 2001
For the nine months ended September 30, 2002, our Net Assets in
Liquidation decreased by approximately $9.0 million from approximately
$12.4 million at December 31, 2001 to approximately $3.4 million at
September 30, 2002. This decrease is primarily the result of distributions
paid to shareholders of approximately $7.7 million, operating loss of
approximately $1.7 million and minority interest of approximately $0.1
million decreased by approximately $0.2 million of interest income on cash
and cash equivalents and approximately $0.2 million of net gains on
disposition of investment in real estate held for sale. The operating loss
consists of property operating income after interest expense of
approximately $1.1 million reduced by approximately $0.5 million of
litigation expenses, approximately $1.6 million of general and
administrative costs, and approximately $0.4 million of severance and $0.3
million for the accrual of additional termination costs.
Prior to reporting the operating activity for the nine months ended
September 30, 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 at 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.
For the nine months ended September 30, 2001, our Net Assets in
Liquidation decreased by approximately $49.9 million from approximately
$64.2 million at December 31, 2000 to approximately $14.3 million at
September 30, 2001. This decrease was primarily due to total distributions
paid and payable 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 $3.1 million that was accrued as of
September 30, 2001 and paid on October 24, 2001. 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 $3.1 million, recovery of losses on loans,
notes and interest receivable of approximately $0.9 million and interest
income on cash and cash equivalents of approximately $0.6 million, reduced
by depreciation expense of approximately $2.9 million. The recovery of
losses on loans, notes and interest receivable of approximately $0.9
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.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS
ENDED SEPTEMBER 30, 2001
For the three months ended September 30, 2002, our Net Assets in
Liquidation decreased by approximately $0.6 million from approximately $4.0
million at June 30, 2002 to approximately $3.4 million at September 30,
2002. This decrease is primarily the result of operating loss for the
quarter. The operating loss consists of property operating income after
interest expense of approximately $0.3 million reduced by approximately
$0.1 million of litigation expenses, approximately $0.6 million of general
and administrative costs, and approximately $0.2 million of severance and
$0.1 million for the accrual of additional termination costs.
For the three months ended September 30, 2001, our Net Assets in
Liquidation decreased by approximately $3.8 million to approximately $14.3
million at September 30, 2001 from approximately $18.1 million at June 30,
2001. This decrease was primarily due to the accrual of our second
liquidating distribution of $0.20 per share or approximately $3.1 million
that was payable as of September 30, 2001 and paid on October 24, 2001,
operating loss in the amount of approximately $0.3 million, depreciation
expense of approximately $0.3 million and minority interest of $0.2
million, reduced by approximately $0.2 million of interest income on cash
and cash equivalents.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, our total assets were approximately $23.4
million, a decrease of approximately $18.0 million from total assets at
December 31, 2001 of approximately $41.4 million. Our liabilities totaled
approximately $20.0 million at September 30, 2002, a decrease of
approximately $9.0 million from approximately $29.0 million at December 31,
2001. At September 30, 2002, our net assets in liquidation were
approximately $3.4 million, a decrease of approximately $9.0 million from
approximately $12.4 million at December 31, 2001. After adjusting for the
sale of our Northlake property which occurred on October 15, 2002, on a pro
forma basis at September 30, 2002, our assets would have totaled
approximately $9.8 million, our liabilities would have totaled
approximately $2.8 million and our net assets in liquidation would have
totaled approximately $7.0 million.
Cash and cash equivalents consist of cash and short-term investments.
Our cash and cash equivalents balance decreased by approximately $1.4
million to approximately $6.1 million at September 30, 2002 from
approximately $7.5 million at December 31, 2001. The decrease in total
cash and cash equivalents was due primarily to change in net assets in
liquidation including distributions paid to shareholders, approximately
$0.3 million that we paid in full settlement of all claims of Denholtz, and
$1.3 million of cash used to purchase the interests of our venture partner
in the Northlake Tower Shopping Center property reduced by cash received
for the two properties that we sold and collection of unsecured notes
receivable in the amount of approximately $2.3 million.
Having made four liquidating distributions totaling $5.45 per share,
we have established unrestricted cash reserves of $6.1 million as of
September 30, 2002. On a pro forma basis, after the sale of our Northlake
property, our unrestricted cash reserves at September 30, 2002 would have
increased to approximately $9.4 million. We currently believe that these
reserves will be sufficient to cover the net costs of operating the Trust
and the liquidating trust discussed above through final liquidation,
including liquidation costs and contingent liabilities related to pending
litigation.
We do not currently anticipate making any further distributions to
shareholders prior to the formation of the liquidating trust. We believe
that the more prudent strategy is to retain all of our assets and to
transfer them to the liquidating trust, in order to provide the best
opportunity to resolve the pending litigation. Upon termination of the
liquidating trust, all remaining assets (including all cash) will be
distributed to the beneficiaries.
On February 15, 2002, we were notified by Nasdaq that our shares would
be subject to delisting if the closing price of our shares did not exceed
the $1.00 minimum bid price for ten consecutive trading days during the 90-
day period ending on May 15, 2002. In May, Nasdaq notified us of the
imminent delisting. We appealed on the basis that the diminished stock
price was not unintended, but rather was in keeping with our Plan of
Termination and Liquidation, adopted in January of 2001. On July 11, 2002,
we were notified by representatives of the Nasdaq Listing Qualifications
Panel that our June 20, 2002 appeal of a determination to delist our shares
of beneficial interest had been denied. Nasdaq offered to transfer our
listing to its Small Cap Market, but we have declined, because of the
$45,000 cost involved in a transfer of the listing. Accordingly, we
consented to a delisting of our shares as of the opening of the market on
July 12, 2002. Our shares are now quoted on the Over the Counter Bulletin
Board ("OTCBB"), but there can be no assurance that a market for these
shares will develop. If we do transfer our assets to a liquidating trust,
the beneficial interests in the liquidating trust will not be represented
by certificates and will be non-transferable except by death or operation
of law.
