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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
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File Number 0-13647*
GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
(Exact name of registrant as specified in its charter)
California (94-6649376)
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
351 California Street
Suite 1150
San Francisco, California 94104
(Address of Principal Executive Offices) (Zip Code)
(415) 391-9800
Registrant's Telephone Number, including Area Code
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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The number of units outstanding of the registrant's units of beneficial interest
August 1, 1995 was 2,803,169 units.
GRUBB & ELLIS REALTY COMPANY TRUST LIQUIDATING TRUST IS THE DISTRIBUTEE OF THE
ASSETS OF GRUBB & ELLIS REALTY INCOME TRUST, AND FILES REPORTS UNDER GRUBB &
ELLIS REALTY INCOME TRUST'S FORMER COMMISSION FILE NUMBER
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
FORM 10-Q
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I N D E X
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Statements of Assets and Liabilities as of March 31, 1996
and December 31, 1995 3
Statements of Income and Expense for the quarters ended March 31, 1996 and
1995. 4
Statements of Cash Flows for the three-month periods ended
March 31, 1996 and 1995 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 11
Item 2: Change of Securities 11
Item 3: Defaults Upon Senior Securities 11
Item 4: Submission of Mattes to a Vote of Security Holders 11
Item 5: Other Information 11
Item 6: Exhibits and Reports on Form 8-K 11
Signatures 12
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
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March 31, December 31,
1996 1995
------------ ------------
(unaudited)
ASSETS
Net investment in real estate held for sale $ 10,072,000 $8,441,000
Cash and cash equivalents 47,000 64,000
Prepaid expense and other assets 183,000 10,000
------------ ------------
Total assets $ 10,302,000 $ 9,515,000
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LIABILITIES AND
BENEFICIARIES' EQUITY
Liabilities:
Mortgage loan payable, net of unamortized discount $ 5,720,000 $ 4,172,000
Security deposits and other liabilities 184,000 56,000
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Total liabilities 5,904,000 4,228,000
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Commitments (Note 5)
Beneficiaries' equity:
Units of beneficial interest 12,737,000 12,737,000
Notes receivable from beneficiaries (338,000) (338,000)
Distributions in excess of accumulated earnings (8,001,000) (8,112,000)
------------ ------------
Total beneficiaries' equity 4,398,000 4,287,000
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Total liabilities and beneficiaries' equity $ 10,302,000 $ 8,515,000
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The accompanying notes are an integral part of
these financial statements.
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
STATEMENTS OF INCOME AND EXPENSE
(UNAUDITED)
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Quarter Ended
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March 31, March 31,
1996 1995
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Income :
Rental income $ 197,000 $ 244,000
Short-term investment interest
and other income 0 5,000
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197,000 249,000
Expenses:
Real estate investment reserves
Rental operating expenses 92,000 88,000
Interest on mortgage loan 130,000 87,000
Depreciation 47,000 40,000
Liquidating agent fee 12,000
Directors' fees and expenses 4,000 4,000
General and administrative expenses 13,000 38,000
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Total expenses 286,000 269,000
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Net income (loss) $ (89,000) $ (20,000)
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Net income (loss) per unit $ (.03) $ (.01)
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Average number of units utilized in
net income (loss) per unit 2,803,169 2,803,169
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The accompanying notes are an integral part of
these financial statements.
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Three Months
Ending
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March 31, March 31,
1996 1995
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Cash flows from operating activities:
Net income (Loss): $ (89,000) $ (20,000)
Adjustments to reconcile net income (Loss):
Depreciation and amortization 47,000 130,000
Increase (decrease) in accounts payable and security deposits 128,000 25,000
Decrease (increase) in prepaid expenses and other assets (173,000) 15,000
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Net cash provided by operating activities (87,000) 150,000
Cash flows from investing activities:
Property development costs (1,478,000) 0
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Net cash provided by (used in) investing activities (1,478,000) 0
Cash flows from financing activities:
Principal payments on mortgage loan payable 0 (36,000)
Construction loan proceeds 1,548,000 0
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Net cash used in financing activities 1,548,000 (36,000)
Net increase (decrease) in cash and cash equivalents (17,000) 114,000
Cash and cash equivalents, beginning of period 64,000 1,790,000
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Cash and cash equivalents, end of period $ 47,000 $ 151,000
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Supplementary information:
Cash paid for interest $ 124,000 $ 87,000
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The accompanying notes are an integral part of
these financial statements.
