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 June 30, 1998
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 August 12, 1998: 13,316,059
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Investment in Real Estate, at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,326 $ 26,143
Building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,612 125,459
Building Improvements . . . . . . . . . . . . . . . . . . . . . . . 6,475 4,418
-------- --------
199,413 156,020
Less: Accumulated Depreciation. . . . . . . . . . . . . . . . . . . (8,773) (6,634)
-------- --------
190,640 149,386
-------- --------
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . 4,275 4,429
Restricted Cash - Capital Improvements. . . . . . . . . . . . . . . . 1,063 763
Restricted Cash - Other . . . . . . . . . . . . . . . . . . . . . . . 1,926 831
Interest and Accounts Receivable. . . . . . . . . . . . . . . . . . . 959 862
Deferred Financing Costs (Net of Accumulated Amortization
of $1,253 and $1,112, respectively) . . . . . . . . . . . . . . . . 1,880 1,269
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,029 2,094
-------- --------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $203,772 $159,634
======== ========
<PAGE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . $ 2,275 $ 1,858
Accrued Real Estate Taxes Payable . . . . . . . . . . . . . . . . . . 1,786 796
Mortgage Loans Payable. . . . . . . . . . . . . . . . . . . . . . . . 110,923 70,503
Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,537 21,615
Accrued Interest Payable. . . . . . . . . . . . . . . . . . . . . . . 603 296
Unearned Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 901 276
Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,286 711
-------- --------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 139,311 96,055
-------- --------
Minority Interest in Consolidated Partnerships. . . . . . . . . . . . 2,051 1,264
Shareholders' Equity
Shares of Beneficial Interest, No Par Value,
Unlimited Authorization; 14,824,474 and 14,761,850 Shares
Issued, respectively. . . . . . . . . . . . . . . . . . . . . . . 119,390 119,013
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . . . . . (49,614) (49,332)
Treasury Shares at Cost, 1,522,649 Shares . . . . . . . . . . . . . . (7,366) (7,366)
-------- --------
Total Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . 62,410 62,315
-------- --------
Total Liabilities and Shareholders' Equity. . . . . . . . . . . . . . $203,772 $159,634
======== ========
Book Value Per Share of Beneficial Interest
(13,301,825 and 13,239,201 Shares Outstanding, respectively). . . . $ 4.69 $ 4.71
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
REVENUE
Rental Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,003 $ 11,126
Operating Cost Reimbursement. . . . . . . . . . . . . . . . . . . . . . . 1,570 1,180
Miscellaneous Tenant Income . . . . . . . . . . . . . . . . . . . . . . . 533 222
Income on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 115 112
-------- --------
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,221 12,640
-------- --------
EXPENSES
Property Operating. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,711 2,314
Repairs and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 1,876 1,169
Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,239 949
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,230 2,771
Ground Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 441
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . 2,305 1,555
General and Administrative . . . . . . . . . . . . . . . . . . . . . . . 2,176 2,008
Amortization of Deferred Loan Fees and Financing Costs. . . . . . . . . . 141 328
-------- --------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,148 11,535
Income Before Minority Interest, Income from Operations of Real Estate
Venture, Gain on Disposition of Investment in Real Estate and
Extraordinary Item. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,073 1,105
Minority Interest in Consolidated Partnerships. . . . . . . . . . . . . . . (298) (312)
Income from Operations of Real Estate Venture . . . . . . . . . . . . . . . -- 51
Gain on Disposition of Investment in Real Estate. . . . . . . . . . . . . . -- 4
-------- --------
Income Before Extraordinary Item. . . . . . . . . . . . . . . . . . . . . . 2,775 848
Extraordinary Item, Net of Minority Interest of $25 . . . . . . . . . . . . (141) --
-------- --------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,634 $ 848
======== ========
<PAGE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 - CONTINUED
(UNAUDITED)
1998 1997
--------- --------
Earnings Per Share of Beneficial Interest - Basic:
Income Before Net Gains and Extraordinary Item. . . . . . . . . . . . . . $ 0.21 $ 0.08
======== ========
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.20 $ 0.08
======== ========
Earnings Per Share of Beneficial Interest - Assuming Dilution:
Income Before Net Gains and Extraordinary Item. . . . . . . . . . . . . . $ 0.20 $ 0.08
======== ========
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.19 $ 0.08
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
REVENUE
Rental Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,449 $ 5,981
Operating Cost Reimbursement. . . . . . . . . . . . . . . . . . . . . . . 814 561
Miscellaneous Tenant Income . . . . . . . . . . . . . . . . . . . . . . . 342 145
Income on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 52 60
-------- -------
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,657 6,747
-------- -------
EXPENSES
Property Operating. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,352 1,112
Repairs and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 963 644
Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 686 468
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,370 1,571
Ground Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 227
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . 1,244 836
General and Administrative . . . . . . . . . . . . . . . . . . . . . . . 1,142 1,139
Amortization of Deferred Loan Fees and Financing Costs. . . . . . . . . . 69 186
-------- -------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,057 6,183
Income Before Minority Interest, Income from Operations of Real Estate
Venture and Extraordinary Item. . . . . . . . . . . . . . . . . . . . . . 1,600 564
Minority Interest in Consolidated Partnerships. . . . . . . . . . . . . . . (182) (145)
Income from Operations of Real Estate Venture . . . . . . . . . . . . . . . -- 20
-------- -------
Income Before Extraordinary Item. . . . . . . . . . . . . . . . . . . . . . 1,418 439
Extraordinary Item, Net of Minority Interest of $25 . . . . . . . . . . . . (141) --
-------- -------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,277 $ 439
======== =======
<PAGE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 - CONTINUED
(UNAUDITED)
1998 1997
--------- --------
Earnings Per Share of Beneficial Interest - Basic:
Income Before Extraordinary Item. . . . . . . . . . . . . . . . . . . . . $ 0.11 $ 0.04
======== ========
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.10 $ 0.04
======== ========
Earnings Per Share of Beneficial Interest - Assuming Dilution:
Income Before Extraordinary Item. . . . . . . . . . . . . . . . . . . . . $ 0.10 $ 0.04
======== ========
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.04
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
Shares of
Beneficial Interest
---------------------------- Accumulated Treasury
Shares Amount Deficit Shares Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shareholders' Equity,
January 1, 1998 . . . . . 14,761,850 $ 119,013 $ (49,332) $ (7,366) $ 62,315
Net Income. . . . . . . . -- -- 2,634 -- 2,634
Issuance of Shares. . . . 62,624 377 -- -- 377
Distributions . . . . . . -- -- (2,916) -- (2,916)
----------- ---------- --------- ---------- --------
Shareholders' Equity,
June 30, 1998 . . . . . . 14,824,474 $ 119,390 $ (49,614) $ (7,366) $ 62,410
=========== ========== ========= ========== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,634 $ 848
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Extraordinary Items, Net of Minority Interest . . . . . . . . . . . . . . 141 --
Gain on Disposition of Investment in Real Estate. . . . . . . . . . . . . -- (4)
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . 2,446 1,883
Net (Income) From Operation of Real Estate Ventures . . . . . . . . . . . -- (51)
