-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q6FP/0t5hwcPlqXuV9YCCmpftncuO+S2ICOmzhiDCPIpcNivfOoS07C797dDUobw 42q/ZOM6cKd5yFweRG7arQ== 0000790817-96-000012.txt : 19960816 0000790817-96-000012.hdr.sgml : 19960816 ACCESSION NUMBER: 0000790817-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANYAN STRATEGIC REALTY TRUST CENTRAL INDEX KEY: 0000790817 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 363375345 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15465 FILM NUMBER: 96613394 BUSINESS ADDRESS: STREET 1: 150 S WACKER DR STE 2900 STREET 2: SUITE 2900 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125539800 FORMER COMPANY: FORMER CONFORMED NAME: BANYAN STRATEGIC LAND TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VMS STRATEGIC LAND TRUST DATE OF NAME CHANGE: 19910325 10-Q 1 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, 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 August 14, 1996: 10,478,971 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BANYAN STRATEGIC REALTY TRUST CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED) ASSETS 1996 1995 Cash and Cash Equivalents $ 5,020,020 $ 5,500,215 Interest Receivable on Investments 38,199 70,352 Interest Receivable on Mortgage Loans --- 60,780 Accounts Receivable 933,203 528,029 ------------ ------------ 5,991,422 6,159,376 ------------ ------------ Mortgage Loans Receivable (Net of Unamortized Discount) 4,695,079 5,433,094 Investment in Real Estate, at cost: Land 15,206,094 12,809,994 Building 76,962,273 74,343,233 Building Improvements 3,835,185 3,046,838 ------------ ------------ 96,003,552 90,200,065 Less: Accumulated Depreciation (3,450,085) (2,337,095) ------------ ------------ 92,553,467 87,862,970 ------------ ------------ Investment in Real Estate Venture 8,815,533 8,895,678 Deferred Financing Costs (Net of Accumulated Amortization of $433,228 and $224,020, respectively) 1,558,504 1,188,174 Other Assets 1,300,810 1,225,480 ------------ ------------ Total Assets $114,914,815 $110,764,772 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts Payable and Accrued Expenses $ 1,517,707 $1,346,708 Accrued Real Estate Taxes 1,348,326 703,919 Mortgage Loans Payable 47,656,424 43,522,181 Bond Payable 5,500,000 5,500,000 Accrued Interest Payable 46,817 93,325 Unearned Revenue 95,112 94,002 Security Deposit Liabilities 466,300 439,135 ------------ ------------ Total Liabilities 56,630,686 51,699,270 ------------ ------------ Minority Interest in Consolidated Partnerships 2,227,483 2,190,098 Shareholders' Equity Shares of Beneficial Interest, No Par Value, Unlimited Authorization; 12,001,620 and 11,999,787 Shares Issued, respectively 106,694,912 106,687,212 Accumulated Deficit (43,272,317) (42,445,859) Treasury Shares at Cost, 1,522,649 Shares (7,365,949) (7,365,949) ------------ ------------ Total Shareholders' Equity 56,056,646 56,875,404 ------------ ------------ Total Liabilities and Share- holders' Equity $114,914,815 $110,764,772 ============ ============ Book Value Per Share of Bene- ficial Interest (10,478,971 and 10,477,138 Shares Number of Outstanding, respectively) $ 5.35 $ 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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) 1996 1995 INCOME Income From Property Operating Activities: Industrial $ 3,037,340 $ 1,195,056 Residential 1,715,667 1,639,134 Commercial 3,254,501 1,416,068 Retail 2,189,384 --- ----------- ----------- Total Income From Property Operating Activities 10,196,892 4,250,258 ----------- ----------- Income From Lending and Investing Activities: Interest and Amortized Discount on Mortgage Loans 355,901 501,077 Income on Investments 64,637 416,237 ----------- ----------- Total Income From Lending and Investing Activities 420,538 917,314 ----------- ----------- Total Income 10,617,430 5,167,572 ----------- ----------- EXPENSES Expenses from Property Operating Activities: Operating Property Expenses 546,444 527,976 Repairs and Maintenance 1,052,478 489,478 Real Estate Taxes 895,012 456,427 Interest Expense 1,979,505 457,843 Ground Lease Expense 429,739 --- Property Management Fees 346,927 174,837 Payroll Expense 393,775 200,280 Utilities Expense 722,087 319,677 Depreciation and Amortization 1,146,383 507,484 ----------- ----------- Total Expenses From Property Operating Activities 7,512,350 3,134,002 ----------- ----------- Other Expenses: Shareholder Expenses 113,836 115,904 Trustees' Fees, Expenses and Insurance 163,432 217,945 Other Professional Fees 150,258 101,472 General and Administrative 868,920 556,863 Amortization of Deferred Loan Fees and Financing Costs 221,980 112,796 Recovery of Losses on Loans, Notes and Interest Receivable --- (155,834) ----------- ----------- Total Other Expenses 1,518,426 949,146 ----------- ----------- Total Expenses 9,030,776 4,083,148 ----------- ----------- Income Before Minority Interest and Income (Loss) from Operations of Real Estate Ventures 1,586,654 1,084,424 Minority Interest in Consolidated Partnerships (220,487) (24,463) Income (Loss) from Operations of Real Estate Ventures (97,014) 392,600 ----------- ----------- Net Income $ 1,269,153 $ 1,452,561 =========== =========== Earnings Per Share of Beneficial Interest (10,477,847 and 10,471,102 Weighted Average Number of Shares Outstanding, respectively) $ 0.12 $ 0.14 =========== =========== 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 JUNE 30, 1996 AND 1995 (UNAUDITED) 1996 1995 INCOME Income From Property Operating Activities: Industrial $ 1,600,526 $ 608,659 Residential 852,959 848,911 Commercial 1,714,925 729,940 Retail 1,067,776 --- ----------- ----------- Total Income From Property Operating Activities 5,236,186 2,187,510 ----------- ----------- Income From Lending and Investing Activities: Interest and Amortized Discount on Mortgage Loans 177,405 254,257 Income on Investments 27,186 216,330 ----------- ----------- Total Income From Lending and Investing Activities 204,591 470,587 ----------- ----------- Total Income 5,440,777 2,658,097 ----------- ----------- EXPENSES Expenses from Property Operating Activities: Operating Property Expenses 