UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-15465
Banyan Strategic Realty Trust
(Exact name of Registrant as specified in its charter)
Massachusetts 36-3375345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (312) 553-9800
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
Shares of beneficial interest outstanding as of May 10, 1996: 10,477,138
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS 1996 1995
Cash and Cash Equivalents $ 4,029,040 $ 5,500,215
Interest Receivable on
Investments 47,880 70,352
Interest Receivable on
Mortgage Loans 206,898 60,780
Accounts Receivable 822,328 528,029
Investment Securities 829,944 ---
------------ ------------
5,936,090 6,159,376
------------ ------------
Mortgage Loans Receivable (Net
of Unamortized Discount of
$1,436,587) 5,376,837 5,433,094
Investment in Real Estate, at
cost:
Land 12,809,994 12,809,994
Building 74,373,131 74,343,233
Building Improvements 3,411,571 3,046,838
------------ ------------
90,594,696 90,200,065
Less: Accumulated
Depreciation (2,881,387) (2,337,095)
------------ ------------
87,713,309 87,862,970
------------ ------------
Investment in Real Estate
Venture 9,001,261 8,895,678
Deferred Financing Costs (Net of
Accumulated Amortization of
$299,949 and $224,020,
respectively) 1,284,059 1,188,174
Other Assets 1,217,445 1,225,480
------------ ------------
Total Assets $110,529,001 $110,764,772
============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts Payable and Accrued
Expenses $ 1,348,103 $1,339,056
Accrued Real Estate Taxes 978,094 703,919
Mortgage Loans Payable 43,460,943 43,522,181
Bond Payable 5,500,000 5,500,000
Accrued Interest Payable 103,347 93,325
Unearned Revenue 42,576 94,002
Security Deposit Liabilities 430,252 439,135
Other Liability 7,652 7,652
------------ ------------
Total Liabilities 51,870,967 51,699,270
------------ ------------
Minority Interest in
Consolidated Partnerships 2,205,863 2,190,098
Shareholders' Equity
Shares of Beneficial Interest,
No Par Value, Unlimited
Authorization; 11,999,787
Shares Issued 106,687,212 106,687,212
Accumulated Deficit (42,869,092) (42,445,859)
Treasury Shares at Cost,
1,522,649 Shares (7,365,949) (7,365,949)
------------ ------------
Total Shareholders' Equity 56,452,171 56,875,404
------------ ------------
Total Liabilities and Share-
holders' Equity $110,529,001 $110,764,772
============ ============
Book Value Per Share of Bene-
ficial Interest (10,477,138
Shares Outstanding) $ 5.39 $ 5.43
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
INCOME 1996 1995
Income From Property Operating
Activities:
Industrial $ 1,436,814 $ 586,397
Residential 862,708 790,223
Commercial 1,539,576 686,128
Retail 1,121,608 ---
----------- -----------
Total Income From Property
Operating Activities 4,960,706 2,062,748
----------- -----------
Income From Lending and
Investing Activities:
Interest and Amortized
Discount on Mortgage Loans 178,496 246,820
Income on Investments 37,451 199,907
----------- -----------
Total Income From Lending
and Investing Activities 215,947 446,727
----------- -----------
Total Income 5,176,653 2,509,475
----------- -----------
EXPENSES
Expenses from Property Operating
Activities:
Operating Property Expenses 223,259 98,446
Repairs and Maintenance 497,017 170,659
Real Estate Taxes 459,586 211,983
Interest Expense 949,889 230,082
Ground Lease Expense 150,000 ---
Property Management Fees 164,655 92,369
Payroll Expense 206,836 107,601
Utilities Expense 379,690 166,208
Depreciation and
Amortization 558,777 251,359
----------- -----------
Total Expenses From Property
Operating Activities 3,589,709 1,328,707
----------- -----------
Other Expenses:
Shareholder Expenses 33,442 43,548
Trustees' Fees, Expenses
and Insurance 80,154 109,569
Other Professional Fees 76,419 58,523
General and Administrative 507,233 414,663
Amortization of Deferred Loan
Fees and Financing Costs 122,795 55,801
Recovery of Losses on Loans,
Notes and Interest Receivable --- (155,834)
----------- -----------
Total Other Expenses 820,043 526,270
----------- -----------
Total Expenses 4,409,752 1,854,977
----------- -----------
Income Before Minority
Interest and Income (Loss)
from Operations of Real
Estate Ventures 766,901 654,498
Minority Interest in
Consolidated Partnerships (102,553) (16,942)
Income (Loss) from Operations of
Real Estate Ventures (38,307) 26,623
----------- -----------
Net Income $ 626,041 $ 664,179
=========== ===========
Earnings Per Share of
Beneficial Interest (10,477,138
and 10,471,102 Weighted Average
Shares Outstanding, respectively) $ 0.06 $ 0.06
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<CAPTION>
Shares of
Beneficial Interest Accumulated Treasury
Shares Amount Deficit Shares Total
<S> <C> <C> <C> <C> <C>
Shareholders'
Equity,
December 31,
1995 11,999,787 $106,687,212 $(42,445,859) $(7,365,949) $56,875,404
Net Income --- --- 626,041 --- 626,041
Dividends
Paid --- --- (1,049,274) --- (1,049,274)