Minority Interest in Consolidated Partnerships. . . . . . . . . . . . . . 298 312
Incentive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . -- 613
Net Change In:
Restricted Cash - Other . . . . . . . . . . . . . . . . . . . . . . . . . (1,095) (244)
Interest and Accounts Receivable. . . . . . . . . . . . . . . . . . . . . (97) (121)
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (601) (104)
Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . . 417 (111)
Accrued Interest Payable. . . . . . . . . . . . . . . . . . . . . . . . . 307 142
Accrued Real Estate Taxes Payable . . . . . . . . . . . . . . . . . . . . 990 302
Unearned Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625 62
Security Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 126
-------- --------
Net Cash Provided By Operating Activities . . . . . . . . . . . . . . . . . 6,640 3,653
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Real Estate Assets . . . . . . . . . . . . . . . . . . . . (37,661) (24,951)
Investment In Real Estate Ventures, Net . . . . . . . . . . . . . . . . . -- 26
Additions to Investment in Real Estate. . . . . . . . . . . . . . . . . . (2,057) (730)
Proceeds From Sale of Investment in Real Estate . . . . . . . . . . . . . -- 6,142
Proceeds from Sale of Investment in Real Estate Venture . . . . . . . . . -- 968
Payment of Liabilities Assumed at Acquisition of Real Estate Assets . . . -- 315
Earnest Money Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . (500) 150
Restricted Cash - Capital Improvements. . . . . . . . . . . . . . . . . . (300) (22)
-------- --------
Net Cash (Used In) Investing Activities . . . . . . . . . . . . . . . . . . (40,518) (18,102)
-------- --------
<PAGE>
BANYAN STRATEGIC REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1998 1997
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Bonds and Mortgage Loans Payable. . . . . . . . . . . . . . $ 88,450 $ 25,280
Investments From Minority Partners. . . . . . . . . . . . . . . . . . . . 687 --
Distributions to Minority Partners. . . . . . . . . . . . . . . . . . . . (173) (220)
Deferred Financing Costs. . . . . . . . . . . . . . . . . . . . . . . . . (782) (480)
Principal Payments on Bonds and Mortgage Loans Payable. . . . . . . . . . (51,783) (7,033)
Prepayment Penalties on Early Extinguishment of Debt. . . . . . . . . . . (136) --
Distributions Paid to Shareholders. . . . . . . . . . . . . . . . . . . . (2,916) (2,096)
Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 2
-------- --------
Net Cash Provided By Financing Activities . . . . . . . . . . . . . . . . 33,724 15,453
--------- --------
Net (Decrease) Increase In Cash and Cash Equivalents. . . . . . . . . . . (154) 1,004
Cash and Cash Equivalents at Beginning of Period. . . . . . . . . . . . . 4,429 3,805
-------- --------
Cash and Cash Equivalents at End of Period. . . . . . . . . . . . . . . . $ 4,275 $ 4,809
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid During the Period . . . . . . . . . . . . . . . . . . . . $ 3,923 $ 2,629
======== ========
Supplemental Disclosure of Non-Cash Financing Activity:
Financing Assumed Upon Acquisition of Real Estate . . . . . . . . . . . $ 3,675 $ 16,649
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
BANYAN STRATEGIC REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. FINANCIAL STATEMENT PRESENTATION
Readers of this quarterly report should refer to Banyan Strategic
Realty Trust's (the "Trust") audited consolidated financial statements for
the year ended December 31, 1997 which are included in the Trust's 1997
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.
Certain reclassifications have been made to the previously reported
1997 consolidated financial statements in order to provide comparability
with the 1998 consolidated financial statements. These reclassifications
have not changed the 1997 results. In the opinion of management, all
adjustments necessary for a fair presentation have been made to the
accompanying consolidated financial statements as of June 30, 1998. All
adjustments made to the financial statements, as presented, are of a normal
recurring nature to the Trust.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the six months ended June 30, 1998 and 1997:
Six Months Ended
------------------------
6/30/98 6/30/97
--------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Numerator:
Income before Net Gains and
Extraordinary Item . . . . . . . . $ 2,775 $ 844
Net Gains (a) . . . . . . . . . . . -- 4
Extraordinary Item, Net of
Minority Interest. . . . . . . . . (141) --
----------- -----------
Net Income . . . . . . . . . $ 2,634 $ 848
=========== ===========
Denominator:
Denominator for basic earnings per
weighted-average shares. . . . . . 13,267,394 10,535,521
Effect of dilutive securities:
Employee stock options. . . . . . 33,749 --
Convertible debt. . . . . . . . . 608,562 --
----------- ----------
Dilutive potential common shares. . 642,311 --
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions . . . . . . . . . . 13,909,705 10,535,521
=========== ===========
<PAGE>
Six Months Ended
------------------------
6/30/98 6/30/97
--------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Earnings Per Share of Beneficial
Interest - Basic:
Income before Net Gains and
Extraordinary Item . . . . . . . . $ 0.21 $ 0.08
Net Gains . . . . . . . . . . . . . -- --
Extraordinary Item, Net of
Minority Interest. . . . . . . . . (0.01) --
----------- -----------
Net Income . . . . . . . . . $ 0.20 $ 0.08
=========== ===========
Earnings Per Share of Beneficial
Interest - Assuming Dilution:
Income Before Net Gains and
Extraordinary Item . . . . . . . . $ 0.20 $ 0.08
Net Gains . . . . . . . . . . . . . -- --
Extraordinary Item, Net of
Minority Interest. . . . . . . . . (0.01) --
----------- -----------
Net Income . . . . . . . . . $ 0.19 $ 0.08
=========== ===========
(a) Net gains include gain on disposition of investment in real
estate.
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended June 30, 1998 and 1997:
Three Months Ended
------------------------
6/30/98 6/30/97
--------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Numerator:
Income before Extraordinary Item. . $ 1,418 $ 439
Extraordinary Item, Net of
Minority Interest . . . . . . . . (141) --
----------- -----------
Net Income . . . . . . . . . $ 1,277 $ 439
=========== ===========
Denominator:
Denominator for basic earnings per
weighted-average shares. . . . . . 13,283,195 10,574,635
Effect of dilutive securities:
Employee stock options. . . . . . 43,889 --
Convertible debt. . . . . . . . . 762,397 --
----------- ----------
Dilutive potential common shares. . 806,286 --
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions . . . . . . . . . . 14,089,481 10,574,635
=========== ===========
<PAGE>
Three Months Ended
------------------------
6/30/98 6/30/97
--------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Earnings Per Share of Beneficial
Interest - Basic:
Income before Extraordinary Item . $ 0.11 $ 0.04
Extraordinary Item, Net of
Minority Interest. . . . . . . . . (0.01) --
----------- -----------
Net Income . . . . . . . . . $ 0.10 $ 0.04
=========== ===========
Earnings Per Share of Beneficial
Interest - Assuming Dilution:
Income Before Extraordinary Item. . $ 0.10 $ 0.04
Extraordinary Item, Net of
Minority Interest. . . . . . . . . (0.01) --
----------- -----------
Net Income . . . . . . . . . $ 0.09 $ 0.04
=========== ===========
3. MORTGAGE LOANS PAYABLE
On April 30, 1998, the Trust entered into a $25 million line of credit
agreement with The Capital Company of America (F/K/A Nomura Asset Capital
Corporation) ("CCA Line"). The CCA Line has an initial term of 24 months
at a rate of LIBOR plus 2.00%. The Trust has the option to extend the line
for one additional year for a fee of $125,000. As of June 30, 1998, there
were no amounts outstanding on the CCA Line.
On June 22, 1998 and May 22, 1998 the Trust entered into three
permanent loan agreements with The Capital Company of America (F/K/A Nomura
Asset Capital Corporation) ("CCA"). The first, the Pool A Loan, was in the
amount of $38.3 million and was funded on June 5, 1998. The second, the
Pool B Loan, was in the amount of $7.7 million and was funded on June 5,
1998. The third, the Pool C Loan, was in the amount of $7.65 million and
was funded on June 30, 1998. The Pool A, B and C Loans are collaterized by
real estate with a carrying value of approximately $77.3 million at June
30, 1998.