296,994 288,145 Repairs and Maintenance 555,461 318,819 Real Estate Taxes 435,426 244,444 Interest Expense 1,029,616 218,907 Ground Lease Expense 215,865 --- Property Management Fees 182,272 82,468 Payroll Expense 186,939 92,679 Utilities Expense 342,397 153,469 Depreciation and Amortization 587,606 256,125 ----------- ----------- Total Expenses From Property Operating Activities 3,832,576 1,655,056 ----------- ----------- Other Expenses: Shareholder Expenses 80,394 72,356 Trustees' Fees, Expenses and Insurance 83,278 108,376 Other Professional Fees 73,839 42,949 General and Administrative 451,752 292,439 Amortization of Deferred Loan Fees and Financing Costs 99,185 56,995 Recovery of Losses on Loans, Notes and Interest Receivable --- --- ----------- ----------- Total Other Expenses 788,448 573,115 ----------- ----------- Total Expenses 4,621,024 2,228,171 ----------- ----------- Income Before Minority Interest and Income (Loss) from Operations of Real Estate Ventures 819,753 429,926 Minority Interest in Consolidated Partnerships (117,934) (7,521) Income (Loss) from Operations of Real Estate Ventures (58,707) 365,977 ----------- ----------- Net Income $ 643,112 $ 788,382 =========== =========== Earnings Per Share of Beneficial Interest (10,478,548 and 10,471,102 Weighted Average Number of Shares Outstanding, $ 0.06 $ 0.08 respectively) =========== =========== The accompanying notes are an integral part of the consolidated financial statements. BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
Shares of Beneficial Interest Accumulated Treasury Shares Amount Deficit Shares Total Shareholders' Equity, December 31, 1995 11,999,787 $106,687,212 $(42,445,859) $(7,365,949) $56,875,404 Award Shares Issued 1,833 7,700 --- --- 7,700 Net Income --- --- 1,269,153 --- 1,269,153 Dividends Paid --- --- (2,095,611) --- (2,095,611) ----------- ------------ ------------ ----------- ----------- Shareholders' Equity, June 30, 1996 12,001,620 $106,694,912 $(43,272,317) $(7,365,949) $56,056,646 =========== ============ ============ =========== =========== The accompanying notes are an integral part of the consolidated financial statements.
BANYAN STRATEGIC REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $1,269,153 $ 1,452,561 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: Amortization of Premium (Discount) on Investment Securities --- 10,596 Recovery of Losses on Loans, Notes and Interest Receivable --- (155,834) Depreciation and Amortization 1,368,363 620,280 Amortization of Discount on Mortgage Loans Receivable --- (177,512) Net Loss (Income) From Operation of Real Estate Ventures 97,014 (392,600) Minority Interest Participation in Consolidated Partnerships 220,487 24,463 Incentive Compensation Expense 29,452 --- Net Change In: Interest Receivable on Mortgage Loans and Investments 92,933 (229,228) Accounts Receivable (405,174) (53,914) Other Assets (55,073) (220,062) Accounts Payable and Accrued Expenses 413,634 260,985 Accrued Interest Payable (46,508) (26,005) Accrued Real Estate Tax Payable 588,747 (25,509) Unearned Revenue 4,674 (20,149) Security Deposit Liability (8,930) 11,050 ----------- ----------- Net Cash Provided By Operating Activities 3,568,772 1,079,122 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Real Estate Assets (5,015,140) (3,917,930) Investment In Real Estate Ventures, Net (16,869) (54,482) Proceeds From Sale of Investment in Real Estate Venture --- 1,940,039 Proceeds From Sale of Mortgage Loans Receivable 745,047 --- Additions to Investment in Real Estate (788,347) (207,774) Payment of Liabilities Assumed at Acquisition of Real Estate Assets (264,392) 94,964 Recovery of Losses on Loans, Notes and Interest Receivable --- 155,834 Purchase of Investment Securities (839,679) (1,493,360) Proceeds From Sale and Maturities of Investment Securities 817,314 2,500,000 Principal Payments on Investment Securities 22,365 --- Principal Collections on Mortgage Loans Receivable 14,742 22,041 Due from Affiliates --- 730,229 ----------- ----------- Net Cash Used In Investing Activities (5,324,959) (230,439) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds From Mortgage Loans Payable 4,295,000 2,650,000 Minority Interest Share of Real Estate Investments (183,102) 339,839 Deferred Financing Costs (579,538) (98,271) Principal Payments on Mortgage Loans Payable (160,757) (75,655) Dividends Paid to Shareholders (2,095,611) (2,094,824) ----------- ----------- Net Cash Provided By Financing Activities 1,275,992 721,089 ----------- ----------- Net (Decrease) Increase In Cash and Cash Equivalents (480,195) 1,569,772 Cash and Cash Equivalents at Beginning of Period 5,500,215 14,769,170 ----------- ----------- Cash and Cash Equivalents at End of Period $ 5,020,020 $16,338,942 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. BANYAN STRATEGIC REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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 June 30, 1996 and for the six and three months ended June 30, 1996 and 1995. All adjustments made to the financial statements, as presented, are of a normal recurring nature to the Trust. Net income for the six and three months ended June 30, 1995 has been reduced by $83,951 and $20,216, respectively, 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 FLORIDA POWER AND LIGHT 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 reduce borrowings under the Trust's revolving line of credit with American National Bank in the amount of $6,200,000 as discussed below. WOODCREST OFFICE PARK On July 15, 1996, BSRT Woodcrest Office Park Limited Partnership ("BWOPLP"), a joint venture between a subsidiary of the Trust, which is the general partner, and Mr. Daniel Smith, as a limited partner, executed a nonrecourse first mortgage loan collateralized by the Woodcrest Office Park property. The loan, in the amount of $7,250,000, bears interest at a fixed rate of 8.25% per annum, matures on August 1, 2003 and requires monthly payments of principal based upon a twenty-five year amortization schedule with a balloon payment of approximately $6,435,000 upon maturity. The loan proceeds were