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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-13754
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NOONEY REALTY TRUST, INC.
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(Exact name of Registrant as specified in its charter)
Missouri 43-1339136
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 N. Broadway, Suite 1200, St. Louis, Missouri 63102-2124
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 206-4600
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7701 Forsyth Boulevard, St. Louis, MO 63105
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Former name, former address and former fiscal year,
if changed since last report.
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 .
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12,13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date. As of March 31, 1998, there were 866,624<F*> shares of the
Registrant's common stock, par value $1 per share, issued and outstanding.
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PART I
Item 1 - Financial Statements:
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NOONEY REALTY TRUST, INC.
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(A REAL ESTATE INVESTMENT TRUST)
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BALANCE SHEETS
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March 31, December 31,
1998 1997
ASSETS: (Unaudited)
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Cash $ 656,471 $ 657,470
Accounts receivable 227,069 260,085
Prepaid expenses 102,397 28,560
Investment property, at cost:
Land 2,568,955 2,568,955
Buildings and improvements 17,728,677 17,739,921
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20,297,632 20,308,876
Less accumulated depreciation 6,684,724 6,539,243
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13,612,908 13,769,633
Deferred expenses - at amortized cost 194,609 211,015
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$14,793,454 $14,926,763
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued expenses $ 301,079 $ 405,016
Mortgage notes payable 4,717,341 4,740,875
Deferred Compensation 25,000 0
Refundable tenant deposits 41,005 43,094
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Total liabilities 5,084,425 5,188,985
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Shareholders' Equity:
Common Stock, $1 par value;
Authorized, 5,000,000 shares; Issued and
outstanding, 866,624<F*> shares 1998 and 1997 866,624 866,624
Additional paid-in capital 14,252,532 14,252,532
Distributions in excess of net income (5,410,127) (5,381,378)
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Total Shareholder's Equity 9,709,029 9,737,788
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$14,793,454 $14,926,763
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SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY REALTY TRUST, INC.
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(A REAL ESTATE INVESTMENT TRUST)
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STATEMENTS OF OPERATIONS
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(UNAUDITED)
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Three Months Ended
March 31, March 31,
1998 1997
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REVENUES:
Rental and other income $767,824 $741,602
Interest 1,444 2,559
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769,268 744,161
EXPENSES:
Interest 99,394 101,284
Depreciation and amortization 184,507 170,318
Real estate taxes 144,723 139,608
G&A Reimbursement / Advisory fees 58,458 58,556
Trustee Fees 6,623 11,715
Cleaning & Supplies 28,154 31,607
Payroll 47,980 22,019
Insurance 17,671 17,811
Utilities 50,927 67,376
Professional Services 82,367 27,152
Snow Removal 14,998 8,506
Operating expenses 62,215 44,477
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798,017 700,429
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NET INCOME (LOSS) FROM OPERATIONS $(28,749) $ 43,732
======== ========
NET INCOME (LOSS) PER SHARE $ (0.03) $ 0.05
======== ========
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY REALTY TRUST, INC.
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(A REAL ESTATE INVESTMENT TRUST)
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STATEMENT OF SHAREHOLDERS' EQUITY
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THREE MONTHS ENDED MARCH 31, 1998
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(UNAUDITED)
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COMMON STOCK
------------ ADDITIONAL DISTRIBUTION
NUMBER OF PAID-IN IN EXCESS OF
SHARES AMOUNT CAPITAL NET INCOME
------ ------ ------- ----------
Balance, January 1, 1998 866,624<F*> $866,624 $14,252,532 $(5,381,378)
Net Loss from Operations (28,749)
Distributions to Shareholders 0
------- -------- ----------- -----------
Balance, March 31, 1998 866,624<F*> $866,624 $14,252,532 $(5,410,127)
======= ======== =========== ===========
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY REALTY TRUST, INC.