The Pool A Loan matures on June 11, 2028 and the Pool C Loan matures
on July 11, 2028. Both loans are payable in monthly installments of
principal and interest based on a 315-month amortization schedule. The
interest rate is equal to 6.95% for the first ten years of each loan. The
Trust has an option to prepay both loans on June 11, 2008.
The Pool B Loan matures on June 11, 2028. The interest rate is equal
to 7.07% for the first 11 years of the loan. The Trust will pay interest
only on a monthly basis through July 11, 1999. Subsequent to July 11,
1999, the Trust will make monthly principal and interest payments, based on
a 315-month amortization schedule. The Trust has an option to repay the
loan on June 11, 2009.
The Trust repaid the loans secured by the Milwaukee Industrial
Portfolio and the Elmhurst Metro Court in the amounts of $3.5 million and
$3.8 million, respectively. These repayments resulted in prepayment
penalties of approximately $136,000 and write off of deferred financing
costs of approximately $30,000, which are reflected in the Consolidated
Statements of Income and Expenses as an Extraordinary Item, Net of Minority
Interest of $25,000. The Trust also repaid the amounts outstanding under
the CCA Line and the line of credit provided by American National Bank of
$23.25 million and $20.65 million, respectively.
<PAGE>
4. INVESTMENT IN REAL ESTATE
During the six months ended June 30, 1998, the Trust acquired
interests in eight properties. All of these properties were acquired from
unaffiliated third parties. The table below presents summary of 1998
acquisitions.
Date Purchase
of Price
Property's Name Acquisi- (in
and Location Sq. Ft. tion millions) Description
- --------------- -------- --------- --------- ----------------
Peachtree Pointe 71,700 01/20/98 $4.6 Five one-story
Office Park office buildings;
Norcross, Georgia Twenty-three
tenants at the
time of acqui-
sition
Avalon Center 52,400 03/20/98 4.4 Two one-story
Office Park office buildings;
Norcross, Georgia Three tenants at
the time of
acquisition
Avalon Ridge 57,400 04/24/98 3.9 Two one-story
Business Park flex/industrial
Norcross, Georgia buildings;
Two tenants at
the time of
acquisition
Tower Lane 95,900 04/27/98 5.2 Two one-story
Business Park (1) flex/industrial
Bensenville, buildings;
Illinois Seventeen tenants
at the time
of acquisition
University 127,800 04/30/98 10.2 Seven one-story
Corporate Center flex/industrial
Winter Park, buildings;
Florida Twenty-six tenants
at the time
acquisition
Metric Plaza 32,000 04/30/98 2.6 Two one-story
Winter Park, flex/industrial
Florida buildings;
Two tenants at
the time of
acquisition
Park Center 47,200 04/30/98 3.7 Two one-story
Orlando, Florida flex/industrial
buildings;
Sixteen tenants
at the time
of acquisition
<PAGE>
4. INVESTMENT IN REAL ESTATE (continued)
Date Purchase
of Price
Property's Name Acquisi- (in
and Location Sq. Ft. tion millions) Description
- --------------- -------- --------- --------- ----------------
Sand Lake 84,100 04/30/98 6.8 Five one-story
Tech Center ----- office buildings;
Orlando, Florida Three tenants
at the time
of acquisition
Total $41.4
=====
(1) Upon the acquisition of Tower Lane, the Trust assumed a permanent
mortgage loan in the amount of approximately $3.7 million. The loan
matures November, 2001, bears an interest rate of 8.35% and is payable in
monthly installments of principal and interest based on 360-month
amortization schedule.
<PAGE>
5. PRO FORMA INFORMATION
The following unaudited Pro Forma Condensed Summary information
presents the results of operations of the Trust as if the Trust acquired
all of the acquisition properties on January 1, 1998 and 1997.
The unaudited Pro Forma Condensed Summary information is not
necessarily indicative of what the actual results of operations would have
been for the six months ended June 30, 1998 and 1997 assuming purchase of
acquisition properties had been consummated at the beginning of each period
presented, nor does it purport to represent the future operations of the
Trust.
Six Months Ended
June 30,
(Unaudited)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
-------------------------
1998 1997
-------- ---------
Revenues. . . . . . . . . . . . . $ 19,554 $ 14,871
Net Income. . . . . . . . . . . . $ 2,632 $ 829
Earnings Per Share of Beneficial
Interest - Basic. . . . . . . . $ 0.20 $ 0.08
6. SUBSEQUENT EVENTS
DIVIDEND AND DISTRIBUTIONS PAID
On July 6, 1998, the Trust declared a cash distribution for the
quarter ended June 30, 1998 of $0.12 per share payable August 21, 1998 to
shareholders of record on July 21, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Registrant, Banyan Strategic Realty Trust, is a Massachusetts
business trust. The Trust is a diversified real estate investment trust
that focuses on flex/industrial, office and apartment properties throughout
the country, where management sees strong local economies and investment
opportunities. As of June 30, 1998, the Trust's portfolio contained thirty
properties, which are located primarily in the Midwest and the Southeast
United States. The Trust's current business plan is to acquire additional
real estate assets and to manage these new acquisitions as well as its
existing portfolio of properties (externally through third party property
managers or internally when it is economically feasible to do so) in a
manner which will increase the Trust's cash flow and shareholder value. In
executing its business plan, the Trust intends to utilize proceeds from its
secured and unsecured credit facilities and to invest its cash and cash
equivalents in excess of operating reserves in additional real estate
assets, to reinvest the proceeds from the sale or refinancing of its
existing properties and to raise new capital (debt, equity or both).
Certain statements in this quarterly report that are not historical in
fact constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Without limiting the
foregoing, words such as "anticipates", "expects", "intends", "plans" and
similar expressions are intended to identify forward-looking statements.
These statements are subject to a number of risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements. See below "Factors Affecting the Trust's Business Plan" for
further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Trust's cash and cash equivalents balance at June 30, 1998 and
December 31, 1997 was approximately $4.2 million and approximately $4.4
million, respectively. The decrease in total cash and cash equivalents of
approximately $0.2 million is due to approximately $40.5 million of cash
used by investing activities which exceeded approximately $33.7 million of
cash provided by financing activities and approximately $6.6 million of
cash provided by operating activities.
Cash Flows From Operating Activities: Net cash provided by operating
activities increased by approximately $2.9 million for the six months ended
June 30, 1998 to approximately $6.6 million from approximately $3.7 million
for the same period in 1997 due primarily to an increase in net income
generated by properties acquired by the Trust in 1997 and 1998. (See below
for detail.) See "Results of Operations" below for further discussion of
the operations of the Trust's real estate assets.
One of the objectives of the Trust is to provide cash distributions to
its shareholders from cash generated from the Trust's operations. Cash
generated from operations is not equivalent to the Trust's net income as
determined under generally accepted accounting principles (GAAP) because
net income includes certain non-cash items, such as, depreciation and
amortization that do not impact cash flow. Due to certain unique operating
characteristics of real estate companies, the National Association of Real
Estate Investment Trusts ("NAREIT"), an industry trade group, has
promulgated a standard known as "Funds from Operations", or "FFO" for
short, which it believes more accurately reflects the operating property
performance of a REIT such as the Trust. As defined by NAREIT, FFO means
net income computed in accordance with GAAP, less extraordinary, unusual
and nonrecurring items, excluding gains (or losses) from debt restructuring
and sales of property plus depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures in which the
REIT holds an interest. The Trust has adopted the NAREIT definition for
computing FFO because management believes that, subject to the following
<PAGE>
limitations, FFO provides a basis for comparing the performance and
operations of the Trust to those of other REIT's. The calculation of FFO
may vary from entity to entity since capitalization and expense policies
may vary from entity to entity. Items which are capitalized do not
decrease FFO whereas items that are expensed decrease FFO. As such, the
presentation of FFO by the Trust may not be comparable to other similarly
titled measures presented by other REITs. FFO is not intended to be an
alternative to "Net Income" as an indication of the Trust's performance nor
to "Cash Flows from Operating Activities" (as determined by GAAP) as a
measure of the Trust's capacity to pay distributions.