utilized to reduce borrowings under the Trust's revolving line of credit with American National Bank in the amount of $7,000,000 as discussed below. The loan contains a prepayment penalty of 7% of the outstanding principal balance in year one, decreasing by 1% thereafter through the loan's maturity date of August 1, 2003. LINE OF CREDIT On December 13, 1994, the Trust executed a Revolving Line of Credit (the "Original Line") with American National Bank of Chicago ("ANB") in the amount of $15,000,000. On December 15, 1995, the Trust modified the Original Line increasing the amount the Trust can borrow from $15,000,000 to $30,000,000 (the "Modified Line"). As of December 31, 1995, the Trust had utilized approximately $25,725,000 of the $30,000,000 available under the line of credit. On March 13 and July 15, 1996, in conjunction with obtaining mortgage loans collateralized by the Florida Power and Light and Woodcrest Office Park properties as discussed above, the Trust paid down the revolving line of credit in the amounts of $6,200,000 and $7,000,000, respectively. In addition, on April 15, 1996, the Trust replaced a $5,624,315 letter of credit with ANB which had been collateralized by the Modified Line with an irrevocable letter of credit in the like amount by Citizen's National Bank of Evansville (See Note 6, Letter of Credit, for details). The Trust borrowed $1,000,000 under the Modified Line for the acquisition of the Midwest Office Park property in April 1996. (See Note 4, Investment in Real Estate, for further details.) On June 28 and July 31, 1996, the Trust sold its interest in the Karfad loan portfolio (See Note 5, Mortgage Loans Receivable, for further details). On August 1, 1996, the Trust used a portion of the Karfad loan portfolio net sales proceeds to pay down $3,900,000 of the Modified Line. As a result of the above transactions, as of August 1, 1996, the Trust had drawn $4,000,000 of the $30,000,000 available under the Modified Line. 3. 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 six months ended June 30, 1996 and 1995 aggregated $703,274 and $601,114, 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 June 30, 1996, the Trust had a net payable due to BMC of $113,212. The net payable is included in accounts payable and accrued expenses in the Trust's Consolidated Balance Sheet. 4. 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 $4,983,000. The Trust and Morgan own an 85% and 15% ownership interest in BMMLP, respectively. The Trust contributed capital in BMMLP upon acquisition of the property of approximately $1,688,000 of which the Trust borrowed $1,000,000 under its line of credit as discussed above. The Trust 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. 5. MORTGAGE LOANS RECEIVABLE Karfad Associates (the "Borrower"), which was 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. 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"), were sold at an amount equal to the Trust's December 31, 1995 carrying values totalling approximately $5,440,000. On June 28 and July 31, 1996, the Trust completed the sale of the four loans as well as the Karfad loan, respectively, pursuant to the terms of the agreement. In addition, the Agreement required the Borrowers to make all interest payments due pursuant to the terms of the original remaining four loans in the Loan Portfolio and the Karfad Loan from January 1, 1996 through the date of sale in the amount of approximately $409,000. As a result of the Agreement, the Trust has terminated the recognition of income from the amortization of the Loan's purchase discount effective January 1, 1996. As of July 31, 1996, the Trust has no further interest in the Loan Portfolio. 6. 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 served as collateral for the multi-family housing bonds issued by the County of Franklin, Ohio 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 bonds are also secured by a first mortgage on the Colonial Courts Apartments property. 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 and in accordance with its obligations under the partnership agreement, the Trust increased the limited partnership interest of PHC General Partnership in the BSRT Colonial Courts Limited Partnership from 10% to 25%. 7. AWARD SHARES AND WEIGHTED AVERAGE SHARES OUTSTANDING Pursuant to the amended employment agreement of the Trust's president, Leonard G. Levine, all incentive amounts earned by Mr. Levine subsequent to January 1, 1993 are paid 80% in cash in the year following the period for which the incentive is earned and 20% in shares of beneficial interest of the Trust ("Award Shares"). During the six months ended June 30, 1996, Mr. Levine was paid $66,985 representing 80% of the incentive earned for the fiscal year ended December 31, 1995. In addition, on April 22, 1996, the Trust issued 1,833 Award Shares to Mr. Levine, valued at $4.20 per share or $7,700, representing 20% of Mr. Levine's 1995 incentive compensation. All incentive amounts are due Mr. Levine on or before March 15, of the year following the period for which the incentive is earned. The Award Shares are restricted as to transfer and held in escrow by the Trust, pending satisfaction of the vesting requirements, for the benefit of Mr. Levine until the earlier of: (i) December 31, 1997; (ii) the termination of Mr. Levine's employment by the Trust without just cause; or (iii) the permanent disability or death of Mr. Levine. The issue price of any Award Shares is based upon the average closing price of the Trust's shares for the five business days ended prior to December 31 of the year in question. All Award Shares issued to Mr. Levine are included in the total shares outstanding of the Trust when calculating Net Income Per Share of Beneficial Interest Based on Weighted Average Number of Shares Outstanding. All Award Shares issued to Mr. Levine will be forfeited by Mr. Levine if he fails to be employed by the Trust on December 31, 1997, unless such failure is due to death or permanent disability or termination without just cause. Mr. Levine is entitled to receive his share (represented by the Award Shares) of any cash distributions paid by the Trust. 