<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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, St. Louis, Missouri 63102
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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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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $1.00 Par Value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
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/ / Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of February 1, 1998, there were 866,624 shares of the Registrant's
common stock, par value $1 per share, issued and outstanding. (See Item 3:
Legal Proceedings - the number of outstanding shares is in dispute).
Documents incorporated by reference:
(1) Portions of the Registrant's 1997 Annual Report to Shareholders are
incorporated by reference in Parts I & II of this Annual Report on Form 10-K.
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PART I
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ITEM 1: BUSINESS
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It should be noted that this 10-K 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.
Nooney Realty Trust, Inc. (the "Registrant" or "Trust") is a corporation
formed under The General and Business Corporation Law of Missouri on June 14,
1984, to make equity investments in income-producing real properties,
primarily commercial and light industrial properties. The Registrant has
invested in three real property investments as set forth in Item 2 below.
The Registrant's primary investment objectives are to preserve and protect
Shareholders' capital, provide the maximum possible cash distributions to
Shareholders and provide for capital growth through appreciation in property
values. Since 1985 the Registrant has qualified as a real estate investment
trust ("REIT") under the Internal Revenue Code. It was management's original
objective to sell or refinance the Registrant's properties approximately
eight to twelve years after their acquisition. The depression of real estate
values experienced nationwide from 1988 to 1993 lengthened this time frame in
order to achieve the goal of capital appreciation.
The real estate investment market began to improve in 1994, and has
continued this improvement through 1997, and is expected to further continue
its improvement over the next several years. Management believes this trend
should increase the value of the Trust's properties in the future. The
status of the Trust's individual properties and opportunities to increase
their value is carefully reviewed by management and the Board of Directors on
a quarterly basis along with any proposals or opportunities that are
presented to expand or merge the Trust.
The Registrant is intended to be self-liquidating and the proceeds from the
sale or refinancing of the Registrant's real property investments will not be
invested in new properties but will be distributed to the Shareholders or, at
the discretion of management, applied to capital improvements to, or the
payment of indebtedness with respect to, existing properties, other expenses
or the establishment of reserves.
The business in which the Registrant is engaged is highly competitive. The
Registrant's investment properties are located in or near major urban areas
and are subject to competition from other similar types of properties in such
areas. The Registrant competes for tenants for its properties with numerous
other real estate investment trusts, as well as with individuals,
corporations, real estate limited partnerships and other entities engaged in
real estate investment activities. Such competition is based on such factors
as location, rent schedules and services and amenities provided.
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The Registrant retained Nooney Advisors Ltd., L.P. (the "Advisor"), 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. Property management services for the Registrant's investment
properties are provided by "independent contractors" (as defined in the
Internal Revenue Code and regulations promulgated thereunder), which
independent contractors include Nooney Krombach Company and Nooney, Inc.
which are affiliates of the Advisor. The Registrant had no employees as of
December 31, 1997. (See Part III, Item 10 below).
Throughout the 10-K, references are made to the following companies listed in
Column A below. Please note that on January 28,1998, the names of said
companies were changed to the names listed in Column B below.
<TABLE>
<CAPTION>
Column A Column B
-------- --------
<S> <C>
Nooney Company Brooklyn Street Properties, Inc.
Nooney Krombach Company Hanley Brokers, Inc.
</TABLE>
ITEM 2: PROPERTIES
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On March 28, 1985, the Registrant purchased The Atrium at Alpha Business
Center ("The Atrium"), an office building located at 2626 East 82nd Street in
Bloomington, Minnesota, a suburb of Minneapolis. The Atrium contains
approximately 89,000 net rentable square feet and is located, along with a
parking lot that will accommodate 336 cars, on a 4.2 acre site. The purchase
price of The Atrium was $8,393,716. The Atrium was 98% leased by 28 tenants
at year-end.
On January 22, 1986, the Registrant purchased the Applied Communications,
Inc. Building (the "ACI Building"), an office building located at 330 South
108th Avenue in Omaha, Nebraska. The ACI Building contains approximately
70,000 net rentable square feet and is located on a 7.59 acre site which
provides paved parking for 400 cars. The purchase price of the ACI Building
was $6,401,008. The building is 100% leased by a single tenant, Applied
Communications, Inc.
On December 16, 1986, the Registrant purchased the Franklin Park Distribution
Center ("Franklin Park"), a warehouse and distribution facility located at
3431 N. Powell Avenue in Franklin Park, Illinois, a suburb west of Chicago.
Franklin Park contains approximately 162,000 net rentable square feet and is
located on a 5 acre site which provides parking for 100 cars. The purchase
price of Franklin Park was $4,301,494. Franklin Park was 100% leased by 2
tenants at year-end.
Reference is made to Note 3 of Notes to Financial Statements incorporated by
reference to the Registrant's 1997 Annual Report to Shareholders under the
heading "Financial Statements and Notes" for a description of the mortgage
indebtedness secured by the Registrant's real property investments.
Reference is also made to Note 6 of Notes to Financial Statements for a
discussion of revenues derived from major tenants.
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The following table sets forth certain information as of December 31, 1997,
relating to the properties owned by the Registrant.
<TABLE>
<CAPTION>
===========================================================================================================================
AVERAGE
ANNUALIZED
EFFECTIVE
TOTAL BASE RENT PRINCIPAL TENANTS
SQUARE ANNUALIZED PER SQUARE PERCENT OVER 10% OF PROPERTY LEASE
PROPERTY FEET BASE RENT FOOT LEASED SQUARE FOOTAGE EXPIRATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Atrium At Alpha Case Corp. (11%) 1999
Business Center 89,000 $1,283,846 $14.63 98% Travel Realty Corp. (20%) 2001<F1>
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Applied Communications Inc. Applied Communications,
Building 70,000 $ 938,004 $13.40 100% Inc. (100%) 1999
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Franklin Park Household Finance (57%) 1999
Distribution Center 162,000 $ 493,305 $ 3.04 100% Golden Dipt Co. (43%) 1998
===========================================================================================================================
<FN>
<F1> Tenant has an option to cancel as of July 1999.
</TABLE>
ITEM 3: LEGAL PROCEEDINGS
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As of December 31, 1997, the Trust is a party to two lawsuits. The first is
State of Missouri ex rel. KelCor, Inc. v. Nooney Realty Trust, Inc. On
August 7, 1997, KelCor, Inc., a shareholder of the Trust, filed a Petition
for mandamus relief against the Trust. KelCor's Petition sought a writ of
mandamus compelling the Trust to hold an Annual Meeting of shareholders by
October 31, 1997. The Trust opposed KelCor's Petition on the basis that the
Trust was unable to hold a valid meeting because of uncertainty over the
validity of certain shares of the Trust and that the determination of the
validity of those shares needed to first be 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 Trust to hold an Annual Meeting by
January 15, 1998. The Trust 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. The Board of Directors continues to maintain that KelCor is not
entitled to mandamus relief with respect to the holding of an Annual Meeting.
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 Trust filed a petition for declaratory judgment against
certain individuals and entities who claim to hold shares of the Trust. The
Trust initiated the suit to obtain a judicial determination of the validity
and status of some of the Trust'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 the KelCor's mandamus suit in St. Louis County 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 discovery as permitted by the Court so that the
validity and status of the Excess Shares can be finally determined pursuant
to this suit.
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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 Trust's shares at
issue are Excess Shares may result in these shares being returned to the
Trust'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 Trust will be in a position to hold an
Annual Meeting. Until the validity of the Excess Shares is known, the payment
of dividends has been suspended. In order for the Trust to continue to qualify
as a REIT, substantially all of the Trust's taxable income must be distributed
to its shareholders. Accordingly, lack of resolution of the status of the Excess
Shares could affect the Trust'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 will
continue to do so in 1998 as the two court cases move forward.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of Shareholders during the fourth
quarter of fiscal 1997.
PART II
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ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS
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The information required by Item 201 of Regulation S-K is incorporated by
reference to the Registrant's 1997 Annual Report to Shareholders under the
headings "Market Information" and "Dividends".
ITEM 6: SELECTED FINANCIAL DATA
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The information required by Item 301 of Regulation S-K is incorporated by
reference to the Registrant's 1997 Annual Report to Shareholders under the
heading "Financial Highlights".
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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The information required by Item 303 of Regulation S-K is incorporated by
reference to the Registrant's 1997 Annual Report to Shareholders under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The financial statements of the Registrant are incorporated by reference to
the Registrant's 1997 Annual Report to Shareholders. Financial Statement
Schedules are filed herewith as Exhibit 99.1 and are incorporated herein by
reference. The supplementary financial information specified by Item 302 of
Regulation S-K is not applicable.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
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AND FINANCIAL DISCLOSURE
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None
PART III
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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EXECUTIVE OFFICERS OF THE REGISTRANT
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The following table sets forth certain information with respect to the
executive officers of the Registrant as of March 1, 1998.
<TABLE>
<CAPTION>
Has served as
Name Position Age officer since
---- -------- --- -------------
<S> <C> <C> <C>
William J. Carden Chief Executive Officer and 53 March 1, 1998
Chairman of the Board
Gregory J. Nooney, Jr.<F1> Vice Chairman 67 1984
Thomas N. Thurber Treasurer and CFO 47 March 1, 1998
Patricia A. Nooney<F1> President and Secretary 41 1990
<FN>
<F1> Patricia A. Nooney is the daughter of Gregory J. Nooney, Jr.
</TABLE>
William J. Carden is founder and President of CGS Real Estate Company, Inc.
of Newport Beach, California. CGS Real Estate Company is a diversified real
estate investment management company which owns commercial and residential
real estate. (See also Item 13). Mr. Carden founded Texas-DVM Properties,
Inc. in 1974 which concentrated on rehabilitation of retail, office,
industrial, and commercial real estate. Mr. Carden is a former Director of
Bay Financial, a New York Stock Exchange company.
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<PAGE> 8
Gregory J. Nooney, Jr. has served as Chairman of the Board and Chief
Executive Officer of Nooney Company since May 1983. Mr. Nooney joined Nooney
Company in 1954 and served as President from 1969 to May 1983. Nooney
Company, which was founded in 1945, is a real estate investment company.
Mr. Nooney is currently Chairman of Nooney, Inc. (See also Item 13.) In
addition, Mr. Nooney was Chairman and Chief Executive Officer of the
Registrant from 1984 through February 1998.
During 1993 Lindbergh Boulevard Partners, L.P. filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code. Gregory J. Nooney is
the general partner of Nooney Ltd. II, L.P, which in turn is the general
partner of Nooney Development Partners, L.P., which in turn is the general
partner of Nooney-Hazelwood Associates, L.P. which is the general partner of
Lindbergh Boulevard Partners, L.P. Lindbergh Boulevard Partners, L.P.
emerged from bankruptcy on May 17, 1994, when its Plan of Reorganization was
confirmed.
Thomas N. Thurber is a Certified Public Accountant who began his career with
Arthur Andersen & Co. in 1972. In 1979, he joined a major publicly traded
real estate development firm (Daon) where he became Controller for U.S.
Operations. Subsequently, Mr. Thurber served as Director of Real Estate for
a developer of retail properties, and Chief Financial Officer of a trust with
significant investments in commercial real estate. Mr. Thurber holds a
bachelors degree in accounting from Florida State University.
Patricia A. Nooney is President of Nooney, Inc., a wholly-owned subsidiary of
CGS Real Estate Company. (See also Item 13.) Ms. Nooney joined Nooney
Company in 1981 and has served as an officer since 1985. Since 1990, Ms.
Nooney has been President and Secretary of the Registrant.
DIRECTORS OF THE REGISTRANT
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The following table sets forth certain information with respect to the Board
of Directors of the Registrant.
<TABLE>
<CAPTION>
NAME AGE POSITIONS OR OFFICES
---- --- WITH THE TRUST
--------------------
<S> <C> <C>
William J. Carden 53 Chairman of the Board, Chief
Executive Officer and Director
Gregory J. Nooney, Jr. 67 Vice Chairman and Director
Lawrence E. Fiedler 59 Director<F*>
William W. Geary, Jr. 55 Director<F*>
James P. Ingram 57 Director<F*>
<FN>
<F*> Independent Director as defined in the Trust's Bylaws.
</TABLE>
-8-
<PAGE> 9
Mr. Nooney and Mr. Ingram have served as directors of the Trust since its
formation in June 1984. Mr. Carden, Mr. Fielder and Mr. Geary have served as
directors since November 1997.