For the six months ended June 30, 1998 and 1997, the Trust's
operations generated FFO of approximately $4.9 million and approximately
$2.3 million, respectively. FFO increased for the six months ended
June 30, 1998 primarily from the effect of the Trust's property
acquisitions in 1997 and 1998. For the three months ended June 30, 1998
and 1997, the Trust's operations generated FFO of approximately $2.6
million and approximately $1.2 million, respectively.
FFO for the six months ended June 30, 1998 and 1997 is calculated as
follows:
1998 1997
---------- ----------
(Dollars in Thousands)
Net Income. . . . . . . . . . . . . . $ 2,634 $ 848
Plus:
Depreciation expense. . . . . . . . 2,128 1,464
Depreciation included in
Operations of Real Estate
Ventures. . . . . . . . . . . . . -- 15
Lease Commission Amortization . . . 162 91
Less:
Minority Interest Share of
Depreciation Expense. . . . . . . (129) (129)
Minority Interest Share of
Lease Commission
Amortization. . . . . . . . . . . (14) (10)
Franchise Tax Fees Accrued. . . . . . 27 25
Gain on Disposition of
Investment in Real Estate . . . . . -- (4)
Extraordinary Item, Net of
Minority Interest . . . . . . . . . 141 --
-------- --------
Funds From Operations . . . . . . . . $ 4,949 $ 2,300
======== ========
Cash Flow Provided By (Used In):
Operating Activities. . . . . . . . $ 6,640 $ 3,653
Investing Activities. . . . . . . . $(40,518) $(18,102)
Financing Activities. . . . . . . . $ 33,724 $ 15,453
Cash Flows From Investing Activities: During the six months ended
June 30, 1998, the Trust utilized approximately $40.5 million in investing
activities compared to $18.1 million in the same period in 1997. Cash flow
was primarily utilized during the six months ended June 30, 1998 to acquire
three office and five flex/industrial properties aggregating approximately
$37.7 million and to make capital improvements at the Trust's various
properties in the amount of approximately $2.1 million. In comparison,
during the same period in 1997, the Trust sold its interest in the Hallmark
Village property for approximately $6.1 million, sold a portion of the H
Street Assemblage land parcel for approximately $1.0 million, acquired two
<PAGE>
office and four apartment properties for an aggregate use of cash of
approximately $24.9 million and made capital improvements in the amount of
approximately $0.7 million.
ACQUISITIONS ACTIVITIES:
During the six months ended June 30, 1998, the Trust acquired
interests in eight properties. All of these properties were acquired from
unaffiliated third parties. The table below presents summary of 1998
acquisitions.
Purchase
Name and Price
Location Acquisi- (in
of Property Sq. Ft. tion millions) Description
- --------------- -------- --------- --------- ----------------
Peachtree Pointe 71,700 01/20/98 $4.6 Five one-story
Office Park office buildings;
Norcross, Georgia Twenty-three
tenants at the
time of acqui-
sition
Avalon Center 52,400 03/20/98 4.4 Two one-story
Office Park office buildings;
Norcross, Georgia Three tenants at
the time of
acquisition
Avalon Ridge 57,400 04/24/98 3.9 Two one-story
Business Park flex/industrial
Norcross, Georgia buildings;
Two tenants at
the time of
acquisition
Tower Lane 95,900 04/27/98 5.2 Two one-story
Business Park (1) flex/industrial
Bensenville, buildings;
Illinois Seventeen tenants
at the time
of acquisition
University 127,800 04/30/98 10.2 Seven one-story
Corporate Center flex/industrial
Winter Park, buildings;
Florida Twenty-six tenants
at the time
of acquisition
Metric Plaza 32,000 04/30/98 2.6 Two one-story
Winter Park, flex/industrial
Florida buildings;
Two tenants at
the time of
acquisition
Park Center 47,200 04/30/98 3.7 Two one-story
Orlando, Florida flex/industrial
buildings;
Sixteen tenants at
the time of
acquisition
<PAGE>
Purchase
Name and Price
Location Acquisi- (in
of Property Sq. Ft. tion millions) Description
- --------------- -------- --------- --------- ----------------
Sand Lake 84,100 04/30/98 6.8 Five one-story
Tech Center ----- office buildings;
Orlando, Florida Three tenants at
the time of
acquisition
Total $41.4
=====
(1) In April 1998, the Trust formed a new joint venture, Butterfield
O'Hare L.P., in which the Trust has an 89.1% limited partnership interest
and .9% general partnership interest. The portfolio owned by the venture
consists of two properties, Butterfield Office Plaza, a property formerly
owned solely by the Trust, and Tower Lane Business Park ("Tower Lane"),
which was purchased on April 27, 1998 from an affiliate of a partner in
Butterfield O'Hare L.P. Upon acquisition, the venture assumed a permanent
mortgage loan encumbering the Tower Lane property in the amount of
approximately $3.7 million. The loan matures November, 2001, bears an
interest rate of 8.35% and is payable in monthly installments of principal
and interest based on 360-month amortization schedule. The permanent
financing on the Butterfield property was not modified as a result of this
transaction.
Cash Flows From Financing Activities: During the six months ended
June 30, 1998 and 1997, the Trust generated approximately $33.7 million and
approximately $15.5 million, respectively, from financing activities. The
cash flows provided by financing activities for the six months ended
June 30, 1998 resulted primarily from approximately $88.5 million of
proceeds from bonds and mortgage loans, net of distributions paid to
shareholders in the amount of approximately $2.9 million and approximately
$51.8 million of principal payments on bonds and mortgage notes payable.
The cash provided by financing activities for the six months ended June 30,
1997 resulted primarily from approximately $25.3 million of proceeds from
bonds and mortgage loans net of approximately $2.1 million of distributions
paid to shareholders and approximately $7.0 million of principal payments
on bonds and mortgage loans.
FINANCINGS:
On April 30, 1998, the Trust entered into a $25 million line of credit
agreement with The Capital Company of America (F/K/A Nomura Asset Capital
Corporation) ("CCA Line"). The CCA Line has an initial term of 24 months.
Draws on the line bear interest at a rate equal to LIBOR plus 2.00%. The
Trust has the option to extend the line for one additional year for a fee
of $125,000. As of June 30, 1998 there was no balance outstanding on the
line.
On June 22, 1998 and May 22, 1998 the Trust entered into three
permanent loan agreements with The Capital Company of America (F/K/A Nomura
Asset Capital Corporation) ("CCA"). The first loan known as the "Pool A
Loan", was in the amount of $38.3 million and was funded on June 5, 1998.
The second loan known as the "Pool B Loan", in the amount of $7.7 million,
was funded on June 5, 1998. The third loan known as the "Pool C Loan", was
in the amount of $7.65 million and was funded on June 30, 1998.