----------- ------------ ------------ ----------- -----------
Shareholders'
Equity,
March 31,
1996 11,999,787 $106,687,212 $(42,869,092) $(7,365,949) $56,452,171
=========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET INCOME $ 626,041 $ 664,179
Adjustments to Reconcile Net
Income to Net Cash
Provided By Operating
Activities:
Amortization of Premium
(Discount) on Investment
Securities (1,416) 3,241
Recovery of Losses on Loans,
Notes and Interest Receivable --- (155,834)
Depreciation and Amortization 681,572 307,160
Amortization of Discount on
Mortgage Loans Receivable --- (86,620)
Net Loss (Income) From
Operation of Real Estate
Ventures 38,307 (26,623)
Minority Interest Participation
in Consolidated Partnerships 102,553 16,942
Incentive Compensation Expense 10,000 ---
Net Change In:
Interest Receivable on Mortgage
Loans and Investments (123,646) (40,863)
Accounts Receivable (294,299) 4,785
Other Assets (6,450) (185,988)
Accounts Payable and Accrued
Expenses 225,980 (145,837)
Accrued Interest Payable 10,022 (26,005)
Accrued Real Estate Tax Payable 274,175 (22,499)
Unearned Revenue (47,862) (7,877)
Security Deposit Liability (8,883) 11,543
----------- -----------
Net Cash Provided By
Operating Activities 1,486,094 309,704
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of Real Estate
Assets (29,898) ---
(Investment In) Distribution
From Real Estate Ventures,
Net (143,890) 39,066
Additions to Investment in
Real Estate (364,733) (83,027)
Payment of Liabilities Assumed
at Acquisition of Real Estate
Assets (230,497) ---
Other Liability --- 395,838
Recovery of Losses on Loans,
Notes and Interest Receivable --- 155,834
Purchase of Investment
Securities (839,680) (1,493,360)
Principal Payments on
Investment Securities 11,152 ---
Principal Collections on
Mortgage Loans Receivable 9,391 10,883
Due from Affiliates --- 730,229
----------- -----------
Net Cash Used In Investing
Activities (1,588,155) (244,537)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Minority Interest Share of
Real Estate Investments (86,788) (14,826)
Deferred Financing Costs (171,814) (57,471)
Principal Payments on Mortgage
Loans Payable (61,238) (41,203)
Dividends Paid to Shareholders (1,049,274) (1,047,110)
----------- -----------
Net Cash Used In Financing
Activities (1,369,114) (1,160,610)
----------- -----------
Net Decrease In Cash
and Cash Equivalents (1,471,175) (1,095,443)
Cash and Cash Equivalents at
Beginning of Period 5,500,215 14,769,170
----------- -----------
Cash and Cash Equivalents at
End of Period $ 4,029,040 $13,673,727
===========
===========
The accompanying notes are an integral part of the
consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
Readers of this quarterly report should refer to Banyan Strategic Realty
Trust's (the "Trust") audited consolidated financial statements for the year
ended December 31, 1995 which are included in the Trust's 1995 Annual Report
and Form 10-K, as certain footnote disclosures which would substantially
duplicate those contained in such audited statements have been omitted from
this report.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Trust, its wholly-owned subsidiaries and its controlled partnerships.
All intercompany balances and transactions have been eliminated in
consolidation. Investment in Real Estate Ventures are accounted for on the
equity method.
FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the previously reported 1995
consolidated financial statements in order to provide comparability with the
1996 consolidated financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been made to the
accompanying consolidated financial statements as of March 31, 1996 and for the
three months ended March 31, 1996 and 1995. These adjustments made to the
financial statements, as presented, are all of a normal recurring nature to the
Trust. Net income for the three months ended March 31, 1995 has been reduced
by $20,216 from amounts originally reported to reflect adjusted allocation of
administration costs from Banyan Management Corp. This allocation adjustment
had no effect on net income for the year ended December 31, 1995. No other
allocation adjustments have been made to the 1995 operating results.
2. MORTGAGE LOANS PAYABLE
On March 13, 1996, the Trust executed a nonrecourse first mortgage loan
collateralized by the Florida Power and Light office building. The loan in the
amount of $6,200,000 bears interest at a fixed rate of 7.21% per annum, matures
on April 1, 2003 and requires monthly payments of principal based upon a
twenty-three year amortization schedule with a balloon payment of approximately
$5,255,000 upon maturity. The loan proceeds were utilized to pay down the
Trust's Revolving Line of Credit with American National Bank in the amount of
$6,200,000. As of March 31, 1996, the Trust has utilized approximately
$19,525,000 of its $30,000,000 Revolving Line of Credit.