The following is a brief summary of the business experience during the past
five years of each of the directors of the Trust, including, where
applicable, information regarding other directorships held by each director:
William J. Carden is founder and President of CGS Real Estate Company, Inc.
of Newport Beach, California. CGS Real Estate Company is a diversified real
estate investment management company which owns commercial and residential
real estate. Mr. Carden founded Texas-DVM Properties, Inc. in 1974 which
concentrated on rehabilitation of retail, office, industrial, and commercial
real estate. Mr. Carden is a former Director of Bay Financial, a New York
Stock Exchange company.
Gregory J. Nooney, Jr. has served as Chairman of the Board and Chief
Executive Officer of Nooney Company since May 1983. Mr. Nooney joined Nooney
Company in 1954 and served as President from 1969 to May 1983. Nooney
Company, which was founded in 1945, is a real estate investment company.
From 1984 through February 1998, Mr. Nooney was Chairman and Chief Executive
Officer of the Registrant.
During 1993 Lindbergh Boulevard Partners, L.P. filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code. Gregory J. Nooney is
the general partner of Nooney Ltd. II, L.P, which in turn is the general
partner of Nooney Development Partners, L.P., which in turn is the general
partner of Nooney-Hazelwood Associates, L.P. which is the general partner of
Lindbergh Boulevard Partners, L.P. Lindbergh Boulevard Partners, L.P.
emerged from bankruptcy on May 17, 1994, when its Plan of Reorganization was
confirmed.
Lawrence E. Fiedler is a real estate owner, consultant and educator. He is a
principal in JRM Development Enterprises, Inc., JRM Nebraska Management and
Leasing Corp., as well as various limited partnerships and joint venture
agreements. He is a professor at New York University.
William W. Geary, Jr. is President of Carlsberg Management Company, which is
a large diversified real estate management company. Previously, he served as
Vice President of Walston & Co., Inc., Chicago, Illinois. Mr. Geary also
serves as a director of IDM Corporation.
James P. Ingram is President of Cambridge Savings Bank, Cambridge,
Massachusetts. From 1986 through 1987 Mr. Ingram was a partner in McManus,
Wakeman & Ingram, Inc., Boston, Massachusetts, a real estate consulting and
development firm. From 1965 until December 1985, Mr. Ingram was employed by
R.M. Bradley & Co., Inc., Boston, Massachusetts, a full service commercial
real estate investment and management company, most recently as Senior Vice
President. While with R.M. Bradley & Co., Inc., Mr. Ingram was primarily
involved in management of the Bradley Real Estate Trust, a real estate
investment trust, and in office, retail and commercial brokerage.
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<PAGE> 10
ITEM 11: EXECUTIVE COMPENSATION
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During 1997 the officers of the Trust did not receive any direct compensation
from the Trust for their services as officers of the Trust. Pursuant to the
Trust's Bylaws, Gregory J. Nooney, Jr. did not receive any direct
compensation from the Trust for his services as director of the Trust.
The other directors were entitled to receive the following fees during 1997:
(a) $500 for each meeting attended in person; (b) $250 for each meeting
conducted by telephone conference at which a vote was taken; and (c) an
annual fee of $1,000. In addition, the independent directors were reimbursed
by the Trust for their expenses and other out-of-pocket expenses incurred in
connection with attending meetings of the Trust and carrying on the business
of the Trust.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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On or about February 3, 1998, Amendment No. 3 to Schedule 13D ("Amendment No.
3") setting forth the following information was filed with the SEC by KelCor,
Inc., a Missouri corporation ("KelCor"), David L. Johnson, Sandra L.
Casetetter, Daniel W. Pishney and John W. Alvey. Amendment No. 3 indicates
that KelCor is the beneficial owner of 41,113 shares of the Trust's common
stock, or approximately 4.74% of the total outstanding shares, and has shared
voting power and shared dispositive power with respect to all of such shares.
Amendment No. 3 further indicates that Mr. Johnson and Ms. Casetetter, who
are husband and wife and the sole shareholders of KelCor, are each the
beneficial owners of 80,682 shares of the Trust's common stock (which number
of shares includes the 41,113 shares of the Trust's common stock of which
KelCor is a beneficial owner), or approximately 9.31% of the total
outstanding shares, and each have shared voting power and shared dispositive
power with respect to all of such shares. Amendment No. 3 also indicates
that Mr. Pishney, who is the President and Chief Operating Officer of Maxus
Properties, Inc., a Missouri corporation of which Mr. Johnson is the
Chairman, Chief Executive Officer and majority shareholder, is the beneficial
owner of 4,100 shares of the Trust's common stock, or approximately 0.47% of
the total outstanding shares, and has sole voting power and sole dispositive
power with respect to all of such shares. Amendment No. 3 indicates that Mr.
Alvey, who is the President and a director of KelCor, is the beneficial owner
of 18,000 shares of the Trust's common stock, or approximately 2.08% of the
total outstanding shares, and has sole voting power and sole dispositive
power with respect to all of such shares. Amendment No. 3 indicates that
KelCor, Mr. Johnson, Ms. Casetetter, Mr. Pishney and Mr. Alvey are each
members of a "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Section
13(d)(3) of the Exchange Act provides that when two or more persons act as a
partnership, limited partnership, syndicate or other group for the purpose of
acquiring, holding, or disposing of securities of an issuer, such syndicate
or group shall be deemed a "person" for purposes of filing Schedule 13D. The
principal business address of each of KelCor, Mr. Johnson, Mr. Pishney and
Mr. Alvey is 1100 Main, Suite 2100, Kansas City, Missouri 64105. The
personal address of Ms. Casetetter is 4617 NW Normandy Lane, Kansas City,
Missouri 64116. The foregoing information is based solely on Amendment No. 3
and is included herein only for the purpose of complying with Item 12 of Form
10-K. There are several lawsuits currently on file, see Item 3 herein, which
contest the ownership of certain shares of the Registrant.
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<PAGE> 11
The Trust has been informed that Mr. Dean Jones, P.O. Box 247, Sneedville,
Tennessee, owns 46,500 shares, or approximately 5.3% of the Trust's
outstanding common stock.
The table below sets forth information as of February 1, 1998, regarding the
number of shares of the Trust beneficially owned by each of the directors and
executive officers of the Trust and by all directors and officers as a group:
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED <F1> CLASS <F2>
---------------- ----------------------- ----------
<S> <C> <C>
Gregory J. Nooney, Jr . 8,022 <F3> <F*>
William J. Carden 11,000 <F4> 1.3%
Lawrence Fiedler 0 <F*>
William Geary 0 <F*>
James P. Ingram 50 <F*>
Patricia A. Nooney 5,165 <F*>
Directors and officers as a group 24,237 2.8%
<FN>
- ----------
<F1> Under the rules of the Securities and Exchange Commission,
persons who have power to vote or dispose of securities,
either alone or jointly with others, are deemed to be the
beneficial owners of such securities. Accordingly, shares
owned separately by spouses or other family members are not
included. Except as described in the footnotes below, the
director has both sole voting power and sole investment
power with respect to the shares set forth in the table.
<F2> An asterisk indicates that the number of shares beneficially
owned does not exceed one percent of the Trust's common
stock issued and outstanding.
<F3> Includes 3,031 shares owned by Nooney Company, of which
Gregory J. Nooney, Jr. is a director and shareholder.
Includes 3,535 shares held as co-trustee of a trust, as to
which Mr. Nooney shares voting and investment power.
<F4> All 11,000 shares are owned by Kissimee Sq. Assoc., Ltd., a
Texas limited partnership, the general partner of which is
No.-So., Inc., a Texas corporation, which is controlled by
CGS Real Estate Company, Inc., a Texas corporation, of which
ASJ, Ltd., a Texas limited partnership, is a shareholder;
SMAJ, Inc., a Texas corporation, is the general partner of
ASJ, Ltd.; Mr. Carden is the sole shareholder of SMAJ, Inc.
Mr. Carden disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in such
shares.
</TABLE>
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<PAGE> 12
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------
Prior to October 31, 1997, Gregory J. Nooney, Jr. served as a General Partner
of Nooney Advisors Ltd., L.P., the advisor to the Trust. Nooney Advisors
Ltd., L.P., was entitled to receive regular monthly compensation from the
Trust for rendering advisory services to the Trust. During 1997 the Trust
paid advisory fees of $118,906 to Nooney Advisors Ltd., L.P. The Board of
Directors had renewed the Advisory Agreement between the Trust and Nooney
Advisors Ltd., L.P. for the period April 1, 1997 to March 31, 1998. (See
below). Gregory J. Nooney, Jr. and Patricia A. Nooney, who are father and
daughter, are officers and directors of Nooney Krombach Company, a
wholly-owned subsidiary of Nooney Company, who served as manager of the
Trust's properties. Nooney Krombach Company was entitled to receive monthly
compensation from the Trust for property management and leasing plus
reimbursement of expenses. During 1997, the Trust paid property management
fees of $98,558 to Nooney Krombach Company.
On October 31, 1997, Nooney Company sold its property management business
operated through its wholly-owned subsidiary, Nooney Krombach Company, to
Nooney Real Estate Company D/B/A Nooney, Inc., an indirect wholly-owned
subsidiary of CGS Real Estate Company, Inc., a Texas corporation.
Simultaneously Nooney Company, Gregory J. Nooney, Jr. and PAN, Inc. sold
their general and limited partnership interest in Nooney Advisors Ltd., L.P.,
the external advisor to the Registrant to S-P Properties, Inc., a California
corporation, which also is a wholly-owned subsidiary of CGS Real Estate
Company. Prior to the sale, the independent Directors of the Registrant
approved the change in control of the Advisor and authorized a new management
contract for the Registrant's properties with Nooney, Inc., with the same
terms and expiration dates as the existing advisory and management contracts.
In 1997 lease commissions of $8,266 were paid by the Trust to Nooney, Inc.
for period from November 1, 1997, to December 31, 1997. In the same period,
the Trust paid Nooney, Inc. management fees of $19,711.
On December 10, 1997, at a Special Board meeting, all of the Independent
Directors voted unanimously to change the governance and management of the
Trust to that of an internally self-managed Trust. The remaining two
Directors abstained from voting.
On December 10, 1997, letters were sent to Nooney Advisors Ltd., L.P., the
current Advisor to the Trust, and Nooney, Inc., the property manager,
notifying them that their contracts would be canceled in 60 days (on February
9, 1998) in accordance with the terms of the respective agreements.
Effective February 10, 1998, the Trust reimburses Nooney, Inc. for various
salary and overhead expenses.
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<PAGE> 13
PART IV
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ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Financial Statements:
The financial statements of the Registrant are incorporated
by reference to the Registrant's 1997 Annual Report to
Shareholders.
2. Financial Statement Schedules (filed herewith as Exhibit 99.1):
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted because they are
inapplicable or not required under the instructions.
3. Exhibits:
See Exhibit Index on Page 16.
(b) Reports on Form 8-K:
On October 14, 1997, the Registrant filed a report on Form 8-K which
reported an Item 5, Other Events.
On November 14, 1997, the Registrant filed a report on Form 8-K which
reported an Item 1, Changes in Control of Registrant.
On December 3, 1997, the Registrant filed a report on Form 8-K which
reported an Item 5, Other Events.
On December 18, 1997, the Registrant filed a report on Form 8-K which
reported an Item 5, Other Events.
(c) Exhibits:
See Exhibit Index on Page 16.
(d) Not Applicable.
-13-
<PAGE> 14
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.
NOONEY REALTY TRUST, INC.
Date: March 30, 1998 By: /s/ William J. Carden
--------------------------- ----------------------------------
William J. Carden
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 30, 1998, by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ William J. Carden
----------------------------------
William J. Carden
Chief Executive Officer
and Director
/s/ Patricia A. Nooney
----------------------------------
Patricia A. Nooney
President and Secretary
/s/ Thomas N. Thurber
----------------------------------
Thomas N. Thurber
Treasurer and Chief Financial
Officer
-14-
<PAGE> 15
/s/ Gregory J. Nooney, Jr.
----------------------------------
Gregory J. Nooney, Jr.
Director
/s/ James P. Ingram
----------------------------------
James P. Ingram
Director
/s/ Lawrence E. Fiedler
----------------------------------
Lawrence E. Fiedler
Director
/s/ William W. Geary, Jr.
----------------------------------
William W. Geary, Jr.
Director
-15-
<PAGE> 16
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.1 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
Act of 1933 (File No. 2-91851).
3.2 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 the fiscal year ended December 31,
1987, as filed pursuant to Rule 13a-1 under The Securities
Exchange Act of 1934 (File No. 0-13754).
10.1 Advisory Agreement between Nooney Advisors Ltd., L.P. and the
Registrant is incorporated by reference to Exhibit 10(a)
to Amendment No. 2 to the Registration Statement
on Form S-11 under the Securities Act of 1933
(File No. 2-91851).