The Pool A Loan matures on June 11, 2028 and the Pool C Loan matures
on July 11, 2028. Both loans are payable in monthly installments of
principal and interest based on a 315-month amortization schedule. The
interest rate is equal to 6.95% for the first ten years of each loan. The
borrowers have an option to prepay both loans on June 11, 2008 (the
"Optional Prepayment Date"). The Pool A Loan, in the amount of $38.3
million, is secured by cross-collateralized first mortgages on the Trust's
<PAGE>
Colonial Penn Building, Phoenix Business Park, Newtown Business Center,
Southlake Corporate Center, Technology Center, Airways Plaza Office Center,
Peachtree Pointe Office Park, Avalon Center Office Park, Sand Lake
Technology Center, Metric Plaza, Park Center, and University Corporate
Center. The Pool C Loan, in the amount of $7.65 million, is secured by
cross-collateralized first mortgages on the Trust's Milwaukee Industrial
Portfolio and Elmhurst Metro Court. The Elmhurst and Milwaukee projects
are jointly owned by subsidiaries of the Trust and affiliates of Morgan
Realty Partners. During the period beginning three years after the loan
closing through the Optional Prepayment Date, the borrowers have the
ability to substitute different properties as collateral under each loan as
long as the loan amount collaterized by all properties replaced does not
exceed fifty percent of the total loan amount and certain other conditions
are satisfied.
Also on May 22, 1998, the Trust entered into a loan agreement with CCA
(the "Pool B Loan") in the amount of $7.7 million, which was funded on June
5, 1998 and is secured by a first mortgage on the Trust's Lexington
Business Center. The interest rate is equal to 7.07% for the first 11
years of the loan. The Trust will pay interest only on a monthly basis
through July 11, 1999. At that date, Nomura may restate the loan amount
based on the property's projected net operating income for one year
following that date. If the ratio of principal and interest to Net
Operating Income is less than 1.65:1.00 based on the Lexington Business
Center's net operating income, CCA can require the Trust either to repay a
portion of the loan or add additional collateral to the pool. Subsequent
to July 11, 1999, the Trust is required to make monthly principal and
interest payments, based on a 315-month amortization schedule through and
including the maturity date (June 11, 2028). The Trust has an option to
repay the loan on June 11, 2009.
The Trust used the proceeds of the Nomura loans to repay the amounts
outstanding under the Nomura Line and the line of credit provided by
American National Bank of $23.25 million and $20.65 million, respectively.
The Trust also repaid the loans secured by the Milwaukee Industrial
Portfolio and the Elmhurst Metro Court in the amounts of $3.5 million and
$3.8 million, respectively. The balance of the proceeds was utilized to
pay transaction related costs and for general operating reserves.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs utilizing two
digits rather than four digits to define the applicable year. As a result,
any computer programs that have time-sensitive mechanisms may recognize a
date using "00" as the year 1900 rather than the year 2000. This error
could result in a system failure or miscalculation causing disruptions of
real estate operations and other related activities, including, among other
things, a temporary inability to process transactions and invoices,
generate or receive reports, manage the Trust's portfolio, comply with
regulatory requirements or engage in similar normal business activities.
The Trust has established a corrective plan for assessing Year 2000
compliance matters which entails the implementation of remedial action in
areas deemed insufficient based upon information currently available to the
Trust. The corrective plan consists of several elements including a
complete upgrade of the computer software programs; an assessment of Year
2000 compliance programs with respect to each property in its portfolio and
the property's reliance on computer programs in operations; an inquiry and
dialogue with the Trust's significant suppliers and vendors as to their
current Year 2000 compliance initiatives; and a mechanism to continue the
monitoring of the vendors and suppliers. The Trust is currently
formulating its contingency plan in an attempt to address unforeseen
circumstances.
<PAGE>
During 1998, the Trust expects to complete the upgrade of its computer
hardware and software programs in order to minimize the impact of the Year
2000 on its computer and related operations at its headquarters which is
its only location of operations with the exception of the properties in its
real estate portfolio. The cost associated with these upgrades is not
expected to be material and would not cause reported financial information
to be less indicative of the Trust's future operating results or financial
condition.
The Trust is also assessing the real properties in its portfolio in an
effort to diagnose what impact the Year 2000 may have on each property's
operations, particularly its mechanical systems. The Trust anticipates
completing its assessment by late 1998 or early 1999. At this time, the
Trust does not possess sufficient information as to the extent of any
required remedial action, or whether remedial action will be necessary and
therefore is unable to estimate any potential costs to the Trust, although
this remedial action is currently not anticipated to be material.
The Trust relies upon various suppliers and providers of services
including third party management firms to perform certain property level
functions. The Trust is inquiring as to the ability of the property
managers to address the effect of the Year 2000 issue with respect to their
computerized systems which may have an impact on the Trust. The
computerized aspect of the relationship between the Trust and its property
managers is most prevalent in the accounting and reporting functions from
the property level to the Trust's headquarters. The Trust is currently in
the process of determining whether or not each of its property managers has
addressed the Year 2000 issue and anticipates that the process will be
completed by December 31, 1998. The Trust believes that the potential
impact of a non-compliant property manager is minimized because the Trust
has the right to cancel its property management contracts generally on 30-
day notice at no cost to the Trust. Therefore, any property managers who
may not be Year 2000 compliant can be replaced with managers that have
systems that are Year 2000 compliant. The Trust is also in the process of
contacting other service providers and vendors to ascertain their ability
to continue to provide goods and services to the Trust, in light of the
Year 2000 issue and the status of their compliance initiatives. The Trust
is also developing a mechanism to continue the review and assessment of
service providers and vendors on a continuing basis until circumstances no
longer warrant monitoring. The Trust cannot quantify the potential costs
and uncertainties associated with potential Year 2000 program flaws at this
time as they may relate to other organizations that the Trust relies upon
but the Trust does not anticipate that the effect of this potential
computer program flaw upon the operations of the Trust will be significant.
RESULTS OF OPERATIONS
At June 30, 1998, the Trust owned twelve flex/industrial complexes
aggregating 1,721,400 square feet of gross leasable area, four apartment
complexes consisting of an aggregate 864 units, thirteen office properties
consisting of 1,402,900 square feet of gross leasable area and one retail
center which contains 321,800 square feet of gross leasable area. During
the six months ended June 30, 1998, the Trust acquired an ownership
interest in Peachtree Pointe Office Park, Avalon Center Office Park, Avalon
Ridge Business Park, Tower Lane Business Park, University Corporate Center,
Metric Plaza, Park Center and Sand Lake Tech Center. For further details
regarding the assets purchased during the first six months of 1998, see
Liquidity and Capital Resources above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED
JUNE 30, 1997
Total revenues increased by approximately $5.6 million or 44.4% to
approximately $18.2 million from approximately $12.6 million, due primarily
to the acquisition and sale of certain properties after January 1, 1997
which, when combined, accounted for approximately $5.1 million or 91.1% of
this increase. On a "same-store" basis (comparing the results of
operations of the properties owned during the six months ended June 30,
<PAGE>
1998, with the results of operations of the same real estate assets owned
during the six months ended June 30, 1997), total property revenues
increased by approximately $0.5 million or 5.1% to approximately $10.4
million from approximately $9.9 million. This increase is due to an
increase in rental rates and recognition of lease termination fees.
Total operating expenses which include Property Operating, Repairs and
Maintenance, Real Estate Taxes and Ground Lease, increased by approximately
$1.4 million to approximately $6.3 million from approximately $4.9 million
due primarily to the 1997 and 1998 acquisitions mentioned above, net of
properties sold, which accounted for approximately $1.1 million or 78.6% of
this increase. The "same-store" properties accounted for approximately
$0.3 million or 21.4% of the increase.
