Discontinued Operations | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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DISCONTINUED OPERATIONS |
10. DISCONTINUED OPERATIONS
On December 30, 2010, we completed the sale of NNN/SOF Avallon LLC (“Avallon”), a commercial
office property located in Austin, Texas, for $37.0 million. We recognized a gain on sale of $1.3
million.
On June 1, 2011, we entered into a definitive agreement for the sale of substantially all of
the assets of our real estate investment fund business, Alesco, to Lazard Asset Management LLC.
Closing of the transaction occurred on September 23, 2011. We recognized a loss on the sale of
Alesco, net of taxes, of approximately $1.8 million in the third quarter of 2011 after writing off
the assets, liabilities and deficit balance in noncontrolling interests associated with Alesco and
recognizing the costs related to such transaction.
On August 10, 2011, we completed the sale of Daymark for (1) a cash payment of $0.5 million,
(2) a $5.0 million promissory note provided to NNNRA, and (3) the assumption by the purchaser of
$10.7 million of the net intercompany balance payable from us to NNNRA. We recorded a gain on sale,
net of taxes of $8.3 million, of approximately $17.2 million related to the disposition of Daymark
in the third quarter of 2011, after recording the $5.0 million Promissory Note, writing off all of
the assets, liabilities and noncontrolling interests associated with Daymark and recognizing the
transactions costs related to such transaction.
In instances when we expect to have significant ongoing cash flows or significant continuing
involvement in the component beyond the date of sale, the income (loss) from certain properties and
businesses held for sale continue to be fully recorded within continuing operations through the
date of sale.
The net results of discontinued operations of Daymark and Alesco (which includes the net
results of the Avallon property sold during the year ended December 31, 2010), in which we have no
significant ongoing cash flows or significant continuing involvement, are reflected in the
consolidated statements of operations as discontinued operations. We will receive certain fee
income from Daymark on an ongoing basis that is not considered significant when compared to the
operating results of Daymark.
The following table summarizes the assets held for sale and liabilities held for sale as of
December 31, 2010:
From August 1, 2006 to January 2007, NNN Collateralized Senior Notes, LLC (the “NNN Senior
Notes Program”), a wholly owned subsidiary of Daymark, issued $16.3 million of notes which had an
original maturity date of August 29, 2011 and bore interest at a rate of 8.75% per annum. Interest
on the notes was payable monthly in arrears on the first day of each month, commencing on the first
day of the month occurring after issuance. The notes mature five years from the date of first
issuance of any of such notes, with two one-year options to extend the maturity date of the notes
at the Senior Notes Program’s option. The interest rate will increase to 9.25% per annum during any
extension. The Senior Notes Program has the right to redeem the notes, in whole or in part, at par
value. The notes are the NNN Senior Notes Program’s senior obligations, ranking pari passu in right
of payment with all other senior debt incurred and ranking senior to any subordinated debt it may
incur. The notes are effectively subordinated to all present or future debt secured by real or
personal property to the extent of the value of the collateral securing such debt. The notes are
secured by a pledge of the NNN Senior Notes Program’s membership interest in NNN Series A Holdings,
LLC, which is the Senior Notes Program’s wholly owned subsidiary for the sole purpose of making the
investments. Each note is guaranteed by Grubb & Ellis Realty Investors, LLC (“GERI”). The guarantee
is secured by a pledge of GERI membership interest in the NNN Senior Notes Program. The guarantee
requires GERI to maintain at all times during the term the notes are outstanding a net worth of at
least $0.5 million.
On May 13, 2011, pursuant to the terms of the indenture underlying the NNN Senior Notes, the
NNN Senior Notes Program notified the trustee and holders of the NNN Senior Notes that the maturity
date of the NNN Senior Notes was extended by one year, effective as of August 29, 2011 (the
“Extension Effective Date”). Accordingly, the maturity date of the NNN Senior Notes is August 29,
2012. In accordance with the terms and provisions of the indenture, the NNN Senior Notes shall bear
interest at 9.25% per annum until the extended maturity date. The NNN Senior Notes Program may
extend the maturity date for an additional year, through August 29, 2013, in accordance with the
terms and provisions of the indenture and the NNN Senior Notes.
The following table summarizes the income (loss) and (expense) components — net of taxes that
comprised discontinued operations for the three and nine months ended September 30, 2011 and 2010:
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