OTHER - LITIGATION
On August 14, 2000, we exercised our 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, we
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,
we filed a lawsuit against Mr. Levine in the Circuit Court of Cook County,
Illinois. Our complaint alleged violations of Mr. Levine's duty of loyalty
owed to the Trust.
On December 6, 2000, we and Mr. Levine, through our 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 lawsuit we have
filed 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 us 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. We 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, we amended our 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
$1.6 million. During the pendency of the litigation, we continue to pay a
base salary to Mr. Levine in accordance with our contractual obligations.
We are seeking recovery of these payments, among other recoveries, in the
litigation.
On December 17, 2001, we filed a motion for partial summary judgment
in the Employment Litigation. This motion sought 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 was heard and denied on April 4, 2002. On the same date, the
court extended the deadline for the completion of written fact discovery
from March 31, 2002 to May 31, 2002.
On March 18, 2002, Mr. Levine filed a motion for judgment on the
pleadings which sought a judgment in favor of Mr. Levine on Counts I, IV
and VI of our Third Amended Complaint. On May 1, 2002, Judge Siebel
granted the motion (without prejudice) in regard to Count I and denied the
motion in regard to Counts IV and VI.
On May 9, 2002, after obtaining leave, we filed a Fourth Amended
Complaint. This compliant amended Count I of the Third Amended Complaint
to allege a breach of contract and added Count VII, which alleges an
additional fiduciary breach by Mr. Levine related to an offer by a third
party in the spring of 2000 to purchase a substantial portion of the
Trust's assets. On June 14, 2002, Mr. Levine answered portions of and
filed a motion to strike and dismiss portions of the Fourth Amended
Complaint. Mr. Levine moved to dismiss Counts III and V, and to strike
portions of Counts I, II, IV, VI, and VII. On August 20, 2002, Judge
Siebel denied the motion.
On September 6, 2002, the Court entered an order extending the
deadline for the completion of all discovery to January 31, 2003. No trial
date has been set.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not engage in any hedging transactions nor in the ownership of
any derivative financial instruments. As of September 30, 2002, we do not
have any variable rate debt.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (see Exhibit Index included elsewhere herein).
(b) Reports on Form 8-K:
. dated July 11, 2002, filed July 15, 2002
including Item 7;
. dated August 13, 2002, filed August 19, 2002
including Item 7;
. dated August 28, 2002, filed September 4, 2002
including Item 7;
. dated and filed September 18, 2002, including
Item 7; and
. dated and filed September 25, 2002, including
Item 7.
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on our behalf
and in the capacities and on the dates indicated.
BANYAN STRATEGIC REALTY TRUST
By: /s/ L.G. Schafran Date: November 6, 2002
------------------------------
L.G. Schafran,
Interim President
By: /s/ Joel L. Teglia Date: November 6, 2002
------------------------------
Joel L. Teglia,
Executive Vice President and
Chief Financial Officer
CERTIFICATIONS
--------------
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, L.G. Schafran, the Interim President of Banyan Strategic Realty Trust
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Banyan
Strategic Realty Trust;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the net assets in liquidation and the changes in
net assets in liquidation of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date:November 6, 2002 /s/ L.G. Schafran
-------------------
L.G. Schafran
Interim President
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Joel L. Teglia, the Executive Vice President and Chief Financial Officer
of Banyan Strategic Realty Trust certify that:
1. I have reviewed this quarterly report on Form 10-Q of Banyan
Strategic Realty Trust;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the net assets in liquidation and the changes in
net assets in liquidation of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date:November 6, 2002 /s/ Joel L. Teglia
----------------------------
Joel L. Teglia
Executive Vice President and
Chief Financial Officer
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 Separation Agreement of Jay Schmidt dated October 1, 2000. (14)
10.10 1997 Omnibus Stock and Incentive Plan dated July 9, 1997. (12)
10.11 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)
10.12 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)
10.13 Registration Rights Agreement dated as of October 1, 1997 between
Banyan Strategic Realty Trust and Leonard G. Levine. (5)
10.14 Consulting Agreement dated as of February 18, 2000 between CFC
Advisory Services Limited Partnership and Banyan Strategic Realty
Trust. (13)
10.15 Modification to Consulting Agreement dated as of May 31, 2000
between CFC Advisory Services Limited Partnership and Banyan
Strategic Realty Trust. (13)
10.16 Purchase and Sale Agreement dated January 8, 2001. (1)
10.17 First Amendment to Purchase and Sale Agreement dated March 28,
2001 (16)
10.18 Second Amendment to Purchase and Sale Agreement dated April 9,
2001 (17)
10.19 Third Amendment to Purchase and Sale Agreement dated May 11, 2001
(18)
21. Subsidiaries of Banyan Strategic Realty Trust (19)
99.16 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
99.17 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
- --------------------
(*) 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.
(19) Incorporated by reference from the Trust's Form 10-K for
the year ended December 31, 2001.