3. INVESTMENT SECURITIES
The Trust's investment securities portfolio at March 31, 1996 was as
follows:
Amortized
Cost and
Estimated
Fair Value at
Name of Issuer and Title Principal March 31,
of Each Issue Amount 1996
Federal National Mortgage $ 700,000 $ 700,916
Association, 5.97%,
02/12/96-05/16/96 (a)
Federal National Mortgage 128,528 129,028
Association, 6.65%
02/12/96-03/25/97 (a)
----------- -----------
$ 828,528 $ 829,944
=========== ===========
(a) The certificate is guaranteed as to the timely payment of principal and
interest by the Federal National Mortgage Association.
4. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Trust to Banyan Management Corp. ("BMC").
These costs are allocated to the Trust and other entities to which BMC provides
administrative services based upon the actual number of hours spent by BMC
personnel on matters related to that particular entity in relation to the total
number of BMC personnel hours. The Trust's allocable share of costs for the
three months ended March 31, 1996 and 1995 aggregated $343,953 and $332,539,
respectively. As one of its administrative services, BMC serves as the paying
agent for general and administrative costs of the Trust. As part of providing
this payment service, BMC maintains a bank account on behalf of the Trust. As
of March 31, 1996, the Trust had a net payable due to BMC of $167,171. The net
payable is included in accounts payable and accrued expenses in the Trust's
Consolidated Balance Sheet.
5. SUBSEQUENT EVENTS
DIVIDEND AND DISTRIBUTIONS PAID
On April 8, 1996, the Trust declared a cash distribution for the quarter
ended March 31, 1996 of $0.10 per share payable May 22, 1996 to shareholders of
record on April 22, 1996.
INVESTMENT IN REAL ESTATE
On April 18, 1996, Banyan/Morgan Milwaukee Limited Partnership ("BMMLP"),
a joint venture between a subsidiary of the Trust, which is a general partner
of BMMLP, and an affiliate of Morgan Realty Partners ("Morgan"), a general
partner of BMMLP, acquired the Midwest Office Center property (the "Midwest
Property"), a single-story office building which consists of approximately
77,000 square feet of gross leasable area located in Oakbrook Terrace, Illinois
(metropolitan Chicago) for a purchase price, including liabilities assumed at
acquisition, of approximately $4,890,000. The Trust and Morgan own an 85% and
15% ownership interest in BMMLP, respectively. The Trust contributed capital
of approximately $1,595,000 in BMMLP upon acquisition of the property and will
contribute an additional $142,000 for cash reserves to be held by BMMLP for
improvements and lease-up at the property. The acquisition was made subject to
a nonrecourse first mortgage loan collateralized by the property in the
principal amount of $3,295,000 which bears interest at a fixed rate of 7.13%
per annum, matures on May 1, 2003, and requires monthly payments of principal
based upon a twenty-two year amortization schedule. The loan requires a
balloon payment for the remaining unpaid principal balance of approximately
$2,733,000 at maturity.
MORTGAGE LOANS RECEIVABLE
Karfad Associates (the "Borrower"), which is indebted to the Trust
pursuant to its Karfad loan in the original principal amount of $5,849,266 (the
"Loan"), failed to make the required interest payments due on the first of each
month from January through May of 1996. The Trust has provided proper notice
to the Borrower and all grace and cure periods regarding the Loan have
subsequently lapsed. In an effort to assert its rights and protect its
interest, the Trust declared the Loan in default on January 30, 1996, and the
repayment of the principal balance has been accelerated. A notice of
foreclosure sale was published and the sale was set for February 28, 1996. In
addition, a separate action has been initiated against the Borrower's general
partners who are guarantors of the Loan. On February 26, 1996, the Borrower
was placed in involuntary bankruptcy which forced a cancellation of the
foreclosure sale. The Borrower and its guarantors have filed a counterclaim in
federal court and an adversary proceeding in the bankruptcy court against the
Trust's subsidiary alleging lender liability arising out of a proposed lease
with Office Depot. All litigation has been stayed pending the bankruptcy
proceedings. On May 17, 1996, the Trust entered into a Settlement Agreement
(the "Agreement") and two loan sale agreements with the Borrower and a party
affiliated with the Borrower whereby the Karfad Loan, as well as the related
four loans to parties affiliated with Karfad Associates (collectively the "Loan
Portfolio"), will be sold at an amount equal to the Trust's December 31, 1995
carrying value. The sale price for the Karfad Loan is approximately $4,695,000
and the sale price for the remaining four loans is approximately $741,000.