8. SUBSEQUENT EVENTS DIVIDEND AND DISTRIBUTIONS PAID On July 9, 1996, the Trust declared a cash distribution for the quarter ended June 30, 1996 of $0.10 per share payable August 20, 1996 to shareholders of record on July 23, 1996. 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 August 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 and one retail center which contains 321,800 square feet of gross leasable area. 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, to 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 June 30, 1996 and December 31, 1995 was $5,020,020 and $5,500,215, respectively. The decrease in total cash and cash equivalents of approximately $480,000 is due to $3,568,772 cash provided from operating activities, less $5,324,959 cash used in investing activities and plus $1,275,992 cash provided by financing activities. Cash Flows From Operating Activities: Net cash provided by operating activities increased by approximately $2.5 million for the six months ended June 30, 1996 to approximately $3.6 million from approximately $1.1 million for the same period in 1995. Primarily contributing to this increase was the net operating income provided by the property acquisition in 1996 and the six properties acquired in the final seven months of 1995. Cash Flow From Investing Activities: During the six months ended June 30, 1996, the Trust utilized approximately $5.3 million in investing activities compared to approximately $230,000 for the same period in 1995. The cash flow utilized in investing activities for the six months ended June 30, 1996 was due to the acquisition of the Midwest Office Center property for approximately $5 million (the "Midwest Property") (see below for further detail) and capital improvements at its various properties in the amount of approximately $788,000 offset by proceeds from the sale of mortgage loans receivable in the amount of approximately $745,000. (See below for further discussion regarding the 1996 sale of the Trust's interest in the Karfad Loan Portfolio). During the same period in 1995, the Trust paid approximately $3.9 million pursuant to its acquisition of its Willowbrook property and approximately $208,000 for capital improvements at its properties offset by approximately $1.9 million of proceeds from the sale of the Plaza at Westminster property (proceeds from the sale of investment in real estate venture), approximately $1 million in net proceeds from the sale of investment securities, $730,229 in repayment of amounts due from affiliates and $155,834 received in respect of its interest in a liquidity trust. Cash Flow From Financing Activities: For the six months ended June 30, 1996, the Trust generated cash flow from financing activities of approximately $1.3 million compared to $721,089 for the same period in 1995. The cash flow provided by financing activities for the six months ended June 30, 1996 was due primarily to the receipt of approximately $4.3 million of proceeds from mortgage loans payable, approximately $3.3 million of which was proceeds from a first mortgage loan on the Midwest property and the balance was drawn on the Trust's line of credit (see below). During the period, the Trust also executed a first mortgage loan collateralized by the Florida Power and Light building in the amount of $6.2 million and utilized these proceeds to reduce its borrowing on its line of credit. (See below for details). Offsetting these sources, the Trust paid $579,538 of deferred financing costs, paid dividends to shareholders of approximately $2.1 million and made principal payments on mortgage loans of $160,757. For the six months ended June 30, 1995, the Trust received $2.65 million of proceeds from mortgage loans payable which were utilized for the acquisition of the Willowbrook property. Primarily offsetting these proceeds were dividends paid to shareholders in the amount of approximately $2.1 million. 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 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 $4,983,000. The Trust and Morgan own an 85% and 15% ownership interest in BMMLP, respectively, consistent with the terms of the existing BMMLP partnership agreement as amended during 1995. The Trust contributed capital in BMMLP upon acquisition of the property of approximately $1,688,000, of which the Trust borrowed $1,000,000 under its line of credit. The Trust 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. As of June 30, 1996 and December 31, 1995, the Trust's mortgage loan portfolio consisted of one and five mortgage loans receivable, respectively, with aggregate carrying values totaling $4,695,079 and $5,433,094, respectively. During the six months ended June 30, 1996, the Trust received principal and interest payments totalling $14,742 and $416,681, respectively. During the six months ended June 30, 1995, the Trust received principal and interest payments totalling $22,041 and $323,598, respectively. Karfad Associates (the "Borrower"), which was 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. 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"), were sold at an amount equal to the Trust's December 31, 1995 carrying values totalling approximately $5,440,000. On June 28 and July 31, 1996, the Trust completed the sale of the four loans as well as the Karfad loan, respectively, pursuant to the terms of the agreements. In addition, the Agreement required the Borrowers to make all interest payments due pursuant to the terms of the original remaining four loans in the Loan Portfolio and the Karfad Loan from January 1, 1996 through the date of sale in the amount of approximately $409,000. As a result of the Agreement, the Trust has terminated the recognition of income from the amortization of the Loan's purchase discount effective January 1, 1996. As of July 31, 1996, the Trust has no further interest in the Loan Portfolio. 