10.2 Dividend Reinvestment Agreement between Mellon
Bank, N.A. and the Registrant is incorporated
by reference to Exhibit 10(d) to Amendment No. 1 to the
Registration Statement on Form S-11 under the Securities
Act of 1933 (File No. 2-91851).
10.3 Dividend Reinvestment Plan is incorporated by reference
to pages A-1 - A-3 of the Prospectus of the Registrant
dated September 25, 1984, as supplemented and filed
pursuant to Rule 424(c) under the Securities Act of 1933
(File No. 2-91851).
10.4 Management Contract between the Registrant and Nooney
Management Company (now Nooney, Inc.) dated
March 28, 1985, is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1985, as filed pursuant to
Rule 13a-1 under the Securities Exchange Act of 1934
(File No. 0-13754).
10.5 Filed herewith - Employment Agreement and Exhibit A
for William J. Carden, dated as of March 1, 1998.
10.6 Filed herewith - Stock Option Agreement for William J. Carden,
dated as of March 1, 1998.
10.7 Filed herewith - Employment Agreement and Exhibit A
for Thomas N. Thurber, dated as of March 1, 1998.
10.8 Filed herewith - Stock Option Agreement for Thomas N. Thurber,
dated as of March 1, 1998.
-16-
<PAGE> 17
13 1997 Annual Report to Shareholders. Except for those
portions expressly incorporated by reference in this
Form 10-K, the 1997 Annual Report to Shareholders is
furnished for the information of the Commission and is
not to be deemed "filed" as part of this Form 10-K.
27 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)
99.1 Financial Statement Schedules.
-17-
</TABLE>
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of March 1, 1998 between NOONEY REALTY
TRUST, INC., a Missouri corporation (the "Company"), and WILLIAM J. CARDEN
("Employee").
The Company desires to have the benefit of Employee's considerable
expertise and experience and desires to enter into an agreement providing for
his employment as an executive officer of the Company through February 28, 2003.
Employee is willing to be employed by the Company through February 28,
2003.
In consideration of the premises and the covenants set forth herein and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capacity, Term and Scope of Employment.
--------------------------------------
(a) During the period from the date hereof through February 28,
2003, Employee shall be employed as chief executive officer of the Company,
responsible for such matters as the Board of Directors of the Company may
request Employee to participate in for the benefit of the Company. Employee
shall report directly to and be responsible to the Board of Directors of the
Company.
(b) Through February 28, 2003, Employee shall devote such time
and attention to the affairs of the Company as Employee shall deem
necessary to fulfill his duties hereunder. It is expressly understood that
Employee may also be an employee, officer and member of the board of directors
of any other company or companies, whether in the real estate business or
otherwise.
<PAGE> 2
(c) If, following the termination of Employee's employment as an
employee, the Company discovers any irregularity in the books or records of
the Company's accounts and the Company anticipates making a claim against
Employee for such irregularity, Employee and his representative shall have
the right, in the presence of a representative of the Company to review the
relevant books, records and files of the Company in connection with the
irregularity.
2. Compensation and Benefits. As compensation hereunder, the Company
-------------------------
shall pay, and Employee shall accept, during the period of his employment
hereunder:
(a) base compensation at a minimum rate of $16,666.67 per month,
commencing March 1, 1998, of which $2,500.00 per month shall be payable in
equal semimonthly installments and of which $14,166.67 per month shall be
payable on a deferred basis, without interest, at the end of the term
hereof (or earlier, as provided herein), but which shall vest in equal
semimonthly installments as earned;
(b) reimbursement for such travel expenses and accommodations as are
reasonable and necessarily incurred by him in connection with the performance
of his duties under this Agreement and in accordance with procedures and
policies in effect from time to time, for out-of-pocket expenses reasonably
incurred; and
(c) As an inducement essential to Employee entering into this
Agreement, options to purchase 50,000 shares of the Company's Common Stock
at the last reported closing bid price for such shares on or before February 27,
1998; such options shall contain such provisions as are set forth in Exhibit A
hereto.
3. Confidential Information and Materials. Employee agrees that during
--------------------------------------
the term of this Agreement and thereafter he will not, without the prior written
consent of the Company, use or disclose to any persons, other than persons then
employed by, or acting as advisers or
-2-
<PAGE> 3
consultants to, the Company or any of its affiliates and members of the board
of directors thereof, any information (whether business, financial, technical
or otherwise), know-how, trade secrets, customer lists, or other documents
and materials relating to the Company or any of its affiliates (the
"confidential Materials and Information") that are currently in his possession
or that may come into his possession subsequent to the date hereof; provided,
--------
however, that the foregoing shall not apply to Confidential Materials and
- -------
Information which are or become part of the public domain other than by means
of a breach of this Agreement. Upon termination of employment with the Company
for any reason (including termination on February 28, 2003 pursuant to the
terms of this Agreement), Employee agrees to return to the Company all
tangible manifestations of trade secrets and customer lists and all copies
thereof. Employee further agrees that his obligations under this Section shall
survive his termination of employment with the Company and shall continue to
bind him for a period of five years following such termination.
4. Termination of Employment. Notwithstanding anything herein contained:
-------------------------
(a) If Employee shall, at any time prior to February 28, 2003, fail
to perform his duties hereunder because of illness or other physical or mental
incapacity which shall continue for a period of more than 120 days, the Company
shall have the right to terminate Employee's employment as of a date to be
specified in a notice to Employee to that effect, whereupon Employee shall
continue to receive his salary through the last day of the month in which such
termination shall take effect, all deferred compensation which has vested
through such date shall be paid.
(b) If, at any time prior to February 28, 2003, Employee (i) shall be
adjudged civilly liable for any material breach of his duties hereunder or of
his fiduciary duties to the Company, (ii) shall be convicted of a felony
against a person or property or (iii) shall willfully
-3-
<PAGE> 4
fail to perform his duties hereunder or be in material breach hereof and such
failure or breach shall continue for 30 days after written notice thereof is
given to Employee by the Company, then the Company shall have the right to
terminate its employment of Employee and all of its obligations to Employee
hereunder immediately upon delivery to him of notice of such termination, but
in such event Employee shall forthwith be paid all deferred compensation which
has vested as of the date of such termination.
(c) In the event "Adjusted Funds From Operations" of the Company,
as defined in Exhibit B hereto, for the fiscal year ended December 31, 2000,
as determined in good faith by the Company and reviewed by the Company's
certified public accountants, is less than $1,998,710, then the Company
shall have the right to terminate its employment of Employee and all of
its obligations to Employee hereunder immediately upon delivery to him of
notice of such termination, but in such event Employee shall forthwith be paid
all deferred compensation which has vested as of the date of such termination.
(d) In the event that Employee dies prior to February 28, 2003, his
employment shall terminate immediately and automatically, all deferred
compensation which has vested shall be paid to his estate.
(e) In the event Employee's services hereunder are terminated by
the Company for any other reason or in the event the Company sells all or
substantially all of its assets or is otherwise liquidated, all compensation
payable hereunder after the date of such termination (including all deferred
compensation, whether vested or not) shall be immediately paid.
5. Representations of Employee. Employee represents and warrants to the
---------------------------
Company that he is under no contractual or other restriction which is
inconsistent with his execution of this
-4-
<PAGE> 5
Agreement, the performance by him of his duties hereunder, or with the rights
of the Company (or of any of its affiliates) hereunder and that this
Agreement constitutes a legal, valid and binding obligation of Employee.
6. Representations of the Company. The Company represents and warrants
------------------------------
that this Agreement has been duly authorized by its Board of Directors and
constitutes a legal, valid and binding obligation of the Company.
7. Arbitration; Severability.
-------------------------
(a) Any dispute, claim or controversy between the parties with
respect to the performance or interpretation of this Agreement or Employee's
employment at Company which cannot be resolved between the parties shall be
finally resolved by a binding arbitration to be conducted by a single arbitrator
under the auspices of and in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA") at a mutually acceptable
place in St. Louis County, Missouri. The arbitrator shall be bound by the
terms and conditions of this Agreement and shall have no power, in rendering the
award to alter or depart from any express provision of this Agreement or to
make a decision which is not supported by law and substantial evidence. Each
party shall bear the costs of its own attorneys and experts, and the parties
shall equally bear the costs, charges, and expenses, including the fees,
charges, and expenses of the arbitrator and the AAA. Notwithstanding the
parties' agreement to arbitrate, the parties reserve all of their respective
rights to seek provisional remedies before the courts which they would have
at law or equity, including temporary restraining orders, injunctions or other
similar relief.
(b) It is the desire and the intent of the parties that the terms
and conditions of this Agreement shall be enforced to the fullest extent
permissible. Accordingly, if any particular
-5-
<PAGE> 6
term or condition of this Agreement shall be adjudicated or become by operation
of law invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom such term or condition and the remainder of this Agreement
shall remain in full force and effect. A deletion resulting from any
adjudication shall apply only with respect to the operation of that term or
condition in the particular jurisdiction in which such adjudication is made.
8. Entire Agreement; Amendment. This Agreement sets forth the entire
---------------------------
understanding of the parties with respect to the employment arrangement with
Employee and may be modified or amended only by a written instrument duly
executed by the Company and Employee.
9. Assignment. The rights of Employee under this Agreement shall not be
----------
transferable by assignment or otherwise, shall not be subject to commutation
or encumbrance and shall not be subject to the claims of creditors of Employee.
The Company may, however, assign its rights and delegate its duties hereunder
to a real estate investment trust which it may form; in such case, Employee
hereby accepts such delegate of duties and releases the Company from any
liability thereon.
10. Binding Effect. This Agreement shall be binding on and inure to the
--------------
benefit of the heirs and personal representatives of Employee and shall also
be binding on and inure to the benefit of the Company and its successors and
assigns.
11. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and shall be given by certified or
registered mail, overnight delivery service such as Federal Express, facsimile
transmission or personal delivery against receipt to the address or facsimile
copier number of the parties set forth below or to such other address or
-6-
<PAGE> 7
facsimile copier number as the party shall have furnished in writing in
accordance with the provision of this Section:
If to the Company, to: Nooney Realty Trust, Inc.
500 N. Broadway, Suite 1200
St. Louis, MO 63102
Fax: (314) 206-4666
And to: Frederick W. Scherrer, Esq.
Bryan Cave LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
Fax: (314) 259-2020
If to Employee to: William J. Carden
5850 San Felipe Road, Suite 500
Houston, TX 77057
Fax: (713) 706-6274
And to: Howard F. Hart, Esq.
Hughes Hubbard & Reed LLP
350 South Grand Avenue, Suite 3600
Los Angeles, CA 90071
Fax: (213) 613-2950
12. Counterparts. This Agreement may be executed in one or more
------------
counterpart copies, each of which shall be deemed an original, and shall
become effective when one or more counterparts shall have been signed by
each of the parties hereto and delivered to the other parties.
-7-
<PAGE> 8
13. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
THE COMPANY:
NOONEY REALTY TRUST, INC.
By: /s/ Patricia A. Nooney
----------------------------------
PATRICIA A. NOONEY
President
EMPLOYEE:
/s/ William J. Carden
--------------------------------------
WILLIAM J. CARDEN
-8-
<PAGE> 1
EXHIBIT 10.6
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the 1st day of March, 1998, by and
between NOONEY REALTY TRUST, INC., a Missouri corporation (hereinafter called
the "Company"), and WILLIAM J. CARDEN (hereinafter called "Optionee"),
WITNESSETH THAT:
WHEREAS, Optionee is serving as Chief Executive Officer of the
Company and, in connection therewith, the Board of Directors of the Company
("Board of Directors") desires to grant Optionee a stock option;
NOW, THEREFORE, in consideration of the premises, and of the
mutual agreements hereinafter set forth, it is covenanted and agreed as
follows:
1. Grant and Terms of Option. Pursuant to action of the
-------------------------
Special Committee for Employment Agreements of the Board of Directors, which
action was taken on February 27, 1998, effective March 1, 1998 ("Date of
Grant"), the Company grants to Optionee the option to purchase all or any
part of fifty thousand (50,000) shares of the Common Stock of the Company, of
the par value of $1.00 per share ("Common Stock") at the purchase price of
$10.00 per share. The right to exercise such option shall be, and is hereby,
restricted so that no shares may be purchased during the first year of the
term hereof; that at any time during the term of this option after the end of
the first year from the Date of Grant, Optionee may purchase up to 20% of the
total number of shares to which this option relates; that at any time during
the term of this option after the end of the second year from the Date of
Grant, Optionee may purchase up to an additional 20% of the total number of
shares to which this option relates; and that at any time after the end of
the third year from the Date of Grant, Optionee may purchase up to an
additional 20% of the total number of shares to which this option relates;
that at any time during the term of this option after the end of the fourth
year from the Date of Grant, Optionee may purchase up to
<PAGE> 2
an additional 20% of the total number of shares to which this option relates;
and that at any time after the end of the fifth year from the Date of Grant,
Optionee may purchase up to an additional 20% of the total number of shares to
which this option relates; so that upon the expiration of the fifth year from
the Date of Grant and thereafter during the term hereof, Optionee will have
become entitled to purchase the entire number of shares to which this option
relates. Notwithstanding the foregoing, in the event Optionee's employment is
terminated for any reason other than one described in Paragraph 5, or in the
event the Company shall sell all or substantially all of its assets or is
otherwise liquidated, Optionee may purchase 100% of the total number of
shares to which this option relates so long as such sale or liquidation or
termination occurs prior to the time the option by its own terms would have
expired. Optionee may exercise each portion of the option for a period of
five (5) years after each such portion becomes exercisable as hereinabove set
forth. The purchase price of the shares subject to the option may be paid for
(i) in cash, (ii) in the discretion of the Board of Directors, by tender of
shares of Common Stock already owned by Optionee, or (iii) in the discretion
of the Board of Directors, by a combination of methods of payment specified
in clauses (i) and (ii).