Included in the Settlement Agreement is a provision providing for full releases
of liability on behalf of all parties and a dismissal of all pending
litigation. The Agreement also requires the Borrower to make all interest
payments due pursuant to the terms of the original Loan from January 1, 1996
through the scheduled purchase of the Loan per terms of the Agreement on July
31, 1996. Total interest payments under the Settlement Agreement which the
Borrower has agreed to pay aggregate approximately $355,000. As a result of
the Agreement, the Trust has terminated the recognition of income from the
amortization of each of the loan's purchased discount effective January 1,
1996. The Trust purchased the Loan Portfolio for approximately $4,700,000 in
1993. The enforceability of the Settlement Agreement, as against the Borrower,
is subject to the approval of the bankruptcy court having jurisdiction over the
Borrower.
LETTER OF CREDIT
On April 15, 1996 the Trust replaced a letter of credit from American
National Bank and Trust Company in the face amount of $5,624,315 which serves
as collateral for the multi-family housing bonds issued by the County of
Franklin, Ohio with respect to the Colonial Courts Apartments property, in the
amount of $5,500,000 with an irrevocable letter of credit in the amount of
$5,624,315 from Citizens National Bank of Evansville ("Replacement LOC"). The
Replacement LOC is confirmed by an irrevocable direct pay letter of credit in
the amount of $5,624,315 provided by the Federal Home Loan Bank of Indianapolis
("FHLB"). The Replacement LOC and the FHLB letter of credit have a term of
five years with an option for an additional five year term. The annual fee for
the Replacement LOC is equal to one percent (1%) of the letter of credit amount
or $56,243. The annual fee for the FHLB letter of credit is approximately
$2,800. In consideration of its assistance in obtaining the Replacement LOC,
the Trust increased the limited partnership interest of PHC General Partnership
in the BSRT Colonial Courts Limited Partnership from 10% to 25%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Banyan Strategic Realty Trust (the "Trust") is a Massachusetts business
trust which owns, through various subsidiaries or partnerships which it
controls, interests in industrial, residential, commercial and retail real
estate assets located throughout the Midwestern and Southeastern portion of the
United States. In particular, the Trust's real estate interests as of May 1,
1996 include six industrial complexes aggregating 1,046,400 square feet of
gross leasable area, two apartment complexes consisting of a total of 822
units, five commercial office sites consisting of 561,100 square feet of gross
leasable area, one retail center which contains 321,800 square feet of gross
leasable area and a portfolio of five mortgage loans. The current business
plan of the Trust is to invest its remaining cash and cash equivalents and cash
proceeds generated from the financing of certain of its current property
interests into additional real estate assets and to manage these real estate
assets in a manner which will increase the Trust's cash flow over time. The
cash proceeds generated pursuant to these financing transactions, as well as
cash flow generated from the Trust's various property interests, provide the
Trust with cash proceeds necessary for the continued acquisition of income
producing properties, to provide quarterly cash distributions to its
shareholders, meet its operating expenses and for other general corporate
needs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Trust's cash and cash equivalents balance at March 31, 1996 and December
31, 1995 was $4,029,040 and $5,500,215, respectively. In addition, at March
31, 1996 the Trust owned investment securities in the amount of $829,944 which
are immediately convertible to cash. The decrease in total cash, cash
equivalents and investment securities of approximately $641,000 is primarily
due to the payment of a distribution to shareholders of $1,049,274, additions
to investment in real estate of $364,733, investment of $143,890 in the H
Street Assemblage, principal payments on mortgage loans payable of $61,238,
deferred financing costs paid of $171,814 and the payment of the Trust's
operating expenses, excluding depreciation and amortization, totalling
approximately $3,728,000. Partially offsetting these cash outflows was the
Trust's cash receipts from property operations of approximately $4,961,000.
The Trust's future liquidity needs are expected to be funded from
operating cash flow from reinvestment activities, cash proceeds derived from
the mortgage financing of its certain property interests, the sale or
refinancing of the H Street Assemblage property, borrowings pursuant to its
Line of Credit with American National Bank and interest earned on the Trust's
short-term investments and investment securities. Cash will be expended to
maintain, operate and dispose of the Trust's interest in the H Street
Assemblage. The Trust's cash and cash equivalents and investment securities,
as well as cash flow from its operating properties, are expected to be
sufficient to meet its reasonably anticipated needs for liquidity and capital
resources in the near future and provide cash proceeds for distributions to
shareholders. The cash flow of the Trust could be negatively impacted by
factors and risks commonly associated with the ownership of real estate
investments such as changes in interest rates, market conditions, rental rates
where the Trust's properties are located, leasing and occupancy risks, capital
expenditures, and general economic conditions in the real estate markets.
During 1996, the Trust anticipates that it will likely continue making
additional investments in operating properties as a result of cash proceeds to
be provided from its continued efforts to complete additional property level
financing of its existing properties as well as its future property
acquisitions. Based on the Trust's current business plan, proceeds to be
generated from its property financings are anticipated to enable the Trust to
acquire approximately $25,000,000 in additional real estate investments. The
additional property financings are expected to be at terms and rates consistent
with existing market conditions. In the event additional financings are not
obtained, the Trust's ability to make future real estate acquisitions would be
impaired. The Trust anticipates continuing the $0.10 per share quarterly
distribution during 1996.