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 reduce borrowings under the Trust's Revolving Line of Credit with American National Bank in the amount of $6,200,000. On July 15, 1996, BSRT Woodcrest Office Park Limited Partnership ("BWOPLP"), a joint venture between a subsidiary of the Trust, which is the general partner, and Mr. Daniel Smith, as a limited partner, executed a nonrecourse first mortgage loan collateralized by the Woodcrest Office Park property. The loan, in the amount of $7,250,000, bears interest at a fixed rate of 8.25% per annum, matures on August 1, 2003 and requires monthly payments of principal based upon a twenty-five year amortization schedule with a balloon payment of approximately $6,435,000 upon maturity. The loan proceeds were utilized to reduce borrowings under the Trust's revolving line of credit with American National Bank in the amount of $7,000,000 as discussed below. The loan contains a prepayment penalty of 7% of the outstanding principal balance in year one, decreasing by 1% thereafter through the loan's maturity date of August 1, 2003. On December 13, 1994, the Trust executed a Revolving Line of Credit (the "Original Line") with American National Bank of Chicago ("ANB") in the amount of $15,000,000. On December 15, 1995, the Trust modified the Original Line increasing the amount the Trust can borrow from $15,000,000 to $30,000,000 (the "Modified Line"). As of December 31, 1995, the Trust had utilized approximately $25,725,000 of the $30,000,000 available under the line of credit. On March 13, 1996, the Trust reduced its borrowing under the Modified Line in the amount of $6,200,000. In addition, on April 15, 1996, the Trust replaced a $5,624,315 letter of credit with ANB which had been collateralized by the Modified Line with an irrevocable letter of credit in the like amount by Citizen's National Bank of Evansville. The Trust borrowed $1,000,000 under the Modified Line for the acquisition of the Midwest Office Park property in April 1996. As of June 30, 1996, the Trust has utilized approximately $14,900,000 of the $30,000,000 available under the Line. On July 15, 1996, the Trust reduced its borrowing under the Modified Line in the amount of $7,000,000. On August 1, 1996, the Trust used a portion of the Karfad loan portfolio net sales proceeds to pay down $3,900,000 of the Modified Line. As a result of the above transactions, as of August 1, 1996, the Trust had drawn $4,000,000 under the Modified Line. The Trust's future liquidity needs are expected to be funded from operating cash flow from its operating properties, 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 Modified Line with American National Bank and interest earned on the Trust's short-term investments. The Trust's cash and cash equivalents, 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 to 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 its current business plan, the Trust hopes to utilize proceeds to be generated from its property financings to enable it 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. The Trust's ability to make distributions to its shareholders is dependent upon, among other things: (i) the improvement in operating performance of its existing real estate investments through scheduled increases in base rents under existing leases and through general improvement in the real estate markets where the Trust's properties are located reflected in changes in base rents attributable to new or replacement leases; (ii) the operating performance of future acquisitions funded by the redeployment financing and cash proceeds derived from the sale of its interest in the H Street Venture; and (iii) the Trust's ability to control its operating expenses. RESULTS OF OPERATIONS Total income for the six months ended June 30, 1996 increased to $10,617,430 from $5,167,572 for the six months ended June 30, 1995. The increase for the six months ended June 30, 1996 as compared to the same period in 1995 is due to increases in property operating revenue of approximately $5,947,000 (as discussed below) partially offset by a decrease in total income from lending and investing activities of approximately $497,000. Interest and amortized discount on mortgage loans decreased for the six months ended June 30, 1996 when compared to the same period in 1995 due to the Trust's termination of the amortization of the purchase discount on the Karfad Associates Loan to parties affiliated with Karfad Associates as discussed above. Interest income on investments for the six months ended June 30, 1996 decreased by $351,600 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 the last seven months of 1995 and the Midwest Office Center property in 1996. See Liquidity and Capital Resources for further discussion regarding the Trust's April 1996 acquisition of the Midwest Office Center property. Industrial property operating income increased by approximately $1,842,000 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 $272,000, $448,000, $687,000 and $328,000, respectively. The income at the Milwaukee Industrial Properties increased by approximately $79,000 due partially to an increase in occupancy to 100% at June 30, 1996 as compared to 98% at June 30, 1995 which contributed to approximately $38,000 of this increase. Further contributing to this increase in income at the Milwaukee property was an approximately $41,000 increase in tenant expense chargebacks for the six months ended June 30, 1996 as compared to the six months ended June 30, 1995. The income of approximately $609,000 at the Elmhurst Metro Court property remained relatively stable for the six months ended June 30, 1996 when compared to income of approximately $581,000 for the same period in 1995. The occupancy level at June 30, 1996 and 1995 for the Elmhurst property was 92% and 95%, respectively. The occupancy levels for the Willowbrook, Quantum, Lexington and Newtown properties as of June 30, 1996 were 100%, 93%, 80% and 97%, respectively, as compared to 76%, 93%, 79% and 97%, respectively, at December 31, 1995. Rental income at the Lexington property is expected to increase during 1996 as the Trust continues to implement the business plan for the property which includes reconfiguring and leasing