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
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1. Organization of the Trust:
Grubb & Ellis Realty Income Trust, Liquidating Trust (the Trust), a
California trust, was organized under an agreement dated May 14, 1992,
between the Trustees and Grubb & Ellis Realty Income Trust (the Company)
whereby the trustees received all of the assets and assumed all of the
liabilities of the Company, which was subsequently dissolved. The purpose
of the Trust was to liquidate the remaining Trust property in a manner to
conserve and protect the liquidating trust estate, and to collect and
distribute the income and proceeds to the beneficiaries of the Trust by May
15, 1995, the date of intended termination. As further explained in Note 3,
although the purpose of the Trust remains the same, the disposition plans
for the Trust's remaining property, the Vintner Square Shopping Center
(formerly the Livermore Arcade Shopping Center), are such that the Trust's
liquidation period has extended beyond May 1995, for a period of
approximately one year.
2. Basis of Presentation:
The financial statements included herein have been prepared by the Trust,
without audit, pursuant to the rules and regulation of the Securities and
Exchange Commission for reporting on Form 10-Q. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In addition,
certain reclassifications have been made to the prior year financial
statements to conform to the current year's presentation. The statements
should be read in conjunction with the Company's report on Form 10-K for
the year ended December 31, 1995 and the audited financial statements
included therein.
In the opinion of the Trustees, the financial statements reflect all
adjustments necessary for a fair presentation of financial position,
results of operations, and cash flows for the interim period presented. The
results of operations for the three-month period ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
Continued
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
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3. Net Real Estate Investment:
As of March 31, 1996, the Trust's remaining real estate asset is the
Vintner Square Shopping Center.
Prior to the inception of the Trust, the Vintner Square Shopping Center
property became subject to an environmental clean-up and remediation
program to remedy soil contamination caused by a former tenant. As of May
15, 1992 (date of inception) $241,000 had been paid in connection with the
testing and remediation program. During 1993, the procedures required to
complete the remediation were approved by the Regional Water Quality
Control Board (RWCB). The Trust had taken legal action against the former
tenant, previous owners and other related parties of the property in order
to recover all costs of the clean-up program. A settlement agreement and
general release was executed on January 18, 1994 which shifted the
liability for the clean-up to a separate entity and incorporated the RWCB's
plan approval. On April 30, 1996 the Trust received a No Further Action
Letter from the Regional Water Quality Control Board indicating that the
clean-up requirements imposed by the RWCB have been satisfied and that a
monitoring program will be required for a period of approximately 24
months.
Due to the environmental clean-up program, plans to expand and ultimately
sell the Vintner Square Shopping Center were delayed. However, on July 7,
1995, the Trust executed a loan agreement which provides funds for
financing the rehabilitation and expansion of the shopping center (see Note
4). In addition, the Trust finalized lease renewals with the three major
tenants in the center, Orchard Supply Hardware, Long's Drugs and Safeway
Stores. The renewed leases result in increased annual rental income and
expire in the years 2011 and 2016.
The Orchard Supply lease involved a build-to-suit agreement for a new
building. Construction activities started in July, 1995 and include the
demolition of a portion of the shopping center. The Trust recorded a
reserve approximating $1,300,000 in the quarter ended June 30, 1995, to
reflect a reduction in the net book value of buildings and improvements for
those assets being demolished. The new Orchard Supply building was
completed on April 1, 1996. The construction schedule calls for the
completion of 20,000 sq ft of new shop space at various intervals from May
24, 1996 to August 15, 1996. The rehabilitation of the original
undemolished shop space and the existing Safeway and Long's stores is
anticipated to be compelted by July 15, 1996.
The Trust has also developed an estimate of the shopping center's future
market value after completion of the rehabilitation and expansion, and
taking into account the repayment terms of the loan (Note 4). Based on that
estimate, the Trust recorded an additional net realizable value reserve
allowance of $1,300,000 as of June 30, 1995 and increased the reserve to
$1,500,000 as of December 31, 1995.
Continued
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
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3. Net Real Estate Investment, continued:
As of March 31, 1996 and 1995, net real estate investment consisted of the
following:
1996 1995
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Land $ 5,795,000 $ 3,685,000
Buildings and improvements 4,026,000 4,513,000
Development costs 3,351,000 804,000
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13,172,000 9,002,000
Less: Accumulated depreciation (1,261,000) (1,079,000)
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11,911,000 7,923,000
Less:
Buildings demolition reserve (539,000)
Realizable value reserve (1,300,000)
$ 7,687,000 $ 7,923,000
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4. Loan Payable:
On July 7, 1995, the Trust entered into a new loan agreement in the
aggregate amount of $8,500,000. A portion of the proceeds were used to
retire the existing mortgage loan payable and the remainder is being used
to fund the development of the Vintner Square Shopping Center. The new
financing agreement extends through June 1, 1998 and requires interest
payments at a rate equal to 11% per annum, plus an additional 2% per annum
if target net operating income levels are achieved during the first 18
months of the loan term. The loan is collateralized by the shopping center
real property and the rents derived therefrom. Additionally, certain
reserve accounts are to be established including an interest reserve and a
working capital reserve which further collateralize the loan. The note
terms require a preferred return payable to the lender from excess Cash
Flows, as defined, including a specified participation and rate of return
associated with any sale or refinancing of the property. The note
stipulates that the lender will participate in sale proceeds in excess of
certain stated amounts. Restrictive covenants associated with the
financing preclude the payment of dividends until the loan is repaid.