2. Anti-Dilution Provisions. In the event that, during the
------------------------
term of this Agreement, there is any change in the number of shares of
outstanding Common Stock of the Company by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or
exchanges of shares and the like, the number of shares covered by this option
agreement and the price thereof shall be adjusted, to the same proportionate
number of shares and price as in this original agreement.
2
<PAGE> 3
3. Registration of Shares. The Company agrees to register
----------------------
under the Securities Act of 1933, as amended, and any state securities law
the issuance of shares pursuant to any exercise of the option so that, upon
such exercise, Optionee will receive shares which shall not be "restricted
securities" as such term is defined in Rule 144 of the Securities and
Exchange Commission.
4. Non-Transferability. Neither the option hereby granted nor
-------------------
any rights thereunder or under this Agreement may be assigned, transferred or in
any manner encumbered except by will or the laws of descent and distribution,
and any attempted assignment, transfer, mortgage, pledge or encumbrance
except as herein authorized, shall be void and of no effect. The option may
be exercised during Optionee's lifetime only by him.
5. Termination of Employment. In the event Optionee's
-------------------------
employment is terminated on account of death or illness or other physical or
mental incapacity, the option hereby granted may be exercised by Optionee (or
Optionee's successor in interest, if Optionee has died), to the extent
Optionee was entitled to exercise it at the time of such death or termination
of employment at any time within six (6) months after such death or
termination, but not after five (5) years from the date the relevant portion
of the option first becomes exercisable pursuant to Paragraph 1. Any
unexercised portion of the option shall expire at the end of such six (6)
month period. In the event Optionee's employment is terminated for "Cause"
(as hereinafter defined) the option hereby granted shall immediately expire.
For purposes of this agreement the term "Cause" shall mean any of the
following:
(a) optionee shall have been adjudged civilly liable for any
material breach of his duties under his employment agreement or of his
fiduciary duties to the Company;
(b) Optionee shall have been convicted of a felony against a
person or property;
3
<PAGE> 4
(c) Optionee shall have willfully failed to perform his duties
under his employment agreement or be in material breach thereof and such
failure or breach shall have continued for 30 days after written notice
thereof shall have been given to Optionee by the Company; or
(d) The "Adjusted Funds From Operations" of the Company, as
defined in Exhibit A hereto, for the fiscal year ended December 31, 2000, as
determined in good faith by the Company's certified public accountants, is
less than $1,998,710. Nothing herein shall confer on Optionee any right to
continue in the employ of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary thereof to terminate his
employment at any time.
6. Shares Issued on Exercise of Option. It is the intention
-----------------------------------
of the Company that on any exercise of this option it will transfer to
Optionee shares of its authorized but unissued stock or transfer Treasury
shares, or utilize any combination of Treasury shares and authorized but
unissued shares, to satisfy its obligations to deliver shares on any exercise
hereof.
7. Board of Directors Administration. This option has been
---------------------------------
granted pursuant to a determination made by the Board of Directors, and the
Board of Directors, subject to the express terms of this option, shall have
plenary authority to interpret any provision of this option and to make any
determinations necessary or advisable for the administration of this option
and the exercise of the rights herein granted, and may waive or amend any
provisions hereof in any manner not adversely affecting the rights granted to
Optionee by the express terms hereof.
8. Option Not an Incentive Stock Option. This option shall
------------------------------------
not be treated as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended.
4
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its President, pursuant to due authorization, and
Optionee has signed this Agreement to evidence his acceptance of the option
herein granted and of the terms hereof, all as of the date hereof.
NOONEY REALTY TRUST, INC.
By /s/ Patricia A. Nooney
---------------------------------
PATRICIA A. NOONEY
President
William J. Carden
---------------------------------
WILLIAM J. CARDEN
5
<PAGE> 6
EXHIBIT A
---------
"Adjusted Funds From Operations" shall be defined as Funds From Operation "FFO"
as set forth below and as interpreted in the 1991 NAREIT White Paper, adjusted
by adding back to FFO:
1. Expenses incurred for the year ended December 31, 2000 for legal fees in
connection with pending and threatened litigation and related accruals for
estimated litigation losses,
2. Direct out-of-pocket expenses for the year ended December 31, 2000 related
to contested shareholder meetings including attorneys', accountants',
other consultants' fees and supplies and postage for mailings to
shareholders, and
3. Deferred compensation expense for the year ended December 31, 2000
recognized in accordance with Section 2(a) of this Agreement and
Section 2(a) of the Thurber employment agreement also dated March 1,
1998.
Furthermore, net income, as set forth in the definition of FFO below for the
year ending December 31, 2000 will be recognized on the basis of accounting
principles and estimates consistently applied with those utilized for the
year ended December 31, 1997.
Funds From Operations means net income (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
6
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of March 1, 1998 between NOONEY REALTY
TRUST, INC., a Missouri corporation (the "Company"), and THOMAS N. THURBER
("Employee").
The Company desires to have the benefit of Employee's considerable
expertise and experience and desires to enter into an agreement providing for
his employment as an executive officer of the Company through February 28, 2003.
Employee is willing to be employed by the Company through February 28,
2003.
In consideration of the premises and the covenants set forth herein and
for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Capacity, Term and Scope of Employment.
--------------------------------------
(a) During the period from the date hereof through February 28,
2003, Employee shall be employed as chief financial officer and treasurer of
the Company, responsible for such matters as the Board of Directors of the
Company may request Employee to participate in for the benefit of the Company.
Employee shall report directly to and be responsible to the Board of Directors
of the Company and its chief executive officer.
(b) Through February 28, 2003, Employee shall devote such time
and attention to the affairs of the Company as Employee shall deem
necessary to fulfill his duties hereunder. It is expressly understood that
Employee may also be an employee, officer and member of the board of directors
of any other company or companies, whether in the real estate business or
otherwise.
<PAGE> 2
(c) If, following the termination of Employee's employment as an
employee, the Company discovers any irregularity in the books or records of
the Company's accounts and the Company anticipates making a claim against
Employee for such irregularity, Employee and his representative shall have
the right, in the presence of a representative of the Company to review the
relevant books, records and files of the Company in connection with the
irregularity.
2. Compensation and Benefits. As compensation hereunder, the Company
-------------------------
shall pay, and Employee shall accept, during the period of his employment
hereunder:
(a) base compensation at a minimum rate of $8,333.33 per month,
commencing March 1, 1998, of which $2,083.33 per month shall be payable in
equal semimonthly installments and of which $6,250.00 per month shall be
payable on a deferred basis, without interest, at the end of the term
hereof (or earlier, as provided herein), but which shall vest in equal
semimonthly installments as earned;
(b) reimbursement for such travel expenses and accommodations as are
reasonable and necessarily incurred by him in connection with the performance
of his duties under this Agreement and in accordance with procedures and
policies in effect from time to time, for out-of-pocket expenses reasonably
incurred; and
(c) As an inducement essential to Employee entering into this
Agreement, options to purchase 25,000 shares of the Company's Common Stock
at the last reported closing bid price for such shares on or before February 27,
1998; such options shall contain such provisions as are set forth in Exhibit A
hereto.
3. Confidential Information and Materials. Employee agrees that during
--------------------------------------
the term of this Agreement and thereafter he will not, without the prior written
consent of the Company, use or disclose to any persons, other than persons then
employed by, or acting as advisers or
-2-
<PAGE> 3
consultants to, the Company or any of its affiliates and members of the board
of directors thereof, any information (whether business, financial, technical
or otherwise), know-how, trade secrets, customer lists, or other documents
and materials relating to the Company or any of its affiliates (the
"Confidential Materials and Information") that are currently in his possession
or that may come into his possession subsequent to the date hereof; provided,
--------
however, that the foregoing shall not apply to Confidential Materials and
- -------
Information which are or become part of the public domain other than by means
of a breach of this Agreement. Upon termination of employment with the Company
for any reason (including termination on February 28, 2003 pursuant to the
terms of this Agreement), Employee agrees to return to the Company all
tangible manifestations of trade secrets and customer lists and all copies
thereof. Employee further agrees that his obligations under this Section shall
survive his termination of employment with the Company and shall continue to
bind him for a period of five years following such termination.
4. Termination of Employment. Notwithstanding anything herein contained:
-------------------------
(a) If Employee shall, at any time prior to February 28, 2003, fail
to perform his duties hereunder because of illness or other physical or mental
incapacity which shall continue for a period of more than 120 days, the Company
shall have the right to terminate Employee's employment as of a date to be
specified in a notice to Employee to that effect, whereupon Employee shall
continue to receive his salary through the last day of the month in which such
termination shall take effect, all deferred compensation which has vested
through such date shall be paid.
(b) If, at any time prior to February 28, 2003, Employee (i) shall be
adjudged civilly liable for any material breach of his duties hereunder or of
his fiduciary duties to the Company, (ii) shall be convicted of a felony
against a person or property or (iii) shall willfully
-3-
<PAGE> 4
fail to perform his duties hereunder or be in material breach hereof and such
failure or breach shall continue for 30 days after written notice thereof is
given to Employee by the Company, then the Company shall have the right to
terminate its employment of Employee and all of its obligations to Employee
hereunder immediately upon delivery to him of notice of such termination, but
in such event Employee shall forthwith be paid all deferred compensation which
has vested as of the date of such termination.
(c) In the event "Adjusted Funds From Operations" of the Company,
as defined in Exhibit B hereto, for the fiscal year ended December 31, 2000,
as determined in good faith by the Company and reviewed by the Company's
certified public accountants, is less than $1,998,710, then the Company
shall have the right to terminate its employment of Employee and all of
its obligations to Employee hereunder immediately upon delivery to him of
notice of such termination, but in such event Employee shall forthwith be paid
all deferred compensation which has vested as of the date of such termination.
(d) In the event that Employee dies prior to February 28, 2003, his
employment shall terminate immediately and automatically, all deferred
compensation which has vested shall be paid to his estate.
(e) In the event Employee's services hereunder are terminated by
the Company for any other reason or in the event the Company sells all or
substantially all of its assets or is otherwise liquidated, all compensation
payable hereunder after the date of such termination (including all deferred
compensation, whether vested or not) shall be immediately paid.
5. Representations of Employee. Employee represents and warrants to the
---------------------------
Company that he is under no contractual or other restriction which is
inconsistent with his execution of this
-4-
<PAGE> 5
Agreement, the performance by him of his duties hereunder, or with the rights
of the Company (or of any of its affiliates) hereunder and that this
Agreement constitutes a legal, valid and binding obligation of Employee.
6. Representations of the Company. The Company represents and warrants
------------------------------
that this Agreement has been duly authorized by its Board of Directors and
constitutes a legal, valid and binding obligation of the Company.
7. Arbitration; Severability.
-------------------------
(a) Any dispute, claim or controversy between the parties with
respect to the performance or interpretation of this Agreement or Employee's
employment at Company which cannot be resolved between the parties shall be
finally resolved by a binding arbitration to be conducted by a single arbitrator
under the auspices of and in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA") at a mutually acceptable
place in St. Louis County, Missouri. The arbitrator shall be bound by the
terms and conditions of this Agreement and shall have no power, in rendering the
award to alter or depart from any express provision of this Agreement or to
make a decision which is not supported by law and substantial evidence. Each
party shall bear the costs of its own attorneys and experts, and the parties
shall equally bear the costs, charges, and expenses, including the fees,
charges, and expenses of the arbitrator and the AAA. Notwithstanding the
parties' agreement to arbitrate, the parties reserve all of their respective
rights to seek provisional remedies before the courts which they would have
at law or equity, including temporary restraining orders, injunctions or other
similar relief.