As of March 31, 1996 and December 31, 1995, the Trust's mortgage loan
portfolio consisted of five mortgage loans receivable with aggregate carrying
values totaling $5,376,837 and $5,433,094, respectively, net of $1,436,587 of
unamortized discounts. During the three months ended March 31, 1996, the Trust
received principal and interest payments totalling $9,391 and $23,007,
respectively. During the three months ended March 31, 1995, the Trust received
principal and interest payments totalling $10,883 and $160,291, respectively.
Karfad Associates (the "Borrower"), which is indebted to the Trust pursuant to
its Karfad loan in the original principal amount of $5,849,266 (the "Loan"),
failed to make the required interest payments due on the first of each month
from January through May of 1996. The Trust has provided proper notice to the
Borrower and all grace and cure periods regarding the Loan have subsequently
lapsed. In an effort to assert its rights and protect its interest, the Trust
declared the Loan in default on January 30, 1996, and the repayment of the
principal balance has been accelerated. A notice of foreclosure sale was
published and the sale was set for February 28, 1996. In addition, a separate
action has been initiated against the Borrower's general partners who are
guarantors of the Loan. On February 26, 1996, the Borrower was placed in
involuntary bankruptcy which forced a cancellation of the foreclosure sale.
The Borrower and its guarantors have filed a counterclaim in federal court and
an adversary proceeding in the bankruptcy court against the Trust's subsidiary
alleging lender liability arising out of a proposed lease with Office Depot.
All litigation has been stayed pending the bankruptcy proceedings. On May 17,
1996, the Trust entered into a Settlement Agreement (the "Agreement") and two
loan sale agreements with the Borrower and a party affiliated with the Borrower
whereby the Karfad Loan, as well as the related four loans to parties
affiliated with Karfad Associates (collectively the "Loan Portfolio"), will be
sold at an amount equal to the Trust's December 31, 1995 carrying value. The
sale price for the Karfad Loan is approximately $4,695,000 and the sale price
for the remaining four loans is approximately $741,000. Included in the
Settlement Agreement is a provision providing for full releases of liability on
behalf of all parties and a dismissal of all pending litigation. The Agreement
also requires the Borrower to make all interest payments due pursuant to the
terms of the original Loan from January 1, 1996 through the scheduled purchase
of the Loan per terms of the Agreement on July 31, 1996. Total interest
payments under the Settlement Agreement which the Borrower has agreed to pay
aggregate approximately $355,000. As a result of the Agreement, the Trust has
terminated the recognition of income from the amortization of each of the
loan's purchased discount effective January 1, 1996. The Trust purchased the
Loan Portfolio for approximately $4,700,000 in 1993. The enforceability of the
Settlement Agreement, as against the Borrower, is subject to the approval of
the bankruptcy court having jurisdiction over the Borrower.
The Trust's ability to make distributions to its shareholders is
dependent upon, among other things: (i) the operating performance of its
existing and future real estate investments; (ii) the ability to redeploy cash
proceeds derived from the sale of its interest in the H Street Venture into new
investments; (iii) increases in the underlying value realized upon the sale of
the Trust's properties; (iv) the Trust's ability to control its operating
expenses; and (v) the general improvement of conditions in the real estate
markets where the Trust's properties are located.
RESULTS OF OPERATIONS
Total income for the three months ended March 31, 1996 increased to
$5,176,653 from $2,509,475 for the three months ended March 31, 1995. The
increase for the three months ended March 31, 1996 as compared to the same
period in 1995 is due to increases in property operating revenue of
approximately $2,898,000 (as discussed below) partially offset by a decrease in
total income from lending and investing activities of approximately $231,000.
Interest and amortized discount on mortgage loans decreased for the three
months ended March 31, 1996 when compared to the same period in 1995 due to the
effect of not amortizing the discount on the purchase of the Karfad Associates
Loan and the related four loans to parties affiliated with Karfad Associates.
Interest income on investments for the quarter ended March 31, 1996 decreased
when compared to the prior year's period due to the decrease in cash available
for investment due primarily to the investment of cash in the Willowbrook,
Northlake, Bluegrass, Lexington, Newtown and Woodcrest properties during 1995.