Continued
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GRUBB & ELLIS REALTY INCOME TRUST, LIQUIDATING TRUST
NOTES CONDENSED TO FINANCIAL STATEMENTS
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5. Commitments:
In connection with the rehabilitation and expansion of the shopping center
(see Note 4), the Company has entered into a construction contract with a
general contractor aggregating approximately $2,232,000. The Trust also
entered into another contract with a separate general contractor in the
amount of $1,878,000 for additional construction related to the
rehabilitation and expansion project.
Continued
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Changes in Financial Condition:
Net investment in real estate increased from December 31, 1995 to March 31, 1996
by $787,000 from construction improvements to the Vintner Square Shopping
Center.
Mortgage loan payable increased from December 31, 1995 to March 31 by $1,548,000
resulting from construction loan draws to pay for previously incurred
development costs for the shopping center redevelopment project.
Results of Operations:
Three Months Ended March 31, 1996 Compared to the Three Months Ended
March 31, 1995:
An $89,000 loss was recorded in the three months ended March 31, 1996 as
compared with a loss of $20,000 in the comparable period in 1995, as a
result of decreased rental income due to lowered occupancy during the
construction period.
Mortgage loan interest increased $43,000 during the period resulting from
additional interest expense on a first mortgage secured by one of the land
parcels acuired in connection with the expansion of the shopping center..
General and administrative expenses continued to declined as a result of
effort to eliminate all but absolutely essential legal, accounting,
management and reporting expenses.
Potential Factors Affecting Future Operating Results:
Pursuant to the plan of liquidation, the Trust intends to sell the Shopping
Center, and distribute all remaining assets as soon as it is possible to do so.
Completion of the new construction and the renovation of existing space is
anticipated to be mid-1996 and environmental clearance has been received from
the Regional Water Quality Control Board. The environmental issue has impacted
the sale of the property since 1990 and now that it is resolved the completion
of the sale is possible. In anticipation of WQCB clearance an agressive sales
effort was undertaken commencing in January, 1996. Prospective purchasers were
contacted and given detailed information enabling them to analyze the property's
value in order to make purchase proposals. Active negotiations are now underway
on the sale of the property and the Trust expects to enter into a Purchase and
Sale Agreement calling for the close of a sales transaction on, or before,
completion of the construction and rehabilitation of the center.
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PART II - OTHER INFORMATION
Items 1 through 4 are not applicable.
Item 5, Other Information
On July 7, 1995, the Trust entered into a new loan agreement in the amount of
$8,500,000 for the purpose of retiring the existing first mortgage loan payable
and to fund the redevelopment of the Shopping Center. This agreement extends
through June 1, 1998 and requires interest payments of 11% per annum, plus an
additional 2% per annum if certain target net operating income levels are
achieved during the first 18 months of the loan term. The loan is collateralized
by the Shopping Center real property and the rents derived therefrom.
Additionally, certain reserve accounts are to be established including an
interest reserve and a working capital reserve which further collateralize the
loan. The note terms require a preferred return payable to the lender from
excess cash flows as defined, including a specified participation and rate of
return associated with the sale or refinancing of the property. The note
stipulates that the lender will participate in the sale proceeds in excess of
certain stated amounts. Restrictive covenants associated with the financing
precluded distributions to unitholders.
In April, 1996 the Trustees determined that it would be necessary to provide
additional financing over the $8,500,000 construction loan in the amount of
$350,000 in order to pay for the costs of the project which have increased by
that amount due to unanticipated cost overruns in the demolition of portions of
the original buildings and increases in the cost of the 20,000 sq ft of new shop
space. In April, 1996 the Trustees loaned $100,000 to the Trust for this purpose
and additional financing is being negotiated with the existing construction
lender for the balance as of May 14, 1996. The Trustees believe sufficient funds
are available to complete the entire project including the cost of installing
improvements for the tenants.
Item 6 Exhibits and Reports on Form 8-K:
None
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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.
GRUBB & ELLIS REALTY INCOME TRUST,
LIQUIDATING TRUST
By: /s/ HAROLD A. ELLIS, JR.
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Harold A. Ellis, Jr., Trustee
Dated: May 13, 1996
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