(b) It is the desire and the intent of the parties that the terms
and conditions of this Agreement shall be enforced to the fullest extent
permissible. Accordingly, if any particular
-5-
<PAGE> 6
term or condition of this Agreement shall be adjudicated or become by operation
of law invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom such term or condition and the remainder of this Agreement
shall remain in full force and effect. A deletion resulting from any
adjudication shall apply only with respect to the operation of that term or
condition in the particular jurisdiction in which such adjudication is made.
8. Entire Agreement; Amendment. This Agreement sets forth the entire
---------------------------
understanding of the parties with respect to the employment arrangement with
Employee and may be modified or amended only by a written instrument duly
executed by the Company and Employee.
9. Assignment. The rights of Employee under this Agreement shall not be
----------
transferable by assignment or otherwise, shall not be subject to commutation
or encumbrance and shall not be subject to the claims of creditors of Employee.
The Company may, however, assign its rights and delegate its duties hereunder
to a real estate investment trust which it may form; in such case, Employee
hereby accepts such delegate of duties and releases the Company from any
liability thereon.
10. Binding Effect. This Agreement shall be binding on and inure to the
--------------
benefit of the heirs and personal representatives of Employee and shall also
be binding on and inure to the benefit of the Company and its successors and
assigns.
11. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and shall be given by certified or
registered mail, overnight delivery service such as Federal Express, facsimile
transmission or personal delivery against receipt to the address or facsimile
copier number of the parties set forth below or to such other address or
facsimile copier number as the party shall have furnished in writing in
accordance with the
-6-
<PAGE> 7
provision of this Section:
If to the Company, to: Nooney Realty Trust, Inc.
500 N. Broadway, Suite 1200
St. Louis, MO 63102
Fax: (314) 206-4666
And to: Frederick W. Scherrer, Esq.
Bryan Cave LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
Fax: (314) 259-2020
If to Employee to: Thomas N. Thurber
156 W. 56th Street, Suite 1101
New York, NY 10019
Fax: (212) 586-6704
And to: Howard F. Hart, Esq.
Hughes Hubbard & Reed LLP
350 South Grand Avenue, Suite 3600
Los Angeles, CA 90071
Fax: (213) 613-2950
12. Counterparts. This Agreement may be executed in one or more
------------
counterpart copies, each of which shall be deemed an original, and shall
become effective when one or more counterparts shall have been signed by
each of the parties hereto and delivered to the other parties.
-7-
<PAGE> 8
13. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
THE COMPANY:
NOONEY REALTY TRUST, INC.
By: /s/ Patricia A. Nooney
----------------------------------
PATRICIA A. NOONEY
President
EMPLOYEE:
/s/ Thomas N. Thurber
--------------------------------------
THOMAS N. THURBER
-8-
<PAGE> 1
EXHIBIT 10.8
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the 1st day of March, 1998, by and
between NOONEY REALTY TRUST, INC., a Missouri corporation (hereinafter called
the "Company"), and THOMAS N. THURBER (hereinafter called "Optionee"),
WITNESSETH THAT:
WHEREAS, Optionee is serving as Chief Financial Officer and
Treasurer of the Company and, in connection therewith, the Board of Directors
of the Company ("Board of Directors") desires to grant Optionee a stock
option;
NOW, THEREFORE, in consideration of the premises, and of the
mutual agreements hereinafter set forth, it is covenanted and agreed as
follows:
1. Grant and Terms of Option. Pursuant to action of the
-------------------------
Special Committee for Employment Agreements of the Board of Directors, which
action was taken on February 27, 1998, effective March 1, 1998 ("Date of
Grant"), the Company grants to Optionee the option to purchase all or any
part of twenty-five thousand (25,000) shares of the Common Stock of the
Company, of the par value of $1.00 per share ("Common Stock") at the purchase
price of $10.00 per share. The right to exercise such option shall be, and is
hereby, restricted so that no shares may be purchased during the first year
of the term hereof; that at any time during the term of this option after the
end of the first year from the Date of Grant, Optionee may purchase up to 20%
of the total number of shares to which this option relates; that at any time
during the term of this option after the end of the second year from the Date
of Grant, Optionee may purchase up to an additional 20% of the total number of
shares to which this option relates; and that at any time after the end of the
third year from the Date of Grant, Optionee may purchase up to an additional
20% of the total number of shares to which this option relates; that at any
time during the term of this option after the end of the fourth year from the
Date of Grant, Optionee may purchase up to
<PAGE> 2
an additional 20% of the total number of shares to which this option relates;
and that at any time after the end of the fifth year from the Date of Grant,
Optionee may purchase up to an additional 20% of the total number of shares to
which this option relates; so that upon the expiration of the fifth year from
the Date of Grant and thereafter during the term hereof, Optionee will have
become entitled to purchase the entire number of shares to which this option
relates. Notwithstanding the foregoing, in the event Optionee's employment is
terminated for any reason other than one described in Paragraph 5, or in the
event the Company shall sell all or substantially all of its assets or is
otherwise liquidated, Optionee may purchase 100% of the total number of shares
to which this option relates so long as such sale or liquidation or
termination occurs prior to the time the option by its own terms would have
expired. Optionee may exercise each portion of the option for a period of five
(5) years after each such portion becomes exercisable as hereinabove set
forth. The purchase price of the shares subject to the option may be paid for
(i) in cash, (ii) in the discretion of the Board of Directors, by tender of
shares of Common Stock already owned by Optionee, or (iii) in the discretion
of the Board of Directors, by a combination of methods of payment specified in
clauses (i) and (ii).
2. Anti-Dilution Provisions. In the event that, during the
------------------------
term of this Agreement, there is any change in the number of shares of
outstanding Common Stock of the Company by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or
exchanges of shares and the like, the number of shares covered by this option
agreement and the price thereof shall be adjusted, to the same proportionate
number of shares and price as in this original agreement.
2
<PAGE> 3
3. Registration of Shares. The Company agrees to register
----------------------
under the Securities Act of 1933, as amended, and any state securities law
the issuance of shares pursuant to any exercise of the option so that, upon
such exercise, Optionee will receive shares which shall not be "restricted
shares" as such term is defined in Rule 144 of the Securities and Exchange
Commission.
4. Non-Transferability. Neither the option hereby granted nor any
-------------------
rights thereunder or under this Agreement may be assigned, transferred or in
any manner encumbered except by will or the laws of descent and distribution,
and any attempted assignment, transfer, mortgage, pledge or encumbrance
except as herein authorized, shall be void and of no effect. The option may
be exercised during Optionee's lifetime only by him.
5. Termination of Employment. In the event Optionee's
-------------------------
employment is terminated on account of death or illness or other physical or
mental incapacity, the option hereby granted may be exercised by Optionee (or
Optionee's successor in interest, if Optionee has died), to the extent
Optionee was entitled to exercise it at the time of such death or termination
of employment at any time within six (6) months after such death or
termination, but not after five (5) years from the date the relevant portion
of the option first becomes exercisable pursuant to Paragraph 1. Any
unexercised portion of the option shall expire at the end of such six (6)
month period. In the event Optionee's employment is terminated for "Cause"
(as hereinafter defined) the option hereby granted shall immediately expire.
For purposes of this agreement the term "Cause" shall mean any of the
following:
(a) optionee shall have been adjudged civilly liable for any
material breach of his duties under his employment agreement or of his
fiduciary duties to the Company;
(b) Optionee shall have been convicted of a felony against a
person or property;
3
<PAGE> 4
(c) Optionee shall have willfully failed to perform his duties under
his employment agreement or be in material breach thereof and such failure or
breach shall have continued for 30 days after written notice thereof shall
have been given to Optionee by the Company; or
(d) The "Adjusted Funds From Operations" of the Company, as
defined in Exhibit A hereto, for the fiscal year ended December 31, 2000, as
determined in good faith by the Company's certified public accountants, is
less than $1,998,710. Nothing herein shall confer on Optionee any right to
continue in the employ of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary thereof to terminate his
employment at any time.
6. Shares Issued on Exercise of Option. It is the intention of the
-----------------------------------
Company that on any exercise of this option it will transfer to Optionee
shares of its authorized but unissued stock or transfer Treasury shares, or
utilize any combination of Treasury shares and authorized but unissued
shares, to satisfy its obligations to deliver shares on any exercise hereof.
7. Board of Directors Administration. This option has been granted
---------------------------------
pursuant to a determination made by the Board of Directors, and the Board of
Directors, subject to the express terms of this option, shall have plenary
authority to interpret any provision of this option and to make any
determinations necessary or advisable for the administration of this option
and the exercise of the rights herein granted, and may waive or amend any
provisions hereof in any manner not adversely affecting the rights granted to
Optionee by the express terms hereof.
8. Option Not an Incentive Stock Option. This option shall not be
------------------------------------
treated as an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended.
4
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its President, pursuant to due authorization, and
Optionee has signed this Agreement to evidence his acceptance of the option
herein granted and of the terms hereof, all as of the date hereof.
NOONEY REALTY TRUST, INC.
By /s/ Patricia A. Nooney
------------------------------
PATRICIA A. NOONEY
President
/s/ Thomas N. Thurber
------------------------------
THOMAS N. THURBER
5
<PAGE> 6
EXHIBIT A
---------
"Adjusted Funds From Operations" shall be defined as Funds From Operation
"FFO" as set forth below and as interpreted in the 1991 NAREIT White Paper,
adjusted by adding back to FFO:
1. Expenses incurred for the year ended December 31, 2000 for legal fees
in connection with pending and threatened litigation and related
accruals for estimated litigation losses,
2. Direct out-of-pocket expenses for the year ended December 31, 2000
related to contested shareholder meetings including attorneys',
accountants', other consultants' fees and supplies and postage for
mailings to shareholders, and
3. Deferred compensation expense for the year ended December 31, 2000
recognized in accordance with Section 2(a) of this Agreement and
Section 2(a) of the Carden employment agreement also dated March 1,
1998.
Furthermore, net income, as set forth in the definition of FFO below for the
year ending December 31, 2000 will be recognized on the basis of accounting
principles and estimates consistently applied with those utilized for the
year ended December 31, 1997.
Funds From Operations means net income (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
6
<PAGE> 1
==============================================
NOONEY
----------------------------------------------
REALTY
----------------------------------------------
TRUST
==============================================
A Real Estate Investment Trust
1997
ANNUAL
REPORT
<PAGE> 2
==============================================================================
NOONEY LOGO
NOONEY REALTY TRUST, INC.
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C>
Financial Highlights........................................ Inside
Front Cover
The Trust................................................... 1
Market Information.......................................... 1
Dividends................................................... 1
Letter to Shareholders...................................... 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 3
Financial Statements and Notes.............................. 7
Directors and Officers...................................... 17
Shareholder Information..................................... 18
</TABLE>
<TABLE>
-------------------------------------
SELECTED FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
FOR THE YEAR: 1997 1996 1995 1994 1993
- ------------- ---- ---- ---- ---- ----
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<S> <C> <C> <C> <C> <C>
Rental and other income......................... $ 3,101,871 $ 3,017,982 $ 2,861,293 $ 2,719,324 $ 2,761,766
Net income/(loss)............................... (125,363) 216,538 185,597 42,217 163,001
Per share................................... (0.14) 0.25 0.21 0.05 0.19
Funds from operations<F1>....................... 604,961 974,476 906,637 749,211 880,578
Distributions declared.......................... 381,314 693,299 563,307 424,646 433,312
Per share................................... 0.44 0.80 0.65 0.49 0.50
Paid in current year:
Taxable to shareholders................. 0.09 0.40 0.31 0.22 0.24
Return of capital....................... 0.35 0.40 0.34 0.37 0.16
Declared 1993, paid in January 1994....... (0.10) 0.10
AT YEAR END:
- ------------
Total assets.................................... $14,926,763 $15,481,638 $16,009,017 $16,504,068 $16,761,085
Investment property - net....................... 13,769,633 14,214,620 14,811,351 15,219,284 15,605,700
Mortgage note payable........................... 4,740,875 4,830,236 4,912,421 4,988,006 4,844,598
Shareholders' equity............................ 9,737,778 10,244,455 10,721,216 11,098,926 11,481,355
Number of shares outstanding.................... 866,624<F2> 866,624 866,624 866,624 866,624
<FN>
- ---------------
<F1> Represents net income adjusted for depreciation and amortization.
<F2> Currently in dispute. For more information see Note 7 to the Financial
Statements for the year ended December 31, 1997.
</TABLE>
See Management's Discussion and Analysis for discussion of comparability of
items.