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(A REAL ESTATE INVESTMENT TRUST)
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STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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Three Months Ended
March 31, March 31,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from operations $ (28,749) $ 43,732
Adjustments to reconcile net income (loss) from
operations to net cash provided by operating activities:
Depreciation and amortization 184,507 170,318
Changes in assets and liabilities:
Decrease in accounts receivable 33,016 67,507
Increase in prepaid expenses (73,837) (72,017)
Increase in deferred expenses (10,278) (23,520)
Increase in deferred compensation 25,000 0
(Decrease) Increase in accounts payable
and accrued expenses (103,937) 29,442
Decrease in refundable tenant deposits (2,089) 0
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Total Adjustments 52,382 171,730
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Net cash provided by operating activities 23,633 215,462
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CASH FLOWS FROM INVESTING ACTIVITIES:
Adjustments to investment property (1,098) 0
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Net cash used in investing activities (1,098) 0
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to shareholders 0 (190,657)
Payments on mortgage notes payable (23,534) (21,644)
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Net cash used in financing activities (23,534) (212,301)
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NET (DECREASE) INCREASE IN CASH (999) 3,161
CASH, Beginning of period 657,470 641,127
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CASH, End of period $ 656,471 $ 644,288
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during period for interest $ 99,394 $ 101,284
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY REALTY TRUST, INC.
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE A:
Refer to the Registrant's financial statements for the year ended December
31, 1997, which are contained in the Registrant's Annual Report on Form 10-K,
for a description of the accounting policies which have been continued
without change. Also, refer to the footnotes to those statements for
additional details of the Registrant's financial condition. The details in
those notes have not changed except as a result of normal transactions in the
interim or as noted below.
NOTE B:
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at March 31, 1998 and for all periods
presented have been made. The results of operations for the three-month
period ended March 31, 1998 are not necessarily indicative of the results
which may be expected for the entire year.
NOTE C:
The Registrant had employed Nooney Advisors, Ltd., a Missouri limited
partnership, to serve as the Registrant's investment and financial counselor
and to supervise the day-to-day operations of the Registrant. On February 9,
1998, the advisory contract was terminated pursuant to prior notice from the
Board of Directors of the Registrant.
The Registrant's properties were managed by Nooney, Inc., a wholly-owned
subsidiary of CGS Real Estate Company up until February 9, 1998, at which
time the management agreement was terminated pursuant to notice from the
Board of Directors of the Registrant. Certain officers and directors of the
Registrant are also officers and directors of CGS Real Estate Company or one
of its subsidiaries.
On February 10, 1998, the Registrant became a self-advised and self-managed
entity. Nooney, Inc. is reimbursed for general and administrative expenses
incurred on behalf of the Registrant.
NOTE D:
Effective March 1, 1998, the Registrant entered into two five year employment
agreements that are cancelable after three years subject to certain
performance criteria as defined in the employment agreements. Annual
compensation recognizable under the agreements total $300,000 and include
options to purchase an aggregate of 75,000 shares of the Registrant's common
stock at $10.00 per share. No options may be exercised during 1998. The
options vest at a rate of 20% each anniversary date. The Registrant applies
APB Opinion 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its plan. Had compensation cost for the
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Registrant's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under the Fixed Stock Option Plan
consistent with the method of FASB 123, "Accounting for Stock-Based
Compensation," the company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
March 31, 1998
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Net Income:
As Reported $(28,749)
Pro forma $(29,687)
Earnings per share:
As reported $ (.03)
Pro forma $ (.03)
The fair value of the option grant has been estimated on the date of grant
using the Black-Sholes option pricing model with the following assumptions:
dividend yield of 9.7%, expected volatility of 22.1%, risk-free interest rate
of 7%, and an expected life of 5 years.
NOTE E:
The earnings per share for the three months ended March 31, 1998 and 1997 has
been computed based on 866,624<F*> shares, the number outstanding during the
periods.
[FN]
<F*>See Part II - Other Information, Item 1 - Litigation
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ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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It should be noted that this 10-Q contains forward-looking information (as
defined in the Private Securities Litigation Reform Act of 1995) that
involves risk and uncertainty, including trends in the real estate investment
market, projected leasing and sales, and the future prospects for the
Registrant. Actual results could differ materially from those contemplated
by such statements.