Industrial property operating income increased by approximately $850,000
resulting from the acquisitions of the Willowbrook Industrial Court
("Willowbrook"), Quantum Business Center ("Quantum," formerly known as the
Bluegrass Corporate Center), Lexington Business Center ("Lexington") and
Newtown Distribution Center ("Newtown") properties during 1995. The
acquisitions of the Willowbrook, Quantum, Lexington and Newtown properties
contributed to an increase in income of approximately $135,000, $195,000,
$341,000 and $161,000, respectively. The income of approximately $296,000 and
the occupancy of 98% at the Milwaukee Industrial properties for the quarter
ended March 31, 1996 remained unchanged when compared to the same period in
1995. The income of $308,000 at the Elmhurst Metro Court property remained
relatively stable for the three months ended March 31, 1996 when compared to
income of $290,000 for the same period in 1995. The occupancy level as of
March 31, 1996 and 1995 for the Elmhurst property was 92% and 94%,
respectively. The occupancy levels for the Willowbrook, Quantum, Lexington and
Newtown properties as of March 31, 1996 were 77%, 92%, 80% and 95%,
respectively as compared to 76%, 93%, 79% and 97%, respectively, at December
31, 1995. Rental income at the Willowbrook and Lexington properties are
expected to increase during 1996 as the Trust continues to implement the
business plans for the properties which includes reconfiguring and leasing of
vacant space and thereby increasing occupancy levels. The occupancy level is
anticipated to increase by 15% for the Lexington property during the second
quarter of 1996 as the Trust is currently in final negotiations to lease 46,000
square feet of gross leasable area to a single tenant.
Residential property operating revenue increased by approximately $72,000
resulting from increases in rental income at the Colonial Courts of Westland
Apartments ("Colonial Courts") and Hallmark Village Apartments ("Hallmark")
properties. Income at the Colonial Courts property increased by approximately
$41,000 due primarily to an increase in occupancy to 95% at March 31, 1996 as
compared to 89% at March 31, 1995. Income at the Hallmark property increased
by approximately $31,000 due primarily to the Trust's aggressive collection
efforts which reduced delinquent rental payments. The occupancy level at the
Hallmark property at March 31, 1996 and 1995 was 82% and 85%, respectively.
Commercial property operating revenue increased by approximately $853,000
which is primarily attributable to the acquisition of the Woodcrest Office Park
("Woodcrest") property and annual rent adjustments and occupancy increases at
the Colonial Penn and Florida Power and Light office buildings. The
acquisition of the Woodcrest property in December 1995 resulted in an increase
in total income for the three months ended March 31, 1996 of approximately
$783,000 for 1996 when compared to the same period in 1995. The occupancy
level for the Woodcrest property was 93% at March 31, 1996 as compared to 95%
at December 31, 1995. The occupancy level for the Colonial Penn office
building remained unchanged with occupancy at 100% for March 31, 1996 when
compared to the same period in 1995. The occupancy level at the Florida Power
and Light office building at March 31, 1996 and 1995 was 93% and 90%,
respectively.
Retail property operating revenue represents income generated by the
Northlake Tower Shopping Center ("Northlake") acquired in July 1995. The
occupancy level for the Northlake property remained unchanged with occupancy at
98% for March 31, 1996 and December 31, 1995.
Total expenses for the three months ended March 31, 1996 increased to
$4,409,752 from $1,854,977 for the three months ended March 31, 1995. This
increase is due to increases in expenses from property operating activities of
approximately $2,261,000 and an increase in total other expenses of
approximately $294,000. The increase in property operating expenses for the
three months ended March 31, 1996 is primarily attributable to the 1995
acquisitions of the Willowbrook, Northlake, Quantum, Lexington, Newtown and
Woodcrest properties which accounted for approximately $2,001,000 of this
increase. Excluding the Trust's acquisitions during 1995, total expenses from
property operating activities for the three months ended March 31, 1996
increased approximately $260,000 of which $115,000 is attributable to increases
in repairs and maintenance expense at the Colonial Courts, Hallmark and
Milwaukee properties. The remaining $145,000 increase in property operating
expenses resulted from an increase in real estate tax expense and other
miscellaneous property expenses. Total other expenses increased due primarily
to increases in other professional fees, general and administrative expenses
and amortization of deferred loan fees and financing costs partially offset by
a decrease in shareholder expenses and trustees' fees, expenses and insurance
costs. The increase in general and administrative expenses is attributable to
an increase in expenses incurred on the Trust's behalf by Banyan Management
Corp in connection with purchasing and supervising the newly acquired assets.
Amortization of deferred loan fees and financing costs increased as a result of
the financing costs associated with the acquisition of the Willowbrook and
Northlake properties and costs associated with modifying the Trust's line of
credit during the fourth quarter of 1995. Further contributing to the increase
in total other expenses for the quarter ended March 31, 1996 is a charge
against recovery of losses on loans, notes, and interest receivable of $155,834
for the three months ended March 31, 1995 in respect of the Trust's interest in
the liquidating trust. The decrease in trustees' fees, expenses and insurance
resulted from a decrease in the premium for insurance coverage for 1996 as
compared to the same period in 1995.