<PAGE> 3
==============================================================================
THE TRUST
Nooney Realty Trust, Inc. (the "Trust") is a corporation formed on June
14, 1984, to make equity investments in income-producing real properties,
primarily commercial and light industrial properties. The Trust has invested in
three properties: The Atrium at Alpha Business Center, an office building in
Bloomington, Minnesota; the Applied Communications, Inc. Building, an office
building in Omaha, Nebraska; and the Franklin Park Distribution Center, a
warehouse and distribution facility in suburban Chicago, Illinois. Since 1985
the Trust has qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code.
------------------------------------
MARKET INFORMATION
The Company's common stock trades on The Nasdaq Stock Market under the
symbol NRTI. The Nasdaq high and low prices for the shares during 1996 and 1997
were as follows:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter................................. $10.75 $ 9.75
Second Quarter................................ $10.875 $ 9.50
Third Quarter................................. $11.625 $10.00
Fourth Quarter................................ $11.75 $ 9.875
1996
First Quarter................................. $ 9.00 $ 7.25
Second Quarter................................ $ 9.00 $ 8.00
Third Quarter................................. $10.23 $ 8.00
Fourth Quarter................................ $10.50 $ 9.25
</TABLE>
As of February 1, 1998, there were 522 shareholders of record.
DIVIDENDS
The following cash dividends were paid to shareholders during 1996 and
1997:
<TABLE>
<CAPTION>
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996.......................... $.20 $.20 $.20 $.20
1997.......................... $.22 $.22 -0- -0-
</TABLE>
ONE
-----------
<PAGE> 4
==============================================================================
March 31, 1998
To Our Shareholders:
We are pleased to report that the net operating income of the Trust's
properties exceeded our budget forecast for the year ended December 31, 1997.
The Applied Communications Building in Omaha, Nebraska, and the Franklin
Park Distribution Center in Chicago, Illinois, continued at 100% occupancy
under existing leases. Management has reached an agreement to renew a major
tenant lease at Franklin Park which expires June 20, 1998, for a ten-year
period with a 39% increase in rent.
The Atrium at Alpha Business Center in Bloomington, Minnesota, ended the
year at 98% occupancy. Rental rates continued to increase for new and existing
tenants.
The Atrium building has been included in the Minneapolis Airport
Committee's Safety Zone A for the future expansion of the Minneapolis Airport.
Management is continuing to monitor the effect this expansion might have on the
Atrium building. The Minneapolis Airport Committee may be petitioned to buy the
building, or the Trust may elect to sell the project. Given the preliminary
stage of the future expansion, management is unable to determine at this time
what impact, if any, this matter will have on the future value of the Atrium
building.
For the fiscal year ended December 31, 1997, the Trust's earnings (losses)
were ($125,363) or ($.14) per share. Funds from operations, which adds
depreciation and amortization to net income computed in accordance with
generally acceptable accounting principals, were $606,637 or $.70 per share.
Funds from operations decreased $367,838 or $.42 per share compared to fiscal
year 1996.
The third quarter 1997 report explained in detail that the decrease in
Funds from Operations was due to the cost of ongoing litigation and the holding
of the special shareholders meeting on August 6, 1997. The Directors of the
Trust have, from the beginning of KelCor's action last Spring, maintained and
continue to maintain that an annual meeting of the Trust cannot be held until
the validity of the "Excess Share" issue brought about by KelCor's original
lawsuit filed last June is determined by a court of competent jurisdiction.
Unfortunately the litigation continues.
The Board of Directors is committed to scheduling an annual meeting as soon
as the litigation is finally settled.
The Directors, during the year, suspended the declaration and payment of
regular quarterly dividends because the declaration and payment of dividends on
any shares has been questioned due to the uncertain legal status surrounding
the alleged "Excess Shares".
In the meantime, the Directors and management will continue to aggressively
manage the individual Trust's properties with a goal of maximizing shareholder
value.
Sincerely,
NOONEY REALTY TRUST, INC.
William J. Carden
Chairman and Chief Executive Officer
TWO
- ------------
<PAGE> 5
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash reserves on hand as of December 31, 1997, were $657,470, an increase
of $16,343 from year ended December 31, 1996. The increase in cash is
attributable to an increase in cash provided by operating activities which
increased the Trust's cash reserves. The Trust's current cash position and the
properties' ability to provide operating cash flow should enable the Trust to
fund anticipated capital expenditures in 1998. The anticipated capital
expenditures by property are as follows:
<TABLE>
<CAPTION>
OTHER LEASING
CAPITAL CAPITAL TOTAL
------- ------- -----
<S> <C> <C> <C>
Atrium at Alpha......................... $46,600 $86,336 $132,936
Franklin Park Dist. Center.............. 25,000 79,405 104,405
Applied Communications Inc. Bldg........ 0 0 0
------- ------- --------
$71,600 $165,741 $237,341
</TABLE>
The capital expenditures at Atrium at Alpha Business Center include leasing
capital for tenant alterations and lease commissions for new and renewal
tenants. In addition, the Registrant anticipates spending capital funds for a
new heating and air conditioning compressor, new tenant suite signage, and
upgrading of the elevators. At Franklin Park Distribution Center, a contingency
reserve has been set aside for possible capital expenditures arising from the
annual inspections to the exterior of the property. In addition, a lease
commission for the renewal of one of the major tenants has been budgeted. There
are no capital expenditures anticipated at the Applied Communications Inc.
building.
The Trust's multi-tenant office building located in Bloomington, Minnesota
has been classified in the Minneapolis Airport Committee's (the "MAC") Safety
Zone A in the future expansion of the Minneapolis Airport. The expansion runway
is anticipated to be completed in 2003. The MAC will be buying out impacted
buildings during 1998 and 1999. Safety Zone A is adjacent to the Federal
Aviation Authority's noise buyout zone. The MAC has not indicated whether or
not it will buyout the Trust's building. The Trust is monitoring whether the
increased noise from the new runway will have an impact on future leasing of
the building. If the Trust determines there is a negative impact, the Trust
will petition the MAC to buy the building. If the building continues to be
classified in Safety Zone A, it will be classified as nonconforming use. Give
the preliminary state of the future expansion, management is unable at this
time to determine what impact, if any, this matter will have on the Trust.
RESULTS OF OPERATIONS
The results of operations for the Trust's properties for the years ended
December 31, 1997, 1996 and 1995 are detailed in the schedule below.
Administrative expenses of the Trust are excluded.
FUNDS FROM OPERATIONS
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
THREE
------------
<PAGE> 6
==============================================================================
related depreciation and amortization and after adjustments for unconsolidated
partnership and joint ventures. The Trust 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 Trust financial
performance or to cash flows from operating activities (determined in
accordance with GAAP) as a measure of the Trust liquidity, nor is it indicative
of funds available to fund the Trust cash needs including its ability to make
distributions. The Trust believes Funds from Operations are helpful to
investors as measures of the performance of the Trust because along with cash
flows from operating activities, financing activities and investing activities,
they provide investors with an understanding of the ability of the Trust to
incur and service debt and make capital expenditures.
<TABLE>
<CAPTION>
ATRIUM AT FRANKLIN PARK APPLIED COMM.
ALPHA DIST. CENTER INC. BLDG.
--------- ------------- -------------
<S> <C> <C> <C>
1997
Revenues................................ $1,289,077 $755,679 $1,081,276
Expenses................................ 1,051,050 582,497 897,735
---------- -------- ----------
Net Income.............................. $ 238,027 $173,182 $ 183,541
Depreciation and Amortization........... 352,248 178,182 183,164
---------- -------- ----------
Funds from Operations................... $ 590,275 $351,364 $ 366,705
1996
Revenues................................ $1,211,306 $770,247 $1,035,582
Expenses................................ 1,020,102 604,580 909,586
---------- -------- ----------
Net Income.............................. $ 191,204 $165,667 $ 125,996
Depreciation and Amortization........... 362,549 182,374 196,529
---------- -------- ----------
Funds from Operations................... $ 553,753 $348,041 $ 322,525
1995
Revenues................................ $1,092,488 $752,875 $1,002,033
Expenses................................ 919,264 583,418 887,751
---------- -------- ----------
Net Income.............................. $ 173,224 $169,457 $ 114,282
Depreciation and Amortization........... 336,993 177,021 190,406
---------- -------- ----------
Funds from Operations................... $ 510,217 $346,478 $ 304,688
</TABLE>
1997 COMPARISONS BY PROPERTY
Operating results at the Atrium at Alpha Business Center improved during
1997. Revenues increased primarily due to increases in the base rental rates
from tenants renewing and an increase in the escalation income received from
the tenant, partially offset by a decrease in miscellaneous income. In 1996,
the Trust received a cancellation fee due to the early termination of one of
the tenants. Expenses overall increased due to slight increases in a number of
the expense categories. There was no single expenditure which in and of itself
is significant.
FOUR
- ------------
<PAGE> 7
==============================================================================
At Franklin Park Distribution Center, the operating results were very
steady when comparing the year ended 1997 to year ended 1996. Revenues
decreased slightly due to a decrease in real estate tax reimbursement and
common area maintenance reimbursement. Expenses decreased due to the decrease
in real estate taxes and a decrease in building repairs and maintenance.
At the Applied Communications Inc. building, the operating results improved
during 1997. Revenues increased due to a built-in rent step-up annually from
the building's only tenant and an increase in the escalation reimbursements.
Operating expenses decreased slightly due to a decrease in parking lot
expenses, depreciation and amortization, partially offset by an increase in
building repairs and maintenance.
Occupancy at the Trust's properties during the fourth quarter remained at a
high level. This can be attributable to the Trust's ability to renew tenants at
The Atrium at Alpha Business Center as their leases expired. The occupancy
levels at December 31 are as follows:
<TABLE>
<CAPTION>
OCCUPANCY LEVELS AT DECEMBER 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Atrium at Alpha................................... 98% 95% 99%
Franklin Park Dist. Center........................ 100% 100% 100%
Applied Communications Inc. Bldg.................. 100% 100% 100%
</TABLE>
During the fourth quarter, the occupancy level at Atrium at Alpha increased
from 96% at the beginning of the quarter to 98% at the end of the quarter.
During the quarter, three tenants leased an additional 5,027 square feet. One
tenant renewed its lease for 3,605 square feet and two tenants vacated 3,608
square feet. For the year, occupancy increased 3%. During 1997 new leases were
signed with seven tenants occupying 20,063 square feet. Renewal leases were
signed with four tenants occupying 8,142 square feet, and three tenants vacated
which occupied 17,808 square feet. The property has two major tenants who lease
11% and 20% of the building with leases which expire in May 1999 and July 2001,
respectively. The tenant whose lease expires in 2001 has a cancellation option
to cancel effective July 1999.
Franklin Park Distribution Center has been fully leased by two tenants
throughout 1997. The larger of the two tenants occupies 57% of the building
while the other occupies 43% of the building. Their leases expire in December
1999 and June 1998, respectively. The Trust has reached an agreement to renew
the lease at Franklin Park which expires June 20, 1998, for a ten-year period
with a 39% increase in rent.
The Applied Communications Inc. building has a single tenant who has
occupied the entire building throughout 1997. This tenant's lease expires in
August 1999.
YEAR 2000 ISSUES
The Registrant believes that the impact of the year 2000 will not have a
material impact on future results. The Registrant utilizes various computer
software packages as tools in running its accounting operations. The
Registrant's properties are maintained on software provided by a third party.
The Registrant has received information from that company indicating that the
main software program has all its core products already compatible with 2000
dates and that these have been proven in the field for over five years. A few
of the add on products that are not critical to the Registrant's business are
in process of being updated and the third party vendor anticipates compliance
by the end of 1998.
FIVE
------------
<PAGE> 8
==============================================================================
1997 COMPARISONS
For the year ended December 31, 1997, the Trust's consolidated revenues
were $3,110,120 compared to $3,033,511 for the year ended December 31, 1996.
Thus, revenues increased 3% or $76,609. The increase in consolidated revenues
relates mainly to increases in base rental rates at the Atrium at Alpha
Business Center and the Applied Communications Inc. building.
The Trust's consolidated expenses for the year ended December 31, 1997,
were $3,235,483 compared to $2,816,973 for the year ended December 31, 1996.
The increase in expenses is due primarily to the high cost of the two lawsuits
and a related proxy contest that the Trust has been involved in during 1997.
The net loss for the year ended December 31, 1997, was ($125,363) or ($.14)
per share. Net income in 1996 was $216,538 or $.25 per share. The high cost of
the two lawsuits and a related proxy contest has negatively impacted the
operations of the Trust.
Cash flow provided by operating activities was $669,835 for 1997. The Trust
paid capital expenditures of $182,817, paid dividends to shareholders of
$381,314, and reduced the principal on the mortgage notes by $89,361 during
1997.