Liquidity and Capital Resources
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Cash on hand as of March 31, 1998, is $656,471 virtually unchanged from the
year ended December 31, 1997. During the first quarter, the operations of
the properties provided cash flow of $23,633. Payments on its mortgage notes
payable of $23,534 were made. Based on the current cash position and the
properties' ability to provide operating cash flow, the Registrant expects
the properties to fund anticipated capital expenditures for the remainder of
1998. The anticipated capital expenditures by property are as follows:
Leasing Capital Other Capital Total
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Atrium at Alpha Business Center $115,044 $46,600 $161,644
Applied Communications Building 0 0 0
Franklin Park Distribution Center 61,124 25,000 86,124
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$176,128 $71,600 $247,728
Leasing Capital at Atrium at Alpha Business Center is for tenant improvements
and lease commissions for new and renewal tenants. Other Capital is
anticipated for a new air conditioning compressor and upgrades to the suite
signage and elevators. At Franklin Park Distribution Center, a $25,000
contingency reserve has been set up and a lease commission for the renewal of
one of the major tenants is anticipated.
Results of Operations
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The results of operations for the Registrant's properties for the quarters
ended March 31, 1998 and 1997 are detailed in the schedule below. Revenues
and expenses of the Registrant are excluded.
Funds from Operations
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The white paper on Funds from Operations approved by the board of governors
of NAREIT in March 1995 defines funds from operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnership and
joint ventures. The Registrant computes Funds from Operations in accordance
with the standards established by the white paper which may differ from the
methodology for calculating Funds from Operations utilized by other equity
REITs, and, accordingly, may not be comparable to such other REITs. Funds
from Operations do not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, distributions, or other commitments and uncertainties.
Funds from Operations should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Registrant financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Registrant
liquidity, nor is it indicative of funds available to fund the Registrant
cash needs including its ability to make distributions. The Registrant
believes Funds from Operations are helpful to investors as measures of the
performance of the Registrant because along with cash flows from
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operating activities, financing activities and investing activities, they
provide investors with an understanding of the ability of the Registrant to
incur and service debt and make capital expenditures.
Franklin Park Applied
Atrium at Alpha Distribution Communications
Business Center Center Building
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1st Quarter 1998
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Revenues $321,282 $193,602 $272,360
Expenses 258,304 155,141 209,568
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Net Income 62,978 38,461 62,792
Depreciation and Amortization 88,686 44,546 47,601
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Funds from Operations $151,664 $ 83,007 $110,393
======== ======== ========
1st Quarter 1997
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Revenues $293,932 $188,910 $265,722
Expenses 251,425 145,176 211,787
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Net Income 42,507 43,734 53,935
Depreciation and Amortization 81,231 44,546 40,359
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Funds from Operations $123,738 $ 88,280 $ 94,294
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At Atrium at Alpha Business Center, revenues increased $27,335 when comparing
first quarter 1998 to the first quarter of 1997. The increase in revenue can
be attributable to an increase in base rental income ($27,332) and an
increase in escalation income ($5,793), partially offset in a decrease in
electric income ($6,299). Expenses increased 3% or $6,879 when comparing the
first quarter of 1998 to the first quarter of 1997. This increase in
expenses is mainly attributable to an increase in the amortization expense
($6,625).
At Franklin Park Distribution Center, revenues increased slightly ($4,692)
when comparing the first quarter of 1998 to the first quarter of 1997. This
increase in revenues is due mainly to an increase in base rental income
($2,295) and an increase in real estate tax reimbursement ($1,209). Expenses
at Franklin Park Distribution Center increased ($9,965) when comparing the
first quarter of 1998 to the first quarter of 1997. The increase in expenses
is attributable to increases in repairs and maintenance building ($4,033),
real estate taxes ($1,425) and fire and crime prevention ($1,699).
At the Applied Communications Building in Omaha, Nebraska, revenues increased
$6,638 when comparing the first quarter of 1998 to the first quarter of 1997.