of vacant space thereby increasing the occupancy level. The occupancy level will increase by 16% to 96% as of August 15, 1996 for the Lexington property as the Trust finalized a lease for 46,000 square feet of gross leasable area to a single tenant. The occupancy level increased by 24% at June 30, 1996 for the Willowbrook property when compared to the occupancy level at December 31, 1995. This increase in occupancy is due to the signing of five tenant leases aggregating approximately 20,000 square feet of gross leasable area during the first six months of 1996 which is also anticipated to generate an increase in rental income during the third and fourth quarters of 1996. Residential property operating revenue increased by approximately $77,000 due to an increase in rental income at the Colonial Courts of Westland Apartments ("Colonial Courts") property. Income at the Colonial Courts property increased by approximately $83,000 due primarily to an increase in occupancy to 94% at June 30, 1996 as compared to 87% at June 30, 1995. The occupancy level at the Hallmark Village Apartments ("Hallmark") property at June 30, 1996 and 1995 was 82% and 92%, respectively. However, total income for the Hallmark property remained relatively stable for the six months ended June 30, 1996 when compared to the same period in 1995 due to a reduction in rental delinquencies when compared to 1995. Commercial property operating revenue increased by approximately $1,838,000 which is primarily attributable to the acquisitions of the Woodcrest Office Park ("Woodcrest") property in December 1995 and the Midwest Office Center ("Midwest") property in April 1996 which resulted in an increase in total income of approximately $1,737,000 for the six months ended June 30, 1996 when compared to the same period in 1995. In addition, annual rent adjustments and occupancy increases at the Colonial Penn and Florida Power and Light Office buildings contributed to an increase in commercial property operating revenue. The occupancy level for the Woodcrest property was 94% at June 30, 1996 as compared to 95% at December 31, 1995. The occupancy level for the Midwest property was 96% at June 30, 1996. The occupancy level at the Colonial Penn property remained unchanged at 100% at June 30, 1996 when compared to the same period in 1995. The occupancy level for the Florida Power and Light property increased to 93% at June 30, 1996 as compared to 90% at June 30, 1995. Retail property operating revenue of approximately $2,189,000 for the six months ended June 30, 1996 represents income generated by the Northlake Tower Shopping Center property ("Northlake") acquired in July 1995. The occupancy level for the Northlake property remained unchanged with occupancy at 98% for June 30, 1996 and December 31, 1995. Total expenses for the six months ended June 30, 1996 increased to $9,030,776 from $4,083,148 for the six months ended June 30, 1995. This increase is primarily due to increases in expenses from property operating activities of approximately $4,378,000 and an increase in total other expenses of approximately $569,000. The increase in property operating expenses for the six months ended June 30, 1996 is primarily attributable to the 1996 acquisition of the Midwest property (See Liquidity and Capital Resources for further details) and the acquisition of the Willowbrook, Northlake, Quantum, Lexington, Newtown and Woodcrest properties during the last seven months of 1995 which accounted for approximately $4,055,000 of this increase. Excluding the Trust's acquisitions during 1996 and 1995, total expenses from property operating activities for the six months ended June 30, 1996 increased approximately $323,000 of which approximately $135,000 is attributable to an increase in interest expense on a mortgage loan in the amount of $6,200,000 collateralized by the Florida Power and Light property in March 1996. In addition, approximately $117,000 is attributable to increases in repairs and maintenance expense at the Colonial Courts, Hallmark and Milwaukee properties. The remaining $71,000 increase in property operating expenses is the result of an increase in depreciation 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 trustees' fees, expenses and insurance costs. Other professional fees increased due primarily to the newly acquired assets pursuant to the Trust's investment efforts. 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 supervising the newly acquired assets and an increase in incentive compensation payable to Mr. Levine and earned on the performance of the Trust's investment activities. Amortization of deferred loan fees and financing costs increased primarily due to costs associated with modifying the Trust's line of credit during the fourth quarter of 1995 and with the replacement of a letter of credit associated with the Colonial Courts property in April 1996. Further contributing to the increase in total other expenses for the six months ended June 30, 1996 was a charge against recovery of losses on loans, notes, and interest receivable of $155,834 for the six months ended June 30, 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 six months ended June 30, 1996 of $97,014 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 $392,600 for the six months ended June 30, 1995 resulted from the income from operations and gain on the sale of the Plaza at Westminster property of $460,184 which was offset by a loss from operations of $67,584 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 for the six months ended June 30, 1996 as compared to the same period in 1995 increased slightly due to an increase of approximately $74,000 in real estate tax expense resulting from a property reassessment during 1996 of the H Street Assemblage. The Venture is currently appealing this reassessment. 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. The Venture will continue to try to find ways to limit holding costs at the H Street Assemblage while attempting to sell the property. 