Net loss from operations of real estate ventures for the three months
ended March 31, 1996 of $38,307 includes the losses incurred from the Trust's
53% interest in the real estate venture known as the H Street Venture. The H
Street Venture owns an approximately 55,900 square foot office building (the
"Victor Building") and an adjacent land parcel consisting of 17,000 square feet
(the "H Street Assemblage") located in Washington, D.C. Net income from
operations of real estate ventures of $26,623 for the three months ended March
31, 1995 resulted from the income from operations on the Plaza at Westminster
property of $56,222 which was offset by a loss from operations of $29,599 on
the H Street Assemblage. The Plaza at Westminster property was sold in June
1995 to an unaffiliated third party. The net loss at the H Street Assemblage
remained relatively stable for the three months ended March 31, 1996 as
compared to the same period in 1995. The H Street Venture completed and
obtained the zoning, entitlement and historic preservation rights for the
development of an approximately 330,000 square foot commercial building on the
H Street Assemblage. The H Street Venture has not made any significant capital
expenditures on the H Street Assemblage and is allowing occupancy to decline by
selectively retenanting the Victor Building at the H Street Assemblage with
short term leases so that the building will be more marketable to a potential
buyer which may desire to vacate the Victor Building before its redevelopment.
The H Street Venture is currently marketing the H Street Assemblage for sale
based upon its current assessment of the Washington D.C. office market. The
current market for the sale of undeveloped land where the H Street Assemblage
is located is currently limited because of the decline in demand for commercial
development sites in the Washington, D.C. market resulting from the recent
government decision to downsize various departments and agencies and place a
freeze on leasing of any additional office space. Therefore, the H Street
Venture currently anticipates its marketing efforts could proceed slower than
originally anticipated. The environment for the Washington, D.C. office market
is subject to modification based upon changes in general business and economic
conditions associated with the operations of real estate. The Venture will
continue to try to find ways to limit holding costs at the H Street Assemblage
while attempting to find a buyer. Upon the sale of the H Street Assemblage, it
is the Trust's intent to redeploy its portion of all cash proceeds derived from
its sale into new real estate investments.
The factors discussed above resulted in consolidated net income of
$626,041 ($0.06 per share) for the quarter ended March 31, 1996 as compared to
consolidated net income of $664,179 ($0.06 per share) for the quarter ended
March 31, 1995.
An objective of the Trust is to provide cash distributions to the
shareholders from cash generated from the Trust's operations as discussed
above. Cash generated from operations is not equivalent to the Trust's net
operating income as determined under generally accepted accounting principles.
Due to certain unique operating characteristics of real estate companies, the
real estate investment trust ("REIT") industry has adopted a standard which it
believes better reflects operating property performance. Funds from operations
("FFO") is defined by the National Association of Real Estate Investment Trusts
as net income computed in accordance with generally accepted accounting
principles, excluding extraordinary, unusual and nonrecurring items, excluding
gains (or losses) from debt restructuring and sales of property plus
depreciation and amortization from real property and after adjustments for
unconsolidated partnerships and joint ventures in which the REIT holds an
interest. FFO is not intended to be a measure of the cash generated by a REIT
nor its distribution paying capacity. However, a REIT's distribution can be
analyzed in comparison to FFO in a similar manner as a company that is not a
REIT would compare its distribution to net operating income.
For the three months ended March 31, 1996 and 1995, the Trust's
operations, including interest on the Karfad Loan Portfolio, generated FFO of
$1,138,008 ($0.11 per share) and $761,694 ($0.07 per share), respectively. FFO
increased for the three months ended March 31, 1996 as a result of the Trust's
1995 investment activities and property acquisitions. The 1996 real estate
investments have generated a yield greater than the yield derived on its short
term investments and cash and cash equivalents during 1995.
FFO for the three months ended March 31, 1996 and 1995 is calculated as
follows:
1996 1995
Net Income $626,041 $ 664,179
Plus:
Depreciation expense 544,292 244,118
Depreciation inclu-
ded in Operations
of Real Estate
Ventures 7,619 17,436
Lease Commission
Amortization 14,485 7,241
Less:
Minority Interest
Share of Depre-
ciation Expense (52,408) (14,722)
Minority Interest
Share of Lease
Commission
Amortization (2,021) (724)
Recovery of Losses
on Loans, Notes
and Interest
Receivable --- (155,834)
---------- ------------
Funds From Operations $1,138,008 $ 761,694
========== ============
The Trust paid distributions equal to $0.10 per share on February 20,
1996 and February 24, 1995 for the fourth quarter of 1995 and 1994,
respectively. On April 8, 1996, the Trust declared a cash distribution for the
first quarter of 1996 of $0.10 per share payable May 22, 1996 to shareholders
of record on April 22, 1996.