This increase in revenue is attributable to increases in base rental income
($8,748) and escalation income ($2,928), partially offset by a decrease in
electrical income ($5,038). Expenses at the Applied Communications Building
decreased by $2,219 when comparing the first quarter of 1998 to the first
quarter of 1997. This decrease in expenses can be attributed to decreases in
supplies ($2,727) and electric ($8,761) partially offset by an increase in
amortization ($7,242) and snow removal ($3,015).
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The occupancy levels at the Registrant's properties during the first quarter
remain at a high level. These levels can be attributable to the Registrant's
ability to renew the properties major tenants as their leases mature. The
occupancy levels at March 31, 1998, 1997 and 1996 are as follows:
Occupancy levels as of March 31,
--------------------------------
Property 1998 1997 1996
-------- ---- ---- ----
Atrium at Alpha Business Center 92% 95% 99%
Franklin Park Distribution Center 100% 100% 100%
Applied Communications Building 100% 100% 100%
During the first quarter of 1998, leasing activity at the Atrium at Alpha
Business Center consisted of one new tenant occupying 834 square feet and
three tenants vacating their spaces who occupied 5,750 square feet.
Occupancy as of March 31, 1998, was 92% compared to 98% at the beginning of
the quarter. The Registrant anticipates re-leasing most of the vacant space
during the second quarter. The property has two major tenants, one which
leases 11% of the building with a lease expiring May 1999. The other major
tenant occupies 21% with their major leases expiring July 2001. This tenant
occupies several small suites on a month-to-month basis.
Franklin Park Distribution Center is currently fully leased by two tenants.
The larger of the two tenants occupies approximately 57% of the building
while the other occupies approximately 43% of the building. The leases
expire in December 1999 and June 1998, respectively. The Registrant has
reached verbal agreement with the tenant whose lease expires in June 1998 for
a long term renewal and anticipates a new lease document will be executed in
the second quarter.
The Applied Communications Building has a single tenant who occupies the
entire building. The tenant's lease expires August 1999.
1998 Comparisons
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As of March 31, 1998, the Registrant's consolidated revenues are $769,268 an
increase of $25,107 or 3% when compared to the results of the first quarter
ended March 31, 1997. The increase in revenues is due to the increase of
rental income at Atrium at Alpha Business Center and the Franklin Park
Distribution Center as discussed above. During the first quarter ended March
31, 1998, consolidated expenses are $798,017 as compared to $700,429 for the
three months ended March 31, 1997. The increase in expenses of $97,588 can
be attributable to increases in payroll expenses ($25,961), professional
services ($55,215) and other operating expenses ($17,738). The increase in
professional services is due to legal fees incurred as a result of the two
ongoing lawsuits in which the Registrant is involved.
1997 Comparisons
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As of March 31, 1997, the Registrant's consolidated revenues are $744,161 an
increase of $17,688 when compared to the results of the first quarter ended
March 31, 1996. The increase in revenues is attributable to increases in
rental income at the Atrium at Alpha Business Center and the Applied
Communications Building. The increase in rental income at the Atrium
Building is due to increases in the base rental rate ($12,563) and electric
income ($2,089). At the Applied Communications Building, the increases in
rental income is due to the rent step up built into the lease ($7,002) and an
increase in escalation income ($2,635). The increases in income at these two
properties are offset by an increase in the rent concession adjustment
($8,719) recorded at the Registrant.
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During the first quarter ended March 31, 1997 consolidated expenses were
$700,429 compared to $702,196 for the first quarter ended March 31, 1996.
Consolidated expenses decreased $1,767 or less than 1%.
Inflation
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The effects of inflation did not have a material impact upon the Registrant's
operations in fiscal year 1997 and are not expected to have material impact
in 1998.