1996 COMPARISONS
For the year ended December 31, 1996, the Trust's consolidated revenues
were $3,033,511 compared to $2,865,261 for the year ended December 31, 1995.
This is a 6% increase, or $168,250. The increase in consolidated revenues
relates mainly to the Atrium at Alpha Business Center and the Applied
Communications Inc. building. At Atrium at Alpha Business Center, revenues
increased due to the receipt of a tenant's lease cancellation fee and an
increase in escalation income. Revenues increased at the Applied Communications
Inc. building due to the single tenant's built-in step-up rent increase.
The Trust's consolidated expenses for the year ended December 31, 1996,
were $2,816,973 compared to $2,679,664 for the year ended December 31, 1995.
The increase in expenses is attributable to real estate taxes, property
management fee increases due to higher income and an increase in repair and
maintenance expense.
Net income increased $30,941 or $.04 per share when compared to the year
ended December 31, 1995. For the year ended December 31, 1996, net income was
$216,538 resulting in earnings of $.25 per share. Cash flow from operations
from the year ended December 31, 1996, was $928,863. The Trust paid out
dividends of $693,299 or $.80 per share during 1996.
Cash flow from operations was also used to fund minor property capital
expenditures and principal payments on the Trust's note payable of $82,185.
INFLATION
The effects of inflation did not have a material impact upon the Trust's
operation in fiscal 1995, 1996 and l997.
SIX
- ------------
<PAGE> 9
==============================================================================
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Nooney Realty Trust, Inc.:
We have audited the accompanying balance sheets of Nooney Realty Trust, Inc.
(the "Trust") as of December 31, 1997 and 1996, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Nooney Realty Trust, Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
January 16, 1998
(March 10, 1998 as to Note 7 and
February 9, 1998 and March 1, 1998 as to Note 8)
St. Louis, Missouri
SEVEN
------------
<PAGE> 10
==============================================================================
NOONEY REALTY TRUST, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
CASH....................................................................... $ 657,470 $ 641,127
ACCOUNTS RECEIVABLE--no allowance for doubtful accounts considered
necessary................................................................ 260,085 353,619
PREPAID EXPENSES........................................................... 28,560 29,266
INVESTMENT PROPERTY--at cost (Note 3):
Land................................................................... 2,568,955 2,568,955
Buildings and improvements............................................. 17,739,921 17,593,831
----------- -----------
20,308,876 20,162,786
Less accumulated depreciation.......................................... (6,539,243) (5,948,166)
----------- -----------
13,769,633 14,214,620
DEFERRED EXPENSES--at amortized cost (Note 5).............................. 211,015 243,006
----------- -----------
TOTAL...................................................................... $14,926,763 $15,481,638
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage note payable (Note 3)......................................... $ 4,740,875 $ 4,830,236
Accounts payable and accrued expenses.................................. 448,110 406,947
----------- -----------
Total liabilities.............................................. 5,188,985 5,237,183
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value--Authorized, 5,000,000 shares; issued and
outstanding, 866,624 shares (Note 7)................................. 866,624 866,624
Additional paid-in capital............................................. 14,252,532 14,252,532
Distributions in excess of net income.................................. (5,381,378) (4,874,701)
----------- -----------
Total shareholders' equity..................................... 9,737,778 10,244,455
----------- -----------
TOTAL...................................................................... $14,926,763 $15,481,638
=========== ===========
See notes to financial statements.
</TABLE>
EIGHT
- ------------
<PAGE> 11
==============================================================================
<TABLE>
NOONEY REALTY TRUST, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---- ---- ---
<S> <C> <C> <C>
REVENUES:
Rental and other income (Notes 4 and 6)................................ $3,101,871 $3,017,982 $2,861,293
Interest income........................................................ 8,249 15,529 3,968
---------- ---------- ----------
Total revenues..................................................... 3,110,120 3,033,511 2,865,261
---------- ---------- ----------
EXPENSES:
Depreciation and amortization.......................................... 730,324 757,938 721,040
Real estate taxes...................................................... 564,132 579,305 523,735
Professional fees (Note 7)............................................. 431,825 49,836 54,256
Interest on mortgage note.............................................. 402,351 411,220 416,126
Utilities.............................................................. 288,553 280,400 289,392
Advisory fee--related party (Note 5)................................... 118,906 117,864 116,309
Property management fees--related party (Note 5)....................... 118,269 112,982 106,367
Repairs and maintenance................................................ 98,217 89,299 60,081
Trustee fees and expenses.............................................. 37,868 18,323 14,879
Other operating expenses............................................... 445,038 399,806 377,479
---------- ---------- ----------
Total expenses..................................................... 3,235,483 2,816,973 2,679,664
---------- ---------- ----------
NET INCOME (LOSS).......................................................... $ (125,363) $ 216,538 $ 185,597
========== ========== ==========
PER SHARE DATA:
Net income (loss) (Note 7)............................................. $ (0.14) $ 0.25 $ 0.21
========== ========== ==========
Distributions:
Paid in current year:
Taxable to shareholders........................................ $ 0.09 $ 0.40 $ 0.31
Return of capital.............................................. 0.35 0.40 0.34
---------- ---------- ----------
Total paid in current year......................................... $ 0.44 $ 0.80 $ 0.65
========== ========== ==========
Weighted average shares outstanding (Note 7)........................... 866,624 866,624 866,624
========== ========== ==========
See notes to financial statements.
</TABLE>
NINE
------------
<PAGE> 12
==============================================================================
<TABLE>
NOONEY REALTY TRUST, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL DISTRIBUTIONS
NUMBER PAID-IN IN EXCESS OF
OF SHARES AMOUNT CAPITAL NET INCOME
--------- ------ ---------- -------------
(NOTE 7)
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.......................... 866,624 $866,624 $14,252,532 $(4,020,230)
Net income.................................... 185,597
Dividends paid................................ (563,307)
------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1995........................ 866,624 866,624 14,252,532 (4,397,940)
Net loss...................................... 216,538
Dividends paid................................ (693,299)
------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1996........................ 866,624 866,624 14,252,532 (4,874,701)
Net loss...................................... (125,363)
Dividends paid................................ (381,314)
------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1997........................ 866,624 $866,624 $14,252,532 $(5,381,378)
======= ======== =========== ===========
See notes to financial statements.
</TABLE>
TEN
- ------------
<PAGE> 13
==============================================================================
<TABLE>
NOONEY REALTY TRUST, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from operations...................................... $(125,363) $ 216,538 $ 185,597
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation....................................................... 627,804 626,300 613,893
Amortization of deferred expenses.................................. 102,520 131,638 107,147
Changes in accounts affecting operations:
Accounts receivable............................................ 93,534 (91,647) 15,093
Prepaid expenses............................................... 706 55,537 (48,194)
Deferred expenses.............................................. (70,529) (41,070) (71,215)
Accounts payable and accrued expenses.......................... 41,163 31,567 (41,756)
--------- --------- -----------
Net cash provided by operating activities.................. 669,835 928,863 760,565
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to investment property................................... (182,817) (29,569) (205,960)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to shareholders......................................... (381,314) (693,299) (563,307)
Payments on mortgage note payable...................................... (89,361) (82,185) (75,585)
--------- --------- -----------
Net cash used in financing activities...................... (470,675) (775,484) (638,892)
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH............................................ 16,343 123,810 (84,287)
CASH, BEGINNING OF YEAR.................................................... 641,127 517,317 601,604
--------- --------- -----------
CASH, END OF YEAR.......................................................... $ 657,470 $ 641,127 $ 517,317
========= ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest................................. $ 402,351 $ 411,220 $ 416,126
========= ========= ===========
See notes to financial statements.
</TABLE>
ELEVEN
------------
<PAGE> 14
==============================================================================
NOONEY REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1--BUSINESS:
Nooney Realty Trust, Inc. (the "Trust"), a Missouri corporation, was
formed on June 14, 1984 for the purpose of making equity investments in
income-producing real properties, primarily commercial and light industrial
properties. The Trust's portfolio is comprised of a multi-tenant office
building located in Bloomington, Minnesota (Note 9); a single-tenant office
building located in Omaha, Nebraska; and a warehouse and distribution facility
in Franklin Park, Illinois. These properties generated 41.2%, 34.6% and 24.2%
of rental and other income, respectively, for the year ended December 31, 1997.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Trust has qualified and elected to be taxed as a real estate investment
trust (REIT) under the Internal Revenue Code. The Trust intends to continue to
qualify as a REIT and to distribute substantially all of its taxable income to
its shareholders (See Note 7). Accordingly, no provision for income taxes is
reflected in the financial statements. At December 31, 1997, the Trust has net
operating loss carryforwards of approximately $835,000 for tax purposes which
expire in various amounts through 2005.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment property is recorded at the lower of cost or net realizable
value. Impairment is determined if the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the property.
Buildings and improvements are depreciated over their estimated useful
lives (35 years) using the straight-line method. Tenant improvements are
depreciated over the term of the lease.
Deferred expenses consist of lease fees and financing costs and are
amortized over the terms of the respective leases or notes.
Lease agreements are accounted for as operating leases and rentals from
such leases are reported as revenues ratably over the terms of the leases.
Certain lease agreements provide for rent concessions. At December 31, 1997,
accounts receivable include approximately $140,000 ($166,000 in 1996) of
accrued rent concessions which is not yet due under the terms of the various
lease agreements.
Included in rental and other income are amounts received from tenants under
provisions of lease agreements which require the tenants to pay additional rent
equal to specified portions of certain expenses such as real estate taxes,
insurance, utilities and common area maintenance. The income is recorded in the
same period that the related expense is incurred.
TWELVE
- ------------
<PAGE> 15
==============================================================================
NOONEY REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
In February 1997, Statement of Financial Accounting Standards ("SFAS")
128, Earnings Per Share, ("EPS") was issued. The statement is applicable to
the Trust for the year ended December 31, 1997. The Trust displays only basic
EPS on the face of the statement of operations as there were no items having a
dilutive effect on EPS.
Net income (loss) per share was computed based upon the weighted average
number of shares of common stock outstanding during each year. Distributions
per share are stated at the amount per share declared by the Directors. The
taxability of all distributions paid is based upon earnings and profits as
defined by the Internal Revenue Code. The taxability of distributions declared
but unpaid is determined in the year the dividend is paid.
NOTE 3--MORTGAGE NOTE PAYABLE:
Mortgage note payable at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
8.4%, due in monthly installments of $40,976 including interest to
November 2001 when remaining principal payment of $4,330,508 is
due.................................................................. $4,740,875 $4,830,236
========== ==========
</TABLE>
The mortgage note is collateralized by deeds of trust and assignments of
rents on all investment properties. Principal payments required are as follows:
<TABLE>
<S> <C>
1998......................................................... 97,162
1999......................................................... 105,646
2000......................................................... 114,870
2001......................................................... 4,423,198
----------
$4,740,875
==========
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments, the estimated fair value
of mortgage notes payable with maturities greater than one year is determined
based on rates currently available to the Trust for mortgage notes with similar
terms and remaining maturities. The carrying amount and estimated fair value of
the Trust's debt at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Mortgage notes payable............................ $4,740,875 $4,802,000 $4,830,236 $4,858,000
</TABLE>
Fair value estimates are made at a specific point in time, are subjective
in nature and involve uncertainties and matters of significant judgment.
Settlement of the Trust's debt obligation at fair value may not be possible and
may not be a prudent management decision. The potential loss on
THIRTEEN
------------
<PAGE> 16
==============================================================================
NOONEY REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
extinguishment at December 31, 1997 does not take into consideration expenses
that would be incurred to settle the debt obligation at fair value.
NOTE 4--RENTAL REVENUES UNDER OPERATING LEASES:
Minimum future rental revenues under noncancelable operating leases in
effect as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................. $2,482,000
1999.............................................. 1,838,000
2000.............................................. 441,000
2001.............................................. 164,000
----------
Total......................................... $4,925,000
==========
</TABLE>
In addition, certain lease agreements require tenant participation in
certain operating expenses and additional contingent rentals based upon
percentages of tenant sales in excess of minimum amounts. Tenant participation
in expenses included in revenues approximated $403,000 for the year ended
December 31, 1997, $417,000 in 1996, and $411,000 in 1995. Contingent rentals
were not significant for the years ended December 31, 1997, 1996 and 1995.
NOTE 5--RELATED PARTY TRANSACTIONS:
The Trust has entered into an agreement with Nooney Advisors Ltd., L.P.