Interest expense increased by approximately $1.5 million primarily due
to additional loans obtained to finance new acquisitions.
The total increase in depreciation and amortization of approximately
$0.7 million consists of an increase of approximately $0.2 million for
"same-store" properties, and approximately $0.5 million for new properties,
net of properties sold. The increase for "same-store" properties relates
to additional improvements and leasing commissions paid for these
properties.
Total general and administrative expenses increased by approximately
$0.2 million due to higher professional fees and payroll costs due to
additional staffing required as a result of acquiring and managing the
additions to the Trust's real estate portfolio.
The factors discussed above resulted in consolidated net income of
approximately $2.6 million or $0.21 per share for the six months ended
June 30, 1998 as compared to consolidated net income of approximately $0.8
million or $0.08 per share for the six months ended June 30, 1997.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THREE MONTHS ENDED
JUNE 30, 1997
Total revenues increased by approximately $3.0 million or 44.8% to
approximately $9.7 million from approximately $6.7 million, due primarily
to the acquisition and sale of certain properties after January 1, 1997
which, when combined, accounted for approximately $2.6 million or 86.7% of
this increase. On a "same-store" basis (comparing the results of
operations of the properties owned during the three months ended June 30,
1998, with the results of operations of the same real estate assets owned
during the three months ended June 30, 1997), total property revenues
increased by approximately $0.4 million or 7.7% to approximately $5.6
million from approximately $5.2 million due to an increase in rental rates
and recognition of lease termination fees.
Total operating expenses which include Property Operating, Repairs and
Maintenance, Real Estate Taxes and Ground Lease, increased by approximately
$0.7 million to approximately $3.2 million from approximately $2.5 million
due primarily to the 1997 and 1998 acquisitions mentioned above, net of
properties sold, which accounted for approximately $0.6 million or 85.7% of
this increase. The "same-store" properties accounted for approximately
$0.1 million or 14.3% of the increase.
Interest expense increased by approximately $0.8 million primarily due
to additional loans obtained to finance new acquisitions.
The total increase in depreciation and amortization of approximately
$0.4 million consists of an increase of approximately $0.1 million for
"same-store" properties, and approximately $0.3 million for new properties,
net of properties sold. The increase for same store properties relates to
additional improvements and leasing commissions paid for these properties.
<PAGE>
The factors discussed above resulted in consolidated net income of
approximately $1.3 million or $0.10 per share for the three months ended
June 30, 1998 as compared to consolidated net income of approximately $0.4
million or $0.04 per share for the three months ended June 30, 1997.
FACTORS AFFECTING THE TRUST'S BUSINESS PLAN
The following summarizes various risk factors affecting forward-
looking statements regarding the Trust's business plan that are included in
this Form 10-Q. For a complete list of risk factors see "Factors Affecting
the Trust's Business Plan" in the Trust's Annual Report and Form 10-K for
the year ended December 31, 1997.
FACTORS AFFECTING OPERATING RESULTS. The factors which may affect the
Trust's liquidity and capital resources as well as results of operations,
include but are not limited to: (i) the Trust's ability to deploy cash
available for investment in operating properties generating yields greater
than the interest rate paid by the Trust on its indebtedness; (ii) the
continued occupancy by, and the financial solvency of, the major tenants at
the Trust's Colonial Penn, Florida Power and Light, Woodcrest Office Park,
6901 Riverport Drive, Technology Center and Airways Plaza properties;
(iii) the Trust's ability to re-lease space as leases expire on terms at
least as favorable as the terms of existing leases, since approximately 15%
of the tenant leases at the Trust's properties are scheduled to expire in
the remaining six months of 1998; and (iv) market conditions and rental
rates where the Trust's properties are located.
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE
PROPERTIES; LACK OF OPERATING HISTORY. The Trust acquired all of its
properties within the last five years, and acquired eighteen of its
properties since January of 1997. The most recently acquired properties
primarily, and the other properties in the portfolio to a lesser degree,
may have characteristics or deficiencies unknown to the Trust that may
impact their value or revenue potential. In addition, it is possible that
the operating performance of the most recently acquired properties may
decline.
The Trust is currently experiencing a period of rapid growth. As the
Trust acquires additional properties, the Trust will continue to be subject
to risks associated with operating new properties, including lease-up and
tenant retention. In addition, the Trust's ability to manage its growth
effectively will require it to successfully integrate its new acquisitions
into its existing corporate management structure. No assurances can be
given that the Trust will be able to successfully integrate such properties
or effectively operate additional properties, or that newly acquired
properties will perform as expected.
COMPETITION IN ACQUIRING PROPERTY. In seeking to acquire additional
property, the Trust competes with many other entities, some of which have
greater financial and managerial resources than the Trust. There can be no
assurance that the Trust will be able to acquire additional properties on
terms and conditions acceptable to the Trust if at all.
SUBSTANTIAL DEBT OBLIGATIONS. As of June 30, 1998, the Trust's
indebtedness (Mortgage Loans Payable and Bonds Payable) aggregated
approximately $132.5 million and the ratio of debt to net assets for the
Trust was 65%. Debt as a percentage of total market capitalization as of
June 30, 1998 assuming a $7.00 share price was 59%. The Trust's ability to
service its debts and other obligations when they become due depends upon,
among other things, the Trust's ability to secure additional capital (debt,
equity or both) and the ability of the properties to generate sufficient
cash flow to meet the Trust's cash needs for operating expenses and debt
service payments. Certain expenditures, such as loan payments and real
estate taxes, are not necessarily decreased by events adversely affecting
revenues or expenses at the property level. If the Trust fails to make
required payments on its indebtedness, the Trust could lose the property
securing these obligations, which would have a material adverse effect
upon the Trust's financial condition and results of operations.
<PAGE>
POTENTIAL EFFECT OF RISING INTEREST RATES ON TRUST'S VARIABLE RATE
DEBT. Advances under the CCA Line bear interest at variable rates and the
interest rate payable on the Riverport bonds issued for the benefit of the
Trust is subject to periodic adjustments based on the then current market
interest rates. As of June 30, 1998, $5.1 million or 4% of the Trust's
$132.5 million in total indebtedness bears interest at variable rates. In
addition, the Trust may incur other variable rate indebtedness in the
future. Increases in interest rates on such indebtedness would increase
the Trust's interest expense, which could adversely affect the Trust's
financial condition and results of operations. See "--Liquidity and
Capital Resources" above.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases at a given
property and may be held liable to a governmental entity or to third
parties for property damage and for investigation and clean-up costs that
these parties incur in connection with any environmental contamination.
These laws typically impose clean-up responsibility and liability without
regard to whether the owner knew of or caused the presence of the
contaminants, and the liability under these laws has been interpreted to be
joint and several unless the harm is divisible and there is a reasonable
basis for allocating responsibility. The costs of investigating,
remediating or removing substances may be substantial, and the presence of
these substances, or the failure to properly remediate the contamination on
a property, may adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removing
or remediating a release of hazardous or toxic substances at the disposal
or treatment facility, whether or not the person owns or operates the
facility. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs incurred
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from such site.