PART II. OTHER INFORMATION
Item 1. Litigation
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As of March 31, 1997, the Registrant was a party to two lawsuits. The first
was State of Missouri ex rel. KelCor, Inc. v. Nooney Realty Trust, Inc. On
August 7, 1997, KelCor, Inc., a shareholder of the Registrant, filed a
Petition for mandamus relief against the Registrant. KelCor's Petition
sought a writ of mandamus compelling the Registrant to hold an Annual Meeting
of shareholders by October 31, 1997. The Registrant opposed KelCor's
Petition on the basis that the Registrant was unable to hold a valid meeting
because of uncertainty over the validity of certain shares of the Registrant
and that the determination of the validity of those shares needed to be first
determined. The case was tried before the court on December 1, 1997, on
which date the court entered a permanent order of mandamus requiring the
Registrant to hold an Annual Meeting by January 15, 1998. The Registrant
appealed the court's order to the Missouri Court of Appeals for the Eastern
District. An oral argument on appeal was held on March 10, 1998. On April
14, 1998, the Missouri Court of Appeals issued an opinion ruling that KelCor
was not entitled to mandamus relief with respect to the holding of an Annual
Meeting. In the opinion, the Missouri Court of Appeals reversed the decision
of the trial court requiring the Registrant to hold an Annual Meeting, and
remanded the case to the trial Court with directions to quash the writ of
mandamus. No appeal of the decision of the Missouri Court of Appeals has
been taken.
The second lawsuit is Nooney Realty Trust, Inc. v. David L. Johnson, et al.
This has been filed in the Circuit Court of Jackson County, Missouri. On
August 18, 1997, the Registrant filed a petition for declaratory judgment
against certain individuals and entities who claim to hold shares of the
Registrant. The Registrant initiated the suit to obtain a judicial
determination of the validity and status of some of the Registrant's shares
(known as "Excess Shares") which Defendants claim to have purchased as a
group on August 26, 1997. The Defendants moved to dismiss the suit and/or to
stay the suit pending resolution of KelCor's mandamus suit in St. Louis
County described above. On December 9, 1997, the Court denied Defendant's
motion to dismiss the suit but stayed the case pending disposition of the
mandamus action. The Board of Directors plans to conduct this case so that
the validity and status of the Excess Shares can be finally determined
pursuant to this suit.
While the results of such litigation cannot be predicted with certainty,
management, after discussion with counsel, believes the final outcome will
not have a material adverse effect on the financial position and results of
operations reflected in the financial statements presented herein. In
addition, a determination in the second lawsuit that the Registrant's shares
at issue are Excess Shares may result in these shares being returned to the
Registrant's treasury without compensation, thus reducing the number of
shares outstanding and increasing shareholders' equity per outstanding share.
At this point, however, management cannot predict with certainty whether such
shares will be deemed to be Excess Shares or how such shares will be treated
if they are deemed to be Excess Shares. Once the validity and status of the
Excess Shares can be determined, the Registrant will be in a position to hold
an Annual Meeting.
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Until the validity of the Excess Shares is known, the payment of dividends has
been suspended. In order for the Registrant to continue to qualify as a REIT,
substantially all of the Registrant's taxable income must be distributed to its
shareholders. Accordingly, lack of resolution of the status of the Excess
Shares could affect the Registrant's ability to continue to qualify as a REIT
under the Internal Revenue Code in the future. The cost of the two lawsuits has
been significant and has negatively impacted the earnings during 1997 and the
remaining lawsuit will continue to do so in 1998.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
See Exhibit Index on page 13.
(b) Reports on Form 8-K
On March 12, 1998, the Registrant filed a report on For 8-K
which reported an Item 5, Other Events.
SIGNATURES
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Pursuant to the requirements 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.
NOONEY REALTY TRUST, INC.
Dated: May 15, 1998 By: /s/ William J. Carden
-----------------------------------
William J. Carden
Chairman and CEO
/s/ Patricia A. Nooney
-----------------------------------
Patricia A. Nooney
President and Secretary
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EXHIBIT INDEX
Exhibit Number Description
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3.(i) Articles of Incorporation dated June 12, 1984 are
incorporated by reference to Exhibit 3(a) to the
Registration Statement on Form S-11 under the
Securities and Exchange Act of 1933, as amended,
(File No. 2-91851)
3.(ii) Bylaws of the Registrant, as amended, are incorporated
by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K, for fiscal year ended
December 31, 1987, as filed pursuant to Rule 13a-1
under the Securities Exchange Act of 1934, as
amended, (File No. 0-13754)
27 Financial Data Schedule (provided for the information
of the U.S. Securities and Exchange Commission only)
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