(the "Advisor"), a Missouri limited partnership, to advise the Trust with
respect to the Trust's investments and investment policies and to administer
the operations of the Trust. This advisory agreement is renewable annually by a
vote of the Directors. A notice to terminate the contract effective February 9,
1998 was approved on December 10, 1997 (See Note 8). An Officer and Director of
the Trust is a general partner of Nooney Advisors Ltd., L.P. The Advisor
receives a fee for its services based upon net invested assets or net operating
income as defined in the agreement. The fees were $118,906, $117,864 and
$116,309 for the years ended December 31, 1997, 1996 and 1995, respectively.
Certain other affiliates of the Advisor receive lease commissions and
property management fees in connection with the operation of investment real
estate owned by the Trust. In 1997, lease commissions of $41,330 ($21,014 in
1996) were paid by the Trust to Nooney Krombach Company, an affiliate of the
Advisor. Lease commissions are capitalized as deferred expenses and amortized
over the life of the lease. Additionally, property management fees paid to
Nooney Krombach Company were $98,558 for the period January 1, 1997 through
October 31, 1997, and $112,982 and $106,367 for the years ended December 31,
1996 and 1995, respectively.
On October 31, 1997, Nooney Company sold its property management business
operated through its wholly-owned subsidiary, Nooney Krombach Company, to
Nooney Real Estate Company D/B/A Nooney Inc., an indirect wholly-owned
subsidiary of CGS Real Estate Company, Inc., a Texas corporation.
Simultaneously Nooney Company, Gregory J. Nooney, Jr. and PAN, Inc. sold their
general and limited partnership interest in Nooney Advisors Ltd., L.P., the
FOURTEEN
- ------------
<PAGE> 17
==============================================================================-
NOONEY REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
external advisor to the Registrant to S-P Properties, Inc., a California
corporation, which also is a wholly-owned subsidiary of CGS Real Estate
Company. Prior to the sale, the independent Directors of the Registrant
approved the change in control of the Advisor and authorized a new management
contract for the Registrant's properties with Nooney Inc., with the same terms
and expiration dates as the existing advisory and management contracts. In
1997, lease commissions of $8,266 were paid by the Trust to Nooney Inc. for the
period from November 1, 1997 to December 31, 1997. In the same period, the
Trust paid Nooney Inc. management fees of $19,711.
NOTE 6--MAJOR TENANTS:
A substantial amount of the Trust's revenue in 1997 was derived from three
major tenants, revenue from which amounted to $1,093,649, $418,928 and $337,813
or 35.2%, 13.5%, and 10.9%, respectively, of total revenues. A substantial
amount of the Trust's revenue in 1996 was derived from three major tenants
whose rentals amounted to $1,035,600, $463,000 and $343,900 or 34.3%, 15.4% and
11.4%, respectively, of total revenues. A substantial amount of the Trust's
revenue in 1995 was derived from three major tenants whose rentals amounted to
$978,000, $411,000 and $335,000 or 34.2%, 14.4% and 11.7%, respectively, of
total revenues.
NOTE 7--LAWSUITS:
As of December 31, 1997, the Trust is a party to two lawsuits. The first is
State of Missouri ex rel. KelCor, Inc. v. Nooney Realty Trust, Inc. On August
8, 1997, KelCor, Inc., a shareholder of the Trust, filed a Petition for
mandamus relief against the Trust. KelCor's Petition sought a writ of mandamus
compelling the Trust to hold an Annual Meeting of shareholders by October 31,
1997. The Trust opposed KelCor's Petition on the basis that the Trust was
unable to hold a valid meeting because of uncertainty over the validity of
certain shares of the Trust and that the determination of the validity of those
shares needed to first be 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 Trust to hold an Annual Meeting by January 15, 1998. The Trust
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. No decision
has been received. The Board of Directors continues to maintain that KelCor is
not entitled to mandamus relief with respect to the holding of an Annual
Meeting.
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 Trust filed a petition for declaratory judgment against
certain individuals and entities who claim to hold shares of the Trust. The
Trust initiated the suit to obtain a judicial determination of the validity and
status of some of the Trust'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 the KelCor's mandamus suit in St. Louis County above. On December 9, 1997,
the Court denied Defendants' motion to dismiss the suit but stayed the case
pending disposition of the mandamus action. The Board of Directors plans to
conduct discovery as permitted by the Court so that the validity and status of
the Excess Shares can be finally determined pursuant to this suit.
FIFTEEN
------------
<PAGE> 18
==============================================================================
NOONEY REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 Trust's shares at issue are
Excess Shares may result in these shares being returned to the Trust'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 Trust will be in a position to hold an Annual Meeting. Until
the validity of the Excess Shares is known, the payment of dividends has been
suspended. In order for the Trust to continue to qualify as a REIT,
substantially all of the Trust's taxable income must be distributed to its
shareholders. Accordingly, lack of resolution of the status of the Excess
Shares could affect the Trust'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 will
continue to do so in 1998 as the two court cases move forward.
NOTE 8--SUBSEQUENT EVENTS:
Effective February 9, 1998, the Trust's contracts with Nooney Advisors
Ltd., L.P. and Nooney, Inc. were canceled due to a vote at a special meeting of
the Board of Directors on December 10, 1997, changing the governance and
management of the Trust to that of an internally self-managed trust. Effective
March 1, 1998, the Trust entered into two five year employment agreements that
are cancelable after 3 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 75,000 shares of the
Trust's common stock at $10.00 per share. No options may be exercised during
1998. The options expire in various years from 2004 through 2008.
NOTE 9--CONTINGENCY:
The Trust's multi-tenant office building located in Bloomington, Minnesota
has been classified in the Minneapolis Airport Committee's (the "MAC") Safety
Zone A in the future expansion of the Minneapolis Airport. The expansion runway
is anticipated to be completed in 2003. The MAC will be buying out impacted
buildings during 1998 and 1999. Safety Zone A is adjacent to the Federal
Aviation Authority's noise buyout zone. The MAC has not indicated whether or
not it will buyout the Trust's building. The Trust is monitoring whether the
increased noise from the new runway will have an impact on future leasing of
the building. If the Trust determines there is a negative impact, the Trust
will petition the MAC to buy the building. If the building continues to be
classified in Safety Zone A, it will be classified as nonconforming use. Given
the preliminary stage of the future expansion, management is unable at this
time to determine what impact, if any, this matter will have on the Trust.
SIXTEEN
- ------------
<PAGE> 19
==============================================================================
DIRECTORS AND OFFICERS
Board of Directors
<TABLE>
<S> <C>
William J. Carden Founder and Chief Executive Officer of CGS Real
Estate Company, Newport Beach, California. CGS is a
diversified real estate investment management company.
Lawrence E. Fiedler Real estate owner, consultant and educator.
William W. Geary, Jr. President, Carlsberg Mangement Company, Santa
Monica, California.
James P. Ingram President, Cambridge Savings Bank, Cambridge,
Massachusetts.
Gregory J. Nooney, Jr. Chairman of the Board and Chief Executive Officer,
Nooney, Inc. Nooney Inc. is a real estate
investment management firm, and a wholly-owned
subsidiary of CGS Real Estate Company.
Officers
William J. Carden Chief Executive Officer and Chairman of the Board
Gregory J. Nooney, Jr. Vice Chairman
Patricia A. Nooney President and Secretary
Thomas N. Thurber Treasurer and CFO
</TABLE>
SEVENTEEN
------------
<PAGE> 20
==============================================================================
NOONEY LOGO
SHAREHOLDER INFORMATION
Transfer Agent:
ChaseMellon Shareholder Services
P.O. Box 3316
South Hackensack, NJ 07606-1916
Legal Counsel:
Bryan Cave LLP
St. Louis, Missouri
Independent Accountants:
Deloitte & Touche LLP
St. Louis, Missouri
The following information is available to shareholders without charge upon
written request to Patricia A. Nooney, Secretary, Nooney Realty Trust, Inc.,
500 N. Broadway, St. Louis, Missouri 63102:
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Form 10-K is available in April.
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission. Forms 10-Q are available in May, August and November.
Nooney Realty Trust, Inc. Dividend Reinvestment Plan and Enrollment Card
EIGHTEEN
- ------------
<PAGE> 21
INVESTMENT PROPERTIES
THE ATRIUM
AT ALPHA BUSINESS CENTER
BLOOMINGTON, MINNESOTA
APPLIED COMMUNICATIONS, INC. BUILDING
OMAHA, NEBRASKA
FRANKLIN PARK DISTRIBUTION CENTER
FRANKLIN PARK, ILLINOIS
NOONEY REALTY TRUST
500 N. BROADWAY
ST. LOUIS, MISSOURI 63102
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR NOONEY REALTY TRUST, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 657,470
<SECURITIES> 0
<RECEIVABLES> 260,085
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 946,115
<PP&E> 20,308,876
<DEPRECIATION> 6,539,243
<TOTAL-ASSETS> 14,926,763
<CURRENT-LIABILITIES> 448,110
<BONDS> 4,740,875
<COMMON> 866,624
0
0
<OTHER-SE> 9,737,778
<TOTAL-LIABILITY-AND-EQUITY> 14,926,763
<SALES> 3,101,871
<TOTAL-REVENUES> 3,110,120
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,833,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 402,351
<INCOME-PRETAX> (125,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (125,363)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders of Nooney Realty Trust, Inc.
St. Louis, Missouri:
We have audited the financial statements of Nooney Realty Trust, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, and have issued our report thereon dated January 16,
1998 (March 10, 1998 as to Note 7 and February 9, 1998 and March 1, 1998 as to
Note 8); such financial statements and report are included in your 1997 Annual
Report to Shareholders and are incorporated herein by reference. Our audits
also included the financial statement schedule of Nooney Realty Trust, Inc.,
listed in Item 14. This financial statement schedule is the responsibility
of the Trust's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
January 16, 1998
St. Louis, Missouri
-42-
<PAGE> 2
NOONEY REALTY TRUST, INC.
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO TRUST ACQUISITION
------------------------------------------- ------------
BUILDINGS AND COSTS OF
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TOTAL IMPROVEMENTS
<S> <C> <C> <C> <C> <C>
Atrium at Alpha Business Center
Bloomington, Minnesota $ -- $ 822,526 $ 7,571,190 $ 8,393,716 $ 491,790
Applied Communications, Inc.
Office Building
Omaha, Nebraska 1,257,655 5,143,353 6,401,008 150,000
Franklin Park Distribution Center
Franklin Park, Illinois 488,774 3,812,720 4,301,494 610,694
All properties 4,740,875
---------- ---------- ----------- ----------- ----------
Total $4,740,875 $2,568,955 $16,527,263 $19,096,218 $1,252,484
========== ========== =========== =========== ==========
<CAPTION>
COLUMN A COLUMN E
-------- --------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
----------------------------------------------------------
BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS TOTAL
<S> <C> <C> <C>
Atrium at Alpha Business Center
Bloomington, Minnesota $ 822,526 $ 8,023,153 $ 8,845,679
Applied Communications, Inc.
Office Building
Omaha, Nebraska 1,257,655 5,293,353 6,551,008
Franklin Park Distribution Center
Franklin Park, Illinois 488,774 4,423,415 4,912,189
All properties
---------- ----------- -----------
Total $2,568,955 $17,739,921 $20,308,876
========== =========== ===========
<CAPTION>
COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- --------
LIFE ON WHICH
DEPRECIATION
IN LATEST INCOME
ACCUMULATED DATE OF DATE STATEMENT
DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
<S> <C> <C> <C> <C>
Atrium at Alpha Business Center
Bloomington, Minnesota $(3,137,985) 1981 March 28, 1985 35 years
Applied Communications, Inc.
Office Building
Omaha, Nebraska (1,872,186) 1984 January 22, 1986 35 years
Franklin Park Distribution Center
Franklin Park, Illinois (1,529,072) 1972 December 16, 1986 35 years
-----------
Total $(6,539,243)
===========
(Continued)
</TABLE>
-43-
<PAGE> 3
NOONEY REALTY TRUST, INC.
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
(A) Reconciliation of amounts in Column E:
Balance at beginning of period $20,162,786 $20,156,116 $19,950,156
Add - Cost of improvements 182,817 29,569 205,960
Less - Cost of disposals (36,727) (22,899)
----------- ----------- -----------
Balance at end of period $20,308,876 $20,162,786 $20,156,116
=========== =========== ===========
(B) Reconciliation of amounts in Column F:
Balance at beginning of period $ 5,948,166 $ 5,344,765 $ 4,730,872
Add - Provision during the period 627,804 626,300 613,893
Less - Depreciation on disposals (36,727) (22,899)
----------- ----------- -----------
Balance at end of period $ 6,539,243 $ 5,948,166 $ 5,344,765
=========== =========== ===========
(C) The aggregate cost of real estate owned for
federal income tax purposes $20,308,876 $20,162,786 $20,156,116
=========== =========== ===========
(Concluded)
</TABLE>
-44-