The Trust is not aware of any potential environmental liability that
the Trust believes would have a material adverse effect on the Trust's
business, assets or results of operations taken as a whole. There can be
no assurance, however, that the Trust would have knowledge of all
conditions giving rise to potential environmental liabilities subsequent to
acquiring a property. Although, the Trust obtains Phase I Environmental
Assessments as part of its acquisition due diligence for each of its
properties and obtains Phase II Environmental Assessments only in limited
instances when circumstances indicate, it does not update these reports on
an ongoing basis unless it has reasons to do so. Moreover, there can be no
assurance that: (i) laws, ordinances or regulations will not be amended to
impose or that new laws, ordinances or regulations will be adopted that,
potentially impose any material environmental liability; or (ii) the
current environmental condition of the Trust's properties will not be
affected by tenants, by the condition of land or operations in the vicinity
of the Trust's properties (such as the presence of underground storage
tanks), or by third parties unrelated to the Trust. Any expenditures
associated with environmental liabilities of the Trust could have an
adverse effect on the Trust's financial condition and results of
operations.
OTHER INFORMATION
The following supplemental information has been provided by the Trust
to furnish the reader of this report an expanded understanding of the
properties owned as of June 30, 1998.
<PAGE>
<TABLE>
SUPPLEMENTAL INFORMATION BANYAN STRATEGIC REALTY TRUST
PORTFOLIO SUMMARY AS OF
June 30, 1998
<CAPTION>
Scheduled Lease
Net Carrying Value Expirations
------------------- --------------------------
Dollars Occu- 7/1-
Square (in Per pancy 12/31/ After
Location Footagethousands) Sq. Ft. % 1998 1999 2000 2000
-------- ------------------------- ----- ------ ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FLEX/INDUSTRIAL
Milwaukee Industrial
Portfolio . . . . . . . Milwaukee, WI 235,800 $ 5,542 $ 23.50 86% 19% 7% 17% 43%
Elmhurst Metro Court. . . Elmhurst, IL 140,800 5,077 36.06 74% 20% 34% 3% 17%
Willowbrook Court . . . . Willowbrook, IL 84,300 3,824 45.36 100% 24% 33% 11% 32%
Quantum Business Center . Louisville, KY 182,200 4,951 27.17 85% 26% 16% 20% 23%
Riverport Industrial. . . Louisville, KY 322,100 9,676 30.04 100% 0% 0% 100% 0%
Lexington Business Center Lexington, KY 308,800 7,074 22.91 93% 57% 3% 15% 18%
Newtown Distribution
Center. . . . . . . . . Lexington, KY 87,100 3,501 40.20 100% 68% 5% 4% 23%
Avalon Ridge Business Park Norcross, GA 57,400 4,013 69.91 61% 0% 0% 0% 61%
Metric Plaza. . . . . . . Winter Park, FL 32,000 2,559 79.97 69% 0% 0% 0% 69%
Park Center . . . . . . . Orlando, FL 47,200 3,738 79.19 85% 17% 6% 9% 53%
University Corporate
Center. . . . . . . . . Winter Park, FL 127,800 10,194 79.77 98% 6% 33% 29% 30%
Tower Lane Business Park. Bensenville, IL 95,900 5,179 54.00 92% 5% 34% 24% 29%
--------- --------- ------ ---- ---- ---- ---- ----
Sub-Total . . . . 1,721,400 65,328 37.95 90% 23% 12% 31% 24%
--------- --------- ------ ---- ---- ---- ---- ----
OFFICE
Colonial Penn Insurance . Tampa, FL 79,200 7,768 98.08 100% 0% 0% 100% 0%
Florida Power & Light . . Sarasota, FL 83,100 9,267 111.52 100% 0% 0% 0% 100%
Woodcrest Office Park . . Tallahassee, FL 265,900 11,439 43.02 94% 5% 19% 16% 54%
Midwest Office Center . . Oakbrook Terrace, IL77,000 5,034 65.38 90% 13% 20% 32% 25%
Phoenix Business Park . . Atlanta, GA 110,600 5,397 48.80 94% 0% 11% 26% 57%
Butterfield Office Plaza. Oak Brook, IL 200,800 15,090 75.15 96% 11% 20% 22% 43%
Southlake Corporate
Center. . . . . . . . Morrow, GA 56,200 4,579 81.48 99% 8% 4% 12% 75%
University Square Business
Center . . . . . . . . . Huntsville, AL 184,700 7,405 40.09 89% 15% 20% 16% 38%
Technology Center . . . . Huntsville, AL 48,500 2,494 51.42 100% 0% 0% 100% 0%
Airways Plaza
Office Center . . . . . Memphis, TN 87,800 3,164 36.04 100% 3% 93% 0% 4%
Peachtree Pointe Office
Park . . . . . . . . . . Norcross, GA 71,700 4,780 66.67 92% 7% 33% 18% 34%
Avalon Center Office Park Norcross, GA 53,300 4,629 86.85 68% 0% 0% 0% 68%
Sand Lake Tech Center . . Orlando, FL 84,100 6,763 80.42 97% 23% 0% 0% 74%
--------- --------- ------ ---- ---- ---- ---- ----
<PAGE>
Scheduled Lease
Net Carrying Value Expirations
------------------- --------------------------
Dollars Occu- 7/1-
Square (in Per pancy 12/31/ After
Location Footagethousands) Sq. Ft. % 1998 1999 2000 2000
-------- ------------------------- ----- ------ ---- ---- -----
Sub-Total . . . . 1,402,900 87,809 62.59 94% 7% 19% 23% 45%
--------- --------- ------ ---- ---- ---- ---- ----
RETAIL
Northlake Tower Festival
Shopping Center . . . . Atlanta, GA 321,800 16,715 51.94 100% 1% 5% 18% 76%
--------- --------- ------ ---- ---- ---- ---- ----
Total/Weighted Average 3,446,100 $169,852 $49.29 93% 15% 14% 26% 38%
========= ========= ====== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
<TABLE>
BANYAN STRATEGIC REALTY TRUST
PORTFOLIO SUMMARY AS OF June 30, 1998 - CONTINUED
<CAPTION>
Net Carrying Value
-------------------------
Residen- Dollars Occu-
tial (in Per pancy
Location Units thousands) Unit %
-------- -------- ----------- ------ -----
<S> <C> <C> <C> <C> <C>
RESIDENTIAL
- -----------
Country Creek . . . . . . Oklahoma City, OK 320 $ 7,386 $23,081 93%
Willowpark. . . . . . . . Lawton, OK 160 4,383 27,394 93%
Winchester Run. . . . . . Oklahoma City, OK 192 4,440 23,125 94%
Woodrun Village . . . . . Yukon, OK 192 4,515 23,516 98%
----- -------- ------- ---
Total/Weighted
Average . . . . 864 $ 20,724 $23,986 94%
===== ======== ======= ---
Portfolio Total . $190,576 93%
======== ===
</TABLE>
<PAGE>
BANYAN STRATEGIC REALTY TRUST
COMPARISON OF AVERAGE "IN PLACE" AND MARKET RENTS
AS OF June 30, 1998
AVERAGE AVERAGE
SQUARE "IN PLACE" MARKET
FOOTAGE BASE BASE
(NOTE 1) RENTS RENTS
--------- ---------- --------
Flex/Industrial . . . . . . 1,721,400 $ 5.21 $ 5.29
Office. . . . . . . . . . . 1,323,700 8.52 9.91
Retail. . . . . . . . . . . 321,800 8.73 9.98
--------- ------ ------
Total/
Weighted Average . . 3,366,900 $ 6.85 $ 7.56
========= ====== ======
AVERAGE AVERAGE
"IN PLACE" MARKET
RENTS RENTS
--------- --------
RESIDEN-
TIAL PER UNIT
PROPERTY TYPE UNITS (NOTE 2) PER UNIT
- ------------- --------- --------- --------
Residential . . . . . . . . 864 $ 378 $ 423
- -------
Note 1 - The "In Place" Rents for approximately 79,200 square feet of
the portfolio have been excluded from the above calculation because the
lease terms are of a short-term nature and therefore relative to that space
are higher compared to the market. It is the Trust's view that inclusion
of these rents in the above computation would make the analysis less
meaningful.