PROPERTY ACQUISITION
On April 18, 1996, Banyan/Morgan Milwaukee Limited Partnership ("BMMLP"),
a joint venture between a subsidiary of the Trust, which is a general partner
of BMMLP, and an affiliate of Morgan Realty Partners ("Morgan"), a general
partner of BMMLP, acquired the Midwest Office Center property (the "Midwest
Property"), a single-story office building which consists of approximately
77,000 square feet of gross leasable area located in Oakbrook Terrace,
Illinois (metropolitan Chicago) for a purchase price, including liabilities
assumed at acquisition, of approximately $4,890,000. The Trust and Morgan own
an 85% and 15% ownership interest in BMMLP, respectively. The Trust
contributed capital of approximately $1,595,000 in BMMLP upon the acquisition
of the property and will contribute an additional $142,000 for cash reserves to
be held by BMMLP for improvements and lease-up at the property. The
acquisition was made subject to a nonrecourse first mortgage loan
collateralized by the property in the principal amount of $3,295,000 which
bears interest at a fixed rate of 7.13% per annum, matures on May 1, 2003, and
requires monthly payments of principal based upon a twenty-two year
amortization schedule. The loan requires a balloon payment for the remaining
unpaid principal balance of approximately $2,733,000 at maturity.
SUPPLEMENTAL INFORMATION
Effective January 1, 1993, the Trust began providing supplemental
financial information in a format that presents the financial condition,
results of operations and cash flows from the investment of the Trust's cash
into new real estate opportunities (the "Investment Activities"). The
Investment Activities exclude the operations of the Trust's interest in the H
Street Venture, income generated on the allocated portion of cash and cash
equivalents considered sufficient for costs associated with the ongoing
operations of the H Street Venture and expenses required with maintaining the
Trust which are not allocated to Investment Activities.
Investment Activities assets include (1) interest in real estate assets
comprised of six industrial buildings, two apartment complexes, four commercial
office buildings, a retail center and a portfolio of mortgage loans, (2) the
Trust's investment securities and (3) a portion of the Trust's cash and cash
equivalents.
Due to the significance of the Trust's property acquisitions and
Investment Activities, effective January 1, 1996 the Trust has elected not to
provide detailed supplemental financial information in the accompanying
consolidated balance sheets, statements of income and expenses and cash flows.
Based on the significance of the Trust's Investment Activities, it has
determined that the supplemental information representing the operating results
of the Trust will be meaningful on a summarized basis rather than providing the
information on a detailed basis in the financial statements. Other expenses
allocated to Investment Activities represent the incremental costs of managing
the related assets. Summarized supplemental operating results of the Trust's
Investment Activities for the quarters ended March 31, 1996 and 1995 has been
provided below.
1996 1995
Investment Investment
Income from Property
Operating Activities $4,960,706 $2,062,748
Income on Mortgage
Loans Receivable 178,496 246,820
Income on Investments 20,728 117,714
---------- ----------
Total Income 5,159,930 2,427,282
---------- ----------
Expenses from Property
Operating Activities 3,589,709 1,328,707
Other Expenses 600,658 384,394
---------- ----------
Total Expenses 4,190,367 1,713,101
---------- ----------
Income Before Minority
Interest 969,563 714,181
Minority Interest in
Consolidated
Partnerships (102,553) (16,942)
---------- ----------
Net Income $ 867,010 $ 697,239
========== ==========
Net Income
Per Share $ 0.08 $ 0.07
========== ==========
FUNDS FROM OPERATIONS
Net Income $ 867,010 $ 697,239
Plus:
Depreciation and
Amortization 558,777 251,359
Less:
Minority Interest
Share of Depreciation
and Amortization (54,429) (15,446)
---------- --------
Investment Funds From
Operations $1,371,358 $ 933,152
========== ==========
Investment Funds From
Operations Per Share $ 0.13 $ 0.09
========== ==========
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are included with this report.
(b) The following reports on Form 8-K were filed during the quarter
ended March 31, 1996:
A current report on Form 8-K was filed on January 3, 1996 wherein
Item 2, "Acquisition or Disposition of Assets", disclosed the
Registrant's acquisition of the Woodcrest Office Park property.
A current report on Form 8-K was filed on January 4, 1996 wherein
Item 5, "Other Information", disclosed the Registrant's
modification and increase of its Revolving Line of Credit with
American National Bank from $15,000,000 to $30,000,000.
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANYAN STRATEGIC REALTY TRUST
By: /s/ Leonard G. Levine Date: May 20, 1996
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: May 20, 1996
Joel L. Teglia, Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from Banyan
Strategic Realty Trust's Form 10-Q for the quarter ended March 31, 1996 and is
qualified in its entirety by reference to such Form 10-Q".
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,029,040
<SECURITIES> 829,944
<RECEIVABLES> 1,077,106
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,936,090
<PP&E> 90,594,696
<DEPRECIATION> 2,881,387
<TOTAL-ASSETS> 110,529,001
<CURRENT-LIABILITIES> 2,479,772
<BONDS> 5,500,000
0
0
<COMMON> 56,452,171
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 110,529,001
<SALES> 0
<TOTAL-REVENUES> 5,176,653
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,459,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 949,889
<INCOME-PRETAX> 626,041
<INCOME-TAX> 0
<INCOME-CONTINUING> 626,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 626,041
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