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. For the three months ended June 30, 1996, the Trust realized a net loss from operations of real estate ventures of $58,707 as compared to net income of $365,977 for the same period in 1995. The above comparison and description of the operations of the H Street Venture for the six months ended June 30, 1996 compared to the same period in 1995 applies to the three month periods ended June 30, 1995 and June 30, 1996. The factors discussed above resulted in consolidated net income of $1,269,153 ($0.12 per share) for the six months ended June 30, 1996 as compared to consolidated net income of $1,452,561 ($0.14 per share) for the six months ended June 30, 1995. Total income for the three months ended June 30, 1996 increased to $5,440,777 from $2,658,097 for the three months ended June 30, 1995. The increase for the three months ended June 30, 1996 when compared to the same period in 1995 is due to increases in property operating revenue of approximately $3,049,000 (as discussed below) partially offset by a decrease in total income from lending and investing activities of approximately $266,000. Interest and amortized discount on mortgage loans decreased for the three months ended June 30, 1996 when compared to the same period in 1995 due to the Trust's termination of the amortization of the purchase discount on the Karfad Associates Loan to parties affiliated with Karfad Associates as discussed above. Interest income on investments for the quarter ended June 30, 1996 decreased when compared to the prior year's period as a result of a decrease in cash available for investment due primarily to the investment of cash pursuant to the acquisitions of the Willowbrook, Northlake, Bluegrass, Lexington, Newtown, and Woodcrest properties during 1995 and the Midwest property in 1996 (See Liquidating and Capital Resources above for further details regarding the 1996 acquisition of the Midwest property.) Industrial property operating income increased by approximately $992,000 as a result of the acquisitions of the Willowbrook, Quantum, Lexington and Newtown properties during 1995 which contributed to an increase in income of approximately $136,000, $253,000, $346,000 and $167,000, respectively. In addition, the income at the Milwaukee Industrial properties increased by approximately $80,000 for the quarter ended June 30, 1996 when compared to the same period in 1995 due to an increase in occupancy and tenant expense chargebacks in 1996 as discussed above. Residential property operating revenue remained relatively stable for the three months ended June 30, 1996 as compared to the same period in 1995. Commercial property operating revenue increased by approximately $985,000 which is attributable to the acquisitions of the Woodcrest and Midwest properties. The acquisition of the Woodcrest and Midwest properties in December 1995 and April 1996, respectively, resulted in increases in total income for the three months ended June 30, 1996 of approximately $780,000 and $175,000, respectively, when compared to the same period in 1995. The remaining increase in total income of approximately $30,000 resulted from annual rent adjustments and occupancy increases at the Colonial Penn and Florida Power and Light properties as mentioned above. Retail property operating revenue of approximately $1,068,000 for the three months ended June 30, 1996 represents income generated by the Northlake Tower Shopping Center property acquired in July 1995. Total expenses for the three months ended June 30, 1996 increased to $4,621,024 from $2,228,171 for the three months ended June 30, 1995. This increase is due to increases in expenses from property operating activities of approximately $2,178,000 and an increase in total other expenses of approximately $215,000. The increase in property operating expenses for the three months ended June 30, 1996 is primarily attributable to the 1996 and 1995 acquisitions, as discussed above, which accounted for approximately $2,054,000 of this increase. Excluding the Trust's acquisitions during 1996 and 1995, total expenses from property operating activities for the three months ended June 30, 1996 increased approximately $124,000 of which $112,000 is attributable to an increase in interest expense relating to the mortgage loan collateralized by the Florida Power and Light property as discussed above. Total other expenses increased due to increases in shareholder expenses, other professional fees, general and administrative expenses and amortization of deferred loan fees and financing costs partially offset by a decrease in trustees' fees, expenses and insurance costs. Other professional fees increased due primarily to the newly acquired assets pursuant to the Trust's investment efforts. 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 supervising the newly acquired assets and an increase in incentive compensation earned on the performance of the Trust's investment activities. Amortization of deferred loan fees and financing costs increased primarily due to costs associated with modifying the Trust's line of credit and replacing the Colonial Courts letter of credit as discussed earlier. 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. The factors discussed above resulted in consolidated net income of $643,112 ($0.06 per share) for the three months ended June 30, 1996 as compared to consolidated net income of $788,382 ($0.08 per share) for the three months ended June 30, 1995. An objective of the Trust is to provide cash distributions to the share- holders 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 six months ended June 30, 1996 and 1995, the Trust's operations, including interest on the Karfad Loan Portfolio, generated FFO of $2,323,507 ($0.22 per share) and $1,389,649 ($0.13 per share), respectively. For the quarter ended June 30, 1996 and 1995, the Trust's operations, including interest on the Karfad Loan Portfolio, generated FFO of $1,180,369 ($0.11 per share) and $627,955 ($0.06 per share), respectively. FFO increased for the six and three months ended June 30, 1996 as a result of the Trust's 1995 and 1996 investment activities and property