Note 2 - A portion of the difference between the above "In Place"
Rents and Market Rents per unit is attributable to the difference in the
size of the Trust's rental units compared to the size of other similar
units in the market place. The Trust's "In Place" Rents adjusted for the
size differential are 5% to 7% below Market Rent.
ITEM 3(a). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Trust does not engage in any hedge transactions or in the
ownership of any derivative financial instruments.
As of June 30, 1998, the Trust had $132.5 million of outstanding
mortgage debt, $5.1 million of which bears interest at a variable rate. As
of June 30, 1998, the interest rate on this debt was 3.75%. If interest
rates relative to this variable rate debt increased by the one percentage
point (1%), interest expense could increase by an additional $51,000 on an
annual basis.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust held its 1997 Annual Meeting of Shareholders on July 23,
1998. There were nine proposals on the agenda for the meeting, however,
the voting on proposal #5 was adjourned until August 4, 1998, and again
until August 12, 1998.
PROPOSAL #1 was to elect three individuals to serve as independent
trustees until the next annual meeting of Shareholders or otherwise as
provided in the Declaration;
PROPOSAL #2 was to concur in the selection of Ernst & Young LLP as
the Trust's independent public accountants for the fiscal year ending
December 31, 1998;
PROPOSAL #3 was to delete certain provisions of the Declaration
requiring reservation of board seats for an "Advisor" and to change the
designation of "Class A Trustees" to "Independent Trustees";
PROPOSAL #4 was to amend certain provision of the Declaration
requiring the Trustees to consider terminating the Trust by March 14, 2001;
PROPOSAL #5 was to authorize the issuance of preferred shares;
PROPOSAL #6 was to increase compensation payable to Independent
Trustees;
PROPOSAL #7 was to modify the liability and indemnification
provisions of the Declaration applicable to the Trust's Trustees, officers,
employees and agents;
PROPOSAL #8 was to approve the issuance of Common Shares upon
conversion of preferred shares and loans; and
PROPOSAL #9 was to delete certain provisions of the Declaration
relating to the incurrence of indebtedness.
Following are the vote totals in connection with the proposals:
FOR WITHHELD
---------- ----------
PROPOSAL #1
SLATE OF TRUSTEES ELECTED
Walter E. Auch, Sr. 10,557,549 174,941
Norman M. Gold 10,568,076 164,414
Marvin A. Sotoloff 10,578,135 154,355
(All elected)
FOR AGAINST ABSTAIN
---------- ---------- ----------
PROPOSAL #2 10,222,616 41,045 108,481
(Carried)
PROPOSAL #3 8,539,876 194,743 218,160
(Carried)
PROPOSAL #4 8,366,703 313,678 272,398
(Carried)
PROPOSAL #5 8,868,897 737,821 330,133
(Carried)
PROPOSAL #6 7,749,912 973,821 291,910
(Carried)
<PAGE>
FOR AGAINST ABSTAIN
---------- ---------- ----------
PROPOSAL #7 8,126,427 493,390 332,217
(Carried)
PROPOSAL #8 6,946,619 1,652,943 353,217
(Carried)
PROPOSAL #9 8,053,153 500,778 398,848
(Carried)
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit Number Description
Exhibit (27) Financial Data Schedule
The following exhibits are incorporated by reference from the
Trust's Registration Statement on Form S-11 (file number 33-4169),
referencing the exhibit number used in such Registration Statement.
Exhibit (3)(b) By-Laws dated March 13, 1986.
(3)(c)
and (3)(d) Amended and Restated Declaration of Trust
dated as of August 8, 1986, as amended on March 8, 1991 and May 1, 1993.
(10) Material Contracts
(i) Employment Agreement of Leonard G.
Levine dated March 11, 1998.
(ii) 1997 Omnibus Stock and Incentive
Plan dated July 9, 1997.
(iii) Convertible Term Loan Agreement
dated as of October 10, 1997 among Banyan Strategic Realty Trust, as
Borrower, and the Entities listed therein, as Lenders.
First Amendment to Convertible Term
Loan Agreement dated as of March 30, 1998 made by and among Banyan
Strategic Realty Trust and the Entities listed therein, as Lenders.
Second Amendment to Convertible Term
Loan Agreement dated as of June 26, 1998 made by and among Banyan Strategic
Realty Trust and the Entities listed therein, as Lenders.
(iv) Share Purchase Agreement by and
among Banyan Strategic Realty Trust and the Purchasers listed on the
signature page attached thereto dated as of October 10, 1997.
(v) Registration Rights Agreement dated
as of October 10, 1997 between Banyan Strategic Realty Trust and the
Purchasers listed on the Signature Page attached thereto.
(vi) Revolving Credit Agreement dated
April 30, 1998 among Banyan Strategic Realty Trust, as Borrower and Nomura
Asset Capital Corporation as Lender.
<PAGE>
(vii) Loan Agreement dated May 22, 1998
among
BSRT Fountain Square L.L.C.,
BSRT Phoenix Business Park L.L.C.,
BSRT Newtown Trust,
BSRT Southlake L.L.C.,
BSRT Technology Center L.L.C.,
BSRT Airways Plaza L.L.C.,
BSRT Peachtree Pointe L.L.C.,
BSRT Avalon Center L.L.C.,
BSRT Sand Lake Tech Center L.L.C.,
BSRT Park Center L.L.C.,
BSRT Metric Plaza L.L.C., and
BSRT University Corporate Center
L.L.C., as Borrower, and Nomura Asset Capital Corporation as Lender.
(viii) Loan Agreement dated May 22, 1998
between BSRT Lexington B Corp. and BSRT Lexington Trust, as Borrower and
Nomura Asset Capital Corporation as Lender.
(ix) Loan Agreement dated June 22, 1998
between Banyan/Morgan Wisconsin L.L.C., and Banyan/Morgan Elmhurst L.L.C.,
as Borrower and Nomura Asset Capital Corporation, as Lender.
Exhibit (21) Subsidiaries of the Trust
(b) The following reports on Form 8-K were filed during the quarter
ended June 30, 1998:
A report on Form 8-K was filed on May 14, 1998 wherein Item 2
disclosed the Registrant's acquisition of four multi-tenant office
properties in Orlando and Winter Park, Florida.
<PAGE>
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: August 13, 1998
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: August 13, 1998
Joel L. Teglia, Vice President and
Chief Financial Officer
<PAGE>
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: __________________________________ Date: August 13, 1998
Leonard G. Levine, President
By: __________________________________ Date: August 13, 1998
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 six months ended June 30, 1998
and is qualified in its entirety by reference to such Form 10-Q. (Dollars
are in thousands, except per share data)"
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,275
<SECURITIES> 0
<RECEIVABLES> 959
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,234
<PP&E> 199,413
<DEPRECIATION> (8,773)
<TOTAL-ASSETS> 203,772
<CURRENT-LIABILITIES> 5,565
<BONDS> 21,537
<COMMON> 62,410
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 203,772
<SALES> 0
<TOTAL-REVENUES> 18,221
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,230
<INCOME-PRETAX> 2,775
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,775
<DISCONTINUED> 0
<EXTRAORDINARY> (141)
<CHANGES> 0
<NET-INCOME> 2,634
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