acquisitions. FFO for the six months ended June 30, 1996 and 1995 is calculated as follows: 1996 1995 Net Income $1,269,153 $1,452,561 Plus: Depreciation expense 1,112,990 492,225 Depreciation included in Operations of Real Estate Ventures 15,238 35,145 Lease Commission Amortization 33,393 15,259 Less: Minority Interest Share of Depre- ciation Expense (102,824) (29,609) Minority Interest Share of Lease Commission Amortization (4,443) (1,526) Recovery of Losses on Loans, Notes and Interest Receivable --- (155,834) Gain on Disposition of Investment in Real Estate Venture --- (418,572) ---------- ---------- Funds From Operations $2,323,507 $1,389,649 ========== ========== The Trust paid distributions equal to $0.10 per share on May 22, 1996 and May 20, 1995 for the first quarter of 1996 and 1995, respectively. On July 9, 1996, the Trust declared a cash distribution for the second quarter of 1996 of $0.10 per share payable August 20, 1996 to shareholders of record on July 23, 1996. 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, five 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 increasing 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. The Trust has determined that the supplemental information representing the operating results of the Trust will be equally meaningful on a summarized basis as the information previously provided 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 six months ended June 30, 1996 and 1995 has been provided below. FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995 Income from Property Operating Activities $10,196,892 $4,250,258 Income on Mortgage Loans Receivable 355,901 501,077 Income on Investments 34,383 317,250 ---------- ---------- Total Income 10,587,176 5,068,585 ---------- ---------- Expenses from Property Operating Activities 7,512,350 3,134,002 Other Expenses 1,043,665 537,497 ---------- ---------- Total Expenses 8,556,015 3,671,499 ---------- ---------- Income Before Minority Interest 2,031,161 1,397,086 Minority Interest in Consolidated Partnerships (220,487) (24,463) ---------- ---------- Net Income $1,810,674 $1,372,623 ========== ========== Net Income Per Share $ 0.17 $ 0.13 ========== ========== FUNDS FROM OPERATIONS Net Income $1,810,674 $1,372,623 Plus: Depreciation and Amortization 1,146,383 507,484 Less: Minority Interest Share of Depre- ciation and Amor- tization (107,267) (31,135) ---------- ---------- Investment Funds From Operations $2,849,790 $1,848,972 ========== ========== Investment Funds From Operations Per Share $ 0.27 $ 0.18 ========== ========== FOR THE THREE MONTHS ENDED JUNE 30, 1996 1995 Income from Property Operating Activities $ 5,236,186 $2,187,510 Income on Mortgage Loans Receivable 177,405 254,257 Income on Investments 13,655 199,536 ---------- ---------- Total Income 5,427,246 2,641,303 ---------- ---------- Expenses from Property Operating Activities 3,832,576 1,655,056 Other Expenses 567,166 303,342 ---------- ---------- Total Expenses 4,399,742 1,958,398 ---------- ---------- Income Before Minority Interest 1,027,504 682,905 Minority Interest in Consolidated Part- nerships (117,934) (7,521) ---------- ---------- Net Income $ 909,570 $ 675,384 ========== ========== Net Income Per Share $ 0.09 $ 0.06 ========== ========== FUNDS FROM OPERATIONS Net Income $ 909,570 $ 675,384 Plus: Depreciation and Amortization 587,606 256,125 Less: Minority Interest Share of Depreciation and Amortization (52,838) (15,689) ---------- ---------- Investment Funds From Operations $1,444,338 $ 915,820 ========== ========== Investment Funds From Operations Per Share $ 0.14 $ 0.09 ========== ========== PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Trust held its 1995 Annual Meeting of Shareholders on June 27, 1996. There were two proposals considered at the Meeting. Proposal #1 was to elect three Class A Trustees to hold office for one year or otherwise as provided in the Trust's amended and restated Declaration of Trust. Proposal #2 was to concur in the selection of Ernst & Young LLP as the Trust's independent public accountants for the fiscal year ended December 31, 1996. The following votes were cast or abstained from voting in connection with the proposals in the manner as set forth: PROPOSAL #1 SLATE OF TRUSTEES ELECTED FOR WITHHELD Walter E. Auch, Sr. 5,379,253 1,626,494 Norman M. Gold 5,390,227 1,615,520 Marvin A. Sotoloff 5,388,027 1,617,720 PROPOSAL #2 FOR AGAINST ABSTAIN 6,856,036 46,806 102,905 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are incorporated by reference from the Trust's Annual Report on Form 10K for the year ended December 31, 1995: Exhibits 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 Number Description (3)(b) By-Laws (3)(c) Amended and Restated Declaration of Trust (10) Material Contracts (i) Second Amendment of Leonard G. Levine's Employment Contract dated December 31, 1992. (ii) Amendment to Loan Agreement dated December 1, 1994; Second Amendment to Loan Agreement dated December 21, 1994; and Third Amendment to Loan Agreement dated December 18, 1995 regarding the Registrant's $30,000,000 Revolving Line of Credit with American National Bank of Chicago. (iii) First Amendment to Note dated December 18, 1995 regarding the Registrant's $30,000,000 Revolving Line of Credit with American National Bank of Chicago. (21) Subsidiaries of the Trust (b) No current reports on Form 8-K were filed during the quarter ended June 30, 1996. 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 14, 1996 Leonard G. Levine, President By: /s/ Joel L. Teglia Date: August 14, 1996 Joel L. Teglia, Vice President and Chief Financial Officer EX-27 2
5 "This schedule contains summary financial information extracted from Banyan Strategic Realty Trust Form 10-Q for the period ended June 30, 1996 and is qualified in its entirety by reference to such 10-Q." 6-MOS DEC-31-1996 JUN-30-1996 5,020,020 0 971,402 0 0 5,991,422 96,003,552 3,450,085 114,914,815 3,007,962 5,500,000 0 0 56,056,646 0 114,914,815 0 10,617,430 0 0 7,051,271 0 1,979,505 1,269,153 0 1,269,153 0 0 0 1,269,153 0.12 0.12
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